R
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the fiscal year ended March 31, 2007
|
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
95-3795478
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
PAGE
|
|||
PART
I
|
|||
Item
1.
|
Business
|
3
|
|
Item
1A.
|
Risk
Factors
|
9
|
|
Item
1B.
|
Unresolved
Staff Comments
|
14
|
|
Item
2.
|
Properties
|
14
|
|
Item
3.
|
Legal
Proceedings
|
15
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
15
|
|
|
|||
PART
II
|
|||
|
|||
Item
5.
|
Market
for Company's Common Equity and Related Stockholder Matters and
Issuer
Purchases
|
||
of
Equity Securities
|
16
|
||
Item
6.
|
Selected
Financial Data
|
17
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of Operations
|
18
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
24
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
24
|
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
25
|
|
Item
9A.
|
Controls
and Procedures
|
25
|
|
Item
9B.
|
Other
Information
|
25
|
|
|
|||
PART
III
|
|||
|
|||
Item
10.
|
Directors
and Executive Officers of the Registrant
|
25
|
|
Item
11.
|
Executive
Compensation
|
28
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
|
||
Matters
|
35
|
||
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
37
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
38
|
|
|
|||
PART
IV
|
|||
|
|||
Item
15.
|
Exhibits,
Financial Statement Schedules
|
38
|
|
·
|
|
our
ability to attract and retain management;
|
|||
|
·
|
|
our
growth strategies;
|
|
·
|
|
anticipated
trends in our business;
|
|||
|
·
|
|
our
future results of operations;
|
|||
|
·
|
|
our
ability to make or integrate acquisitions;
|
|||
|
·
|
|
our
liquidity and ability to finance our acquisition and development
activities;
|
|||
|
·
|
|
the
timing, cost and procedure for proposed acquisitions;
|
|||
|
·
|
|
the
impact of government regulation;
|
|||
|
·
|
|
planned
capital expenditures (including the amount and nature
thereof);
|
|||
|
·
|
|
our
financial position, business strategy and other plans and objectives
for
future operations;
|
|
·
|
|
competition;
|
|||
|
·
|
|
the
ability of our management team to execute its plans to meet our
goals;
|
|||
|
·
|
|
general
economic conditions, whether internationally, nationally or in the
regional and local market areas in which we are doing business, that
may
be less favorable than expected; and
|
|||
|
·
|
|
other
economic, competitive, governmental, legislative, regulatory, geopolitical
and technological factors that may negatively impact our businesses,
operations and pricing.
|
· |
Our
diversified management team and the seasoned board of directors,
who have
significant experiences operating businesses in the United States
and
working with factories in China;
|
· |
Our
efficient business model, which is characterized by a rapid product
development cycle, low operational costs and high inventory turn
over;
|
· |
Strong
relationship with key factories in China. Two of our major shareholders
are also major factories in China. This allows us to lower our production
costs and obtain vendor financing on the purchase;
and
|
· |
A
visible exit strategy that offers cash or public traded
securities.
|
· |
Karaoke
Machines
that incorporate such features as CD plus graphics player, sound
enhancement, echo, tape record/playback features, and multiple inputs
and
outputs for connection to compact disc players, built-in camera,
video
cassette recorders, and home theater systems. Our machines sell at
retail
prices ranging from $30 for basic units to $200 for semi-professional
units
|
· |
Music
which includes a songs library of over 2,500 recordings, which we
license
from their publishers. Our library of master recordings covers an
eclectic
range of musical tastes including popular hits, golden oldies, country,
rock and roll, Motown, Christian, Latin, and Rap. SMC offers an exclusive
line of Original Artist karaoke music under the monikers of “Real Karaoke”
and “Motown Original Artist Karaoke”. Our music sells at retail prices
ranging from $6.99 to $19.99.
|
· |
Bratz
Licensed Products which
includes karaoke products, digital drum sets, clock radios, boom
boxes,
TV/DVD combos and portable DVD players. Bratz products will sell
at retail
prices ranging from $9.99 to $199.
|
· |
Musical
Instruments which
includes digital drum sets and keyboards. The retail price will range
from
$49 to $299.
|
2007
|
|
2006
|
|
2005
|
||||||
MTV
|
8.9%
|
|
2.1%
|
|
17.6%
|
|
||||
Nickelodeon
|
0.0%
|
|
0.0%
|
|
0.5%
|
|
||||
Other
Licenses
|
0.0%
|
|
0.9%
|
|
2.5%
|
|
||||
|
|
|||||||||
Total
Licenses Sales
|
8.9%
|
|
3.0%
|
|
20.6%
|
|
||||
|
· |
accurately
define and design new products to meet market needs;
|
· |
design
features that continue to differentiate our products from those of
our
competitors;
|
· |
transition
our products to new manufacturing process technologies;
|
· |
identify
emerging technological trends in our target markets;
|
· |
anticipate
changes in end-user preferences with respect to our customers' products;
|
· |
bring
products to market on a timely basis at competitive prices; and
|
· |
respond
effectively to technological changes or product announcements by
others.
