Document And Entity Information
Document And Entity Information - shares | 3 Months Ended | |
Jun. 30, 2019 | Aug. 13, 2019 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | SINGING MACHINE CO INC | |
Entity Central Index Key | 0000923601 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-31 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | No | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 38,497,643 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Jun. 30, 2019 | Mar. 31, 2019 |
Current Assets | ||
Cash | $ 577,476 | $ 211,408 |
Accounts receivable, net of allowances of $61,948 and $51,096, respectively | 4,861,961 | 1,769,404 |
Due from PNC Bank | 2,236,779 | |
Inventories, net | 8,559,750 | 6,024,311 |
Prepaid expenses and other current assets | 817,767 | 274,278 |
Deferred financing costs | 12,222 | 13,333 |
Total Current Assets | 15,196,549 | 10,818,454 |
Property and equipment, net | 623,035 | 522,910 |
Deferred financing costs, net of current portion | 1,111 | 3,333 |
Deferred tax assets | 997,097 | 758,366 |
Operating leases - right of use assets | 978,146 | |
Other non-current assets | 44,296 | 90,082 |
Total Assets | 17,840,234 | 12,193,145 |
Current Liabilities | ||
Accounts payable | 5,944,781 | 842,708 |
Accrued expenses | 632,514 | 950,773 |
Current portion of bank term note payable | 125,000 | |
Revolving line of credit | 627,007 | |
Customer deposits | 203,175 | |
Refunds due to customers | 300,057 | 31,075 |
Reserve for sales returns | 447,677 | 896,154 |
Current portion of finance leases | 14,547 | 14,414 |
Current portion of operating lease liabilities | 600,793 | |
Total Current Liabilities | 9,686,417 | 3,675,491 |
Finance leases, net of current portion | 13,817 | 17,499 |
Operating lease liabilities, net of current portion | 489,724 | |
Total Liabilities | 10,189,958 | 3,692,990 |
Shareholders' Equity | ||
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding | ||
Additional paid-in capital | 19,704,436 | 19,687,263 |
Subscriptions receivable | (2,200) | |
Accumulated deficit | (12,439,137) | (11,569,556) |
Total Shareholders' Equity | 7,650,276 | 8,500,155 |
Total Liabilities and Shareholders' Equity | 17,840,234 | 12,193,145 |
Common Class A [Member] | ||
Shareholders' Equity | ||
Common stock | ||
Common Class B [Member] | ||
Shareholders' Equity | ||
Common stock | 384,977 | 384,648 |
Winglight Pacific Ltd [Member] | ||
Current Assets | ||
Accounts receivable related party | 367,373 | 288,941 |
Starlight Marketing Development Ltd [Member] | ||
Current Liabilities | ||
Subordinated related party debt - Starlight Marketing Development, Ltd. | $ 815,367 | $ 815,367 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Jun. 30, 2019 | Mar. 31, 2019 |
Allowance for doubtful accounts receivable, net | $ 61,948 | $ 51,096 |
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 | 38,497,643 | 38,464,753 |
Common stock, shares outstanding | 38,497,643 | 38,464,753 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||
Net Sales | $ 4,809,040 | $ 1,836,511 |
Cost of Goods Sold | 3,821,334 | 1,445,028 |
Gross Profit | 987,706 | 391,483 |
Operating Expenses | ||
Selling expenses | 659,293 | 446,700 |
General and administrative expenses | 1,371,056 | 1,208,644 |
Depreciation | 59,461 | 67,571 |
Total Operating Expenses | 2,089,810 | 1,722,915 |
Loss from Operations | (1,102,104) | (1,331,432) |
Other Expenses | ||
Interest expense | (2,875) | (23,385) |
Finance costs | (3,333) | (3,334) |
Total Other Expenses | (6,208) | (26,719) |
Loss Before Income Tax Benefit | (1,108,312) | (1,358,151) |
Income Tax Benefit | 238,731 | 324,000 |
Net Loss | $ (869,581) | $ (1,034,151) |
Net Loss per Common Share | ||
Basic & Diluted | $ (0.02) | $ (0.03) |
Weighted Average Common and Common Equivalent Shares: | ||
Basic & Diluted | 38,469,813 | 38,282,028 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Cash flows from operating activities | ||
Net Loss | $ (869,581) | $ (1,034,151) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation | 59,461 | 67,571 |
Amortization of deferred financing costs | 3,333 | 3,334 |
Change in inventory reserve | (81,780) | |
Change in allowance for bad debts | 10,852 | (18,629) |
Stock based compensation | 17,502 | 11,278 |
Change in net deferred tax assets | (238,731) | (323,999) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (3,103,409) | (127,637) |
Due from PNC Bank | 2,236,779 | 6,212 |
Accounts receivable - related parties | (78,432) | 856,453 |
Inventories | (2,535,439) | (216,216) |
Prepaid expenses and other current assets | (543,489) | (135,019) |
Other non-current assets | 45,786 | (516) |
Accounts payable | 5,102,073 | 72,907 |
Accrued expenses | (192,221) | 63,103 |
Due to related parties | 100,499 | 133,454 |
Customer deposits | 203,175 | |
Refunds due to customers | 268,982 | (189,330) |
Reserve for sales returns | (448,477) | (588,464) |
Operating lease liabilities, net of operating leases - right of use assets | (13,667) | |
Net cash provided by (used in) operating activities | 24,996 | (1,501,429) |
Cash flows from investing activities | ||
Purchase of property and equipment | (159,586) | (282,240) |
Net cash used in investing activities | (159,586) | (282,240) |
Cash flows from financing activities | ||
Net proceeds from revolving line of credit | 627,007 | 1,089,822 |
Payment of bank term note | (125,000) | |
Proceeds from subscription receivable | 2,200 | |
Payments on finance leases | (3,549) | (2,294) |
Net cash provided by financing activities | 500,658 | 1,087,528 |
Net change in cash | 366,068 | (696,141) |
Cash at beginning of period | 211,408 | 813,908 |
Cash at end of period | 577,476 | 117,767 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | 1,701 | 194,927 |
Equipment purchased under capital lease | 43,526 | |
Operating leases - right of use assets initial adoption | 1,108,330 | |
Operating lease liabilities - initial adoption | $ 1,234,368 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid in Capital [Member] | Subscriptions Receivable [Member] | Accumulated Deficit [Member] | Total |
Balance at Mar. 31, 2018 | $ 382,820 | $ 19,624,063 | $ (12,201,103) | $ 7,805,780 | ||
Balance, shares at Mar. 31, 2018 | 38,282,028 | |||||
Net loss | (1,034,151) | (1,034,151) | ||||
Employee compensation-stock option | 11,278 | 11,278 | ||||
Balance at Jun. 30, 2018 | $ 382,820 | 19,635,341 | (13,235,254) | 6,782,907 | ||
Balance, shares at Jun. 30, 2018 | 38,282,028 | |||||
Balance at Mar. 31, 2019 | $ 384,648 | 19,687,263 | (2,200) | (11,569,556) | 8,500,155 | |
Balance, shares at Mar. 31, 2019 | 38,464,753 | |||||
Net loss | (869,581) | (869,581) | ||||
Employee compensation-stock option | 5,002 | 5,002 | ||||
Collection of subscription receivable | 2,200 | 2,200 | ||||
Issuance of common stock - directors | $ 329 | 12,171 | 12,500 | |||
Issuance of common stock - directors, shares | 32,890 | |||||
Balance at Jun. 30, 2019 | $ 384,977 | $ 19,704,436 | $ (12,439,137) | $ 7,650,276 | ||
Balance, shares at Jun. 30, 2019 | 38,497,643 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Jun. 30, 2019 | |
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, 2019 | |
