x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
DELAWARE | 95-3795478 |
(State of Incorporation ) |
(IRS Employer I.D. No.)
|
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller Reporting Company x |
CLASS | NUMBER OF SHARES OUTSTANDING |
Common Stock, $0.01 par value | 37,835,793 as of November 10, 2011 |
Page No. | |||||
Item 1.
|
Financial Statements
|
||||
Consolidated Balance Sheets – September 30, 2011(Unaudited) and March 31, 2011
|
2 | ||||
|
|||||
Consolidated Statements of Operations - Three months and six months ended September 30, 2011 and 2010 (Unaudited)
|
3 | ||||
Consolidated Statements of Cash Flows - Six months ended September 30, 2011 and 2010 (Unaudited)
|
4 | ||||
Notes to Consolidated Financial Statements-September 30, 2011 (Unaudited)
|
5-11 | ||||
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
11-16 | |||
Item 4T.
|
Controls and Procedures
|
16 | |||
PART II. OTHER INFORMATION | |||||
Item 1.
|
Legal Proceedings
|
16 | |||
Item 1A.
|
Risk Factors
|
17 | |||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
17 | |||
Item 3.
|
Defaults Upon Senior Securities
|
17 | |||
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
17 | |||
Item 5.
|
Other Information
|
17 | |||
Item 6.
|
Exhibits
|
17 | |||
SIGNATURES
|
18 |
September 30,
2011 |
March 31,
2011 |
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Assets
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$ | 187,651 | $ | 674,712 | ||||
Accounts receivable, net of allowances of $219,798 and $175,804, respectively
|
11,400,301 | 1,205,209 | ||||||
Due from related party - Starlight Consumer Electronics USA, Inc.
|
111,031 | 73,348 | ||||||
Due from related party - Starlight Electronics Co., Ltd.
|
851,796 | - | ||||||
Due from related party - Other Starlight Group Companies
|
29,257 | - | ||||||
Inventories, net
|
4,066,581 | 3,016,945 | ||||||
Prepaid expenses and other current assets
|
53,246 | 59,310 | ||||||
Total Current Assets
|
16,699,863 | 5,029,524 | ||||||
Property and equipment, net
|
351,802 | 333,851 | ||||||
Other non-current assets
|
165,336 | 164,678 | ||||||
Total Assets
|
$ | 17,217,001 | $ | 5,528,053 | ||||
Liabilities and Shareholders' Deficit
|
||||||||
Current Liabilities
|
||||||||
Accounts payable
|
$ | 6,533,869 | $ | 1,118,674 | ||||
Due to related party - Starlight Marketing Development, Ltd.
|
2,077,802 | 2,063,213 | ||||||
Due to related party - Starfair Electronics Company, Ltd.
|
922,524 | - | ||||||
Due to related party - Ram Light Management, Ltd.
|
1,683,247 | 1,683,247 | ||||||
Due to related party - Starlight R&D, Ltd.
|
431,373 | 431,373 | ||||||
Due to related party - Cosmo Communications USA, Inc.
|
235,495 | 217,493 | ||||||
Due to related party - Starlight Consumer Electronics Co., Ltd.
|
2,354,779 | 132,386 | ||||||
Due to related parties - Other Starlight Group Companies
|
9,534 | 88,249 | ||||||
Accrued expenses
|
943,007 | 256,535 | ||||||
Short-term loan - bank
|
1,293,327 | - | ||||||
Current portion of long-term financing obligation
|
- | 4,547 | ||||||
Obligations to clients for returns and allowances
|
368,895 | 435,341 | ||||||
Warranty provisions
|
438,368 | 144,022 | ||||||
Total Current Liabilities
|
17,292,220 | 6,575,080 | ||||||
Shareholders' Deficit
|
||||||||
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding
|
- | - | ||||||
Common stock, Class A, $.01 par value; 100,000 shares authorized; no shares issued and outstanding
|
- | - | ||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 37,835,793 and 37,835,793 shares issued and outstanding, respectively
|
378,357 | 378,357 | ||||||
Additional paid-in capital
|
19,130,503 | 19,116,318 | ||||||
Accumulated deficit
|
(19,584,079 | ) | (20,541,702 | ) | ||||
Total Shareholders' Deficit
|
(75,219 | ) | (1,047,027 | ) | ||||
Total Liabilities and Shareholders' Deficit
|
$ | 17,217,001 | $ | 5,528,053 |
For Three Months Ended
|
For Six Months Ended
|
|||||||||||||||
September 30,
2011 |
September 30,
