What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-02-19 compared with 2021-02-19 · 623 added, 771 removed, 518 unchanged (73% of the section changed)

2 unchanged sentences

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2020

March 31, 2020

Current Assets

Accounts receivable,

net of allowances of $600,799 and $337,461, respectively

Accounts receivable, net of allowances of $299,939 and $337,461, respectively

Due from banks

Accounts receivable

related party - Winglight Pacific, Ltd

Insurance claim

Accounts receivable related party - Winglight Pacific, Ltd

Insurance claim receivable

Inventories, net

Prepaid expenses

and other current assets

financing costs

Current Assets

Property and equipment,

Prepaid expenses and other current assets

Deferred financing costs

Total Current Assets

Property and equipment, net

Deferred tax assets

Operating Leases

- right of use assets

non-current assets

and Shareholders’

Operating Leases - right of use assets

Other non-current assets

Liabilities and Shareholders’

Current Liabilities

Accounts payable

Accrued expenses

Due to related party

- Starlight Consumer Electronics Co., Ltd.

Due to related party

- Starlight Electronics Co., Ltd

Due to related party

- Starlight R&D, Ltd.

Revolving lines

Due to related party - Starlight Consumer Electronics Co., Ltd.

Due to related party - Starlight Electronics Co., Ltd

Due to related party - Starlight R&D, Ltd.

Revolving line of credit - Iron Horse Credit

Refunds due to customers

Reserve for sales

Current portion

of finance leases

Current portion

of installment notes

Current portion

of note payable - Paycheck Protection Program

portion of operating lease liabilities

Current Liabilities

leases, net of current portion

notes, net of current portion

payable - Payroll Protection Program, net of current portion

lease liabilities, net of current portion

related party debt - Starlight Marketing Development, Ltd.,

and Contingencies

Reserve for sales returns

Current portion of finance leases

Current portion of installment notes

Current portion of note payable - Paycheck Protection Plan

Current portion of operating lease liabilities

Total Current Liabilities

Finance leases, net of current portion

Installment notes, net of current portion

Note payable - Payroll Protection Plan, net of current portion

Operating lease liabilities

Subordinated related party debt - Starlight Marketing Development, Ltd.

Total Liabilities

Commitments and Contingencies

Shareholders’

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1,000,000 shares authorized;

no shares issued and

no shares issued and outstanding

Common stock, Class A, $0.01 par value;

100,000 shares authorized;

issued and outstanding

Common stock, Class

B, $0.01 par value;

no shares issued and outstanding

Common stock, Class B, $0.01 par value;

100,000,000 shares authorized;

38,557,643 shares

issued and outstanding

Additional paid-in

38,557,643 shares issued and outstanding

Additional paid-in capital

Accumulated deficit

(14,633,360 )

(14,426,556 )

Shareholders’

Liabilities and Shareholders’

Total Shareholders’

Total Liabilities and Shareholders’

notes to the condensed consolidated financial statements

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CONSOLIDATED STATEMENTS OF OPERATIONS

the Three Months Ended

the Six Months Ended

(as restated)

For the Three Months Ended

June 30, 2020

June 30, 2019

(as restated)

of Goods Sold

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative

Operating Expenses

Income (Loss) from

General and administrative expenses

Total Operating Expenses

Loss from Operations

Other Income (Expenses)

Gain from damaged

goods insurance claim

Gain from extinguishment

of accounts payable

Gain from damaged goods insurance claim

Gain from extinguishment of accounts payable

Interest expense

Other Income (Expenses), net

Income (Loss) Before

Income Tax (Provision) Benefit

Tax (Provision) Benefit

Income (Loss)

Net Income (Loss)

per Common Share

Finance costs

Total Other Income (Expenses), net

Loss Before Income Tax Benefit

Income Tax Benefit

Net Loss per Common Share

Basic and Diluted

Weighted Average Common and Common

Equivalent Shares:

Weighted Average Common and Common Equivalent Shares:

Basic and Diluted

notes to the condensed consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

the Six Months Ended

Cash flows from operating

Income (loss)

Adjustments to reconcile

net income (loss) to net cash used in operating activities:

Amortization of

deferred financing costs

Change in inventory

Change in allowance

for bad debts

For the Three Months Ended

June 30, 2020

June 30, 2019

Cash flows from operating activities

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Amortization of deferred financing costs