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, 2019 and 2018 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, 2019 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, 2019. 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 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 subsidiary are translated to U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are recorded in the condensed consolidated statement of operations and translations are recorded in a separate component of shareholders’ equity. Any such amounts were not material during the periods presented. Concentration of Credit Risk At times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation insured amounts. The Company also maintains cash balances in foreign financial institutions. The amounts at foreign financial institutions at June 30, 2019 and March 31, 2019 are approximately $577,000 and $211,000, 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, as determined using the first in, first out method. Inventories also include an estimate for the net realizable value of expected future inventory returns due to warranty and allowance programs. As of June 30, 2019 and March 31, 2019 the estimated amounts for these future inventory returns were approximately $295,000 and $599,000, respectively. The Company 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, 2019 and March 31, 2019 the Company had inventory reserves of approximately $254,000 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 with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 FASB 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, refunds due to customers 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 subordinated debt to Starlight Marketing Development, Ltd. (related party) and finance leases approximate fair value due to the relatively short period to maturity and related interest accrued at a rate similar to market rates. The carrying amount 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 AND RESERVE FOR SALES RETURNS The Company recognizes revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”. The Company’s contracts with customers consist of one performance obligation (the sale of the Company’s products). Revenue is recognized when the goods are delivered and control of the goods sold is transferred to the customer. The Company’s contracts have no financing elements, payment terms are less than 120 days and have no further contract asset or liability obligations once control of goods is transferred to the customer. Revenue is recorded in the amount of consideration the Company expects to receive for the sale of these goods. Costs incurred in fulfilling contracts with customers include administrative costs associated with the procurement of goods are included in general and administrative expenses, in-bound freight costs are included in the cost of goods sold and accrued sales representative commissions are included in selling expenses in the accompanying condensed consolidated statements of operations. The Company disaggregates revenues by major geographic region as most of its revenue is generated by the sales of karaoke hardware and the Company has no other material business segments (See NOTE 9). The Company generally does not allow products to be returned other than return allowance programs for goods returned to the customer for various reasons and accordingly records a sales return reserve based on historic return amounts, specific events as identified and management estimates. The Company’s reserve for sales returns were approximately $448,000 and $896,000 as of June 30, 2019 and March 31, 2019, respectively. Revenue is derived from four different major product lines. Disaggregated approximate revenue from these product lines for the three months ended June 30, 2019 and 2018 consisted of the following: Revenue by Product Line Three Months Ended Product Line June 30, 2019 June 30, 2018 Classic Karaoke Machines $ 4,156,000 $ 1,011,000 Download Karaoke Machines 141,000 211,000 SMC Kids Toys 140,000 127,000 Music and Accessories 372,000 488,000 Total Net Sales $ 4,809,000 $ 1,837,000 SHIPPING AND HANDLING COSTS Shipping and handling costs are performed by both the Company and third-party logistics companies. Shipping and handling activities are performed before the customer obtains control of the goods sold to them and are considered activities to fulfill the Company’s promise to transfer the goods. These expenses are classified as a component of selling expenses in the accompanying 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 operations 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, 2019 and 2018 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, 2019 and 2018, the stock option expense was approximately $5,000 and $11,000, 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 indicate that the customer must spend the cooperative advertising fund upon the occurrence of mutually agreed events. The percentage of the cooperative advertising allowance ranges from 1% to 13% of the purchase. The customers must 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, 2019 and 2018 was approximately $361,000 and $269,000, respectively. As of June 30, 2019 and March 31, 2019 there was an accrual for cooperative advertising allowances of $184,000 and $185,000, 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 income. For the three months ended June 30, 2019 and 2018, these amounts totaled approximately $5,000 and $16,000, respectively. INCOME TAXES The Company follows the provisions of FASB ASC 740 “Accounting for Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized. 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. For the three months ended June 30, 2019 and 2018 we estimated our effective tax rate to be approximately 21.5% and 23.9%, respectively. As of June 30, 2019 and March 31, 2019, the Singing Machine had gross deferred tax assets of approximately $997,000 and $758,000, respectively. The Company recorded an income tax benefit of approximately $239,000 and $324,000 for the three months ended June 30, 2019 and 2018, 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, 2019, 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. 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, 2019 and 2018 total potential dilutive shares from common stock options amounted to 2,310,000 and 2,430,000 shares, respectively. These shares were not included in the computation of diluted earnings per share for the three months ended June 30, 2019 and June 30, 2018 because their effect was anti-dilutive. ADOPTION OF NEW ACCOUNTING STANDARDS In February 2016, the FASB issued ASU 2016-02, Topic 842, as amended, “Leases”. The ASU requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. On April 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information will not be restated and continue to apply the provisions of the previous lease standard in its disclosures for the comparative periods. (See Note 6– LEASES). The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date. The liability is equal to the present value of the remaining minimum lease payments. The asset is based on the liability, subject to certain adjustments. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard). As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments. The Company utilizes the implicit rate for its finance leases. In June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which supersedes most of the prior accounting guidance on nonemployee share-based payments, and instead aligns it with existing guidance on employee share-based payments. We adopted the new standard on April 1, 2019. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements. RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments—Credit Losses” (Topic 326) The amendments in ASU 2016-03 are effective for fiscal years beginning after April 1, 2020 including interim periods within that fiscal year. Early adoption is permitted. We are currently evaluating the potential effects of this updated guidance on our consolidated financial statements and related disclosures. Management does not believe that the adoption of ASU 2016-03 will have any material effect on the Company’s financial statements. |
Inventories, Net
Inventories, Net | 3 Months Ended |
Jun. 30, 2019 | |
Inventory Disclosure [Abstract] | |
Inventories, Net | NOTE 3 - INVENTORIES, NET Inventories are comprised of the following components: June 30, 2019 March 31, 2019 Finished Goods $ 7,294,603 $ 5,679,245 Inventory in Transit 1,223,874 - Estimated Cost of Future Returns 295,273 599,066 Subtotal 8,813,750 6,278,311 Less: Inventory Reserve 254,000 254,000 Inventories, net $ 8,559,750 $ 6,024,311 |
Property and Equipment
Property and Equipment | 3 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | NOTE 4 – PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: USEFUL LIFE June 30, 2019 March 31, 2019 Computer and office equipment 5 years $ 140,575 $ 140,575 Furniture and fixtures 7 years 98,410 98,410 Warehouse equipment 7 years 195,401 209,419 Molds and tooling 3-5 years 1,626,422 1,466,837 2,060,808 1,915,241 Less: Accumulated depreciation 1,437,773 1,392,331 $ 623,035 $ 522,910 Depreciation expense for the three months ended June 30, 2019 and June 30, 2018 was approximately $59,000 and $68,000, respectively. |