2010 |
September 30,
2011 |
September 30,
2010 |
|||||||||||||
|
|
|||||||||||||||
Net Sales
|
$ | 14,149,564 | $ | 8,357,672 | $ | 15,937,610 | $ | 10,449,299 | ||||||||
Cost of Goods Sold
|
10,956,081 | 6,664,996 | 12,315,584 | 8,180,730 | ||||||||||||
Gross Profit
|
3,193,483 | 1,692,676 | 3,622,026 | 2,268,569 | ||||||||||||
Operating Expenses
|
||||||||||||||||
Selling expenses
|
1,041,388 | 644,921 | 1,390,064 | 894,010 | ||||||||||||
General and administrative expenses
|
654,992 | 634,033 | 1,210,604 | 1,309,609 | ||||||||||||
Depreciation and amortization
|
29,313 | 119,716 | 61,391 | 241,768 | ||||||||||||
Total Operating Expenses
|
1,725,693 | 1,398,670 | 2,662,059 | 2,445,387 | ||||||||||||
Income (Loss) from Operations
|
1,467,790 | 294,006 | 959,967 | (176,818 | ) | |||||||||||
Other Expenses
|
||||||||||||||||
Interest expense
|
(2,250 | ) | (2,353 | ) | (2,344 | ) | (10,989 | ) | ||||||||
Net Other Expenses
|
(2,250 | ) | (2,353 | ) | (2,344 | ) | (10,989 | ) | ||||||||
Income (loss) before provision for income taxes
|
1,465,540 | 291,653 | 957,623 | (187,807 | ) | |||||||||||
Provision for income taxes
|
- | - | - | - | ||||||||||||
Net Income (Loss)
|
$ | 1,465,540 | $ | 291,653 | $ | 957,623 | $ | (187,807 | ) | |||||||
Income (Loss) per Common Share
|
||||||||||||||||
Basic and Diluted
|
$ | 0.04 | $ | 0.01 | $ | 0.03 | $ | (0.00 | ) | |||||||
Weighted Average Common and Common
|
||||||||||||||||
Equivalent Shares:
|
||||||||||||||||
Basic and Diluted
|
37,835,793 | 37,668,211 | 37,835,793 | 37,627,003 |
For Six Months Ended
|
||||||||
September 30,
2011 |
September 30,
2010 |
|||||||
Cash flows from operating activities
|
|
|||||||
Net Income (Loss)
|
$ | 957,623 | $ | (187,807 | ) | |||
Adjustments to reconcile net income (loss) to net cash and cash equivalents (used in) provided by operating activities:
|
||||||||
Depreciation and amortization
|
61,391 | 241,768 | ||||||
Inventory reserve charge
|
153,926 | - | ||||||
Disposal of property and equipment
|
4,027 | - | ||||||
Change in allowance for bad debts
|
43,994 | 23,231 | ||||||
Stock based compensation
|
14,185 | 8,239 | ||||||
Warranty provisions
|
294,346 | 185,751 | ||||||
Changes in assets and liabilities:
|
||||||||
(Increase) Decrease in:
|
||||||||
Accounts receivable
|
(10,239,086 | ) | (2,526,642 | ) | ||||
Inventories
|
(1,203,562 | ) | (1,860,872 | ) | ||||
Prepaid expenses and other current assets
|
6,064 | 35,943 | ||||||
Other non-current assets
|
(658 | ) | (33 | ) | ||||
Increase (Decrease) in:
|
||||||||
Accounts payable
|
5,415,195 | 3,509,559 | ||||||
Accounts payable - related party
|
2,180,058 | 2,637,380 | ||||||
Accrued expenses
|
686,472 | 257,960 | ||||||
Obligations to clients for returns and allowances
|
(66,446 | ) | (390,106 | ) | ||||
Net cash (used in) provided by operating activities
|
(1,692,471 | ) | 1,934,371 | |||||
Cash flows from investing activities
|
||||||||
Purchase of property and equipment
|
(83,369 | ) | - | |||||
Net cash used in investing activities
|
(83,369 | ) | - | |||||
Cash flows from financing activities
|
||||||||
Borrowings from factor, net
|
- | 14,987 | ||||||
Net repayments pursuant to factoring facility
|
- | (619,567 | ) | |||||
Net proceeds (repayments) from short-term bank loan
|
1,293,326 | (1,091,828 | ) | |||||
Payments on long-term financing obligation
|
(4,547 | ) | (9,093 | ) | ||||
Net cash provided by (used in) financing activities
|
1,288,779 | (1,705,501 | ) | |||||
Change in cash and cash equivalents
|
(487,061 | ) | 228,870 | |||||
Cash and cash equivalents at beginning of period
|
674,712 | 865,777 | ||||||
Cash and cash equivalents at end of period
|
$ | 187,651 | $ | 1,094,647 | ||||
Supplemental Disclosures of Cash Flow Information:
|
||||||||
Cash paid for interest
|
$ | 2,344 | $ | 10,989 |
·
|
For the six months ended September 30, 2011: expected dividend yield 0%, risk-free interest rate of 0.22% to 0.30%, volatility 283.9% and expected term of three years.