|
Nominee
|
Number
of Shares
|
|||
Bernard
Appel
|
21,904,899
|
|||
Josef
Bauer
|
21,898,899
|
|||
Harvey
Judkowitz
|
21,837,830
|
|||
Stewart
Merkin
|
21,837,830
|
|||
Peter
Hon
|
21,881,899
|
|||
Carol
Lau
|
21,881,899
|
|||
Yat
Tung Lau
|
21,881,899
|
FISCAL
PERIOD
|
HIGH
|
LOW
|
|||||
2007:
|
|||||||
First
quarter (April 1 - June 30, 2006)
|
$
|
0.40
|
$
|
0.23
|
|||
Second
quarter (July 1 - September 30, 2006)
|
0.55
|
0.25
|
|||||
Third
quarter (October 1 - December 31, 2006)
|
0.79
|
0.24
|
|||||
Fourth
quarter (January 1 - March 31, 2007)
|
1.60
|
0.70
|
|||||
2006:
|
|||||||
First
quarter (April 1 - June 30, 2005)
|
$
|
0.80
|
$
|
0.55
|
|||
Second
quarter (July 1 - September 30, 2005)
|
0.67
|
0.39
|
|||||
Third
quarter (October 1 - December 31, 2005)
|
0.50
|
0.22
|
|||||
Fourth
quarter (January 1 - March 31, 2006)
|
0.47
|
0.23
|
|
|
WEIGHTED-AVERAGE
|
|
NUMBER
OF SECURITIES
REMAINING
|
|
|||||
|
|
NUMBER
OF SECURITIES
|
|
EXERCISE
PRICE OF
|
|
AVAILABLE
FOR EQUITY
|
|
|||
|
|
TO
BE ISSUED UPON
|
|
OUTSTANDING
|
|
COMPENSATION
PLANS
|
|
|||
|
|
EXERCISE
OF OUTSTANDINGS
|
|
OPTIONS,
WARRANTS
|
|
(EXCLUDING
SECURITIES IN
|
|
|||
PLAN
CATEGORY
|
|
OPTION,
WARRANTS AND RIGHTS
|
|
AND
RIGHTS
|
|
COLUMN
(A))
|
||||
Equity
Compensation Plans approved by Security
Holders
|
1,382,890
|
$
|
1.86
|
625,160
|
||||||
Equity
Compensation Plans Not approved
by Security Holders
|
0
|
$
|
0
|
0
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
||||||||
Statement
of Operations:
|
||||||||||||||||
Net
Sales
|
$
|
26,732,144
|
$
|
32,305,560
|
$
|
38,209,825
|
$
|
70,541,128
|
$
|
95,613,766
|
||||||
Income
(loss) before income taxes
|
($1,714,988
|
)
|
($1,905,250
|
)
|
($3,591,975
|
)
|
($21,924,919
|
)
|
$
|
1,416,584
|
||||||
Income
tax benefit (expense)
|
$
|
2,453,576
|
$
|
0
|
$
|
0
|
($758,505
|
)
|
($198,772
|
)
|
||||||
Net
income (loss)
|
$
|
738,588
|
($1,905,250
|
)
|
($3,591,975
|
)
|
($22,683,424
|
)
|
$
|
1,217,813
|
||||||
Balance
Sheet:
|
||||||||||||||||
Working
capital
|
$
|
2,394,796
|
($4,274,100
|
)
|
($3,378,528
|
)
|
($1,382,939
|
)
|
$
|
15,281,023
|
||||||
Current
ratio
|
186.75
|
%
|
0.48
|
%
|
65
|
%
|
90
|
%
|
172
|
%
|
||||||
Property,
plant and equipment, net
|
$
|
446,510
|
$
|
513,615
|
$
|
1,038,843
|
$
|
983,980
|
$
|
1,096,424
|
||||||
Total
assets
|
$
|
5,657,800
|
$
|
4,524,267
|
$
|
7,668,808
|
$
|
15,417,395
|
$
|
38,935,294
|
||||||
Shareholders'
equity
|
$
|
2,897,359
|
($3,661,798
|
)
|
($1,985,023
|
)
|
$
|
216,814
|
$
|
17,685,364
|
||||||
Per
Share Data:
|
||||||||||||||||
Income
(loss) per common share – basic
|
$
|
0.03
|
($0.19
|
)
|
($0.39
|
)
|
($2.65
|
)
|
$
|
0.15
|
||||||
Income
(loss) per common share – diluted
|
$
|
0.03
|
($0.19
|
)
|
($0.39
|
)
|
($2.65
|
)
|
$
|
0.14
|
||||||
Cash
dividends paid
|
0
|
0
|
0
|
0
|
0
|
· |
restructure
our Hong Kong operation and spin off the Hong Kong
subsidiary;
|
· |
raise
additional capital;
|
· |
establish
the Macau operation;
|
· |
continue
to drive down the operating costs;
|
· |
expand
our business into other product categories.
|
2007
|
2006
|
2005
|
||||||||
|
||||||||||
Total
Revenues
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of Sales
|
77.1
|
%
|
78.1
|
%
|
75.8
|
%
|
||||
Operating
expenses
|
29.2
|
%
|
28.6
|
%
|
28.5
|
%
|
||||
Operating
(loss) income
|
-6.4
|
%
|
-6.7
|
%
|
-4.2
|
%
|
||||
Other
(expenses), income, net
|
-0.05
|
%
|
0.1
|
%
|
-5.2
|
%
|
||||
Loss
before taxes
|
-6.4
|
%
|
-5.9
|
%
|
-9.4
|
%
|
||||
Provision
(benefit) for income taxes
|
9.2
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
Net
Income (loss)
|
2.8
|
%
|
-5.9
|
%
|
-9.4
|
%
|
· |
We
lost a $2.7 million order from a major specialty store in the United
States because the customer decided not to carry karaoke products.
Also,
one of our European customers had carried over inventory from fiscal
2006
and therefore they lowered their fiscal 2007 purchases by $3
million.
|
· |
We
did not complete the investment transaction with koncept International
until June 2006. Most of major retailers had decided their buying
plan
before June. Our financial constraints affect our ability to compete
for
the major accounts.
|
· |
The
decrease of karaoke Compact Disc (CD) sales. We had higher than usual
returns of karaoke CD’s in our quarter ended March 31, 2007. As a result,
our music sales decreased by approximately $700,000 to approximately
$1
million for fiscal 2007. The music industry has been experiencing
a
continuing decline in CD sales; while the music download business
has
increased dramatically. We have explored the possibilities with various
download companies to sell our music and lyrics on line in fiscal
2008.
|
· |
Customers
concerned of our financial
liquidity;
|
· |
Most
of the overstock inventory from prior years has been sold at a very
lower
price in fiscal 2004 and fiscal 2005, which generated the higher
revenues.
There were only approximately $2 million of old inventory carried
over to
fiscal 2006;
|
· |
Increase
of price competition in the United States and international
market.
|
· |
Customer
credit on account of approximately $600,000 - the amount will be
offset by
future purchases or refund.
|
· |
Subordinate
debt of approximately $225,000 - this amount is payable on
demand
|
· |
Current
liabilities resulting from normal course of the business of approximately
$1.9 million.
|
Total
|
|
Less
than 1 year
|
|
1
-
3 years
|
|
3
-
5 years
|
|
Over
5 years
|
||||||||
Property
Leases
|
$
|
656,533
|
$
|
626,408
|
$
|
30,125
|
$
|
-
|
$
|
-
|
||||||
Equipment
Leases
|
34,816
|
9,888
|
24,928
|
-
|
-
|
|||||||||||
Subordinated
Debt - Related Party
|
225,000
|
-
|
-
|
225,000
|
-
|
|||||||||||
Licensing
Agreement
|
470,000
|
242,500
|
227,500
|
-
|
-
|
|||||||||||
Interest
Payments
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
Total
|
$
|
1,386,349
|
$
|
878,796
|
$
|
282,553
|
$
|
225,000
|
$
|
-
|
Name
|
Age
|
Position
|
||
|
||||
Anton
H. Handal *
|
52
|
Chief
Executive Officer
|
||
Danny
Zheng *
|
37
|
Chief
Financial Officer
|
||
Alicia
Haskamp
|
59
|
Senior
Vice President of Sales and Product Development
|
||
Carol
Lau
|
58
|
Chairwoman
|
||
Josef
A. Bauer
|
68
|
Director
|
||
Harvey
Judkowitz
|
62
|
Director
|
||
Bernard
Appel
|
75
|
Director
|
||
Stewart
A. Merkin
|
64
|
Director
|
||
Peter
Hon
|
66
|
Director
|
||
Yat
Tung Lau
|
28
|
Director
|
·
|
high
personal and professional ethics and integrity;
|
·
|
the
ability to exercise sound judgment;
|
·
|
the
ability to make independent analytical inquiries;
|
·
|
a
willingness and ability to devote adequate time and resources to
diligently perform Board and committee duties; and
|
·
|
the
appropriate and relevant business experience and acumen.