Bank Financing
Bank Financing | 3 Months Ended |
Jun. 30, 2019 | |
Debt Disclosure [Abstract] | |
Bank Financing | NOTE 5 – 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, 2019 and March 31, 2019, there was an outstanding balance of approximately $627,000 and $0 on the Revolving Credit Facility. In connection with the Company’s Revolving Credit Facility, cash collected by PNC Bank on trade accounts receivable may exceed amounts borrowed on the revolving credit facility from time to time. As of June 30, 2019 and March 31, 2019, PNC Bank owed the Company $0 and approximately $2,237,000 respectively, which represented cash received by PNC Bank on accounts receivable in excess of amounts borrowed against the revolving credit facility. As of June 30, 2019, there was approximately $6,873,000 available to borrow on the Revolving Credit Facility. 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. On August 2, 2018, PNC issued a third amendment and waiver (“third amendment”) to the Revolving Credit Facility, the Security Agreement in effect for fiscal 2019. The third amendment waived existing violations of the fixed charge coverage ratio of 1.1:1 and increased maximum capital expenditures from $300,000 to $375,000 per fiscal year. The Company incurred an amendment fee of $10,000 upon execution of the agreement. 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 $375,000 per year. 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, 2019 and 2018 the Company incurred interest expense of approximately $1,000 and $5,000, respectively, on amounts borrowed against the Revolving Credit Facility. During the three months ended June 30, 2019 and 2018, the Company incurred an unused facility fee of approximately $7,000 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’ foreign 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 approximately $815,000. Costs associated with renewal of the Revolving Credit Facility of approximately $40,000 were deferred and are being amortized over the term of the agreement. During the three months ended June 30, 2019 and 2018 the Company incurred amortization expense of approximately $3,000 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 bore 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 was payable in quarterly installments of $125,000 plus accrued interest. The outstanding balance on the Term Note was $0 and $125,000 as of June 30, 2019 and March 31, 2019, respectively. During the three months ended June 30, 2019 and 2018 the Company incurred interest expense of approximately $0 and $9,000, respectively. The subordination agreement was amended reducing the amount of related party subordinated debt to the remaining amount due of approximately $815,000. Provision has also been made to allow repayment of the remaining $815,000 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. Quarterly installment payments of $123,000 due on the last day of each fiscal quarter have not been made since September 2017 due to the Company not meeting these requirements. During the three months ended June 30, 2019 and 2018 the Company incurred interest expense of approximately $2,000 and $9,000, respectively on the related party subordinated debt. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | NOTE 6 - COMMITMENTS AND CONTINGENCIES LEASES Operating Leases We have operating lease agreements for offices and a warehouse facility in Florida, California and Hong Kong expiring in various years through 2024. We entered into an operating lease agreement, effective October 1, 2017, for the corporate headquarters located in Fort Lauderdale, Florida where we lease approximately 6,500 square feet of office space. The lease expires on March 31, 2024. The base rent payment is approximately $8,800 per month, subject to annual adjustments. We entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California for our logistics operations. The lease expires on August 31, 2020 (original lease term of 87 months). The base rent payment is approximately $43,700 per month for the remaining term of the lease. The lease provides for a renewal option to extend the lease term for 5 years at the fair market value at the time of renewal. We entered into an operating lease agreement, effective May 1, 2018, for 424 square feet of office space in Macau, Hong Kong. The rent is fixed at approximately $1,600 per month for the duration of the lease which expires on April 30, 2021. The lease provides for a renewal option to extend the lease. Lease expense for our operating leases is recognized on a straight-line basis over the lease terms. Finance Leases On May 25, 2018 and June 4, 2018, we entered into two long-term capital leasing arrangements with Wells Fargo Equipment Finance (“Wells Fargo”) to finance the leasing of two used forklift vehicles in the amount of approximately $44,000. The leases require monthly payments in the amount of $1,279 per month over a total lease term of 36 months which commenced on June 1, 2018. The agreement has an effective interest rate of 4.5% and the Company has the option to purchase the equipment at the end of the lease term for one dollar. On June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC (“Dimension”) to finance a new Enterprise Resource Planning (“ERP”) System project over a term of 60 months at a cost of approximately $375,000. We estimate the system to be placed in service on April 1, 2020. Upon approval by Company management, Dimension will release progress payments directly to the project consultants as specific project milestones are met. Total progress payments will be made to the vendor over a period of approximately nine months and the Company will only be charged financing costs on the amounts released to the vendor. The financing agreement calls for estimated monthly installment payments of approximately $7,257 (including principal and interest) and bears interest of approximately 6.22%. As of June 30, 2019, no funds had yet been released. Supplemental balance sheet information related to leases as of June 30, 2019 is as follows : Assets Operating lease - Right-of-use assets $ 978,146 Finance leases as a component of Property and equipment, net of accumulated depreciation of $7,254 36,272 Liabilities Current Current portion of operating leases $ 600,793 Current portion of finance leases 14,547 Noncurrent Operating lease liabilities, net of current portion $ 489,724 Finance leases, net of current portion 13,817 Supplemental statement of income information related to leases for the three months ended June 30, 2019 is as follows: Operating lease expense as a component of general and administrative expenses $ 148,724 Finance lease cost Depreciation of leased assets as a component of Depreciation $ 1,555 Interest on lease liabilities as a component of Interest Expense 274 Supplemental cash flow information related to leases for the three months ended June 30, 2019 is as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating leases $ 162,392 Financing cash flow paid for finance leases 3,549 Lease term and Discount Rate Weighted average remaining lease term (months) Operating leases 32.7 Finance leases 23.0 Weighted average discount rate Operating leases 6.25 % Finance leases 3.68 % Scheduled maturities of operating and finance lease liabilities outstanding as of June 30, 2019 are as follows: Year Operating Leases Finance Leases 2020, for the remaining 9 months $ 488,766 $ 11,510 2021 348,562 15,346 2022 115,814 2,558 2023 117,638 - 2024 121,167 - Total Minimum Future Payments 1,191,947 29,414 Less: Imputed Interest 101,430 1,056 Present Value of Lease Liabilities $ 1,090,517 $ 28,358 LEGAL MATTERS Management is not aware of any legal proceedings other than matters that arise in the ordinary course of business. |
Stock Options
Stock Options | 3 Months Ended |
