Document And Entity Information
Document And Entity Information - shares | 3 Months Ended | |
Jun. 30, 2017 | Aug. 14, 2017 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | SINGING MACHINE CO INC | |
Entity Central Index Key | 923,601 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 38,259,303 | |
Trading Symbol | SMDM | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Jun. 30, 2017 | Mar. 31, 2017 |
Current Assets | ||
Cash | $ 430,944 | $ 2,305,439 |
Accounts receivable, net of allowances of $126,555 and $132,583, respectively | 2,762,249 | 1,655,518 |
Due from PNC Bank | 242,859 | |
Accounts receivable related party - other | 5,747 | |
Inventories, net | 8,661,876 | 5,426,346 |
Prepaid expenses and other current assets | 397,621 | 81,278 |
Deferred financing costs | 13,333 | 21,606 |
Total Current Assets | 12,823,670 | 9,733,046 |
Property and equipment, net | 554,928 | 412,805 |
Other non-current assets | 11,523 | 11,523 |
Deferred financing costs, net of current portion | 26,667 | |
Deferred tax asset | 1,762,335 | 1,479,209 |
Total Assets | 15,179,123 | 11,636,583 |
Current Liabilities | ||
Accounts payable | 4,522,450 | 1,381,870 |
Current portion of bank term note payable | 500,000 | |
Due to related party | 149,787 | 0 |
Accrued expenses | 726,287 | 626,331 |
Revolving line of credit | 683,986 | |
Obligations to customers for returns and allowances | 108,175 | 38,460 |
Warranty provisions | 93,989 | 223,700 |
Total Current Liabilities | 7,230,895 | 4,194,792 |
Bank term note payable, net of current portion | 500,000 | |
Total Liabilities | 8,209,105 | 4,194,792 |
Commitments and Contingencies | ||
Shareholders' Equity | ||
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding | ||
Additional paid-in capital | 19,468,024 | 19,412,787 |
Accumulated deficit | (12,880,599) | (12,353,589) |
Total Shareholders' Equity | 6,970,018 | 7,441,791 |
Total Liabilities and Shareholders' Equity | 15,179,123 | 11,636,583 |
Common Class A [Member] | ||
Shareholders' Equity | ||
Common stock | ||
Common Class B [Member] | ||
Shareholders' Equity | ||
Common stock | 382,593 | 382,593 |
Cosmo Communications Canada,Ltd [Member] | ||
Current Assets | ||
Accounts receivable related party | 241,128 | |
Winglight Pacific Ltd [Member] | ||
Current Assets | ||
Accounts receivable related party | 310,772 | |
Starlight Electronics Co Ltd [Member] | ||
Current Liabilities | ||
Due to related party | 79,824 | |
Merrygain Holding Co Ltd [Member] | ||
Current Liabilities | ||
Due to related party | 38,487 | |
Starlight Consumer Electronics USA, Inc [Member] | ||
Current Liabilities | ||
Due to related party | 31,476 | |
Subordinated Debt [Member] | Starlight Marketing Development, Ltd [Member] | ||
Current Liabilities | ||
Due to related party | 446,221 | 1,924,431 |
Subordinated related party debt - Startlight Marketing Development, Ltd., net of current portion | $ 478,210 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Jun. 30, 2017 | Mar. 31, 2017 |
Allowance for doubtful accounts receivable net | $ 126,555 | $ 132,583 |
Preferred stock, par value | $ 1 | $ 1 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common Class A [Member] | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000 | 100,000 |
Common stock, shares issued | ||
Common stock, shares outstanding | ||
Common Class B [Member] | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 38,259,303 | 38,259,303 |
Common stock, shares outstanding | 38,259,303 | 38,259,303 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Income Statement [Abstract] | ||
Net Sales | $ 3,939,733 | $ 4,859,392 |
Cost of Goods Sold | 2,860,584 | 3,715,709 |
Gross Profit | 1,079,149 | 1,143,683 |
Operating Expenses | ||
Selling expenses | 463,747 | 424,878 |
General and administrative expenses | 1,359,231 | 1,246,851 |
Depreciation | 43,213 | 43,795 |
Total Operating Expenses | 1,866,191 | 1,715,524 |
Loss from Operations | (787,042) | (571,841) |
Other Expenses | ||
Interest expense | (283) | (16,027) |
Financing costs | (21,606) | (18,519) |
Total Other Expenses | (21,889) | (34,546) |
Loss Before Income Tax Benefit | (808,931) | (606,387) |
Income Tax Benefit | 281,921 | 169,314 |
Net Loss | $ (527,010) | $ (437,073) |
Loss per Common Share | ||
Basic and Diluted | $ (0.01) | $ (0.01) |
Weighted Average Common and Common Equivalent Shares: | ||
Basic and Diluted | 38,259,303 | 38,181,635 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Cash flows from operating activities: | ||
Net Loss | $ (527,010) | $ (437,073) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 43,213 | 43,795 |
Amortization of deferred financing costs | 21,606 | 18,519 |
Change in inventory reserve | (375,000) | 66,000 |
Change in allowance for bad debts | (6,028) | 23,319 |
Stock based compensation | 55,237 | 9,329 |
Change in net deferred tax asset | (283,126) | (198,588) |
(Increase) decrease in: | ||
Accounts receivable | (1,100,703) | (2,092,830) |
Due from PNC Bank | 242,859 | 183,531 |
Accounts receivable - related parties | (557,647) | (325,333) |
Inventories | (2,860,530) | (4,742,982) |
Prepaid expenses and other current assets | (316,343) | (33,205) |
Other non-current assets | (129) | |
Increase (decrease) in: | ||
Accounts payable | 3,140,580 | 5,604,524 |
Due to related parties | 149,787 | 521,648 |
Accrued expenses | 99,956 | 84,161 |
Obligations to clients for returns and allowances | 69,715 | (98,678) |
Warranty provisions | (129,711) | (99,237) |
Net cash used in operating activities | (2,333,145) | (1,473,229) |
Cash flows from investing activities: | ||
Purchase of property and equipment | (185,336) | (65,531) |
Net cash used in investing activities | (185,336) | (65,531) |
Cash flows from financing activities: | ||
Net proceeds from revolving line of credit | 683,986 | |
Proceeds from bank term note | 1,000,000 | |
Proceeds from exercise of stock options | 6,400 | |
Payment of deferred financing costs | (40,000) | |
Payment on subordinated debt - related party | (1,000,000) | |
Payments on capital lease | (1,078) | |
Net cash provided by (used in) financing activities | 643,986 | (133,215) |
Net change in cash | (1,874,495) | (1,671,975) |
Cash at beginning of period | 2,305,439 | 2,116,490 |
Cash at end of period | 430,944 | 444,515 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | 283 | 15,027 |
Cash paid for income taxes | 30,000 | |
Ram Light Management, Ltd [Member] | ||
Cash flows from financing activities: | ||
Payment on note payable related party - Ram Light Management, Ltd. | $ (138,537) |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Jun. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | NOTE 1 – BASIS OF PRESENTATION OVERVIEW The Singing Machine Company, Inc., a Delaware corporation (the “Company”, “SMC”, “The Singing Machine”) and its three wholly-owned subsidiaries SMC (Comercial Offshore De Macau) Limitada (“Macau Subsidiary”), SMC Logistics, Inc. (“SMC-L”) and SMC-Music, Inc.(“SMC-M”) are primarily engaged in the development, marketing, and sale of consumer karaoke audio systems, accessories, musical instruments and musical recordings. The products are sold by SMC to retailers and distributors for resale to consumers. |
Summary of Accounting Policies
Summary of Accounting Policies | 3 Months Ended |
Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Summary of Accounting Policies | NOTE 2- SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in the condensed consolidated financial statements. The accompanying unaudited financial statements for the three months ended June 30, 2017 and 2016 have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet information as of March 31, 2017 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2017. The interim condensed 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, warranty reserves, inventory reserves, the allowance for doubtful accounts 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. Future events and their effects cannot be determined with absolute certainty; therefore, the determination of estimates requires the exercise of judgment. 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 in 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. The Company is subject to chargebacks from customers for cooperative marketing programs, defective returns, return freight and handling charges that are deducted from open invoices and reduce collectability of open invoices. 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. FOREIGN CURRENCY TRANSLATION The functional currency of the Macau Subsidiary is the Hong Kong dollar. The financial statements of the subsidiaries 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 At times, the Company maintains cash in United States bank accounts that are in excess of the Federal Deposit Insurance Corporation insured amounts. The Company maintains cash balances in foreign financial institutions. The amounts at foreign financial institutions at June 30, 2017 and March 31, 2017 are $180,371 and $150,665, respectively. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of accounts receivable. INVENTORY Inventories are comprised primarily of electronic karaoke equipment, microphones and accessories, and are stated at the lower of cost or net realizable value 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. As of June 30, 2017 and March 31, 2017, the Company had inventory reserves of $325,000 and $700,000, respectively, for estimated excess and obsolete inventory. LONG-LIVED ASSETS The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted future cash flows attributable to the related assets are less than the carrying amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance FASB ASC 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using accelerated and straight-line methods. FAIR VALUE OF FINANCIAL INSTRUMENTS We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, 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, accounts payable, accrued expenses, obligations to clients for returns and allowances, and due to/from related parties approximates fair value due to the relatively short period to maturity for these instruments. The carrying amounts on the bank term note payable and the subordinated debt to Starlight Marketing Development, Ltd. (related party) approximate fair value due to the relatively short period to maturity and related interest accrued at a rate similar to market rates. The carrying amounts on the revolving line of credit approximates fair value due the relatively short period to maturity and related interest accrued at market rates. REVENUE RECOGNITION Revenue from the sale of equipment, accessories, musical recordings and subscriptions and third –party logistics services are recognized upon the later of: (a) the time of shipment or (b) when title passes to the customers and all significant contractual obligations and services have been satisfied and collection of the resulting receivable is reasonably assured. Net sales are comprised of gross sales net of actual and estimated future returns, discounts and volume rebates. SHIPPING AND HANDLING COSTS Shipping and handling costs are classified as a component of selling expenses and those billed to customers are recorded as a reduction of expense in the condensed consolidated statements of operations. STOCK BASED COMPENSATION The Company follows the provisions of the FASB ASC 718-20, “Compensation – Stock Compensation Awards Classified as Equity”. 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 condensed consolidated statements of income over the service period (generally the vesting period). The Company uses the Black-Scholes option valuation model to value stock options. Employee stock option compensation expense for the three months ended June 30, 2017 and 2016 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. For the three months ended June 30, 2017 and 2016, the stock option expense was $55,237 and $9,329, respectively. ADVERTISING Costs incurred for producing and publishing advertising of the Company are charged to operations the first time the advertising takes place. The Company has entered into cooperative advertising agreements with its major customers that specifically indicated that the customer 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 10% of the purchase. The customers have to advertise the Company’s products in the customer’s catalog, local newspaper and other advertising media. The customer 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 customer 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 three months ended June 30, 2017 and 2016 was $235,300 and $205,050, respectively. As of June 30, 2017 and March 31, 2017 there was an accrual for cooperative advertising allowances of $207,132 and $167,378, respectively. These amounts were a component of accrued expenses in the condensed consolidated balance sheets. RESEARCH AND DEVELOPMENT COSTS 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 condensed consolidated statements of operations. For the three months ended June 30, 2017 and 2016, these amounts totaled $58,608 and $45,636 respectively. INCOME TAXES T h C o m p n f o ll o w t h p o v isi on of F A S A S 74 A o un t i n f o n o m T x n d t h ss n li b ili t m t h o o A S 740 d f t s s t n li b ilit i og n i f o t h u t u t o n s q u n e tt i b u t t d i ff e n b t w e t h i n a n i st t e m e n r y i ng a m ou n t o x i s ti n s s t a n li b iliti n t h i s p t i v t b s f t s s e t n li b iliti e m s u u s i n e n t t t x p t t pp l t t a x b l i n o m i t h y i w h i t h o s t e m po r d i ff e n e x p t t b o v o s t t l d n d A S 740 t he f o d f t ss t a n li b iliti o h n g i t t i o gn i i i n o m i t h p i o t h i n l u d t h n t m e n d t i i m o li k l t h n o t h s o m po ti o o d f t ss i l n o b li d v l u t i o ll o a n i og n i d The Company analyzes its deferred tax assets and liabilities at the end of each interim period and, based on management’s best estimate of its full year effective tax rate, recognizes cumulative adjustments to its deferred tax assets and liabilities. The Company’s effective tax rate for the fiscal year ending March 31, 2018 is estimated to be approximately 35%. The effective tax rate for the full year ended March 31, 2017 was approximately 33%. As of June 30, 2017 and March 31, 2017, The Singing Machine had gross deferred tax assets of approximately $1.8 million and $1.5 million respectively. The Company recorded an income tax benefit of approximately $282,000 and $169,000 for the three months ended June 30, 2017 and 2016, respectively. The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. As of June 30, 2017 there were no uncertain tax positions that resulted in any adjustment to the Company’s provision for income taxes. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions. As of June 30, 2017, the Company is subject to U.S. Federal income tax examinations for the tax years ended March 31, 2015 and subsequent years. COMPUTATION OF LOSS PER COMMON SHARE Loss per common share is computed by dividing the net loss by the weighted average of common shares outstanding during the period. As of June 30, 2017 and 2016 total potential dilutive shares from common stock options amounted to approximately 1,870,000 and 1,605,000 shares, respectively, however these shares were not included in the computation of diluted earnings per share for the three months ended June 30, 2017 and June 30, 2016 because their effect was anti-dilutive. RECENT ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for companies to use when accounting for revenue arising from contracts with customers. The core principle of the revenue recognition model is that an entity recognizes revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle a company must apply the following steps in determining revenue recognition: ● Identify the contract(s) with a customer ● Identify the performance obligations in the contract. ● Determine the transaction price. ● Allocate the transaction price to the performance obligations in the contract. ● Recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in this ASU are now effective for annual reporting periods beginning April 1, 2018 including interim periods within that reporting period. Management plans to adopt ASU 2014-09 using the full retrospective method of implementation. Management has assessed the effect of implementing ASU 2014-09 to determine the effect on the Company’s financial statements. After examining the Company’s performance obligations in its contracts, most of the Company’s customers (other than distributors) have “customer acceptance rights” in that customers are allowed to return defective goods within a specified period after shipment (between 6 and 9 months) after goods have been shipped. Currently, the Company recognizes a liability for the estimated net amount of sales less related cost of goods sold of expected returned goods at the time of sale. The liability for defective goods is included in warranty provisions on the consolidated balance sheets. The implementation of ASU 2014-09 will require that the cost of the estimated returned goods be reflected in inventory and the amount of estimated sales to be credited to the customer be recognized in liabilities on the consolidated balance sheets. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The Company adopted ASU 2015-11 on April 1, 2017 and the adoption had no effect on the condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. |
Due From PNC BANK
Due From PNC BANK | 3 Months Ended |
Jun. 30, 2017 | |
Due From Pnc Bank | |
Due From PNC BANK | NOTE 3 – DUE FROM PNC BANK In connection with the Company’s revolving credit facility with PNC Bank, cash collected by PNC Bank on trade accounts receivable may exceed amounts borrowed on the revolving credit facility from time to time (See Note 7 – BANK FINANCING). As of June 30, 2017 and March 31, 2017, PNC Bank owed the Company $0 and $242,859, respectively, which represented cash received by PNC Bank on accounts receivable in excess of amounts borrowed against the revolving credit facility. |
Inventories, Net
Inventories, Net | 3 Months Ended |
Jun. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories, Net | NOTE 4- INVENTORIES, NET Inventories are comprised of the following components: June 30, 2017 March 31, 2017 Finished Goods $ 6,849,815 $ 6,126,346 Inventory in Transit 2,137,061 - Less:Inventory Reserve 325,000 700,000 Inventories, net $ 8,661,876 $ 5,426,346 |
Property and Equipment
Property and Equipment | 3 Months Ended |
Jun. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | NOTE 5 - PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: USEFUL LIFE June 30, 2017 March 31, 2017 Computer and office equipment 5 years $ 285,650 $ 285,650 Furniture and fixtures 7 years 45,707 4,312 Warehouse equipment 7 years 238,471 238,471 Molds and tooling 3-5 years 2,770,754 2,626,813 3,340,582 3,155,246 Accumulated depreciation 2,785,654 2,742,441 $ 554,928 $ 412,805 Depreciation expense for the three months ended June 30, 2017 and June 30, 2016 was $43,213 and $43,795, respectively. |
Obligations to Customers for Re
Obligations to Customers for Returns and Allowances | 3 Months Ended |
Jun. 30, 2017 | |
Payables and Accruals [Abstract] | |
Obligations to Customers for Returns and Allowances | NOTE 6 - OBLIGATIONS TO CUSTOMERS FOR RETURNS AND ALLOWANCES Due to the seasonality of the business and length of time customers are given to return defective product, it is not uncommon for customers 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 customers’ accounts receivable are reclassified to “obligations to customers for returns and allowances” in current liabilities on the condensed consolidated balance sheets. Client requests for payment of a credit balance are reclassified from obligations to customers for returns and allowances to accounts payable on the condensed consolidated balance sheets. 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 June 30, 2017 and March 31, 2017, obligations to customers for returns and allowances reclassified from accounts receivable were $108,175 and $38,460, respectively. |
Bank Financing
Bank Financing | 3 Months Ended |
Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Bank Financing | NOTE 7 – BANK FINANCING Revolving Credit Facility On June 22, 2017, the Company renewed the existing revolving credit facility (the “Revolving Credit Facility”) with PNC Bank, National Association (“PNC”) for an additional three years expiring on July 15, 2020. The outstanding loan balance cannot exceed $15,000,000 during peak selling season between August 1 and December 31 (with the ability of the Company to request an additional $5,000,000 of availability during peak selling season if required) and is reduced to a maximum of $7,500,000 between January 1 and July 31. At June 30, 2017 and March 31, 2017, the outstanding balance of the Revolving Credit Facility was $683,986 and $0, respectively. Usage under the Revolving Credit Facility shall not exceed the sum of the following (the “Borrowing Base”): ● Up to 85% of the company’s eligible domestic and Canadian accounts receivable and up to 90% of eligible foreign credit insured accounts aged less than 60 days past due (not to exceed 90 days from invoice date, cross aged on the basis of 50% or more past due with certain specific accounts qualifying for up to 120 days from invoice date not to exceed 30 days from the due date; plus ● Up to the lesser of (a) 60% of the cost of eligible inventory or (b) 85% of net orderly liquidation value percentage of eligible inventory (annual inventory appraisals required); minus ● Applicable reserves including a dilution reserve equal to 100% of the Company’s advertising and return accrual reserves. Dilution reserve not to exceed availability generated from eligible accounts receivable. The Revolving Credit Facility includes the following sub-limits: ● Letters of Credit to be issued limited to $3,000,000. ● Inventory availability limited to $5,000,000. ● $500,000 eligible in-transit inventory sublimit within the $5,000,000 total inventory. ● Mandatory pay-down to $1,000,000 (excluding letters of credit) for any 30 consecutive days between February 1 and April 30. The Revolving Credit Facility must comply with the following quarterly financial covenants to avoid default: ● Fixed charge coverage ratio test of 1.1:1 times measured on a rolling four quarter basis, defined as EBITDA less non-financed capital expenditures, cash dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness. ● Capital expenditures limited to $300,000 per year. As of June 30, 2017, the Company was in compliance with all financial covenants. Interest on the Revolving Line of Credit is accrued at .75% per annum over PNC’s announced prime rate with an option for the Company to elect the 1, 2 or 3 month fully absorbed PNC LIBOR Rate plus 2.75% per annum with a default rate of 2% over the applicable rate. There is an unused facility fee equal to .375% per annum on the unused portion of the Revolving Credit Facility which will be calculated on the basis of a 360 day year for the actual number of days elapsed and will be payable quarterly in arrears. During