|
·
|
whether
the person possesses specific industry expertise and familiarity
with
general issues affecting our business;
|
·
|
whether
the person’s nomination and election would enable the Board to have a
member that qualifies as an “audit committee financial expert” as such
term is defined by the Securities and Exchange Commission (the “SEC”) in
Item 401 of Regulation S-K;
|
·
|
whether
the person would qualify as an “independent” director under the listing
standards of the American Stock Exchange;
|
·
|
the
importance of continuity of the existing composition of the Board
of
Directors to provide long term stability and experienced oversight;
and
|
·
|
the
importance of diversified Board membership, in terms of both the
individuals involved and their various experiences and areas of expertise.
|
Name
and Principal Position
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards (1)
|
|
Non-Equity
incentive plan compensation
|
|
Change
in Pension Value and Non-Qualified Deferred Compensation Earnings
|
|
All
other compen-sation (2)
|
|
Total
Compensation
|
|||||||||||
Yi
Ping Chan (3)
|
2007
|
$
|
245,115
|
$
|
-
|
$
|
-
|
$
|
24,000
|
$
|
-
|
$
|
-
|
$
|
56,025
|
$
|
325,140
|
|||||||||||
Former
Interim CEO & COO
|
||||||||||||||||||||||||||||
Danny
Zheng (4)
|
2007
|
$
|
159,231
|
$
|
-
|
$
|
-
|
$
|
20,000
|
$
|
-
|
$
|
-
|
$
|
13,894
|
$
|
193,125
|
|||||||||||
Interim
Chief Executive Officer & Chief Financial Officer
|
||||||||||||||||||||||||||||
Alicia
Haskamp
|
2007
|
$
|
152,500
|
$
|
-
|
$
|
-
|
$
|
20,000
|
$
|
-
|
$
|
-
|
$
|
44,435
|
$
|
216,935
|
|||||||||||
Senior
Vice President of Sales & Product Development
|
||||||||||||||||||||||||||||
Dennis
Norden (5)
|
2007
|
$
|
126,325
|
$
|
-
|
$
|
-
|
$
|
10,000
|
$
|
-
|
$
|
-
|
$
|
12,479
|
$
|
148,804
|
|||||||||||
Former
Vice President of Sales
|
All Other Option
|
Exercise or
|
Grant Date
|
|||||||||||
Awards: Number of
|
Base Price of
|
Fair Value
|
|||||||||||
Securities
|
Awards
|
of
Stock
|
|||||||||||
Underlying
|
Option
|
and Option
|
|||||||||||
Name
and Principal Position
|
Grant Date
|
Options(#)
|
($/Sh)
(1)
|
Awards
(2)
|
|||||||||
Yi
Ping Chan
|
4/10/2006
|
120,000
|
$
|
0.33
|
$
|
24,000
|
|||||||
Former
Interim CEO & COO
|
|||||||||||||
Danny
Zheng
|
4/10/2006
|
100,000
|
$
|
0.33
|
$
|
20,000
|
|||||||
Interim
Chief Executive Officer & Chief Financial Officer
|
|||||||||||||
Alicia
Haskamp
|
4/10/2006
|
100,000
|
$
|
0.33
|
$
|
20,000
|
|||||||
Senior
Vice President of Sales & Product Development
|
|
||||||||||||
Dennis
Norden
|
4/10/2006
|
50,000
|
$
|
0.33
|
$
|
10,000
|
|||||||
Former
Vice President of Sales
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||
Name
and Principal Position
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
Option
Exercise Price ($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested (#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested ($)
|
|||||||||||
Yi
Ping Chan
|
-
|
-
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||||||
Former
Interim CEO & COO
|
||||||||||||||||||||||||||||
Danny
Zheng
|
7,200
|
4,800
|
N/A
|
1.05
|
4/26/2014
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||||||
Interim
Chief Executive Officer & Chief Financial Officer
|
23,333
|
46,667
|
0.60
|
5/8/2015
|
||||||||||||||||||||||||
30,000
|
-
|
0.34
|
1/19/2011
|
|||||||||||||||||||||||||
|
-
|
100,000
|
0.33
|
4/9/2011
|
||||||||||||||||||||||||
60,533
|
151,467
|
|||||||||||||||||||||||||||
Alicia
Haskamp
|
||||||||||||||||||||||||||||
Senior
Vice President of Sales & Product Development
|
14,400
|
3,600
|
N/A
|
9.00
|
10/31/2012
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||||||
30,000
|
-
|
5.60
|
3/7/2013
|
|||||||||||||||||||||||||
8,400
|
5,600
|
1.97
|
12/19/2013
|
|||||||||||||||||||||||||
10,600
|
-
|
1.97
|
12/19/2013
|
|||||||||||||||||||||||||
26,667
|
53,333
|
0.60
|
5/8/2015
|
|||||||||||||||||||||||||
|
-
|
100,000
|
0.33
|
4/9/2011
|
||||||||||||||||||||||||
90,067
|
162,533
|
|||||||||||||||||||||||||||
Dennis
Norden
|
-
|
-
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||||||
Former
Vice President of Sales
|
*The
Company does not grant any stock-based awards
|
Name
|
Fees
Earned or Paid in Cash
|
|
Stock
Awards
|
|
Option
(4)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
|
All
Other Compensation (5)
|
|
Total
|
|||||||||
Yi
Ping Chan (1)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Bernie
Appel
|
$
|
10,500
|
$
|
2,500
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
20,400
|
||||||||
Jay
Bauer
|
$
|
10,500
|
$
|
2,500
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
20,400
|
||||||||
Marc
Goldberg (2)
|
$
|
10,200
|
$
|
2,500
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
3,639
|
$
|
23,739
|
||||||||
Peter
Hon (3)
|
$
|
1,603
|
$
|
534
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
9,537
|
||||||||
Harvey
Judkowitz
|
$
|
10,500
|
$
|
2,500
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
20,400
|
||||||||
Carol
Lau (3)
|
$
|
2,103
|
$
|
534
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
10,037
|
||||||||
Yat
Tung Lau (3)
|
$
|
2,103
|
$
|
534
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
10,037
|
||||||||
Stewart
Merkin
|
$
|
10,700
|
$
|
2,500
|
$
|
7,400
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
20,600
|
(1) |
Yi
Ping Chan was our former Interim Chief Financial Officer and Chief
Operating Officer and did not receive additional compensation for
serving
as our director.
|
(2) |
Marc
Goldberg resigned from our board effective January 12,
2007
|
(3) |
Carol
Lau, Yat Tung Lau and Peter Hon joined our board effective January
12,
2007.
|
(4) |
Refer
to Note 1 “Stock Based Compensation” in the Notes to the Consolidated
Financial Statements included elsewhere in this Annual Report on
Form 10K for the relevant assumptions used to determine the valuation
of
our option awards.
|
(5) |
Includes
payments for consulting services
provided.
|
· |
An
initial grant of 20,000 Singing Machine stock options with an exercise
price determined as the closing price on the day of joining the board.