Jun. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Stock Options | NOTE 7 - STOCK OPTIONS During the three months ended June 30, 2019 and 2018 the Company issued 100,000 stock options at an exercise price of $.38 and $.55, respectively; to directors as compensation for their service. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the assumptions outlined below. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. ● For three months ended June 30, 2019: expected dividend yield of 0%, risk-free interest rate of 2.08%, volatility of 112.3% and an expected term of three years. A summary of stock option activity for the three months ended June 30, 2019 is summarized below: June 30, 2019 Number of Options Weighted Average Exercise Price Stock Options: Balance at beginning of period 2,210,000 $ 0.25 Granted 100,000 $ 0.38 Exercised - - Forfeited - - Balance at end of period 2,310,000 $ 0.25 Options exercisable at end of period 2,210,000 $ 0.25 The following table summarizes information about employee stock options outstanding at June 30, 2019 Range of Exercise Price Number Outstanding at June 30, 2019 Weighted Average Remaining Contractural Life Weighted Average Exercise Price Number Exercisable at June 30, 2019 Weighted Average Exercise Price $.03 - $.32 1,630,000 4.0 0.16 1,630,000 0.16 $.38 - $.55 680,000 8.6 0.42 580,000 0.50 * 2,310,000 2,210,000 * Total number of options outstanding as of June 30, 2019 includes 560,000 options issued to five current and two former directors as compensation and 1,150,000 options issue to key employees that were not issued from the Plan. |
Common Stock Issuances
Common Stock Issuances | 3 Months Ended |
Jun. 30, 2019 | |
Equity [Abstract] | |
Common Stock Issuances | NOTE 8 – COMMON STOCK ISSUANCES On June 12, 2019, the Company issued 32,890 shares of its common stock to its Board of Directors at $0.38 per share, pursuant to our annual director compensation plan for the fiscal year ending March 31, 2019. The Company recorded director compensation of $12,500 during the three months ended June 30, 2019. |
Geographical Information
Geographical Information | 3 Months Ended |
Jun. 30, 2019 | |
Segment Reporting [Abstract] | |
Geographical Information | NOTE 9 - GEOGRAPHICAL INFORMATION Sales to customers outside of the United States for the three months ended June 30, 2019 and 2018 were primarily made by the Macau Subsidiary in US dollars. Sales by geographic region for the periods presented are as follows: June 30, 2019 2018 North America $ 4,613,772 $ 1,791,914 Europe 99,424 34,764 Australia 95,844 - Other - 9,833 $ 4,809,040 $ 1,836,511 The geographic area of sales was based on the location where the product is delivered. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Jun. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | NOTE 10 –RELATED PARTY TRANSACTIONS All transactions listed below are related to the Company as they are all with affiliates of our Chairman of the Board, Mr. Phillip Lau. DUE TO/FROM RELATED PARTIES On June 30, 2019 and March 31, 2019, in the aggregate the Company had approximately $368,000 and $289,000, respectively, due from related parties for goods and services sold to these companies. On June 30, 2019 and March 31, 2019, the Company had amounts due to related parties in the amounts of approximately $101,000 and $0 for 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 approximately $1,924,000. The Revolving Credit Facility renewal agreement included 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 approximately $924,000 bears interest at 6% and is scheduled to be paid in quarterly installments of $123,000 which include interest and commenced September 30, 2017. The remaining amount due on the subordinated debt of approximately $815,000 was classified as a current liability as of June 30, 2019 and March 31, 2019 on the condensed consolidated balance sheets. Quarterly installment payments of $123,000 due on the last day of each fiscal quarter have not been made since September 2017. During the three months ended June 30, 2019 and 2018 the Company incurred interest expense of approximately $2,000 and $9,000, respectively on the related party subordinated debt. TRADE During the three months ended June 30, 2019 and June 30, 2018 the Company sold approximately $74,000 and $0, 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, 2019 and 2018 was 21.7% and NA, 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, 2019 and 2018 the Company sold approximately $71,000 and $45,000, respectively of product directly 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 incurred service expenses from Starlight Electronics Co, Ltd, (“SLE”) a related party. The services from SLE for the three month periods ended June 30, 2019 and 2018 were approximately $101,000 and $96,000, respectively. These amounts were included as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations. |
Reserve for Sales Returns
Reserve for Sales Returns | 3 Months Ended |
Jun. 30, 2019 | |
Reserve For Sales Returns | |
Reserve for Sales Returns | NOTE 11 – RESERVE FOR SALES RETURNS A return program for defective goods is negotiated with each of our wholesale customers on a year-to-year basis. Customers are allowed to return defective goods within a specified period of time after shipment (between 6 and 9 months). The Company does make occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific exceptions as identified and management estimates. The Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur. The liability for defective goods is included in the reserve for sales returns on the condensed consolidated balance sheets. Changes in the Company’s reserve for sales returns are presented in the following table: Three Months Ended June 30, 2019 June 30, 2018 Reserve for sales returns at beginning of the year $ 896,154 $ 726,000 Provision for estimated sales returns 415,234 186,878 Sales returns received (863,711 ) (775,342 ) Reserve for sales returns at end of the period $ 447,677 $ 137,536 |
Refunds Due to Customers
Refunds Due to Customers | 3 Months Ended |
Jun. 30, 2019 | |
Refunds Due To Customers | |
Refunds Due to Customers | NOTE 12 – REFUNDS DUE TO CUSTOMERS 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 and cooperative advertising programs that are in excess of unpaid invoices in accounts receivable. All credit balances in customers’ accounts receivable are reclassified to refunds due to customers in current liabilities on the condensed consolidated balance sheets. Customer requests for payment of a credit balance are reclassified from refunds due to customers to accounts payable on the condensed consolidated balance sheets. When new invoices are processed prior to settlement of the credit balance and the customer 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, 2019 and March 31, 2019, refunds due to customers reclassified from accounts receivable were approximately $300,000 and $31,000, respectively. |
Employee Benefit Plans
Employee Benefit Plans | 3 Months Ended |
Jun. 30, 2019 | |
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 months ended June 30, 2019 and 2018 totaled approximately $14,000 and $16,000, 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. |
Concentrations of Credit and Sa
Concentrations of Credit and Sales Risk | 3 Months Ended |
Jun. 30, 2019 | |
Risks and Uncertainties [Abstract] | |
Concentrations of Credit and Sales Risk | NOTE 14 - CONCENTRATIONS OF CREDIT AND SALES RISK The Company derives a majority of its revenues from retailers of products in the United States. The Company’s allowance for doubtful accounts is based upon management’s estimates and historical experience and reflects the fact that accounts receivable are concentrated with several large customers. At June 30, 2019, 87% of accounts receivable were due from two customers in North America that individually owed over 10% of total accounts receivable. At March 31, 2019, 62% of accounts receivable were due from three customers in North America that individually owed over 10% of total accounts receivable. The Company generates most of its revenue from retailers of products in the United States with a significant amount of sales concentrated with several large customers the loss of which could have an adverse impact on the financial position of the Company. For the three months ended June 30, 2019, there were two customers who individually accounted for 10% or more of the company’s net sales. Revenue derived from these customers as a percentage of net sales were 80% and 15%, respectively. For the three months ended June 30, 2018, there were three customers who individually accounted for 10% or more of the company’s net sales. Revenue derived from these customers as a percentage of net sales were 33%, 24% and 13%, respectively. |