the three months ended June 30, 2017 and 2016 the Company incurred interest expense of $283 and $0, respectively, on amounts borrowed against the line of credit. During the three months ended June 30, 2017 and 2016 the Company incurred an unused facility fee of $6,963 and $7,031, respectively, on the unused portion of the Revolving Credit Facility. The Revolving Line of Credit is secured by first priority security interests in all of the named borrowers’ tangible and intangible assets as well as first priority security interests of 100% of member or ownership interests of any of its domestic existing or newly formed subsidiaries and first priority lien on up to 65% of the borrowers’ domestic subsidiary’s existing or subsequently formed or acquired foreign subsidiaries. The Revolving Credit Facility is also secured by a related-party debt subordination agreement with Starlight Marketing Development, Ltd. in the amount of $924,431. Costs associated with renewal of the Revolving Credit Facility of approximately $40,000 were deferred and will be amortized over the term of the agreement. During the three months ended June 30, 2017 and 2016 the Company incurred amortization expense of $21,606 and $18,519, respectively, associated with the amortization of deferred financing costs from the original Revolving Credit Facility. Term Note Payable In connection with the amendments above and in addition to the maximum availability limits on the Revolving Line of Credit, the agreement also includes a two-year term note (“Term Note”) in the amount of $1,000,000 the proceeds of which were used to pay down a portion of the subordinated related party debt of approximately $1,924,000 in June 2017. The term note bears interest at 1.75% per annum over PNC’s announced prime rate or 1, 2, or 3 month PNC LIBOR Rate plus 3.75%. The term note is payable in quarterly installments of $125,000 plus accrued interest with the first installment due on August 1, 2017. The subordination agreement has been amended reducing the amount of related party subordinated debt to the remaining amount due of approximately $924,000. Provision has also been made to allow repayment of the remaining $924,000 in quarterly installments of $123,000 including interest accrued at 6% per annum commencing September 30, 2017. Payments of $123,000 are only permitted upon receipt of the Company’s quarterly compliance certificate; the Company having met the mandatory pay-down of the Revolving Credit Facility to $1,000,000 and average excess availability for the prior 30 days (after subtraction of third party trade payables 30 days or more past due) of no less than $1,000,000 after giving effect to the payment. As part of the Conditions to Installment Payment of the subordinated debt, payments not made under this note that cannot be made as a result of the foregoing prohibition shall not be deemed an Event of Default and can be made as soon as the Company is able to demonstrate that it meets the liquidity requirements defined above. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 8 - COMMITMENTS AND CONTINGENCIES LEGAL MATTERS Management is currently not aware of any legal proceedings. OPERATING LEASES The Company has operating lease agreements for office and warehouse facilities in Fort Lauderdale, Florida; Ontario, California; and Macau expiring at varying dates. The lease for our office facilities in Fort Lauderdale, Florida expired in 2016. On August 31, 2016 we signed a lease extension that included the current occupied space as well as additional office space adjacent to our current space. The lease extension will commence upon completion of tenant improvements and will terminate 78 months after commencement. During the tenant improvement construction period rent will remain the same as the expired lease and will be paid on a month-to-month basis. Rent expense for the three months ended June 30, 2017 and 2016 was $161,309 and $164,531, respectively. In addition, the Company maintains various warehouse equipment and office equipment operating leases. Future minimum lease payments under property and equipment leases with terms exceeding one year as of June 30, 2017 are as follows: Operating Leases For period ending June 30, 2018 $ 504,183 2019 524,272 2020 524,272 2021 87,378 $ 1,640,105 |
Stock Options
Stock Options | 3 Months Ended |
Jun. 30, 2017 | |
Equity [Abstract] | |
Stock Options | NOTE 9 - STOCK OPTIONS A summary of stock option activity for the three months ended June 30, 2017 is summarized below: June 30, 2017 Number of Options Weighted Average Exercise Price Stock Options: Balance at beginning of period 1,970,000 $ 0.19 Granted 480,000 0.49 Exercised - - Forfeited - - Balance at end of period 2,450,000 $ 0.23 Options exercisable at end of period 1,870,000 $ 0.18 The following table summarizes information about employee stock options outstanding at June 30, 2017: Range of Exercise Price Number Outstanding at June 30, 2017 Weighted Average Remaining Contractural Life Weighted Average Exercise Price Number Exercisable at June 30, 2017 Weighted Average Exercise Price $.03 - $.33 1,850,000 5.4 0.15 1,750,000 0.13 $.45 - $.93 600,000 6.2 0.48 120,000 0.45 * 2,450,000 1,870,000 |
Geographical Information
Geographical Information | 3 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Geographical Information | NOTE 10 - GEOGRAPHICAL INFORMATION All sales to customers outside of the United States for the three months ended June 30, 2017 and 2016 were made by the Macau Subsidiary. Sales by geographic region for the periods presented are as follows: FOR THE THREE MONTHS ENDED June 30, 2017 2016 North America $ 3,568,122 $ 4,541,145 Europe 371,611 318,247 $ 3,939,733 $ 4,859,392 The geographic area of sales was based primarily on the location where the product is delivered. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Jun. 30, 2017 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 11 –RELATED PARTY TRANSACTIONS DUE TO/FROM RELATED PARTIES On June 30, 2017 and March 31, 2017, in the aggregate the Company had $557,647 and $0, respectively, due from related parties for goods and services sold to these companies. On June 30, 2017 and March 31, 2017, the Company had amounts due to other related party companies in the amounts of $149,787 and $0 for goods, repair services, engineering fees, storage and administrative services provided to the Company by these related parties. SUBORDINATED DEBT In connection with the Revolving Credit Facility the Company was required to subordinate related party debt to Starlight Marketing Development, Ltd. (“subordinated debt”) in the amount of $1,924,431. The Revolving Credit Facility renewal agreement includes a Term Note in the amount of $1,000,000, the proceeds of which were used to pay down a portion of the subordinated debt. The remaining subordinated debt of $924,431 bears interest at 6% and is scheduled to be paid in quarterly installments of $123,000 which include interest commencing September 30, 2017. With the current renewal agreement expiring on July 15, 2020 the subordinated debt has been classified as a current portion of $446,221 and a long-term portion of $478,210 as of June 30, 2017 on the condensed consolidated balance sheets. Since the original agreement expired on July 14, 2017 the subordinated related party debt was classified as a current liability as of March 31, 2017 on the condensed consolidated balance sheets. TRADE During the three months ended June 30, 2017 and June 30, 2016 the Company sold $310,772 and $192,976, respectively to Winglight Pacific, Ltd. (“Winglight”), a related party, 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 Winglight for the three months ended June 30, 2017 and June 30, 2016 was 21.5% and 15.4%, respectively. The product was shipped to Cosmo Communications of Canada (“Cosmo”), another related company and the Company’s primary distributor of its products to Canada. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of operations. During the three months ended June 30, 2017 and June 30, 2016 the Company sold an additional $270,157 and $123,499, respectively of product to Cosmo from its California warehouse facility. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of operations. The Company purchased products from Starlight Electronics Co. Ltd (“SLE”). The purchases from SLE for the three month periods ended June 30, 2017 and 2016 were $32,870 and $710,453 respectively. Product purchases were included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. The Company purchased services from Starlight Consumer Electronics USA, Inc., (“SCE”) a related party. The purchases from SCE for the three month periods ended June 30, 2017 and 2016 were $79,824 and $51,900, respectively. These amounts were included as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations. The Company purchased services from Merrygain Holding Co. Ltd, (“Merrygain”) a related party. The purchases from Merrygain for the three month periods ended June 30, 2017 and 2016 were $38,487 and $0, respectively. These amounts were included as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations. The Company has annually renewable service and logistics agreements with affiliates of China Sinostar Group Co. Ltd. (“Sinostar”) The affiliates pay the Company for services based on actual warehouse space occupied. For the three month periods ended June 30, 2017 and 2016, the Company received approximately $5,000 and $18,671, respectively, in service fees from affiliates that are included in general and administrative expenses in the accompanying consolidated statements of income. |
Warranty Provisions
Warranty Provisions | 3 Months Ended |
Jun. 30, 2017 | |
Product Warranties Disclosures [Abstract] | |
Warranty Provisions | NOTE 12 – 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 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 condensed consolidated balance sheets. Changes in the Company’s warranty provision are presented in the following table: Three Months Ended June 30, 2017 June 30, 2016 Estimated warranty provision at beginning of period $ 223,700 $ 292,500 Costs accrued for future estimated returns 104,976 109,245 Returns received (234,687 ) (208,482 ) Estimated warranty provision at end of period $ 93,989 $ 193,263 |
Employee Benefit Plans
Employee Benefit Plans | 3 Months Ended |
Jun. 30, 2017 | |
Retirement Benefits [Abstract] | |
Employee Benefit Plans | NOTE 13 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan for its employees to which the Company makes contributions at rates dependent on the level of each employee’s contributions. Contributions made by the Company are limited to the maximum allowable for federal income tax purposes. The amounts charged to operations for contributions to this plan and administrative costs during the three month periods ended June 30, 2017 and 2016 totaled $9,968 and $9,867, respectively. The amounts are included as a component of general and administrative expense in the accompanying Condensed Consolidated Statements of Operations. The Company does not provide any post-employment benefits to retirees. |
Summary of Accounting Policies
Summary of Accounting Policies (Policies) | 3 Months Ended |
Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Principles of Consolidation and Basis of Presentation | PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in the condensed consolidated financial statements. The accompanying unaudited financial statements for the three months ended June 30, 2017 and 2016 have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet information as of March 31, 2017 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2017. The interim condensed consolidated financial statements should be read in conjunction with that report. |
Use of Estimates | USE OF ESTIMATES The Singing Machine makes estimates and assumptions in the ordinary course of business relating to sales returns and allowances, warranty reserves, inventory reserves, the allowance for doubtful accounts 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. Future events and their effects cannot be determined with absolute certainty; therefore, the determination of estimates requires the exercise of judgment. 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 | 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 in 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. The Company is subject to chargebacks from customers for cooperative marketing programs, defective returns, return freight and handling charges that are deducted from open invoices and reduce collectability of open invoices. 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. |
Foreign Currency Translation | FOREIGN CURRENCY TRANSLATION The functional currency of the Macau Subsidiary is the Hong Kong dollar. The financial statements of the subsidiaries 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 | Concentration of Credit Risk At times, the Company maintains cash in United States bank accounts that are in excess of the Federal Deposit Insurance Corporation insured amounts. The Company maintains cash balances in foreign financial institutions. The amounts at foreign financial institutions at June 30, 2017 and March 31, 2017 are $180,371 and $150,665, respectively. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of accounts receivable. |
Inventory | INVENTORY Inventories are comprised primarily of electronic karaoke equipment, microphones and accessories, and are stated at the lower of cost or net realizable value 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. As of June 30, 2017 and March 31, 2017, the Company had inventory reserves of $325,000 and $700,000, respectively, for estimated excess and obsolete inventory. |
Long-Lived Assets | LONG-LIVED ASSETS The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted future cash flows attributable to the related assets are less than the carrying amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance FASB ASC 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” |
Property and Equipment | PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using accelerated and straight-line methods. |
Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments, 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, accounts payable, accrued expenses, obligations to clients for returns and allowances, and due to/from related parties approximates fair value due to the relatively short period to maturity for these instruments. The carrying amounts on the bank term note payable and the subordinated debt to Starlight Marketing Development, Ltd. (related party) approximate fair value due to the relatively short period to maturity and related interest accrued at a rate similar to market rates. The carrying amounts on the revolving line of credit approximates fair value due the relatively short period to maturity and related interest accrued at market rates. |
Revenue Recognition | REVENUE RECOGNITION Revenue from the sale of equipment, accessories, musical recordings and subscriptions and third –party logistics services are recognized upon the later of: (a) the time of shipment or (b) when title passes to the customers and all significant contractual obligations and services have been satisfied and collection of the resulting receivable is reasonably assured. Net sales are comprised of gross sales net of actual and estimated future returns, discounts and volume rebates. |
