Singing Machine Co., having fallen behind in paying creditors, is...

payable related to 2 factories in China, it said. Faced with a limited amount of cash, Singing Machine has signed a factoring agreement with Milberg Factors, which is advancing it $3.5 million. The pact with Milberg requires the company to maintain $7.5 million in tangible net worth and working capital and pay a $200,000 minimum annual fee. The company’s financial struggles follow a 20% cut in executive pay Jan. and planned resignations of CFO April Green and Senior Finance Vp John Dahl, who were eligible for severance of $73,600 and $75,000, respectively, as of Dec. 31. Exec. Vp-Sales John Dromgold, who resigned in Dec., but remained a consultant until Feb., is being paid $164,598, which represents his salary through June 30, Singing Machine said. At the same time, Singing Machine reached a proposed settlement of a shareholder lawsuit that calls for a $1.3 million cash payment. Singing Machines will pay $850,000, while its former auditor, Salberg & Co., is responsible for the remainder. A hearing on a motion for preliminary approval of the settlement is scheduled before U.S. Dist. Court Judge William Zloch, Ft. Lauderdale, on April 24, the company said. The suit was filed in July 2003. Singing Machine, which has seen 2 CEOs depart in the past year, has struggled since entering a consignment agreement with Best Buy 2 years ago. Best Buy returned $2.75 million in unsold karaoke products in Feb. 2002, but kept the inventory in its stores as the sales agreements switched to consignment, Singing Machine said. Singing Machine suffered a 2nd blow when it signed a contract with Trans World Entertainment guaranteeing a minimum gross profit of $3.5 million on the sales of its products between Sept. 1, 2002 and Jan. 15, 2003. The agreement expired on Jan. 15, 2004 and Trans World was paid $2.5 million as a result of its not gaining the guaranteed gross profit. Singing Machine also has been hampered by dwindling sales of its MTV Networks branded products. It posted sales of $30.8 million (32.3% of consolidated sales) in sales of MTV-related goods in fiscal 2003, but declined to $8.3 million (12.2%) in the 9 months ended Dec. 31. The company amended its licensing agreement with MTV earlier this year to reduce the minimum annual royalty guarantee to $1.3 million from $1.5 million and extend the contract to April 30. Singing Machine’s 3rd-quarter loss widened to $10.4 million from $3.3 million as sales plunged to $28.6 million from $45.6 million. Its gross profit margin declined to 4.6% from 21.7%. Among those listed as selling shareholders in the SEC filing are Omicron Master Trust (434,034) and SF Capital Partners (187,013).