Change in inventory reserve

Change in allowance for bad debts

Stock based compensation

Change in net deferred

Gain from extinguishment

of accounts payable

Changes in operating

assets and liabilities:

Change in net deferred tax assets

Gain from extinguishment of accounts payable

Changes in operating assets and liabilities:

Accounts receivable

(16,575,815 )

(14,759,924 )

Due from banks

Accounts receivable

- related parties

Accounts receivable - related parties

Insurance receivable

Prepaid expenses

and other current assets

Other non-current

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

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Refunds due to customers

Reserve for sales

Operating lease

liabilities, net of operating leases - right of use assets

cash used in operating activities

Cash flows from investing

of property and equipment

cash used in investing activities

Cash flows from financing

Net proceeds from

revolving lines of credit

Proceeds from note

payable - Payroll Protection Program

Payment of bank

Payment of deferred

financing charges

Proceeds from installment

Proceeds from subscription

Proceeds from exercise

of stock options

Payment on subordinated

debt - related party

Payments on installment

on finance leases

cash provided by financing activities

Reserve for sales returns

Operating lease liabilities, net of operating leases - right of use assets

Net cash (used in) provided by operating activities

Cash flows from investing activities

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities

Net proceeds from revolving line of credit - PNC Bank

Net proceeds from revolving line of credit - Iron Horse Credit

Proceeds from note payable - Payroll Protection Program

Payment of bank term note

Payment of deferred financing costs

Payments on installment notes

Proceeds from subscription receivable

Payments on finance leases

Net cash provided by financing activities

Net change in cash

Cash at beginning

Supplemental disclosures

of cash flow information:

paid for interest

leases - right of use assets initial adoption

lease liabilities - initial adoption

Operating leases

- right of use assets and lease liabilities at inception of lease

Cash at beginning of period

Cash at end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Operating leases - right of use assets initial adoption

Operating lease liabilities - initial adoption

Operating leases - right of use assets and lease liabilities at inception of lease

notes to the condensed consolidated financial statements

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the three months ended September 30, 2020 and 2019

Subscriptions

at June 30, 2020

$ (14,633,360 )

at September 30, 2020

$ (12,225,486 )

at June 30, 2019

$ (12,439,137 )

compensation-stock option

of stock options

at September 30, 2019

$ (11,814,915 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the six months ended September 30, 2020 and 2019

the three months ended June 30, 2020 and 2019

Subscriptions

at March 31, 2020

Balance at March 31, 2020

$ (14,426,556 )

at September 30, 2020

Balance at June 30, 2020

$ (14,633,360 )

at March 31, 2019

Balance at March 31, 2019

$ (11,569,556 )

compensation-stock option

of subscription receivable

of stock options

of common stock - directors

at September 30, 2019

Employee compensation-stock option

Collection of subscription receivable

Issuance of common stock - directors

Balance at June 30, 2019

$ (12,439,137 )

1 unchanged sentence

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

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and its three wholly-owned subsidiaries SMC (Comercial Offshore De Macau) Limitada (“Macau Subsidiary”), SMC Logistics,

(“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.

(“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.

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

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of its co-op promotion allowances (previously referred to as “cooperative advertising”) with its customers as selling

expenses instead of a reduction in net sales for each of the three and six months ended September 30, 2020 and 2019, as these

co-op promotion allowances are not a distinct good or service and the Company cannot reasonably estimate the fair value of the

benefit it receives from these arrangements.

expenses instead of a reduction in net sales for each of the three months ended June 30, 2020 and 2019, as these co-op promotion

allowances are not a distinct good or service and the Company cannot reasonably estimate the fair value of the benefit it receives

from these arrangements.

effects of this accounting error do not impact the condensed consolidated balance sheets, statements of cash flows and statements

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including the balances as originally reported, adjustments and the as restated balances for each of the periods affected:

Reported For the Three Months Ended September 30, 2020

Restated For the Three Months Ended September, 30, 2020

Reported For the Six Months Ended September 30, 2020

Restated For the Six Months Ended September, 30, 2020

$ (1,173,840 )

of Goods Sold

Reported For the

Three Months Ended June 30, 2020

Restated For the

Three Months Ended June, 30, 2020

Cost of Goods Sold

Operating Expenses

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General and administrative expenses