Shipping and Handling Costs | SHIPPING AND HANDLING COSTS Shipping and handling costs are classified as a component of selling expenses and those billed to customers are recorded as a reduction of expense in the condensed consolidated statements of operations. |
Stock Based Compensation | STOCK BASED COMPENSATION The Company follows the provisions of the FASB ASC 718-20, “Compensation – Stock Compensation Awards Classified as Equity”. 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 condensed consolidated statements of income over the service period (generally the vesting period). The Company uses the Black-Scholes option valuation model to value stock options. Employee stock option compensation expense for the three months ended June 30, 2017 and 2016 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. For the three months ended June 30, 2017 and 2016, the stock option expense was $55,237 and $9,329, respectively. |
Advertising | ADVERTISING Costs incurred for producing and publishing advertising of the Company are charged to operations the first time the advertising takes place. The Company has entered into cooperative advertising agreements with its major customers that specifically indicated that the customer 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 10% of the purchase. The customers have to advertise the Company’s products in the customer’s catalog, local newspaper and other advertising media. The customer 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 customer 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 three months ended June 30, 2017 and 2016 was $235,300 and $205,050, respectively. As of June 30, 2017 and March 31, 2017 there was an accrual for cooperative advertising allowances of $207,132 and $167,378, respectively. These amounts were a component of accrued expenses in the condensed consolidated balance sheets. |
Research and Development Costs | RESEARCH AND DEVELOPMENT COSTS 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 condensed consolidated statements of operations. For the three months ended June 30, 2017 and 2016, these amounts totaled $58,608 and $45,636 respectively. |
Income Taxes | INCOME TAXES T h C o m p n f o ll o w t h p o v isi on of F A S A S 74 A o un t i n f o n o m T x n d t h ss n li b ili t m t h o o A S 740 d f t s s t n li b ilit i og n i f o t h u t u t o n s q u n e tt i b u t t d i ff e n b t w e t h i n a n i st t e m e n r y i ng a m ou n t o x i s ti n s s t a n li b iliti n t h i s p t i v t b s f t s s e t n li b iliti e m s u u s i n e n t t t x p t t pp l t t a x b l i n o m i t h y i w h i t h o s t e m po r d i ff e n e x p t t b o v o s t t l d n d A S 740 t he f o d f t ss t a n li b iliti o h n g i t t i o gn i i i n o m i t h p i o t h i n l u d t h n t m e n d t i i m o li k l t h n o t h s o m po ti o o d f t ss i l n o b li d v l u t i o ll o a n i og n i d The Company analyzes its deferred tax assets and liabilities at the end of each interim period and, based on management’s best estimate of its full year effective tax rate, recognizes cumulative adjustments to its deferred tax assets and liabilities. The Company’s effective tax rate for the fiscal year ending March 31, 2018 is estimated to be approximately 35%. The effective tax rate for the full year ended March 31, 2017 was approximately 33%. As of June 30, 2017 and March 31, 2017, The Singing Machine had gross deferred tax assets of approximately $1.8 million and $1.5 million respectively. The Company recorded an income tax benefit of approximately $282,000 and $169,000 for the three months ended June 30, 2017 and 2016, respectively. The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. As of June 30, 2017 there were no uncertain tax positions that resulted in any adjustment to the Company’s provision for income taxes. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions. As of June 30, 2017, the Company is subject to U.S. Federal income tax examinations for the tax years ended March 31, 2015 and subsequent years. |
Computation of Loss Per Common Share | COMPUTATION OF LOSS PER COMMON SHARE Loss per common share is computed by dividing the net loss by the weighted average of common shares outstanding during the period. As of June 30, 2017 and 2016 total potential dilutive shares from common stock options amounted to approximately 1,870,000 and 1,605,000 shares, respectively, however these shares were not included in the computation of diluted earnings per share for the three months ended June 30, 2017 and June 30, 2016 because their effect was anti-dilutive. |
Recent Accounting Pronouncements | RECENT ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for companies to use when accounting for revenue arising from contracts with customers. The core principle of the revenue recognition model is that an entity recognizes revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle a company must apply the following steps in determining revenue recognition: ● Identify the contract(s) with a customer ● Identify the performance obligations in the contract. ● Determine the transaction price. ● Allocate the transaction price to the performance obligations in the contract. ● Recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in this ASU are now effective for annual reporting periods beginning April 1, 2018 including interim periods within that reporting period. Management plans to adopt ASU 2014-09 using the full retrospective method of implementation. Management has assessed the effect of implementing ASU 2014-09 to determine the effect on the Company’s financial statements. After examining the Company’s performance obligations in its contracts, most of the Company’s customers (other than distributors) have “customer acceptance rights” in that customers are allowed to return defective goods within a specified period after shipment (between 6 and 9 months) after goods have been shipped. Currently, the Company recognizes a liability for the estimated net amount of sales less related cost of goods sold of expected returned goods at the time of sale. The liability for defective goods is included in warranty provisions on the consolidated balance sheets. The implementation of ASU 2014-09 will require that the cost of the estimated returned goods be reflected in inventory and the amount of estimated sales to be credited to the customer be recognized in liabilities on the consolidated balance sheets. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The Company adopted ASU 2015-11 on April 1, 2017 and the adoption had no effect on the condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases. |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | Inventories are comprised of the following components: June 30, 2017 March 31, 2017 Finished Goods $ 6,849,815 $ 6,126,346 Inventory in Transit 2,137,061 - Less:Inventory Reserve 325,000 700,000 Inventories, net $ 8,661,876 $ 5,426,346 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Property, Plant and Equipment [Abstract] | |
Summary of Property and Equipment | A summary of property and equipment is as follows: USEFUL LIFE June 30, 2017 March 31, 2017 Computer and office equipment 5 years $ 285,650 $ 285,650 Furniture and fixtures 7 years 45,707 4,312 Warehouse equipment 7 years 238,471 238,471 Molds and tooling 3-5 years 2,770,754 2,626,813 3,340,582 3,155,246 Accumulated depreciation 2,785,654 2,742,441 $ 554,928 $ 412,805 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum lease payments under property and equipment leases with terms exceeding one year as of June 30, 2017 are as follows: Operating Leases For period ending June 30, 2018 $ 504,183 2019 524,272 2020 524,272 2021 87,378 $ 1,640,105 |
Stock Options (Tables)