|
·
|
For the six months ended September 30, 2010: expected dividend yield 0%, risk-free interest rate of 0.41%, volatility 268.4% and expected term of three years.
|
September 30,
|
March 31,
|
|||||||
2011
|
2011
|
|||||||
(unaudited)
|
||||||||
Finished Goods
|
$ | 3,870,899 | $ | 3,467,946 | ||||
Inventory in Transit
|
800,608 | - | ||||||
Less: Inventory Reserve
|
(604,926 | ) | (451,001 | ) | ||||
Net Inventories
|
$ | 4,066,581 | $ | 3,016,945 |
USEFUL
|
September 30,
|
March 31,
|
||||||||||
LIFE
|
2011
|
2011
|
||||||||||
(unaudited)
|
||||||||||||
Computer and office equipment
|
5 years
|
$ | 272,486 | $ | 660,948 | |||||||
Furniture and fixtures
|
5-7 years
|
- | 217,875 | |||||||||
Leasehold improvements
|
* | 5,500 | 151,503 | |||||||||
Warehouse equipment
|
7 years
|
101,521 | 101,521 | |||||||||
Molds and tooling
|
3-5 years
|
1,873,645 | 1,847,106 | |||||||||
2,253,152 | 2,978,953 | |||||||||||
Less: Accumulated depreciation
|
(1,901,350 | ) | (2,645,102 | ) | ||||||||
$ | 351,802 | $ | 333,851 |
Amount
|
Due Date
|
Discount Rate
|
|||||
$ | 979,020 |
10/17/2011
|
1.13 | % | |||
24,605 |
10/26/2011
|
1.75 | % | ||||
54,604 | 11/1/2011 | 1.75 | % | ||||
78,155 |
11/15/2011
|
1.16 | % | ||||
109,209 |
11/22/2011
|
1.77 | % | ||||
47,734 |
12/5/2011
|
1.79 | % | ||||
$ | 1,293,327 |
·
|
The Internal Revenue Service’s asserted position that the Company is not the taxpayer.
|
·
|
The 1120- F tax liability was recorded under the taxpayer identification number belonging to ISMC and not the Company’s taxpayer identification number
|
·
|
The IRS would be barred from recovery since it failed to assess or issue a notice of levy within the three year statute of limitations
|
Property
Leases |
|||
For period ending
|
|||
2012
|
706,762 | ||
2013
|
447,165 | ||
2014
|
59,267 | ||
2015 and beyond
|
138,939 | ||
$ | 1,352,133 |
FOR THE THREE MONTHS ENDED
|
FOR THE SIX MONTHS ENDED
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
North America
|
$ | 13,571,567 | $ | 8,087,092 | 15,239,688 | 10,178,719 | ||||||||||
Europe
|
577,997 | 270,580 | 697,922 | 270,580 | ||||||||||||
$ | 14,149,564 | $ | 8,357,672 | $ | 15,937,610 | $ | 10,449,299 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
September 30,
|
September 30,
|
|||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Estimated defective return liabilities at beginning of period
|
$ | 63,333 | $ | 120,412 | $ | 144,021 | $ | 123,708 | ||||||||
Costs accrued for new estimated defective returns
|
441,639 | 254,824 | 496,886 | 317,794 | ||||||||||||
Defective return obligations honored
|
(66,604 | ) | (65,777 | ) | (202,539 | ) | (132,043 | ) | ||||||||
Estimated defective return liabilities at end of period
|
$ | 438,368 | $ | 309,459 | $ | 438,368 | $ | 309,459 |
The Singing Machine Company, Inc. and Subsidiaries
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For Three Months Ended
|
For Six Months Ended
|
|||||||||||||||
September 30,
2011
|
September 30,
2010
|
September 30,
2011
|
September 30,
2010
|
|||||||||||||
Net Sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of Goods Sold
|
77.4 | % | 79.7 | % | 77.3 | % | 78.3 | % | ||||||||
Gross Profit
|
22.6 | % | 20.3 | % | 22.7 | % | 21.7 | % | ||||||||
Operating Expenses
|
||||||||||||||||
Selling expenses
|
7.4 | % | 7.7 | % | 8.7 | % | 8.6 | % | ||||||||
General and administrative expenses
|
4.6 | % | 7.6 | % | 7.6 | % | 12.5 | % | ||||||||
Depreciation and amortization
|
0.2 | % | 1.4 | % | 0.4 | % | 2.3 | % | ||||||||
Total Operating Expenses
|
12.2 | % | 16.7 | % | 16.7 | % | 23.4 | % | ||||||||
Income (Loss) from Operations
|
10.4 | % | 3.5 | % | 6.0 | % | -1.7 | % | ||||||||
Other Expenses
|
||||||||||||||||
Interest expense
|
0.0 | % | 0.0 | % | 0.0 | % | -0.1 | % | ||||||||
Net Other Expenses
|
0.0 | % | 0.0 | % | 0.0 | % | -0.1 | % | ||||||||
Income (loss) before provision for income taxes
|
10.4 | % | 3.5 | % | 6.0 | % | -1.8 | % | ||||||||
Provision for income taxes
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Net Income (Loss)
|
10.4 | % | 3.5 | % | 6.0 | % | -1.8 | % |
·
|
Raising additional working capital;
|
·
|
Collecting our existing accounts receivable;
|
·
|
Selling existing inventory;
|
·
|
Vendor financing;
|
·
|
Borrowing from factoring bank;
|
·
|
Short term loans from our majority shareholder;
|
·
|
Fees for fulfillment, delivery and returns services from related parties.