Summary of Accounting Policies
Summary of Accounting Policies (Policies) | 3 Months Ended |
Jun. 30, 2019 | |
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, 2019 and 2018 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, 2019 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, 2019. 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 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 subsidiary are translated to U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are recorded in the condensed consolidated statement of operations and translations are recorded in a separate component of shareholders’ equity. Any such amounts 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 more than the Federal Deposit Insurance Corporation insured amounts. The Company also maintains cash balances in foreign financial institutions. The amounts at foreign financial institutions at June 30, 2019 and March 31, 2019 are approximately $577,000 and $211,000, 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, as determined using the first in, first out method. Inventories also include an estimate for the net realizable value of expected future inventory returns due to warranty and allowance programs. As of June 30, 2019 and March 31, 2019 the estimated amounts for these future inventory returns were approximately $295,000 and $599,000, respectively. The Company 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, 2019 and March 31, 2019 the Company had inventory reserves of approximately $254,000 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 with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 FASB 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, refunds due to customers 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 subordinated debt to Starlight Marketing Development, Ltd. (related party) and finance leases approximate fair value due to the relatively short period to maturity and related interest accrued at a rate similar to market rates. The carrying amount 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 and Reserve for Sales Returns | REVENUE RECOGNITION AND RESERVE FOR SALES RETURNS The Company recognizes revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”. The Company’s contracts with customers consist of one performance obligation (the sale of the Company’s products). Revenue is recognized when the goods are delivered and control of the goods sold is transferred to the customer. The Company’s contracts have no financing elements, payment terms are less than 120 days and have no further contract asset or liability obligations once control of goods is transferred to the customer. Revenue is recorded in the amount of consideration the Company expects to receive for the sale of these goods. Costs incurred in fulfilling contracts with customers include administrative costs associated with the procurement of goods are included in general and administrative expenses, in-bound freight costs are included in the cost of goods sold and accrued sales representative commissions are included in selling expenses in the accompanying condensed consolidated statements of operations. The Company disaggregates revenues by major geographic region as most of its revenue is generated by the sales of karaoke hardware and the Company has no other material business segments (See NOTE 9). The Company generally does not allow products to be returned other than return allowance programs for goods returned to the customer for various reasons and accordingly records a sales return reserve based on historic return amounts, specific events as identified and management estimates. The Company’s reserve for sales returns were approximately $448,000 and $896,000 as of June 30, 2019 and March 31, 2019, respectively. Revenue is derived from four different major product lines. Disaggregated approximate revenue from these product lines for the three months ended June 30, 2019 and 2018 consisted of the following: Revenue by Product Line Three Months Ended Product Line June 30, 2019 June 30, 2018 Classic Karaoke Machines $ 4,156,000 $ 1,011,000 Download Karaoke Machines 141,000 211,000 SMC Kids Toys 140,000 127,000 Music and Accessories 372,000 488,000 Total Net Sales $ 4,809,000 $ 1,837,000 |
Shipping and Handling Costs | SHIPPING AND HANDLING COSTS Shipping and handling costs are performed by both the Company and third-party logistics companies. Shipping and handling activities are performed before the customer obtains control of the goods sold to them and are considered activities to fulfill the Company’s promise to transfer the goods. These expenses are classified as a component of selling expenses in the accompanying 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 operations 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, 2019 and 2018 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, 2019 and 2018, the stock option expense was approximately $5,000 and $11,000, 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 indicate that the customer must spend the cooperative advertising fund upon the occurrence of mutually agreed events. The percentage of the cooperative advertising allowance ranges from 1% to 13% of the purchase. The customers must 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, 2019 and 2018 was approximately $361,000 and $269,000, respectively. As of June 30, 2019 and March 31, 2019 there was an accrual for cooperative advertising allowances of $184,000 and $185,000, 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 income. For the three months ended June 30, 2019 and 2018, these amounts totaled approximately $5,000 and $16,000, respectively. |
Income Taxes | INCOME TAXES The Company follows the provisions of FASB ASC 740 “Accounting for Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized. 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. For the three months ended June 30, 2019 and 2018 we estimated our effective tax rate to be approximately 21.5% and 23.9%, respectively. As of June 30, 2019 and March 31, 2019, the Singing Machine had gross deferred tax assets of approximately $997,000 and $758,000, respectively. The Company recorded an income tax benefit of approximately $239,000 and $324,000 for the three months ended June 30, 2019 and 2018, 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, 2019, 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. |
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, 2019 and 2018 total potential dilutive shares from common stock options amounted to 2,310,000 and 2,430,000 shares, respectively. These shares were not included in the computation of diluted earnings per share for the three months ended June 30, 2019 and June 30, 2018 because their effect was anti-dilutive. |
Adoption of New Accounting Standards | ADOPTION OF NEW ACCOUNTING STANDARDS In February 2016, the FASB issued ASU 2016-02, Topic 842, as amended, “Leases”. The ASU requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. On April 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information will not be restated and continue to apply the provisions of the previous lease standard in its disclosures for the comparative periods. (See Note 6– LEASES). The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date. The liability is equal to the present value of the remaining minimum lease payments. The asset is based on the liability, subject to certain adjustments. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard). As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments. The Company utilizes the implicit rate for its finance leases. In June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which supersedes most of the prior accounting guidance on nonemployee share-based payments, and instead aligns it with existing guidance on employee share-based payments. We adopted the new standard on April 1, 2019. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements. |