Stock Options (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Equity [Abstract] | |
Summary of Stock Option Activity | A summary of stock option activity for the three months ended June 30, 2017 is summarized below: June 30, 2017 Number of Options Weighted Average Exercise Price Stock Options: Balance at beginning of period 1,970,000 $ 0.19 Granted 480,000 0.49 Exercised - - Forfeited - - Balance at end of period 2,450,000 $ 0.23 Options exercisable at end of period 1,870,000 $ 0.18 |
Schedule of Employee Stock Options Outstanding | The following table summarizes information about employee stock options outstanding at June 30, 2017: Range of Exercise Price Number Outstanding at June 30, 2017 Weighted Average Remaining Contractural Life Weighted Average Exercise Price Number Exercisable at June 30, 2017 Weighted Average Exercise Price $.03 - $.33 1,850,000 5.4 0.15 1,750,000 0.13 $.45 - $.93 600,000 6.2 0.48 120,000 0.45 * 2,450,000 1,870,000 |
Geographical Information (Table
Geographical Information (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas | All sales to customers outside of the United States for the three months ended June 30, 2017 and 2016 were made by the Macau Subsidiary. Sales by geographic region for the periods presented are as follows: FOR THE THREE MONTHS ENDED June 30, 2017 2016 North America $ 3,568,122 $ 4,541,145 Europe 371,611 318,247 $ 3,939,733 $ 4,859,392 |
Warranty Provisions (Tables)
Warranty Provisions (Tables) | 3 Months Ended |
Jun. 30, 2017 | |
Product Warranties Disclosures [Abstract] | |
Schedule of Product Warranty Liability | Changes in the Company’s warranty provision are presented in the following table: Three Months Ended June 30, 2017 June 30, 2016 Estimated warranty provision at beginning of period $ 223,700 $ 292,500 Costs accrued for future estimated returns 104,976 109,245 Returns received (234,687 ) (208,482 ) Estimated warranty provision at end of period $ 93,989 $ 193,263 |
Summary of Accounting Policie26
Summary of Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | Mar. 31, 2017 | |
Accounting Policies [Line Items] | |||
Percentage of reserves for customers | 100.00% | ||
Foreign financial institutions actual deposits | $ 180,371 | $ 150,665 | |
Inventory reserves | 325,000 | 700,000 | |
Stock option expense | 55,237 | $ 9,329 | |
Advertising expense | 235,300 | 205,050 | |
Accrual cooperative advertising allowances | 207,132 | $ 167,378 | |
Research and development expense | 58,608 | 45,636 | |
Income tax effective tax rate | 33.00% | ||
Deferred tax assets, gross | 1,800,000 | $ 1,560,500 | |
Income tax benefit | $ 281,921 | $ 169,314 | |
Percentage of tax benefits recognized likelihood of being realized | greater than 50% | ||
Potential dilutive shares not included from computation of loss per common shares | 1,870,000 | 1,605,000 | |
March 31, 2018 [Member] | |||
Accounting Policies [Line Items] | |||
Income tax effective tax rate | 35.00% | ||
Minimum [Member] | |||
Accounting Policies [Line Items] | |||
Cooperative advertising allowance, percentage | 2.00% | ||
Maximum [Member] | |||
Accounting Policies [Line Items] | |||
Cooperative advertising allowance, percentage | 10.00% |
Due From PNC BANK (Details Narr
Due From PNC BANK (Details Narrative) - USD ($) | Jun. 30, 2017 | Mar. 31, 2017 |
Due From Pnc Bank | ||
Due from PNC Bank | $ 242,859 |
Inventories, Net - Schedule of
Inventories, Net - Schedule of Inventory (Details) - USD ($) | Jun. 30, 2017 | Mar. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Finished Goods | $ 6,849,815 | $ 6,126,346 |
Inventory in Transit | 2,137,061 | |
Inventory Reserve | 325,000 | 700,000 |
Inventories, net | $ 8,661,876 | $ 5,426,346 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 43,213 | $ 43,795 |
Property and Equipment - Summar
Property and Equipment - Summary of Property and Equipment (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Mar. 31, 2017 | |
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 3,340,582 | $ 3,155,246 |
Accumulated depreciation | 2,785,654 | 2,742,441 |
Property and equipment, net | 554,928 | 412,805 |
Computer and Office Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 285,650 | 285,650 |
Average useful life (in years) | 5 years | |
Furniture and Fixtures [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 45,707 | 4,312 |
Average useful life (in years) | 7 years | |
Warehouse Equipment [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 238,471 | 238,471 |
Average useful life (in years) | 7 years | |
Molds and Tooling [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 2,770,754 | $ 2,626,813 |
Molds and Tooling [Member] | Minimum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Average useful life (in years) | 3 years | |
Molds and Tooling [Member] | Maximum [Member] | ||
Property, Plant and Equipment [Line Items] | ||
Average useful life (in years) | 5 years |
Obligations to Customers for 31
Obligations to Customers for Returns and Allowances (Details Narrative) - USD ($) | Jun. 30, 2017 | Mar. 31, 2017 |
Payables and Accruals [Abstract] | ||
Customer obligations for returns and allowances | $ 108,175 | $ 38,460 |
Bank Financing (Details Narrati
Bank Financing (Details Narrative) - USD ($) | 3 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Mar. 31, 2017 | |
Line of Credit Facility [Line Items] | |||
Revolving line of credit | $ 683,986 | ||
Line of credit facility, LIBOR Rate plus rate | 2.75% | ||
Incurred interest expense | $ 283 | $ 0 | |
Unused facility fee | $ 6,963 | 7,031 | |
First priority security ownership interest percentage | 100.00% | ||
Line of credit facility, collateral amount | $ 924,000 | ||
Amortization expense | 21,606 | 18,519 | |
Proceeds from lines of credit | $ 683,986 | ||
Term Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, interest rate during period | 1.75% | ||
Line of credit facility, LIBOR Rate plus rate | 3.75% | ||
Line of credit facility, collateral amount | $ 924,431 | ||
August 1, 2017 [Member] | Term Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, periodic payment | $ 125,000 | ||
Maximum [Member] | |||
Line of Credit Facility [Line Items] | |||
First priority lien percentage | 65.00% | ||
Revolving Credit Facility [Member] | |||
Line of Credit Facility [Line Items] | |||
Debt instrument, term | 3 years | ||
Line of credit facility, expiration date | Jul. 15, 2020 | ||
Line of credit facility, description | Usage under the Revolving Credit Facility shall not exceed the sum of the following (the Borrowing Base): 1. Up to 85% of the companys eligible domestic and Canadian accounts receivable and up to 90% of eligible foreign credit insured accounts aged less than 60 days past due (not to exceed 90 days from invoice date, cross aged on the basis of 50% or more past due with certain specific accounts qualifying for up to 120 days from invoice date not to exceed 30 days from the due date; plus 2. Up to the lesser of (a) 60% of the cost of eligible inventory or (b) 85% of net orderly liquidation value percentage of eligible inventory (annual inventory appraisals required); minus 3. Applicable reserves including a dilution reserve equal to 100% of the Companys advertising and return accrual reserves. Dilution reserve not to exceed availability generated from eligible accounts receivable. | ||
Line of credit facility sub limits description | The Revolving Credit Facility includes the following sub-limits: 1. Letters of Credit to be issued limited to $3,000,000. 2. Inventory availability limited to $5,000,000. 3. $500,000 eligible in-transit inventory sublimit within the $5,000,000 total inventory. 4. Mandatory pay-down to $1,000,000 (excluding letters of credit) for any 30 consecutive days between February 1 and April 30. | ||