|
31.1
|
Certification of Gary Atkinson, Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
|
31.2
|
Certification of Carol Lau, Interim Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
|
32.1
|
Certifying Statement of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.*
|
32.2
|
Certifying Statement of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.*
|
*
|
Filed herewith
|
THE SINGING MACHINE COMPANY, INC.
|
|||
Date: November 14, 2011
|
By:
|
/s/ Gary Atkinson
|
|
Gary Atkinson
|
|||
Chief Executive Officer
|
|||
/s/ Carol Lau
|
|||
Carol Lau
|
|||
Interim Chief Financial Officer
|
|
By:
|
/S/ Gary Atkinson
|
|
Gary Atkinson
|
|||
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|||
Date: November 14, 2011
|
|
|
/s/ Carol Lau
|
|
Carol Lau
|
|||
Interim Chief Financial Officer
|
|||
(Principal Accounting and Financial Officer)
|
|||
Date: November 14, 2011
|
:
|
|
/S/ Gary Atkinson
|
|
Gary Atkinson
|
|||
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|||
Date: November 14, 2011
|
:
|
|
/S/ Carol Lau
|
|
Carol Lau
|
|||
Interim Chief Financial Officer
|
|||
(Principal Accounting and Financial Officer)
|
|||
Date: November 14, 2011
|
CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $) | Sep. 30, 2011 | Mar. 31, 2011 |
---|---|---|
Allowance for doubtful accounts (in dollars) | $ 219,798 | $ 175,804 |
Preferred stock, par value (in dollars per share) | $ 1 | $ 1 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 37,835,793 | 37,835,793 |
Common stock, shares outstanding | 37,835,793 | 37,835,793 |
Common Stock Class A [Member] | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000 | 100,000 |
Common stock, shares issued | 0 | 0 |
Common stock, shares outstanding | 0 | 0 |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Net Sales | $ 14,149,564 | $ 8,357,672 | $ 15,937,610 | $ 10,449,299 |
Cost of Goods Sold | 10,956,081 | 6,664,996 | 12,315,584 | 8,180,730 |
Gross Profit | 3,193,483 | 1,692,676 | 3,622,026 | 2,268,569 |
Operating Expenses | ||||
Selling expenses | 1,041,388 | 644,921 | 1,390,064 | 894,010 |
General and administrative expenses | 654,992 | 634,033 | 1,210,604 | 1,309,609 |
Depreciation and amortization | 29,313 | 119,716 | 61,391 | 241,768 |
Total Operating Expenses | 1,725,693 | 1,398,670 | 2,662,059 | 2,445,387 |
Income (Loss) from Operations | 1,467,790 | 294,006 | 959,967 | (176,818) |
Other Expenses | ||||
Interest expense | (2,250) | (2,353) | (2,344) | (10,989) |
Net Other Expenses | (2,250) | (2,353) | (2,344) | (10,989) |
Income (loss) before provision for income taxes | 1,465,540 | 291,653 | 957,623 | (187,807) |
Provision for income taxes | 0 | 0 | 0 | 0 |
Net Income (Loss) | $ 1,465,540 | $ 291,653 | $ 957,623 | $ (187,807) |
Income (Loss) per Common Share | ||||
Basic and Diluted (in dollars per share) | $ 0.04 | $ 0.01 | $ 0.03 | $ 0 |
Weighted Average Common and Common Equivalent Shares: | ||||
Basic and Diluted (in shares) | 37,835,793 | 37,668,211 | 37,835,793 | 37,627,003 |
DOCUMENT AND ENTITY INFORMATION | 6 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 10, 2011 | |
Entity Registrant Name | SINGING MACHINE CO INC | |
Entity Central Index Key | 0000923601 | |
Current Fiscal Year End Date | --03-31 | |
Entity Filer Category | Smaller Reporting Company | |
Trading Symbol | smdm | |
Entity Common Stock, Shares Outstanding | 37,835,793 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2012 |
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FINANCING | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financing Receivables [Text Block] | NOTE 7 – FINANCING
As of September 30, 2011 and March 31, 2011 the Company owed to two financial institutions in the amounts of $1,293,327 and $0 respectively. The Company received advance funds from the discounting of letters of credit issued as payment for goods by two major customers. The proceeds were used to pay Chinese manufacturing vendors. The amounts are due to financial institutions are as follows:
|
RELATED PARTY TRANSACTIONS | 6 Months Ended |
---|---|
Sep. 30, 2011 | |
Related Party Transactions [Abstract] | |
Related Party Transactions Disclosure [Text Block] | NOTE 12 – RELATED PARTY TRANSACTIONS
During the six months ended September 30, 2011 and September 30, 2010 the Company sold approximately $1,541,000 and $1,219,000 respectively to Starlight Electronics at a discounted price, similar to prices granted to major direct import customers shipped internationally with freight prepaid. The average gross profit margin on sales to Starlight Electronics for the six months ended September 30, 2011 and September 30, 2010 was 7.6% and 10.3%, respectively. The product was drop shipped to Cosmo Communications of Canada (“Cosmo”), the Company’s primary distributor of its products to Canada. This amount was included as a component of cost of goods sold in the accompanying consolidated statements of operations.