The
options will vest in one year and expire in ten years while they
are board
members or 90 days once they are no longer board
members.
|
· |
An
annual cash payment of $7,500 will be made for each completed full
year of
service or prorated for a partial year. The payment will be made
as of
March 31.
|
· |
An
annual stock grant of stock equivalent in value to $2,500 for each
completed full year of service or prorated for a partial year. The
stock
price at grant will be determined at the closing price on the day
of the
Annual Shareholder Meeting. The actual grant will be made on or before
March 31.
|
· |
An
annual grant of 20,000 Singing Machine stock options with an exercise
price determined as the closing price on the day of the Annual Shareholder
Meeting. If the Annual Meeting is held less than 6 months after the
board
member first joined the board he or she will not receive another
option
grant.
|
· |
Independent
board members will receive a $500 fee for each board meeting and
annual
meeting they attend. Committee meetings and telephone board meetings
will
be compensated with a $200 fee.
|
· |
All
expenses will be reimbursed for attending board, committee and annual
meetings or when their presence at a location away from home is
requested.
|
NUMBER
OF
SECURITIES
TO
BE ISSUED
|
WEIGHTED-
AVERAGE
EXERCISE
|
|
NUMBER
OF
SECURITIES
REMAINING
AVAILABLE
|
|||||||
UPON
|
|
PRICE
|
|
FOR
EQUITY
|
||||||
EXERCISE
|
|
OF
|
|
COMPENSATION
|
||||||
OF
|
OUTSTANDING
|
PLANS
|
||||||||
OUTSTANDINGS
|
|
OPTIONS,
|
|
(EXCLUDING
|
||||||
OPTION,
WARRANTS
|
WARRANTS
|
SECURITIES
IN
|
||||||||
PLAN
CATEGORY
|
AND
RIGHTS
|
|
AND
RIGHTS
|
|
COLUMN
(A))
|
|||||
Equity
Compensation Plans approved by Security
Holders
|
1,382,890
|
$
|
1.86
|
625,160
|
||||||
Equity
Compensation Plans Not approved
by Security Holders
|
0
|
$
|
0
|
0
|
· |
all
directors of the Singing Machine,
|
· |
all
named executive officers of the Singing Machine;
and
|
· |
persons
known to own more than 5% of our common stock.
|
Name
and position of owner
|
Title
of Class
|
|
Shares
of Common Stock (1)
|
|
Percent
of Common Stock
|
|||||
Yi
Ping Chan
|
Common
Stock
|
21,580
|
*
|
|||||||
Former
Interim CEO snd Chief Operating Officer
|
||||||||||
Danny
Zheng
|
Common
Stock
|
186,267
|
*
|
|||||||
Interim
Chief Executive Officer and Chief Financial Officer
|
||||||||||
Alicia
Haskamp
|
Common
Stock
|
|||||||||
Senior
Vice President of Sales and Product Development
|
216,733
|
*
|
||||||||
Dennis
Norden
|
Common
Stock
|
|||||||||
Former
President of Sales
|
-
|
*
|
||||||||
Joseph
Bauer (2)
|
Common
Stock
|
1,336,141
|
3.98
|
%
|
||||||
Director
|
||||||||||
Bernard
Appel
|
Common
Stock
|
74,022
|
*
|
|||||||
Director
|
||||||||||
Harvey
Judkowitz
|
Common
Stock
|
74,022
|
*
|
|||||||
Director
|
||||||||||
Carol
Lau
|
Common
Stock
|
574
|
*
|
|||||||
Chairwoman
|
||||||||||
Yat
Tung Lau
|
Common
Stock
|
574
|
*
|
|||||||
Director
|
||||||||||
Peter
Hon
|
Common
Stock
|
574
|
*
|
|||||||
Director
|
||||||||||
Marc
Goldberg
|
Common
Stock
|
2,688
|
*
|
|||||||
Former
Director
|
||||||||||
Stewart
Merkin
|
Common
Stock
|
51,675
|
*
|
|||||||
Director
|
||||||||||
Koncept
International Ltd (3)
|
Common
Stock
|
17,875,536
|
53.27
|
%
|
||||||
Majority
Shareholder
|
||||||||||
Gentle
Boss Investments Ltd
|
Common
Stock
|
2,100,000
|
6.26
|
%
|
||||||
Shareholder
|
||||||||||
All
Directors and Executive Officers as a Group (10 people)
|
Common
Stock
|
1,748,117
|
5.21
|
%
|
Fee
Category
|
Fiscal
2007
|
|
Fiscal
2006
|
||||
Audit
Fees
|
$
|
227,675
|
$
|
155,193
|
|||
Tax
Fees
|
15,000
|
0
|
|||||
All
Other Fees
|
1,150
|
1,500
|
|||||
Total
Fees
|
$
|
243,825
|
$
|
156,693
|
Exhibit
No.