Operating Expenses

from Operations

Total Operating Expenses

Loss from Operations

Other Income (Expenses)

Gain from damaged goods insurance

Gain from extinguishment of accounts

Gain from damaged goods insurance claim

Gain from extinguishment of accounts payable

Interest Expense

Other Income (Expenses), net

Income Before

Income Tax Provision

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

Reported For the Three Months Ended

September 30, 2019

Restated For the Three Months Ended

September, 30,

Reported For the Six Months Ended

September 30, 2019

Restated For the Six Months Ended

September, 30,

$ (1,027,327 )

$ (1,196,129 )

of Goods Sold

Selling expenses

General and administrative

Finance Costs

Total Other Income (Expenses), net

Loss Before Income Tax Benefit

Income Tax Benefit

Reported For the

Three Months Ended June 30, 2019

Restated For the

Three Months Ended June, 30, 2019

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Loss from Operations

Interest Expense

Other Expenses

(Loss) Before Income Tax (Provision) Benefit

Tax (Provision) Benefit

Net Income (Loss)

Interest Expense

Finance Costs

Total Other Expenses

Loss Before Income Tax Benefit

Income Tax Benefit

Company reported a net loss of approximately $207,000 for the three months ended June 30, 2020 as compared to a net loss of approximately

$870,000 for the three months ended June 30, 2019.

In August 2019, a major customer received goods that were significantly water

damaged due to excess moisture absorbed in pallets shipped by the factory.

As a result we incurred a loss in cash flow of approximately

$1,559,000 in revenue and approximately $849,000 in additional out of pocket expenses to retrieve, inspect, warehouse and properly

destroy the goods during Fiscal 2020.

As of this filing we have we have recovered approximately $2,245,000 from our cargo insurance

coverage consisting of settlement of approximately $1,268,000 in insurance claim receivable, approximately $131,000 reflected

as gain from damaged goods insurance claim in the condensed consolidated statement of operations for the three months ended June

30, 2020 with the remaining gain on recovery of approximately $846,000 subsequently received in July 2020 which will be recognized

as a gain from damaged goods insurance claim in the next quarter ending September 30, 2020.

We also secured vendor invoice credits

of $390,000 from the factory that caused the damage which is reflected as gain from extinguishment of accounts payable in the

condensed consolidated statement of operations for the three months ended June 30, 2020.

On June 16, 2020, the Company executed

an Intercreditor Revolving Credit Facility on eligible accounts receivable and inventory which replaced a revolving credit facility

with PNC bank that was terminated on June 16, 2020.

The Company signed a two-year Loan and Security Agreement for a $10,000,000

financing facility (“Crestmark Facility”) with Crestmark Bank (“Crestmark”) on eligible accounts receivable.

Further, the Company also executed a two-year Loan and Security Agreement (“IHC Facility”) with Iron Horse Credit

(“IHC”) for up to $2,500,000 in inventory financing.

The Intercreditor Revolving Loan Facility will expire on June

The Company has adequate cash on hand and cash available on its Intercreditor Revolving Credit Facility (approximately

$2,600,000 as of the date of this filing) to meet all obligations during this off-peak season.

On May 5, 2020, the Company received

loan proceeds from Crestmark in the amount of approximately $444,000 under the Paycheck Protection Program (“PPP”).

The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which provides

for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The loans and accrued interest may be forgivable to the extent the Company uses the loan proceeds for eligible purposes, including

payroll, benefits, rent and utilities, and maintains its payroll levels.

Management is confident that the availability of cash

from our Intercreditor Revolving Credit Facility, proceeds from the insurance claim settlement, proceeds from the PPP loan and

our projections to reduce excess inventory during the next year will be adequate to meet the Company’s liquidity requirements

for at least the next twelve months.

SUMMARY OF ACCOUNTING POLICIES

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The accompanying

unaudited financial statements for the three and six months ended September 30, 2020 and 2019 have been prepared in accordance

with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q/A

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

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,

2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A

for the year ended March 31, 2020.

The interim condensed consolidated financial statements should be read in conjunction with

unaudited condensed financial statements for the three months ended June 30, 2020 and 2019 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.

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, 2020 was

derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the

year ended March 31, 2020.