Line of credit facility, covenant terms | The Revolving Credit Facility must comply with the following quarterly financial covenants to avoid default: Fixed charge coverage ratio test of 1.1:1 times measured on a rolling four quarter basis, defined as EBITDA less non-financed capital expenditures, cash dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness. Capital expenditures limited to $150,000 per year. | ||
Line of credit facility, interest rate during period | 2.00% | ||
Line of credit facility default rate | 2.00% | ||
Line of credit facility, unused capacity, commitment fee percentage | 0.375% | ||
Line of credit facility, collateral fee | $ 40,000 | ||
Revolving Credit Facility [Member] | June 22, 2017 [Member] | |||
Line of Credit Facility [Line Items] | |||
Debt instrument, term | 2 years | ||
Line of credit facility, maximum amount outstanding during period | $ 1,924,000 | ||
Revolving Credit Facility [Member] | June 22, 2017 [Member] | Two Year Term Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, expiration date | Aug. 1, 2017 | ||
Line of credit facility, interest rate during period | 6.00% | ||
Repayments of lines of credit | $ 1,924,000 | ||
Proceeds from lines of credit | 1,000,000 | ||
Line of credit facility, periodic payment | 123,000 | ||
Revolving Credit Facility [Member] | Peak Selling Season Between August 1 And December 31 [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, maximum amount outstanding during period | 15,000,000 | ||
Revolving line of credit | 5,000,000 | ||
Revolving Credit Facility [Member] | Peak Selling Season Between January 1 And July 31 [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, maximum amount outstanding during period | 7,500,000 | ||
Revolving Credit Facility [Member] | Prior 30 Days [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, maximum amount outstanding during period | $ 1,000,000 |
Commitments and Contingencies33
Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent expense | $ 161,309 | $ 164,531 |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Future Minimum Rental Payments for Operating Leases (Details) | Jun. 30, 2017USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2,018 | $ 504,183 |
2,019 | 524,272 |
2,020 | 524,272 |
2,021 | 87,378 |
Total | $ 1,640,105 |
Stock Options - Summary of Stoc
Stock Options - Summary of Stock Option Activity (Details) | 3 Months Ended |
Jun. 30, 2017$ / sharesshares | |
Equity [Abstract] | |
Number of Options, beginning balance | shares | 1,970,000 |
Number of Options Granted | shares | 480,000 |
Number of Options Exercised | shares | |
Number of Options Forfeited | shares | |
Number of Options, ending balance | shares | 2,450,000 |
Number of Options Exercisable | shares | 1,870,000 |
Weighted Average Exercise Price, beginning balance | $ / shares | $ .19 |
Weighted Average Exercise Price Granted | $ / shares | 0.49 |
Weighted Average Exercise Price Exercised | $ / shares | |
Weighted Average Exercise Price Forfeited | $ / shares | |
Weighted Average Exercise Price, ending balance | $ / shares | .23 |
Weighted Average Exercise Price, Options Exercisable | $ / shares | $ .18 |
Stock Options - Schedule of Emp
Stock Options - Schedule of Employee Stock Options Outstanding (Details) - $ / shares | 3 Months Ended | |
Jun. 30, 2017 | Mar. 31, 2017 | |
Stock Options Number Outstanding | 2,450,000 | 1,970,000 |
Stock Option Outstanding Number Exercisable | 1,870,000 | |
Exercise Price Range One [Member] | ||
Stock Options Outstanding Exercise Price, Lower Range Limit | $ 0.03 | |
Stock Options Outstanding Exercise Price, Upper Range Limit | $ 0.33 | |
Stock Options Number Outstanding | 1,850,000 | |
Stock Option Outstanding Weighted Average Remaining Contractural Life | 5 years 4 months 24 days | |
Stock Option Outstanding Weighted Average Exercise Price | $ .15 | |
Stock Option Outstanding Number Exercisable | 1,750,000 | |
Stock Option Outstanding Weighted Average Exercise Price | $ .13 | |
Exercise Price Range Two [Member] | ||
Stock Options Outstanding Exercise Price, Lower Range Limit | 0.45 | |
Stock Options Outstanding Exercise Price, Upper Range Limit | $ 0.93 | |
Stock Options Number Outstanding | 600,000 | |
Stock Option Outstanding Weighted Average Remaining Contractural Life | 6 years 2 months 12 days | |
Stock Option Outstanding Weighted Average Exercise Price | $ 0.48 | |
Stock Option Outstanding Number Exercisable | 120,000 | |
Stock Option Outstanding Weighted Average Exercise Price | $ .45 |
Geographical Information - Sche
Geographical Information - Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Segment Reporting Information [Line Items] | ||
Net Sales | $ 3,939,733 | $ 4,859,392 |
North America [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | 3,568,122 | 4,541,145 |
Europe [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | $ 371,611 | $ 318,247 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 3 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Mar. 31, 2017 | |
Related Party Transaction [Line Items] | |||
Due from related parties, current | $ 557,647 | $ 0 | |
Due to related parties, current | 149,787 | 0 | |
Proceeds from line of credit | 683,986 | ||
Sales revenue | 3,939,733 | 4,859,392 | |
Revolving Credit Facility [Member] | Two Year Term Note [Member] | |||
Related Party Transaction [Line Items] | |||
Proceeds from line of credit | 1,000,000 | ||
Repayment of debt | 924,431 | ||
Debt periodic payment | $ 123,000 | ||
Debt instrument due date | Jul. 15, 2020 | ||
Starlight Marketing Development, Ltd [Member] | |||
Related Party Transaction [Line Items] | |||
Due to related parties | $ 1,924,431 | ||
Interest rate | 6.00% | ||
Notes payable, related parties, current | $ 446,221 | ||
Long term debt | 478,210 | ||
Winglight Pacific, Ltd. [Member] | |||
Related Party Transaction [Line Items] | |||
Revenue from related parties | $ 310,772 | $ 192,976 | |
Related party gross margin percentage | 21.50% | 15.40% | |
Sales revenue | $ 270,157 | $ 123,499 | |
Starlight Electronics Co. Ltd [Member] | |||
Related Party Transaction [Line Items] | |||
Due to related parties, current | 79,824 | ||
Related party purchases of services from related party transaction | 32,870 | 710,453 | |
Starlight Consumer Electronics USA, Inc [Member] | |||
Related Party Transaction [Line Items] | |||
Due to related parties, current | 31,476 | ||
Related party purchases of services from related party transaction | 79,824 | 51,900 | |
Merrygain Holding Co. Ltd [Member] | |||
Related Party Transaction [Line Items] | |||
Due to related parties, current | 38,487 | ||
Related party purchases of services from related party transaction | 38,487 | 0 | |
China Sinostar Group Co. Ltd [Member] | |||
Related Party Transaction [Line Items] | |||
Proceeds from fees received | $ 5,000 | $ 18,671 |
Warranty Provisions (Details Na
Warranty Provisions (Details Narrative) | 3 Months Ended |
Jun. 30, 2017 | |
Product Warranties Disclosures [Abstract] | |
Standard product warranty description | 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. |
Warranty Provisions - Schedule
Warranty Provisions - Schedule of Product Warranty Liability (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Product Warranties Disclosures [Abstract] | ||
Estimated return and allowance liabilities at beginning of year | $ 223,700 | $ 292,500 |
Costs accrued for new estimated returns and allowances | 104,976 | 109,245 |
Return and allowance obligations honored | (234,687) | (208,482) |
Estimated return and allowance liabilities at end of year | $ 93,989 | $ 193,263 |
Employee Benefit Plans (Details
Employee Benefit Plans (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Retirement Benefits [Abstract] | ||
Defined contribution plan, administrative expenses | $ 9,968 | $ 9,867 |