|
Description
|
|
|
|
|
||
|
|
|
Date:
July 16, 2007
|
By:
|
/s/ Anton
H. Handal
|
|
Anton
H. Handal
|
|
|
Chief
Executive Officer
|
SIGNATURE
|
CAPACITY
|
|
DATE
|
|
/s/
ANTON
H. HANDAL
|
Chief
Executive Officer
|
July
16, 2007
|
||
Anton
H. Handal
|
||||
|
||||
/s/
DANNY
ZHENG
|
Chief
Financial Officer
|
July
16, 2007
|
||
Danny
Zheng
|
(Principal Accounting and Financial Officer) | |||
|
||||
|
Director
|
July
16, 2007
|
||
Josef A. Bauer |
||||
|
||||
/s/
BERNARD APPEL
|
Director
|
July
16, 2007
|
||
Bernard
Appel
|
||||
|
||||
/s/
HARVEY JUDKOWITZ
|
Director
|
July
16, 2007
|
||
Harvey
Judkowitz
|
||||
/s/
STEWART MERKIN
|
Director
|
July
16, 2007
|
||
Stewart
Merkin
|
||||
|
||||
/s/
CAROL LAU
|
Director
|
July
16, 2007
|
||
Carol
Lau
|
||||
|
||||
|
Director
|
July
16, 2007
|
||
Yat
Tung Lau
|
||||
|
||||
|
Director
|
July
16, 2007
|
||
Peter
Hon
|
||||
|
Reports
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Consolidated
Balance Sheets
|
F-3
|
|||
Consolidated
Statements of Operations
|
F-4
|
|||
Consolidated
Statements of Cash Flows
|
F-5
|
|||
Consolidated
Statements of Stockholders' Equity (Deficit)
|
F-6
|
|||
Notes
to Consolidated Financial Statements
|
F-7
|
March
31, 2007
|
|
|
March
31, 2006
|
|||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
1,188,900
|
$
|
423,548
|
||||
Restricted
cash
|
-
|
268,405
|
||||||
Accounts
receivable, net of allowances of $61,825 and
|
||||||||
$103,615,
respectively
|
1,054,371
|
1,169,271
|
||||||
Due
from factor
|
109,991
|
134,281
|
||||||
Inventories
|
2,280,083
|
1,688,058
|
||||||
Prepaid
expenses and other current assets
|
521,891
|
228,402
|
||||||
Total
Current Assets
|
5,155,236
|
3,911,965
|
||||||
Property
and Equipment, at
cost less accumulated depreciation
|
||||||||
of
$1,045,119 and $3,246,072 , respectively
|
446,510
|
513,615
|
||||||
Other
Non-Current Assets
|
56,054
|
98,687
|
||||||
Total
Assets
|
$
|
5,657,800
|
$
|
4,524,267
|
||||
Liabilities
and Shareholders' Equity (Deficit)
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
903,243
|
$
|
1,563,810
|
||||
Accounts
payable - related party
|
199,316
|
-
|
||||||
Accrued
expenses
|
624,994
|
648,182
|
||||||
Customer
credits on account
|
594,169
|
1,034,215
|
||||||
Deferred
gross profit on estimated returns
|
213,718
|
186,282
|
||||||
Loan
payable
|
-
|
2,000,000
|
||||||
Subordinated
debt-related parties
|
225,000
|
300,000
|
||||||
Income
tax payable
|
-
|
2,453,576
|
||||||
Total
Current Liabilities
|
2,760,440
|
8,186,065
|
||||||
Shareholders'
Equity (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;
|
||||||||
27,286,199
and 10,060,282 shares issued and outstanding
|
272,862
|
100,603
|
||||||
Additional
paid-in capital
|
17,306,342
|
11,658,031
|
||||||
Accumulated
deficit
|
(14,681,844
|
)
|
(15,420,432
|
)
|
||||
Total
Shareholders' Equity (Deficit)
|
2,897,360
|
(3,661,798
|
)
|
|||||
Total
Liabilities and Shareholders' Equity (Deficit)
|
$
|
5,657,800
|
$
|
4,524,267
|
The
accompanying notes are an integral part of these financial
statements.
|
For
Years Ended
|
||||||||||
March
31, 2007
|
March
31, 2006
|
March
31, 2005
|
||||||||
|
||||||||||
Net
Sales
|
$
|
26,732,144
|
$
|
32,305,560
|
$
|
38,209,825
|
||||
Cost
of Goods Sold
|
20,616,541
|
25,223,056
|
28,945,283
|
|||||||
Gross
Profit
|
6,115,603
|
7,082,504
|
9,264,542
|
|||||||
Operating
Expenses
|
||||||||||
Selling
expenses
|
2,308,959
|
2,169,168
|
3,546,185
|
|||||||
General
and administrative expenses
|
4,952,254
|
6,140,542
|
6,629,263
|
|||||||
Depreciation
and amortization
|
556,051
|
932,216
|
709,329
|
|||||||
Total
Operating Expenses
|
7,817,264
|
9,241,926
|
10,884,777
|
|||||||
Loss
from Operations
|
(1,701,661
|
)
|
(2,159,422
|
)
|
(1,620,235
|
)
|
||||
Other
Income (Expenses)
|
||||||||||
Other
income
|
-
|
103,396
|
204,267
|
|||||||
Gain
on sale of subsidiary and other assets
|
29,028
|
-
|
-
|
|||||||
Net
gain (loss) on retirement of convertible debentures
|
-
|
|||||||||
including
unpaid accrued interest of $259,726
|
-
|
2,253,725
|
-
|
|||||||
Interest
expense
|
(42,355
|
)
|
(487,307
|
)
|
(549,506
|
)
|
||||
Interest
expense - amortization of discount
|
||||||||||
on
convertible debentures
|
-
|
(1,615,642
|
)
|
(1,626,501
|
)
|
|||||
Net
Other Income (Expenses)
|
(13,327
|
)
|
254,172
|
(1,971,740
|
)
|
|||||
Loss
Before Reversal of Provision for Income Taxes
|
(1,714,988
|
)
|
(1,905,250
|
)
|
(3,591,975
|
)
|
||||
Reversal
of Provision for Income Taxes
|
2,453,576
|
-
|
-
|
|||||||
Net
Income (Loss)
|
$
|
738,588
|
$
|
(1,905,250
|
)
|
$
|
(3,591,975
|
)
|
||
Income
(Loss) per Common Share
|
||||||||||
Basic
|
$
|
0.03
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
||
Diluted
|
$
|
0.03
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
||
Weighted
Average Common and Common
|
||||||||||
Equivalent
Shares:
|
||||||||||
Basic
|
21,145,003
|
10,029,085
|
9,112,278
|
|||||||
Diluted
|
24,753,864
|
10,029,085
|
9,112,278
|
|||||||
The
accompanying notes are an integral part of these financial
statements.