Recent Accounting Pronouncements | RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments—Credit Losses” (Topic 326) The amendments in ASU 2016-03 are effective for fiscal years beginning after April 1, 2020 including interim periods within that fiscal year. Early adoption is permitted. We are currently evaluating the potential effects of this updated guidance on our consolidated financial statements and related disclosures. Management does not believe that the adoption of ASU 2016-03 will have any material effect on the Company’s financial statements. |
Summary of Accounting Policie_2
Summary of Accounting Policies (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Schedule of Disaggregation of Revenue | Disaggregated approximate revenue from these product lines for the three months ended June 30, 2019 and 2018 consisted of the following: Revenue by Product Line Three Months Ended Product Line June 30, 2019 June 30, 2018 Classic Karaoke Machines $ 4,156,000 $ 1,011,000 Download Karaoke Machines 141,000 211,000 SMC Kids Toys 140,000 127,000 Music and Accessories 372,000 488,000 Total Net Sales $ 4,809,000 $ 1,837,000 |
Inventories, Net (Tables)
Inventories, Net (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory | Inventories are comprised of the following components: June 30, 2019 March 31, 2019 Finished Goods $ 7,294,603 $ 5,679,245 Inventory in Transit 1,223,874 - Estimated Cost of Future Returns 295,273 599,066 Subtotal 8,813,750 6,278,311 Less: Inventory Reserve 254,000 254,000 Inventories, net $ 8,559,750 $ 6,024,311 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Summary of Property and Equipment | A summary of property and equipment is as follows: USEFUL LIFE June 30, 2019 March 31, 2019 Computer and office equipment 5 years $ 140,575 $ 140,575 Furniture and fixtures 7 years 98,410 98,410 Warehouse equipment 7 years 195,401 209,419 Molds and tooling 3-5 years 1,626,422 1,466,837 2,060,808 1,915,241 Less: Accumulated depreciation 1,437,773 1,392,331 $ 623,035 $ 522,910 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Supplemental Information Related to Leases | Supplemental balance sheet information related to leases as of June 30, 2019 is as follows : Assets Operating lease - Right-of-use assets $ 978,146 Finance leases as a component of Property and equipment, net of accumulated depreciation of $7,254 36,272 Liabilities Current Current portion of operating leases $ 600,793 Current portion of finance leases 14,547 Noncurrent Operating lease liabilities, net of current portion $ 489,724 Finance leases, net of current portion 13,817 Supplemental statement of income information related to leases for the three months ended June 30, 2019 is as follows: Operating lease expense as a component of general and administrative expenses $ 148,724 Finance lease cost Depreciation of leased assets as a component of Depreciation $ 1,555 Interest on lease liabilities as a component of Interest Expense 274 Supplemental cash flow information related to leases for the three months ended June 30, 2019 is as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating leases $ 162,392 Financing cash flow paid for finance leases 3,549 |
Schedule of Lease term and Discount Rate | Lease term and Discount Rate Weighted average remaining lease term (months) Operating leases 32.7 Finance leases 23.0 Weighted average discount rate Operating leases 6.25 % Finance leases 3.68 % |
Schedule of Future Minimum Rental Payments for Operating and Finance Leases | Scheduled maturities of operating and finance lease liabilities outstanding as of June 30, 2019 are as follows: Year Operating Leases Finance Leases 2020, for the remaining 9 months $ 488,766 $ 11,510 2021 348,562 15,346 2022 115,814 2,558 2023 117,638 - 2024 121,167 - Total Minimum Future Payments 1,191,947 29,414 Less: Imputed Interest 101,430 1,056 Present Value of Lease Liabilities $ 1,090,517 $ 28,358 |
Stock Options (Tables)
Stock Options (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Summary of Stock Option Activity | A summary of stock option activity for the three months ended June 30, 2019 is summarized below: June 30, 2019 Number of Options Weighted Average Exercise Price Stock Options: Balance at beginning of period 2,210,000 $ 0.25 Granted 100,000 $ 0.38 Exercised - - Forfeited - - Balance at end of period 2,310,000 $ 0.25 Options exercisable at end of period 2,210,000 $ 0.25 |
Schedule of Employee Stock Options Outstanding | The following table summarizes information about employee stock options outstanding at June 30, 2019 Range of Exercise Price Number Outstanding at June 30, 2019 Weighted Average Remaining Contractural Life Weighted Average Exercise Price Number Exercisable at June 30, 2019 Weighted Average Exercise Price $.03 - $.32 1,630,000 4.0 0.16 1,630,000 0.16 $.38 - $.55 680,000 8.6 0.42 580,000 0.50 * 2,310,000 2,210,000 * Total number of options outstanding as of June 30, 2019 includes 560,000 options issued to five current and two former directors as compensation and 1,150,000 options issue to key employees that were not issued from the Plan. |
Geographical Information (Table
Geographical Information (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Segment Reporting [Abstract] | |
Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas | Sales by geographic region for the periods presented are as follows: June 30, 2019 2018 North America $ 4,613,772 $ 1,791,914 Europe 99,424 34,764 Australia 95,844 - Other - 9,833 $ 4,809,040 $ 1,836,511 |
Reserves for Sales Returns (Tab
Reserves for Sales Returns (Tables) | 3 Months Ended |
Jun. 30, 2019 | |
Reserve For Sales Returns | |
Schedule of Reserve for Sales Returns | Changes in the Company’s reserve for sales returns are presented in the following table: Three Months Ended June 30, 2019 June 30, 2018 Reserve for sales returns at beginning of the year $ 896,154 $ 726,000 Provision for estimated sales returns 415,234 186,878 Sales returns received (863,711 ) (775,342 ) Reserve for sales returns at end of the period $ 447,677 $ 137,536 |
Summary of Accounting Policie_3
Summary of Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | |
Accounting Policies [Line Items] | ||||
Percentage of reserves for customers | 100.00% | |||
Foreign financial institutions actual deposits | $ 577,000 | $ 211,000 | ||
Future inventory returns | 295,000 | 599,000 | ||
Inventory reserves | 254,000 | 254,000 | ||
Reserve for sales returns | 447,677 | $ 137,536 | 896,154 | $ 726,000 |
Stock option expense | 5,000 | 11,000 | ||
Advertising expense | 361,000 | 269,000 | ||
Accrued cooperative advertising allowances | 184,000 | 185,000 | ||
Research and development costs | $ 5,000 | $ 16,000 | ||
Effective tax rate | 21.50% | 23.90% | ||
Net deferred tax assets | $ 997,000 | $ 758,000 | ||
Income Tax Benefit | $ 238,731 | $ 324,000 | ||
Percentage of tax benefits recognized likelihood of being realized | greater than 50% | |||
Total potential dilutive shares from common stock options | 2,310,000 | 2,430,000 | ||
Minimum [Member] | ||||
Accounting Policies [Line Items] | ||||
Cooperative advertising allowance, percentage | 1.00% | |||
Maximum [Member] | ||||
Accounting Policies [Line Items] | ||||
Cooperative advertising allowance, percentage | 13.00% |
Summary of Accounting Policie_4
Summary of Accounting Policies - Schedule of Disaggregation of Revenue (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Net Sales | $ 4,809,040 | $ 1,836,511 |
Classic Karaoke Machines [Member] | ||
Net Sales | 4,156,000 | 1,011,000 |
Download Karaoke Machines [Member] | ||
Net Sales | 141,000 | 211,000 |
SMC Kids Toys [Member] | ||
Net Sales | 140,000 | 127,000 |
Music and Accessories [Member] | ||
Net Sales | $ 372,000 | $ 488,000 |
Inventories, Net - Schedule of
Inventories, Net - Schedule of Inventory (Details) - USD ($) | Jun. 30, 2019 | Mar. 31, 2019 |
Inventory Disclosure [Abstract] | ||
Finished Goods | $ 7,294,603 | $ 5,679,245 |
Inventory in Transit | 1,223,874 | |
Estimated Cost of Future Returns | 295,273 | 599,066 |
Subtotal | 8,813,750 | 6,278,311 |
Less: Inventory Reserve | 254,000 | 254,000 |
Total Inventories | $ 8,559,750 | $ 6,024,311 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 59,461 | $ 67,571 |
Property and Equipment - Summar