The Company purchased products from Starlight Marketing Development, Ltd, (“SMD”) a subsidiary of Starlight International Holding Ltd. The purchases from SMD for the six month period ended September 30, 2011 and September 30, 2010 were $3,013,875 and $3,764,672 respectively.
During the six month period ended September 30, 2011 and September 30, 2010 the Company purchased products from Cosmo Communications USA, Inc. (“Cosmo USA”) in the amount of $48,900 and $182,013, respectively.
On August 1, 2010, SMC Logistics entered into a service and logistics agreement with affiliates Starlight Consumer Electronics (USA), Inc. and Cosmo USA to provide logistics, fulfillment, and warehousing services for these affiliates’ domestic sales. The Company received $499,998 and $499,998 in service fees from these affiliates during the six months ended September 30, 2011 and September 30, 2010, respectively. For the six months ended September 30, 2011 and September 30, 2010, the Company additionally received reimbursements from both of these affiliates in the amount of $15,370 and $42,965, respectively for expenses and salaries incurred by SMC Logistics on their behalf. The current service and logistics agreement expired on July 31, 2011and on August 1, 2011, the Company entered into an extension of the current agreement for an additional twelve months. The current extension will expire on July 31, 2012. |
INCOME TAXES | 6 Months Ended |
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Sep. 30, 2011 | |
Income Tax Disclosure [Abstract] | |
Income Tax Disclosure [Text Block] | NOTE 3- INCOME TAXES
The Company follows FASB ASC 740 10-25, Accounting for Uncertainty in Income Taxes, which defines a recognition threshold and measurement attribute for financial statement recognition and measurements of tax positions taken or expected to be taken in a tax return. As of September 30, 2011 this position did not result in any adjustment to the Company’s provision for income taxes.
As of September 30, 2011 and March 31, 2011, The Singing Machine had gross deferred tax assets of approximately $3.2 million and $3.5 million, respectively, against which the Company recorded valuation allowances totaling approximately $3.2 million and $3.5 million, respectively.
As of September 30, 2011 the Company is subject to U.S. Federal income tax examinations for the tax years ended March 31, 2008 through March 31, 2011. |
STOCKHOLDERS' EQUITY | 6 Months Ended |
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Sep. 30, 2011 | |
Stockholders Equity Note [Abstract] | |
Stockholders' Equity Note Disclosure [Text Block] | NOTE 9 - STOCKHOLDERS' EQUITY
COMMON STOCK ISSUANCES
During the six months ended September 30, 2011 and September 30, 2010, the Company issued 0 and 249,999 shares of its common stock, respectively.
On August 31, 2010 the Company issued 249,999 shares of its common stock to our Board of Directors at $.03 per share, pursuant to our annual director compensation plan.