|
For
Years Ended
|
||||||||||
March
31, 2007
|
March
31, 2005
|
March
31, 2005
|
||||||||
|
||||||||||
Cash
flows from operating activities
|
|
|||||||||
Net
Income (Loss)
|
$
|
738,588
|
$
|
(1,905,250
|
)
|
$
|
(3,591,975
|
)
|
||
Adjustments
to reconcile net income (loss) to net cash (used in) provided by
operating
activities:
|
||||||||||
Gain
on disposal of assets
|
(29,028
|
)
|
-
|
-
|
||||||
Gain
from debt restructure
|
-
|
(2,253,725
|
)
|
|||||||
Depreciation
and amortization
|
556,051
|
688,951
|
709,291
|
|||||||
Change
in inventory reserve
|
(902,071
|
)
|
(681,767
|
)
|
(4,912,717
|
)
|
||||
Change
in allowance for bad debts
|
(41,790
|
)
|
95,016
|
19,797
|
||||||
Amortization
of discount/deferred fees on convertible debentures
|
-
|
1,858,911
|
938,864
|
|||||||
Stock
compensation
|
194,870
|
22,473
|
990,138
|
|||||||
Deferred
gross profit on estimated sales returns
|
27,436
|
(209,949
|
)
|
396,231
|
||||||
Reversal
of provision for income taxes
|
(2,453,576
|
)
|
-
|
-
|
||||||
Changes
in assets and liabilities:
|
||||||||||
(Increase)
Decrease in:
|
||||||||||
Accounts
receivable
|
156,690
|
(113,445
|
)
|
2,635,527
|
||||||
Insurance
Receivable
|
-
|
-
|
800,000
|
|||||||
Inventories
|
310,046
|
2,088,646
|
7,741,047
|
|||||||
Due
from manufacturer
|
-
|
-
|
95,580
|
|||||||
Prepaid
expenses and other assets
|
(293,489
|
)
|
278,902
|
276,188
|
||||||
Other
non-current assets
|
42,633
|
12,711
|
261,112
|
|||||||
Increase
(Decrease) in:
|
||||||||||
Accounts
payable
|
(160,566
|
)
|
97,239
|
(3,185,104
|
)
|
|||||
Accounts
payable - related party
|
199,316
|
-
|
-
|
|||||||
Accrued
expenses
|
(23,190
|
)
|
214,133
|
(2,788,129
|
)
|
|||||
Customer
credits on account
|
(440,046
|
)
|
(625,110
|
)
|
(452,160
|
)
|
||||
Current
income taxes
|
-
|
-
|
1,184,342
|
|||||||
Net
cash (used in) provided by operating activities
|
(2,118,126
|
)
|
(432,264
|
)
|
1,118,032
|
|||||
Cash
flows from investing activities
|
||||||||||
Purchase
of property and equipment
|
(488,946
|
)
|
(163,723
|
)
|
(764,153
|
)
|
||||
Receipt
of restricted cash
|
268,405
|
602,390
|
3,488
|
|||||||
Proceeds
from sale of subsidiary and other assets
|
29,028
|
-
|
-
|
|||||||
Net
cash (used in) provided by investing activities
|
(191,513
|
)
|
438,667
|
(760,665
|
)
|
|||||
Cash
flows from financing activities
|
||||||||||
Borrowings
from factoring, net
|
24,290
|
(99,909
|
)
|
(34,372
|
)
|
|||||
Bank
overdraft
|
-
|
-
|
(62,282
|
)
|
||||||
Payment
on convertible debentures
|
-
|
(2,000,000
|
)
|
-
|
||||||
Proceeds
from related party loan
|
-
|
2,200,000
|
240,000
|
|||||||
Payment
on related party loan
|
(75,000
|
)
|
(300,000
|
)
|
(240,000
|
)
|
||||
Proceeds
from issuance of stock
|
3,125,700
|
-
|
-
|
|||||||
Net
cash provided by (used in) financing activities
|
3,074,990
|
(199,909
|
)
|
(96,654
|
)
|
|||||
Change
in cash and cash equivalents
|
765,352
|
(193,506
|
)
|
260,712
|
||||||
Cash
and cash equivalents at beginning of period
|
423,548
|
617,054
|
356,342
|
|||||||
Cash
and cash equivalents at end of period
|
$
|
1,188,900
|
$
|
423,548
|
$
|
617,054
|
||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||
Cash
paid for Interest
|
$
|
57,769
|
$
|
272,852
|
$
|
557,339
|
||||
Cash
paid for Taxes
|
$
|
-
|
$
|
-
|
$
|
50,000
|
||||
Non-Cash
Financing Activities:
|
||||||||||
Related
party loan paid off with stock
|
$
|
-
|
$
|
200,000
|
$
|
409,500
|
||||
Conversion
of loan payable to equity
|
$
|
2,000,000
|
$
|
-
|
$
|
-
|
||||
Discounts
for warrants issued in connection with the
|
||||||||||
beneficial
conversion feature of the convertible debentures
|
$
|
-
|
$
|
-
|
$
|
687,638
|
||||
Conversion
of accounts payable to equity
|
$
|
500,000
|
$
|
-
|
$
|
-
|
The
accompanying notes are an integral part of these financial
statements.
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid
|
Accumulated
|
|||||||||||||||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
in
Capital
|
|
Deficit
|
|
Total
|
||||||||
Balance
at March 31, 2004
|
-
|
-
|
8,752,318
|
$
|
87,523
|
$
|
10,052,498
|
$
|
(9,923,207
|
)
|
$
|
216,814
|
||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(3,591,975
|
)
|
(3,591,975
|
)
|
|||||||||||||
Adjustment
for 3 to 2 rev. split fraction share
|
-
|
-
|
4,001
|
40
|
(40
|
)
|
-
|
-
|
||||||||||||||
Stock
Compensation
|
-
|
-
|
450,000
|
4,500
|
288,500
|
-
|
293,000
|
|||||||||||||||
Additional
discount due to Convertible debentures
|
||||||||||||||||||||||
price
reset
|
-
|
-
|
-
|
-
|
687,638
|
-
|
687,638
|
|||||||||||||||
Stock
issued as payment of related party loans
|
-
|
-
|
563,274
|
5,633
|
403,867
|
-
|
409,500
|
|||||||||||||||
Balance
at March 31, 2005
|
-
|
-
|
9,769,593
|
97,696
|
11,432,463
|
(13,515,182
|
)
|
(1,985,023
|
)
|
|||||||||||||
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
(1,905,250
|
)
|
(1,905,250
|
)
|
|||||||||||||
Conversion
of Insider Loan
|
-
|
-
|
290,689
|
2,907
|
206,260
|
209,167
|
||||||||||||||||
Warrants
related to debenture payment settlement
|
-
|
-
|
-
|
-
|
6,000
|
-
|
6,000
|
|||||||||||||||
Employee
compensation - stock option
|
-
|
-
|
-
|
-
|
13,308
|
-
|
13,308
|
|||||||||||||||
Balance