Property and Equipment - Summary of Property and Equipment (Details) - USD ($) | 3 Months Ended | ||
Jun. 30, 2019 | Mar. 31, 2019 | Jun. 30, 2018 | |
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 2,060,808 | $ 1,915,241 | |
Less: Accumulated depreciation | 1,437,773 | 1,392,331 | |
Property and equipment, net | $ 623,035 | 522,910 | |
Computer and Office Equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Average useful life (in years) | 5 years | ||
Property and equipment, gross | 140,575 | $ 140,575 | |
Furniture and Fixtures [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Average useful life (in years) | 7 years | ||
Property and equipment, gross | 98,410 | 98,410 | |
Warehouse Equipment [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Average useful life (in years) | 7 years | ||
Property and equipment, gross | 209,419 | 195,401 | |
Molds and Tooling [Member] | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 1,466,837 | $ 1,626,422 | |
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 |
Bank Financing (Details Narrati
Bank Financing (Details Narrative) - USD ($) | Aug. 02, 2018 | Jun. 22, 2017 | Jun. 30, 2017 | Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2019 |
Line of Credit Facility [Line Items] | ||||||
Revolving line of credit | $ 627,007 | |||||
Due from PNC Bank | 2,236,779 | |||||
First priority security ownership interest percentage | 100.00% | |||||
Line of credit facility, collateral amount | $ 815,000 | |||||
Amortization of deferred financing costs | 3,333 | $ 3,334 | ||||
Proceeds from lines of credit | $ 627,007 | 1,089,822 | ||||
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% | |||||
Incurred interest expense | $ 0 | 9,000 | ||||
Line of credit facility, periodic payment | 125,000 | |||||
Outstanding balance | 0 | $ 125,000 | ||||
Subordinated Debt [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of credit facility, maximum amount outstanding during period | $ 815,000 | |||||
Line of credit facility, interest rate during period | 6.00% | |||||
Incurred interest expense | $ 2,000 | 9,000 | ||||
Repayments of lines of credit | 815,000 | |||||
Line of credit facility, periodic payment | $ 123,000 | |||||
Maximum [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
First priority lien percentage | 65.00% | |||||
Prior 30 Days [Member] | Subordinated Debt [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of credit facility, maximum amount outstanding during period | $ 1,000,000 | |||||
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 borrowing capacity | $ 6,873,000 | |||||
Line of credit facility, description | 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. | |||||
Line of credit facility sub limits description | 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. | |||||
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 $375,000 per year. | |||||
Line of credit facility, interest rate during period | 0.75% | |||||
Line of credit facility, LIBOR Rate plus rate | 2.75% | |||||
Line of credit facility default rate | 2.00% | |||||
Line of credit facility, unused capacity, commitment fee percentage | 0.375% | |||||
Incurred interest expense | $ 1,000 | 5,000 | ||||
Incurred unused facility fee amount | 7,000 | 7,000 | ||||
Amortization of deferred financing costs | 3,000 | 3,000 | ||||
Revolving Credit Facility [Member] | Term Note [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Debt instrument, term | 2 years | |||||
Line of credit facility, maximum amount outstanding during period | $ 924,000 | |||||
Line of credit facility, interest rate during period | 6.00% | |||||
Incurred interest expense | $ 2,000 | $ 9,000 | ||||
Proceeds from lines of credit | $ 1,000,000 | 1,000,000 | ||||
Repayments of lines of credit | $ 1,924,000 | 815,000 | ||||
Line of credit facility, periodic payment | 123,000 | |||||
Revolving Credit Facility [Member] | Third Amendment [Member] | ||||||
Line of Credit Facility [Line Items] | ||||||
Line of credit facility, description | PNC issued a third amendment and waiver (“third amendment”) to the Revolving Credit Facility, the Security Agreement in effect for fiscal 2019. The third amendment waived existing violations of the fixed charge coverage ratio of 1.1:1 and increased maximum capital expenditures from $300,000 to $375,000 per fiscal year. The Company incurred an amendment fee of $10,000 upon execution of the agreement. | |||||
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 |
Commitments and Contingencies_2
Commitments and Contingencies (Details Narrative) | Jun. 18, 2019USD ($) | Jun. 04, 2018USD ($) | May 25, 2018USD ($) | May 01, 2018USD ($)ft² | Oct. 01, 2017USD ($)ft² | Jun. 01, 2013USD ($)ft² | Jun. 30, 2019USD ($) |
Commitments And Contingencies [Line Items] | |||||||
Monthly lease payments | $ 3,549 | ||||||
Operating Lease Agreement [Member] | |||||||
Commitments And Contingencies [Line Items] | |||||||
Operating lease space for office | ft² | 424 | 6,500 | 86,000 | ||||
Lease expiration date | Apr. 30, 2021 | Mar. 31, 2024 | Aug. 31, 2020 | ||||
Rent expense | $ 1,600 | $ 8,800 | $ 43,700 | ||||
Lease term | 87 months | ||||||
Long-Term Capital Leasing Arrangements [Member] | Wells Fargo Equipment Finance [Member] | |||||||
Commitments And Contingencies [Line Items] | |||||||
Financing lease costs | $ 44,000 | $ 44,000 | |||||
Monthly lease payments | $ 1,279 | $ 1,279 | |||||
Financing lease term | 36 months | 36 months | |||||
Effective interest rate | 4.50% | 4.50% | |||||
Financing Arrangement [Member] | Dimension Funding, LLC [Member] | |||||||
Commitments And Contingencies [Line Items] | |||||||
Financing lease costs | $ 375,000 | ||||||
Monthly lease payments | $ 7,257 | ||||||
Financing lease term | 60 months | ||||||
Effective interest rate | 6.22% |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Supplemental Information Related to Leases (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease - Right-of-use assets | $ 978,146 | |
Finance leases as a component of Property and equipment, net of accumulated depreciation of $7,254 | 36,272 | |
Current portion of operating leases | 600,793 | |
Current portion of finance leases | 14,547 | 14,414 |
Operating lease liabilities, net of current portion | 489,724 | |
Finance leases, net of current portion | 13,817 | $ 17,499 |
Operating lease expense as a component of general and administrative expenses | 148,724 | |
Finance lease cost Depreciation of leased assets as a component of Depreciation | 1,555 | |
Finance lease cost Interest on lease liabilities as a component of Interest Expense | 274 | |
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow paid for operating leases | 162,392 | |
Cash paid for amounts included in the measurement of lease liabilities: Financing cash flow paid for finance leases | $ 3,549 |
Commitments and Contingencies_3
Commitments and Contingencies - Schedule of Supplemental Information Related to Leases (Details) (Parenthetical) | Jun. 30, 2019USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
Finance leases Property and equipment accumulated depreciation | $ 7,254 |
Commitments and Contingencies_4
Commitments and Contingencies - Schedule of Lease term and Discount Rate (Details) | Jun. 30, 2019 |
Commitments And Contingencies - Schedule Of Lease Term And Discount Rate | |
Weighted average remaining lease term (months), Operating leases | 32 months 7 days |
Weighted average remaining lease term (months), Finance leases | 23 months |
Weighted average discount rate, Operating leases | 6.25% |
Weighted average discount rate, Finance leases | 3.68% |
Commitments and Contingencies_5
Commitments and Contingencies - Schedule of Future Minimum Rental Payments for Operating and Finance Leases (Details) | Mar. 31, 2019USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2020, for the remaining 9 months | $ 488,766 |
2021 | 348,562 |
2022 | 115,814 |
2023 | 117,638 |
2024 | 121,167 |
Total Minimum Future Payments | 1,191,947 |
Less: Imputed Interest | 101,430 |
Present Value of Lease Liabilities | 1,090,517 |
2020, for the remaining 9 months | 11,510 |
2021 | 15,346 |
2022 | 2,558 |
2023 | |
2024 | |
Total Minimum Future Payments | 29,414 |
Less: Imputed Interest | 1,056 |
Present Value of Lease Liabilities | $ 28,358 |