STOCK OPTIONS
On June 1, 2001, the Board of Directors approved the 2001 Stock Option Plan (“Plan”), which replaced the 1994 Stock Option Plan, as amended, (the "1994 Plan"). The Plan was developed to provide a means whereby directors and selected employees, officers, consultants, and advisors of the Company may be granted incentive or non-qualified stock options to purchase common stock of the Company. As of September 30, 2011, the Plan is authorized to grant options up to an aggregate of 1,950,000 shares of the Company's common stock and up to 300,000 shares for any one individual grant in any quarter. As of September 30, 2011, the Company granted 1,623,895 options under the Year 2001 Plan with 1,191,380 options still outstanding, leaving 326,105 options available to be granted. There were no additional stock options issued during the six months ended September 30, 2011. As of September 30, 2011, the Company has no options still issued and no options available to be granted under the 1994 Plan, since the 1994 Plan has expired (after 10 years). |
SUBSEQUENT EVENTS | 6 Months Ended |
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Sep. 30, 2011 | |
Subsequent Events [Abstract] | |
Subsequent Events [Text Block] | NOTE 14 – SUBSEQUENT EVENTS
We evaluated the effects of all subsequent events from the end of the second quarter ended September 30, 2011 through the date we filed our financial statements with the U.S. Securities and Exchange Commission. There were no events to report during this evaluation period. |
GEOGRAPHICAL INFORMATION | 6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | NOTE 10 - GEOGRAPHICAL INFORMATION
The majority of sales to customers outside of the United States for the three and six months ended September 30, 2011 and 2010 were made by the Macau Subsidiary. Sales by geographic region for the period presented are as follows:
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COMMITMENTS AND CONTINGENCIES | 6 Months Ended | |||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Text Block] | NOTE 8 - COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
MGA ENTERTAINMENT, INC. v. THE SINGING MACHINE COMPANY, INC. (CENTRAL DISTRICT COURT OF CALIFORNIA, CASE CV 10-03761 DOC (RNBX) )
MGA Entertainment, Inc. (“MGA”) filed an action against the Company on April 16, 2010 alleging breach of contract, breach of implied covenant of good faith and fair dealing, and conversion claims relating to two licensing agreements between the parties entered into on May 10, 2006 and November 21, 2006. The two licensing agreements involved the manufacture, distribution and marketing of “Bratz” branded merchandise which is a proprietary brand of MGA.
The Company vigorously contested the charges and filed a countersuit against MGA on June 21, 2010 alleging breach of contract, failure of consideration for the licensing agreements, and other claims based on various state and federal laws. Prior to the Company entering into the above license agreements with MGA, Mattel, a competitor to MGA, filed a complaint against MGA on or about April, 2005 alleging ownership to the “Bratz” brand. The Mattel/MGA litigation was tried in phases however on or about February 2011, the courts ultimately ruled in favor of MGA with regards to ownership of the “Bratz” brand.
On July 14, 2011, the Company participated in a mediation session with an independent mediator which resulted in a settlement agreement dated July 25, 2011. This agreement called for a payment in the amount of $245,000 which was made by the Company to MGA on or about August 11, 2011. After considering advice of counsel, conducting risk analysis of potential future legal and administrative costs of litigation, and analysis of potential outcomes, Management believed that it was in the best interest of the Company to settle for the amounts proposed by the mediator.
Pursuant to the settlement agreement the Company recorded an additional liability of approximately $160,000 in the quarter ended June 30, 2011. This additional accrual, which is included in selling expenses, when combined with the previously accrued liability of approximately $85,000 covered all amounts paid pursuant to this settlement.
INCOME TAXES
In a letter dated July 21, 2008 the Internal Revenue Service (“IRS”) notified the former foreign subsidiary of an unpaid tax balance on Income Tax Return of a Foreign Corporation (Form 1120-F) for the period ending March 31, 2003 for International SMC (HK) Limited (“ISMC (HK)”), a former subsidiary. According to the notice ISMC (HK) has an unpaid balance due in the amount of $241,639 that includes an interest assessment of $74,125. ISMC (HK) was sold in its entirety by the Company on September 25, 2006 to a British Virgin Islands company (“Purchaser”). The sale and purchase agreement with the Purchaser of ISMC (HK) specifies that the Purchaser would ultimately be responsible for any liabilities, including tax matters. On June 3, 2009 the IRS filed a federal tax lien in the amount of approximately $170,000 against ISMC (HK) under ISMC (HK)’s federal Tax ID. Management sought independent legal counsel to assess the potential liability, if any, on the Company. In a memorandum from independent counsel, the conclusion based on the facts presented was that the IRS would not prevail against the Company for collection of the ISMC (HK) income tax liability based on:
Based on the conclusion reached in the legal memorandum, management does not believe that the Company will have any further liability with regards to this issue.
LEASES
The operating lease for the facilities in Coconut Creek, Florida expired and the Company entered into a new operating lease for approximately 4,000 square feet of office space in Ft Lauderdale, Florida. The lease term is 64 months and includes five months of free base rent as an incentive to enter into the agreement. The Company continues to maintain its operating lease agreements for office and warehouse facilities in d City of Industry, California. The leases expire at varying dates. Rent expense for the six months ended September 30, 2011 and 2010 was $401,138 and $405,264, respectively.
Future minimum lease payments under property leases with terms exceeding one year as of September 30, 2011 are as follows:
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BASIS OF PRESENTATION | 6 Months Ended |
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Sep. 30, 2011 | |
Organization, Consolidation and Presentation Of Financial Statements [Abstract] | |
Basis of Accounting [Text Block] | NOTE 1 – BASIS OF PRESENTATION
OVERVIEW
The Singing Machine Company, Inc., a Delaware corporation (the "Company," “SMC”, "The Singing Machine", “we” or “us”), and wholly-owned subsidiaries SMC (Comercial Offshore De Macau) Limitada (“Macau Subsidiary”), SMC Logistics, Inc. (“SMC-L”), SMC-Music, Inc.(“SMC-M”), and Singing Machine Holdings Ltd. (a B.V.I. company) are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, musical instruments and musical recordings. The products are sold directly to distributors and retail customers.