at March 31, 2006
|
-
|
-
|
10,060,282
|
100,603
|
11,658,031
|
(15,420,432
|
)
|
(3,661,798
|
)
|
|||||||||||||
Net
Income
|
-
|
-
|
-
|
-
|
-
|
738,588
|
738,588
|
|||||||||||||||
Employee
compensation-stock option
|
-
|
-
|
-
|
-
|
182,369
|
-
|
182,369
|
|||||||||||||||
Exercise
of employee stock options
|
-
|
-
|
285,000
|
2,850
|
122,350
|
-
|
125,200
|
|||||||||||||||
Director
Fees
|
-
|
-
|
39,065
|
391
|
12,110
|
-
|
12,501
|
|||||||||||||||
Issuances
of common stock
|
-
|
-
|
16,901,852
|
169,018
|
5,331,482
|
-
|
5,500,500
|
|||||||||||||||
Balance
at March 31, 2007
|
-
|
-
|
27,286,199
|
$
|
272,862
|
$
|
17,306,342
|
$
|
(14,681,844
|
)
|
$
|
2,897,360
|
For
year ended
|
||||||||||
March
31, 2006
|
March
31, 2005
|
|||||||||
Net
loss, as reported
|
$
|
(1,905,250
|
)
|
$
|
(3,591,975
|
)
|
||||
Less:
Total stock-based employee compensation expense determined under
fair
value based method
|
(484,103
|
)
|
(497,902
|
)
|
||||||
Net
loss, pro forma
|
$
|
(2,389,353
|
)
|
$
|
(4,089,877
|
)
|
||||
Net
loss, per share - basic
|
As
reported
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
|||
Pro
forma
|
$
|
(0.24
|
)
|
$
|
(0.45
|
)
|
||||
Net
loss, per share - diluted
|
As
reported
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
|||
Pro
forma
|
$
|
(0.24
|
)
|
$
|
(0.45
|
)
|
March
31,
|
|
March
31,
|
|
||||
|
|
2007
|
|
2006
|
|||
Finished
Goods
|
$
|
2,334,381
|
$
|
2,637,277
|
|||
Inventory
in Transit
|
144,550
|
146,904
|
|||||
Less:
Inventory Reserve
|
(198,848
|
)
|
(1,096,123
|
)
|
|||
Total
Inventories
|
$
|
2,280,083
|
$
|
1,688,058
|
|
|
USEFUL
|
|
MARCH
31,
|
|
MARCH
31,
|
|
|||
|
|
LIFE
|
|
2007
|
|
2006
|
||||
Computer
and office equipment
|
5
years
|
$
|
440,946
|
$
|
478,401
|
|||||
Furniture
and fixtures
|
5-7
years
|
220,171
|
402,081
|
|||||||
Leasehold
improvement
|
*
|
209,004
|
154,125
|
|||||||
Molds
and tooling
|
3
years
|
621,508
|
2,725,080
|
|||||||
1,491,629
|
3,759,687
|
|||||||||
Less:
Accumulated depreciation
|
(1,045,119
|
)
|
(3,246,072
|
)
|
||||||
$
|
446,510
|
$
|
513,615
|
|
|
Property
Lease
|
|
Equipment
Lease
|
|||
For
period
|
|||||||
Less
than 1 year
|
$
|
626,408
|
$
|
9,888
|
|||
1
-
3 years
|
30,125
|
24,928
|
|||||
$
|
656,533
|
$
|
34,816
|
Royalty
Payments
|
||||
For
period
|
||||
Less
than 1 year
|
$
|
242,500
|
||
1
-
3 years
|
227,500
|
|||
$
|
470,000
|
FISCAL
YEARS ENDED MARCH 31
|
||||||||||
2007
|
|
2006
|
|
2005
|
||||||
Net
earnings (loss)
|
$
|
738,588
|
$
|
(1,905,250
|
)
|
$
|
(3,576,706
|
)
|
||
Earnings
(loss) available to common shareholders
|
$
|
738,588
|
$
|
(1,905,250
|
)
|
$
|
(3,576,706
|
)
|
||
Weighted
average shares outstanding - basic
|
21,145,003
|
10,029,085
|
9,112,278
|
|||||||
Earnings
(loss) per share - basic
|
$
|
0.03
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
||
Effect
of dilutive securities:
|
||||||||||
Stock
options/Warrants
|
3,608,861
|
-
|
-
|
|||||||
|
||||||||||
Weighted
average shares outstanding - diluted
|
24,753,864
|
10,029,085
|
9,112,278
|
|||||||
Earnings
(loss) per share - diluted
|
$
|
0.03
|
$
|
(0.19
|
)
|
$
|
(0.39
|
)
|
|
Fiscal
2007
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
|||||||||||||
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
Number
of Options
|
|
Weighted
Average Exercise Price
|
|
||||||
Stock
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance
at beginning of period
|
1,300,110
|
$
|
1.74
|
1,041,610
|
$
|
3.67
|
1,027,530
|
$
|
3.95
|
||||||||||
Granted
|
943,000
|
$
|
0.39
|
841,000
|
$
|
0.50
|
261,890
|
$
|
0.85
|
||||||||||
Exercised
|
(285,000
|
)
|
$
|
0.44
|
-
|
$
|
0.00
|
-
|
$
|
0.00
|
|||||||||
Forfeited
|
(575,220
|
)
|
$
|
1.34
|
(582,500
|
)
|
$
|
3.48
|
(247,810
|
)
|
$
|
1.76
|
|||||||
Balance
at end of period
|
1,382,890
|
$
|
1.26
|
1,300,110
|
$
|
1.74
|
1,041,610
|
$
|
3.67
|
||||||||||
Options
exercisable at end of period
|
582,307
|
$
|
2.14
|
392,161
|
$
|
3.52
|
775,831
|
$
|
3.58
|
Range
of Exercise Price
|
Number
Outstanding at March 31, 2007
|
|
Weighted
Average Remaining Contractural Life
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable at March 31, 2007
|
|
Weighted
Average Exercise Price
|
|||||||
$0.32-$0.77
|
1,136,000
|
6.14
|
$
|
0.50
|
365,667
|
0.55
|
||||||||||
$1.05-$1.97
|
120,840
|
7.02
|
$
|
1.53
|
101,190
|
1.50
|
||||||||||
$2.04-$5.60
|
43,050
|
5.18
|
$
|
4.52
|
43,050
|
4.52
|
||||||||||
$7.20-$11.09
|
83,000
|
5.67
|
$
|
9.54
|
72,400
|
9.67
|
||||||||||
1,382,890
|
582,307
|
2007
|
|
2006
|
|
2005
|
||||||
Current:
|
||||||||||
U.S.
Federal
|
$
|
(781,917
|
)
|
$
|
550,839
|
$
|
-
|
|||
Foreign
|
(2,453,576
|
)
|
(129,090
|
)
|
-
|
|||||
State
|
(69,080
|
)
|
74,870
|
-
|
||||||
Deferred
|
850,997
|
(496,619
|
)
|
-
|
||||||
$
|
(2,453,576
|
)
|
$
|
-
|
$
|
-
|
|
2007
|
|
2006
|
|
2005
|
|||||
United
States
|
$
|
(2,316,348
|
)
|
$
|
(1,167,591
|
)
|
$
|
(2,943,847
|
)
|
|
Foreign
|
601,360
|
(737,659
|
)
|
(648,128
|
)
|
|||||
$
|
(1,714,988
|
)
|
$
|
(1,905,250
|
)
|
$
|
(3,591,975
|
)
|
2007
|
2006
|
2005
|
||||||||
Expected
tax (benefit) expense
|
$
|
(583,096
|
)
|
$
|
(647,785
|
)
|
$
|
(1,221,272
|
)
|
|
State
income taxes, net of Federal income tax benefit
|
(69,080
|