Stock Options (Details Narrativ
Stock Options (Details Narrative) - $ / shares | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Share-based Payment Arrangement [Abstract] | ||
Number of stock options shares issued | 100,000 | 100,000 |
Stock options exercise price per share | $ .38 | $ .55 |
Expected dividend yield | 0.00% | |
Risk-free interest rate | 2.08% | |
Volatility | 112.30% | |
Expected term | 3 years |
Stock Options - Summary of Stoc
Stock Options - Summary of Stock Option Activity (Details) - $ / shares | 3 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | ||
Number of Options Granted | 100,000 | 100,000 | |
Weighted Average Exercise Price Granted | $ .38 | $ .55 | |
Stock Option [Member] | |||
Number of Options, Balance at Beginning of Year | [1] | 2,210,000 | |
Number of Options Granted | 100,000 | ||
Number of Options Exercised | |||
Number of Options Forfeited | |||
Number of Options, Balance at End of Year | 2,310,000 | ||
Number of Options, Exercisable at End of Year | 2,210,000 | ||
Weighted Average Exercise Price, Balance at Beginning of Year | [1] | $ 0.25 | |
Weighted Average Exercise Price Granted | 0.38 | ||
Weighted Average Exercise Price Exercised | |||
Weighted Average Exercise Price Forfeited | |||
Weighted Average Exercise Price, Balance at End of Period | 0.25 | ||
Weighted Average Exercise Price, Options Exercisable at End of Year | $ 0.25 | ||
[1] | Total number of options outstanding as of March 31, 2019 includes 460,000 options issued to five current and two former directors as compensation and 1,150,000 options issue to key employees that were not issued from the Plan. |
Stock Options - Schedule of Emp
Stock Options - Schedule of Employee Stock Options Outstanding (Details) | 3 Months Ended | |
Jun. 30, 2019$ / sharesshares | ||
Stock Options Number Outstanding | shares | 2,310,000 | [1] |
Stock Option Number Exercisable | shares | 2,210,000 | [1] |
Exercise Price Range One [Member] | ||
Stock Options Outstanding Exercise Price, Lower Range Limit | $ .03 | |
Stock Options Outstanding Exercise Price, Upper Range Limit | $ .32 | |
Stock Options Number Outstanding | shares | 1,630,000 | |
Stock Option Outstanding Weighted Average Remaining Contractual Life | 4 years | |
Stock Option Outstanding Weighted Average Exercise Price | $ 0.16 | |
Stock Option Number Exercisable | shares | 1,630,000 | |
Stock Option Exercisable Weighted Average Exercise Price | $ 0.16 | |
Exercise Price Range Two [Member] | ||
Stock Options Outstanding Exercise Price, Lower Range Limit | .38 | |
Stock Options Outstanding Exercise Price, Upper Range Limit | $ .55 | |
Stock Options Number Outstanding | shares | 680,000 | |
Stock Option Outstanding Weighted Average Remaining Contractual Life | 8 years 7 months 6 days | |
Stock Option Outstanding Weighted Average Exercise Price | $ 0.42 | |
Stock Option Number Exercisable | shares | 580,000 | |
Stock Option Exercisable Weighted Average Exercise Price | $ 0.50 | |
[1] | Total number of options outstanding as of June 30, 2019 includes 560,000 options issued to five current and two former directors as compensation and 1,150,000 options issue to key employees that were not issued from the Plan. |
Stock Options - Schedule of E_2
Stock Options - Schedule of Employee Stock Options Outstanding (Details) (Parenthetical) | 3 Months Ended |
Jun. 30, 2019shares | |
Five Current Directors and Two Former Directors [Member] | |
Number of option issued for compensation during period | 560,000 |
Key Employees [Member] | |
Number of option issued for compensation during period | 1,150,000 |
Common Stock Issuances (Details
Common Stock Issuances (Details Narrative) - USD ($) | Jun. 12, 2019 | Jun. 30, 2019 |
Number of shares issued, value | $ 12,500 | |
Board of Directors [Member] | ||
Number of shares issued | 32,890 | |
Shares issued price per share | $ 0.38 | |
Number of shares issued, value | $ 12,500 |
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, 2019 | Jun. 30, 2018 | |
Segment Reporting Information [Line Items] | ||
Net Sales | $ 4,809,040 | $ 1,836,511 |
North America [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | 4,613,772 | 1,791,914 |
Europe [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | 99,424 | 34,764 |
Australia [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | 95,844 | |
Others [Member] | ||
Segment Reporting Information [Line Items] | ||
Net Sales | $ 9,833 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2019 | |
Related Party Transaction [Line Items] | ||||
Due from related parties, current | $ 368,000 | $ 289,000 | ||
Due to related parties | 101,000 | $ 0 | ||
Proceeds from line of credit | 627,007 | $ 1,089,822 | ||
Warehouse Facility [Member] | ||||
Related Party Transaction [Line Items] | ||||
Revenue from related parties | $ 71,000 | 45,000 | ||
Term Note [Member] | ||||
Related Party Transaction [Line Items] | ||||
Line of credit facility interest rate | 1.75% | |||
Line of credit facility, periodic payment | $ 125,000 | |||
Incurred interest expense | $ 0 | 9,000 | ||
Revolving Credit Facility [Member] | ||||
Related Party Transaction [Line Items] | ||||
Line of credit facility interest rate | 0.75% | |||
Incurred interest expense | $ 1,000 | 5,000 | ||
Revolving Credit Facility [Member] | Term Note [Member] | ||||
Related Party Transaction [Line Items] | ||||
Proceeds from line of credit | $ 1,000,000 | 1,000,000 | ||
Line of credit facility, maximum amount outstanding during period | $ 924,000 | |||
Line of credit facility interest rate | 6.00% | |||
Line of credit facility, periodic payment | $ 123,000 | |||
Repayments of lines of credit | $ 1,924,000 | 815,000 | ||
Incurred interest expense | 2,000 | 9,000 | ||
Starlight Marketing Development Ltd [Member] | ||||
Related Party Transaction [Line Items] | ||||
Due to related parties | 1,924,000 | |||
Winglight Pacific Ltd [Member] | ||||
Related Party Transaction [Line Items] | ||||
Revenue from related parties | $ 74,000 | $ 0 | ||
Related party gross margin percentage | 21.70% | 21.70% | ||
Starlight Electronics Co., Ltd [Member] | ||||
Related Party Transaction [Line Items] | ||||
Incurred service expenses from related party | $ 101,000 | $ 96,000 |
Reserve for Sales Returns - Sch
Reserve for Sales Returns - Schedule of Reserve for Sales Returns (Details) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Reserve For Sales Returns | ||
Reserve for sales returns at beginning of the year | $ 896,154 | $ 726,000 |
Provision for estimated sales returns | 415,234 | 186,878 |
Sales returns received | (863,711) | (775,342) |
Reserve for sales returns at end of the year | $ 447,677 | $ 137,536 |
Refunds Due to Customers (Detai
Refunds Due to Customers (Details Narrative) - USD ($) | Jun. 30, 2019 | Mar. 31, 2019 |
Refunds Due To Customers | ||
Refunds due to customers | $ 300,057 | $ 31,075 |
Employee Benefit Plans (Details
Employee Benefit Plans (Details Narrative) - USD ($) | 3 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Retirement Benefits [Abstract] | ||
Defined contribution plan, administrative expenses | $ 14,000 | $ 16,000 |
Concentrations of Credit and _2
Concentrations of Credit and Sales Risk (Details Narrative) | 3 Months Ended | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | Mar. 31, 2019 | |
Accounts Receivable [Member] | Two Customers [Member] | North America [Member] | |||
Concentration of sales risk, percentage | 10.00% | ||
Accounts Receivable [Member] | Three Customers [Member] | |||
Concentration of sales risk, percentage | 10.00% | ||
Accounts Receivable [Member] | Three Customers [Member] | North America [Member] | |||
Concentration of sales risk, percentage | 62.00% | ||
Sales Revenue [Member] | Two Customers [Member] | |||
Concentration of sales risk, percentage | 10.00% | ||
Sales Revenue [Member] | Three Customers [Member] | |||
Concentration of sales risk, percentage | 10.00% | ||
Sales Revenue [Member] | Customer One [Member] | |||
Concentration of sales risk, percentage | 80.00% | 33.00% | |
Sales Revenue [Member] | Customer Two [Member] | |||
Concentration of sales risk, percentage | 15.00% | 24.00% | |
Sales Revenue [Member] | Customer Three [Member] | |||
Concentration of sales risk, percentage | 13.00% |