The interim condensed consolidated financial statements should be read in conjunction with that report.

Singing Machine makes estimates and assumptions in the ordinary course of business relating to sales returns and allowances, warranty

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However, circumstances could change which may alter future expectations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

COLLECTABILITY

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Net gains and losses resulting from foreign exchange transactions are recorded in the condensed

consolidated statement of operations and translations

recorded in a separate component of shareholders’

Any such amounts were not material during the periods presented.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

consolidated statement of operations and translations are recorded in a separate component of shareholders’

such amounts were not material during the periods presented.

CONCENTRATION

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The amounts at foreign financial

institutions at September 30, 2020 and March 31, 2020 are approximately $896,000 and $217,000, respectively.

institutions at June 30, 2020 and March 31, 2020 are approximately $70,000 and $217,000, respectively.

instruments, which potentially subject the Company to concentrations of credit risk, consist of accounts receivable.

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 September 30, 2020 and March 31, 2020

the estimated amounts for

future inventory returns were approximately $1,114,000 and $1,367,000, 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 September 30, 2020 and March 31, 2020 the Company had inventory reserves of approximately $905,000 and $434,000, respectively

for estimated excess and obsolete inventory.

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, 2020 and March

31, 2020 the estimated amounts for these future inventory returns were approximately $784,000 and $1,367,000, 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, 2020 and March 31, 2020 the Company had

inventory reserves of approximately $467,000 and approximately $434,000, respectively for estimated excess and obsolete

FINANCING COSTS

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in deferred financing costs associated with the closing of the Crestmark Facility and the IHC Facility which are being amortized

over twelve months and were classified as current assets on the accompanying condensed consolidated balance sheets.

over the term of the agreement and were classified as current assets on the accompanying condensed consolidated balance sheets.

Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication

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The Company utilizes the implicit rate for its finance leases.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

AND EQUIPMENT

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VALUE OF FINANCIAL INSTRUMENTS

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.

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.

carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued

2 unchanged sentences

The carrying amounts on the subordinated debt to Starlight Marketing Development, Ltd.

party), finance leases and installment notes approximate fair value due to the relatively short period to maturity and related

interest accrued at a rate similar to market rates.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

carrying amount on the revolving lines of credit approximate fair value due the relatively short period to maturity and related

interest accrued at market rates.

The carrying amount on the Payroll Protection Program note payable approximates fair value due

the relatively short period to maturity as management intends to apply for total forgiveness of the loan in the current fiscal

party), 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 lines of credit approximate fair value due the relatively short

period to maturity and related interest accrued at market rates.

The carrying amount on the PPP note payable of credit approximate

fair value due the relatively short period to maturity as management intends to apply for total forgiveness of the loan in the

current fiscal year.

RECOGNITION AND RESERVE FOR SALES RETURNS

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the customers are recorded as a reduction to net sales.

For the three months ended September 30, 2020 and 2019 co-op promotion

allowances were approximately $902,000 and $1,027,000, respectively.

For the six months ended September 30, 2020 and 2019 co-op

promotion allowances were approximately $1,174,000 and $1,196,000, respectively.

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 as our underlying

customer agreements are less than one year.

Co-op promotion allowances were approximately $272,000 and $169,000for

the three months ended June 30, 2020 and 2019, respectively.

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 as our underlying customer agreements are less than one year.

Company disaggregates revenues by product line and major geographic region as most of its revenue is generated by the sales of

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and management estimates.

Company’s reserve for sales returns were approximately $1,723,000 and $1,224,000 as of September 30, 2020 and March 31,

2020, respectively.

Company’s reserve for sales returns were approximately $380,000 and $1,224,000 as of June 30, 2020 and March 31, 2020, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

is derived from four different major product lines.

Disaggregated revenue from these product lines for the three and six months

ended September 30, 2020 and 2019 consisted of the following:

Disaggregated approximate revenue from these product lines for the three months

ended June 30, 2020 and 2019 consisted of the following:

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

(as restated)

Classic Karaoke Machines

2 unchanged sentences

Music and Accessories

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

Total Net Sales

AND HANDLING COSTS

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promise to transfer the goods.

For the three months ended September 30, 2020 and 2019 shipping and handling expenses were approximately

For the three months ended June 30, 2020 and 2019 shipping and handling expenses were approximately

$83,000 and $89,000, respectively.