The preparation of The Singing Machine's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the period. Future events and their effects cannot be determined with absolute certainty; therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the Company's financial statements. Management evaluates its estimates and assumptions continually. These estimates and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances. |
INVENTORIES | 6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Text Block] | NOTE 4- INVENTORIES
Inventories are comprised of the following components:
Inventory consigned to customers at September 30, 2011 and March 31, 2011 were $353,201 and $353,201, respectively. |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment Disclosure [Text Block] | NOTE 5 - PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
Depreciation and amortization expense for the three month periods ended September 30, 2011 and September 30, 2010 were $29,313 and $119,716, respectively. Depreciation and amortization expense for the six month periods ended September 30, 2011 and September 30, 2010 were $61,391 and $241,768, respectively. |
WARRANTY PROVISIONS | 6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Product Warranties Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product Warranty Disclosure [Text Block] | NOTE 13 – WARRANTY PROVISIONS
A return program for defective goods is negotiated with each of our wholesale customers on a year-to-year basis. Customers are either allowed to return defective goods within a specified period of time after shipment (between 6 and 9 months) or granted a “defective allowance” consisting of a fixed percentage (between 1% and 5%) off of invoice price in lieu of returning defective products. The Company is also subject to returns of CDG music from sales made by our consignee. The Company records liabilities for its return goods programs and defective goods allowance program at the time of sale for the estimated costs that may be incurred. The liability for defective goods is included in warranty provisions on the Consolidated Balance Sheet.
Changes in the Company’s obligations for return and allowance programs are presented in the following table:
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OBLIGATIONS TO CLIENTS FOR RETURNS AND ALLOWANCES | 6 Months Ended |
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Sep. 30, 2011 | |
Payables and Accruals [Abstract] | |
Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block] | NOTE 6 - OBLIGATIONS TO CLIENTS FOR RETURNS AND ALLOWANCES
Due to the seasonality of the business and length of time clients are given to return defective product, it is not uncommon for clients to accumulate credits from the Company’s sales and allowance programs that are in excess of unpaid invoices in accounts receivable. All credit balances in clients’ accounts receivable are reclassified to obligations to clients for returns and allowances in current liabilities on the Consolidated Balance Sheet. Client requests for payment of a credit balance are reclassified from obligations to clients for returns and allowances to accounts payable on the Consolidated Balance Sheet. When new invoices are processed prior to settlement of the credit balance and the client accepts settlement of open credits with new invoices, then the excess of new invoices over credits are netted in accounts receivable. As of the periods ended September 30, 2011 and March 31, 2010 obligations to clients for returns and allowances reclassified from accounts receivable were $368,895 and $435,341, respectively. There were no credit amounts requested by clients to be paid for the periods ended September 30, 2011 and March 31, 2011 and as such no amounts were reclassified from obligations to clients for returns and allowances to accounts payable. |
SUMMARY OF ACCOUNTING POLICIES | 6 Months Ended | ||||||
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Sep. 30, 2011 | |||||||
Accounting Policies [Abstract] | |||||||
Significant Accounting Policies [Text Block] | NOTE 2-SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial statements include the accounts of the Company, Macau Subsidiary, SMC-L, SMC-M and The Singing Machine Holdings Ltd. (a B.V.I. company). All inter-company accounts and transactions have been eliminated in consolidation for all periods presented.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS. The consolidated financial statements for the three months and six months ended September 30, 2011 and 2010 are unaudited. In the opinion of management, such consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. The consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The consolidated balance sheet information as of March 31, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K. The interim consolidated financial statements should be read in conjunction with that report.
USE OF ESTIMATES. The Singing Machine makes estimates and assumptions in the ordinary course of business relating to sales returns and allowances, inventory reserves, warranty reserves, and reserves for promotional incentives that affect the reported amounts of assets and liabilities and of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Historically, past changes to these estimates have not had a material impact on the Company's financial condition. However, circumstances could change which may alter future expectations.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE. The Singing Machine's allowance for doubtful accounts is based on management's estimates of the creditworthiness of its customers, current economic conditions and historical information, and, in the opinion of management, is believed to be an amount sufficient to respond to normal business conditions. Management sets 100% reserves for customers in bankruptcy and other reserves based upon historical collection experience. Should business conditions deteriorate or any major customer default on its obligations to the Company, this allowance may need to be significantly increased, which would have a negative impact on operations.