)
|
(110,506
|
)
|
(195,293
|
)
|
||||
Permanent
differences
|
5,640
|
5,550
|
5,561
|
|||||||
Deemed
Dividend
|
-
|
1,224,000
|
-
|
|||||||
Change
in valuation allowance
|
(3,702,790
|
)
|
(4,019,030
|
)
|
1,370,786
|
|||||
Tax
rate differential on foreign earnings
|
(204,462
|
)
|
121,714
|
106,941
|
||||||
Reversal
of provision for foreign income taxes
|
(2,453,576
|
)
|
-
|
-
|
||||||
Other
|
4,553,788
|
3,426,057
|
(66,723
|
)
|
||||||
Actual
tax (benefit) expense
|
$
|
(2,453,576
|
)
|
$
|
-
|
$
|
-
|
2007
|
|
2006
|
|
2005
|
||||||
Deferred
tax assets:
|
||||||||||
Federal
net operating loss carryforward
|
$
|
2,034,910
|
$
|
2,325,138
|
$
|
5,874,969
|
||||
State
net operating loss carryforward
|
291,285
|
466,092
|
697,710
|
|||||||
Hong
Kong net operating loss carryforward
|
-
|
340,916
|
211,826
|
|||||||
AMT
credit carryforward
|
70,090
|
70,090
|
70,090
|
|||||||
Inventory
differences
|
66,942
|
505,452
|
600,628
|
|||||||
Hong
Kong foreign tax credit
|
-
|
2,453,576
|
2,447,746
|
|||||||
Allowance
for doubtful accounts
|
21,021
|
35,229
|
40,054
|
|||||||
Reserve
for sales returns
|
72,664
|
63,336
|
336,188
|
|||||||
Charitable
contributions
|
60,700
|
60,573
|
59,364
|
|||||||
Amortization
of reorganization intangible
|
53,652
|
53,652
|
68,981
|
|||||||
Total
deferred tax assets
|
2,671,264
|
6,374,054
|
10,407,556
|
|||||||
Deferred
tax liability:
|
||||||||||
Depreciation
|
-
|
-
|
(14,473
|
)
|
||||||
Total
deferred tax liability
|
-
|
-
|
(14,473
|
)
|
||||||
Net
deferred tax assets before valuation allowance
|
2,671,264
|
6,374,054
|
10,393,083
|
|||||||
Valuation
allowance
|
(2,671,264
|
)
|
(6,374,054
|
)
|
(10,393,083
|
) | ||||
Net
deferred tax assets
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
FOR
THE FISCAL YEARS ENDED
|
|
|||||||
|
|
March
31,
|
|
|||||||
|
|
2007
|
|
2006
|
|
2005
|
||||
North
America
|
$
|
20,552,962
|
$
|
22,458,950
|
$
|
28,227,140
|
||||
Europe
|
5,793,062
|
9,655,939
|
9,531,632
|
|||||||
Others
|
386,120
|
190,671
|
451,053
|
|||||||
$
|
26,732,144
|
$
|
32,305,560
|
$
|
38,209,825
|
Basic
|
Diluted
|
|||||||||||||||
|
|
|
Earnings
|
Earnings
|
||||||||||||
|
|
|
Net
Earnings
|
(Loss)
|
(Loss)
|
|||||||||||
|
Sales
|
Gross
Profit
|
(Loss)
|
Per
Share
|
Per
Share
|
|||||||||||
(In
thousands)
|
(In
thousands)
|
(In
thousands)
|
||||||||||||||
2007
|
||||||||||||||||
First
quarter
|
$
|
1,036
|
$
|
126
|
$
|
(1,151
|
)
|
$
|
(0.11
|
)
|
$
|
(0.11
|
)
|
|||
Second
quarter
|
14,299
|
3,046
|
806
|
0.04
|
0.03
|
|||||||||||
Third
quarter
|
11,018
|
3,289
|
2,824
|
0.11
|
0.10
|
|||||||||||
Fourth
quarter
|
379
|
(345
|
)
|
(1,740
|
)
|
(0.08
|
)
|
(0.08
|
)
|
|||||||
Fiscal
Year 2007
|
$
|
26,732
|
$
|
6,116
|
$
|
739
|
$
|
0.03
|
$
|
0.03
|
||||||
2006
|
||||||||||||||||
First
quarter
|
$
|
2,792
|
$
|
437
|
$
|
(1,902
|
)
|
$
|
(0.19
|
)
|
$
|
(0.19
|
)
|
|||
Second
quarter
|
18,532
|
3,823
|
926
|
0.09
|
0.09
|
|||||||||||
Third
quarter
|
9,877
|
2,580
|
(565
|
)
|
(0.06
|
)
|
(0.06
|
)
|
||||||||
Fourth
quarter
|
1,104
|
243
|
(364
|
)
|
(0.03
|
)
|
(0.03
|
)
|
||||||||
Fiscal
Year 2006
|
$
|
32,305
|
$
|
7,083
|
$
|
(1,905
|
)
|
$
|
(0.19
|
)
|
$
|
(0.19
|
)
|
|||
2005
|
||||||||||||||||
First
quarter
|
$
|
3,857
|
$
|
770
|
$
|
(1,520
|
)
|
$
|
(0.17
|
)
|
$
|
(0.17
|
)
|
|||
Second
quarter
|
18,753
|
4,260
|
722
|
0.08
|
0.06
|
|||||||||||
Third
quarter
|
14,368
|
4,923
|
493
|
0.05
|
0.05
|
|||||||||||
Fourth
quarter
|
1,232
|
(688
|
)
|
(3,287
|
)
|
(0.35
|
)
|
(0.33
|
)
|
|||||||
Fiscal
Year 2005
|
$
|
38,210
|
$
|
9,265
|
$
|
(3,592
|
)
|
$
|
(0.39
|
)
|
$
|
(0.39
|
)
|
Description
|
Balance
at Beginning of Period |
Charged
to Costs and Expenses |
Reduction
to Allowance for Write off |
Credited
to Costs and |
Balance
at End of |
|||||||||||
Year
ended March 31, 2007
|
||||||||||||||||
Reserves
deducted from assets to which they apply:
|
||||||||||||||||
apply:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$
|
103,615
|
$
|
40,082
|
$
|
(26,973
|
)
|
$
|
(54,900
|
)
|
$
|
61,824
|
||||
Deferred
tax valuation allowance
|
$
|
6,374,053
|
$
|
-
|
$
|
-
|
$
|
(3,702,789
|
)
|
$
|
2,671,264
|
|||||
Inventory
reserve
|
$
|
1,096,123
|
$
|
121,969
|
$
|
(747,505
|
)
|
$
|
(271,739
|
)
|
$
|
198,848
|
||||
Year
ended March 31, 2006
|
||||||||||||||||
Reserves
deducted from assets to which they apply:
|
||||||||||||||||
apply:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$
|
117,805
|
$
|
561,271
|
$
|
(575,460
|
)
|
$
|
-
|
$
|
103,615
|
|||||
Deferred
tax valuation allowance
|
$
|
10,393,084
|
$
|
-
|
$
|
-
|
$
|
(4,019,031
|
)
|
$
|
6,374,053
|
|||||
Inventory
reserve
|
$
|
1,668,430
|
$
|
83,099
|
$
|
(516,742
|
)
|
$
|
(138,664
|
)
|
$
|
1,096,123
|
||||
Year
ended March 31, 2005
|
||||||||||||||||
Reserves
deducted from assets to which they apply:
|
||||||||||||||||
apply:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$
|
98,009
|
$
|
42,101
|
$
|
(7,954
|
)
|
$
|
(14,351
|
)
|
$
|
117,805
|
||||
Deferred
tax valuation allowance
|
$
|
8,160,924
|
$
|
2,232,160
|
$
|
-
|
$
|
-
|
$
|
10,393,084
|
||||||
Inventory
reserve
|
$
|
7,161,875
|
$
|
273,611
|
$
|
(191,942
|
)
|
$
|
(5,575,115
|
)
|
$
|
1,668,430
|
||||