RESERVES ON INVENTORIES. The Singing Machine reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost. Management regularly reviews the Company's inventories for such declines in value.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Macau Subsidiary is the Hong Kong dollar. Such financial statements are translated to U.S. dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions and translations were not material during the periods presented.
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in foreign financial institutions. The amounts at September 30, 2011 and March 31, 2011 are $52,042 and $27,448, respectively. At times the Company maintains cash in United States bank accounts that are in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured amounts of up to $250,000. As of September 30, 2011 and March 31, 2011 the amounts uninsured in United States banks was $0 and $397,264, respectively.
INVENTORY
Inventories are comprised of electronic karaoke equipment, accessories, electronic musical instruments, electronic toys and compact discs and are stated at the lower of cost or market, as determined using the first in, first out method. The Singing Machine reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost. Management regularly reviews the Company's investment in inventories for such declines in value.
REVENUE RECOGNITION
Revenue from the sale of equipment, accessories, and musical recordings are recognized upon the later of: (a) the time of shipment or (b) when title passes to the customers and all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Revenues from sales of consigned inventory are recognized upon sale of the product by the consignee. Net sales are comprised of gross sales net of actual and estimated future returns, discounts and volume rebates.
STOCK BASED COMPENSATION
The Company began to apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-20, Compensation – Stock Compensation Awards Classified as Equity (“ASC 718-20”) starting on January 1, 2006. ASC 718-20 requires all share-based payments to employees including grants of employee stock options, be measured at fair value and expensed in the consolidated statement of operations over the service period (generally the vesting period). Upon adoption, the Company transitioned to ASC 718-20 using the modified prospective application, whereby compensation cost is only recognized in the consolidated statements of operations beginning with the first period that ASC 718-20 is effective and thereafter, with prior periods' stock-based compensation still presented on a pro forma basis. Under the modified prospective approach, the provisions of ASC 718-20 are to be applied to new employee awards and to employee awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of employee awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of employee awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under ASC 718-20 The Company continues to use the Black-Scholes option valuation model to value stock options. For the three and six months ended September 30, 2011, stock option expense was $7,093 and $14,185, respectively. For the three and six months ended September 30, 2010, stock option expense was $369 and $739, respectively. Employee stock option compensation expense in fiscal years 2011 and 2010 includes the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period for the entire portion of the award.
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the assumptions outlined below. For the quarter ended September 30, 2011, the Company took into consideration guidance under ASC 718-20 and SEC Staff Accounting Bulletin No. 107 when reviewing and updating assumptions. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously such assumptions were determined based on historical data.
ADVERTISING
Costs incurred for producing, publishing and advertising of the Company are charged to operations as incurred. The Company has entered into cooperative advertising agreements with its major clients that specifically indicated that the client has to spend the cooperative advertising fund upon the occurrence of mutually agreed events. The percentage of the cooperative advertising allowance ranges from 2% to 5% of the clients’ inventory purchases. The clients have to advertise the Company's products in the client's catalog, local newspaper and other advertising media. The client must submit the proof of the performance (such as a copy of the advertising showing the Company’s products) to the Company to request for the allowance. The client does not have the ability to spend the allowance at their discretion. The Company believes that the identifiable benefit from the cooperative advertising program and the fair value of the advertising benefit is equal or greater than the cooperative advertising expense. Advertising expense for the six months ended September 30, 2011 and 2010 was $608,963 and $389,496, respectively.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to results of operations as incurred. These expenses are shown as a component of selling, general and administrative expenses in the consolidated statements of operations. For the six months ended September 30, 2011 and 2010, these amounts totaled $24,834 and $15,025, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We have adopted FASB ASC 825, which requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
The carrying amounts of the Company's short-term financial instruments, including accounts receivable, due from factors, accounts payable, customer credits on account, accrued expenses and loans payable to related parties approximates fair value due to the relatively short period to maturity for these instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
In 2009 the FASB issued pronouncement ASC 810-10 regarding improvements to financial reporting by enterprises involved with Variable Interest Entities. The pronouncement requires an entity to perform an ongoing analysis to determine whether the entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. The pronouncements were effective for fiscal years beginning after November 15, 2009. The adoption of this new standard did not impact our consolidated statements of operation or our consolidated balance sheets.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (“ASU 2011-02”). The pronouncement provides additional guidance clarifying when the restructuring of a receivable should be considered a troubled debt restructuring. The additional guidance provided by ASU 2011-02 is for determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulty. ASU 2011-02 ends the deferral of activity-based disclosures related to
troubled debt restructurings. We adopted ASU 2011-02 in the second quarter of 2011. The adoption of ASU 2011-02 did not impact our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The pronouncement amends ASC 820, providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company’s adoption of ASU 2011-04 is not expected to have a material effect on our consolidated financial statements. |
6
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