For the six months ended September 30, 2020 and 2019 shipping and handling expenses were

approximately $388,000 and $314,000, respectively.

These expenses are classified as a component of selling expenses in the accompanying

condensed consolidated statements of operations.

These expenses are classified as a component of selling expenses in the accompanying condensed

consolidated statements of operations.

BASED COMPENSATION

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Employee stock option compensation expense for the

three and six months ended September 30, 2020 and 2019 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 September 30, 2020 and

2019, the stock option expense was approximately $0 and $5,000, respectively.

For the six months ended September 30, 2020 and

2019, the stock option expense was $0 and $10,000, respectively.

three months ended June 30, 2020 and 2019 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, 2020 and 2019, the

stock option expense was approximately $0 and $5,000, respectively.

AND DEVELOPMENT COSTS

1 unchanged sentence

These expenses are shown as a component of selling, general

and administrative expenses in the condensed consolidated statements of operations.

For the three months ended September 30, 2020

and 2019, these amounts totaled approximately $2,000 and $18,000, respectively.

For the six months ended September 30, 2020 and

2019, these amounts totaled $15,000 and $23,000 respectively.

and administrative expenses in the condensed consolidated statements of income.

For the three months ended June 30, 2020 and 2019,

these amounts totaled approximately $13,000 and $5,000, respectively.

Company follows the provisions of FASB ASC 740 “Accounting for Income Taxes.”

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of a deferred tax asset will not be realized, a valuation allowance is recognized.

As of September 30, 2020 and March 31, 2020

the Company recognized a valuation reserve of approximately $88,000 for deferred tax assets relating to net operating loss carryforwards

that the Company will more than likely not be able to realize prior to their expiration.

As of June 30 2020 and March 31, 2020 the Company

recognized a valuation reserve of approximately $88,000 for deferred tax assets relating to net operating loss carryforwards that

the Company will more than likely not be able to realize prior to their expiration.

Company analyzes its deferred tax assets and liabilities at the end of each interim period and, based on management’s best

estimate of its full year effective tax rate, recognizes cumulative adjustments to its deferred tax assets and liabilities.

the six months ended September 30, 2020 and 2019 we estimated our effective tax rate to be approximately 25% and 18%, respectively.

As of September 30, 2020 and March 31, 2020 the Singing Machine had net deferred tax assets of approximately $677,000 and $1,286,000,

the three months ended June 30, 2020 and 2019 we estimated our effective tax rate to be approximately 27.6% and 21.5%, respectively.

As of June 30, 2020, and March 31, 2020, the Singing Machine had net deferred tax assets of approximately $1,365,000 and $1,286,000,

respectively.

The Company recorded an income tax provision of approximately $821,000 and $184,000 for the three months ended September

The Company recorded an income tax benefit of approximately $79,000 and $239,000 for the three months ended June

30, 2020 and 2019, respectively.

The Company recorded an income tax provision of approximately $742,000 for the six months ended

September 30, 2020 and an income tax benefit of approximately $55,000 for the six months ended September 30, 2019.

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

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 September 30, 2020, 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.

OF EARNINGS PER SHARE

per common share is computed by dividing net income by the weighted average of common shares outstanding during the period.

of September 30, 2020 and 2019 total potential dilutive shares from common stock options amounted to approximately 2,230,000 and

2,250,000 shares, respectively.

These shares were included in the computation of diluted earnings per share for the three and

six months ended September 30, 2020 and the three months ended September 30, 2019.

These shares were not included in the computation

of diluted earnings per share for the six months ended September 30, 2019 because their effect was anti-dilutive.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2020 and 2019

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.

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, 2020, 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.

OF LOSS PER COMMON SHARE

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, 2020 and 2019 total potential dilutive shares from common stock options amounted to 2,230,000 and 2,310,000 shares,

respectively.

These shares were not included in the computation of diluted earnings per share for the three months ended June

30, 2020 and 2019 because their effect was anti-dilutive.

ACCOUNTING PRONOUNCEMENTS

December 2019, the FASB issued ASU 2019-12, “Income Taxes”

Among several issues addressed in this

ASU, there was one area that may potentially affect the Company’s calculations of interim income tax provision or benefit.

The guidance specifies that an entity should apply the annual effective tax rate to the year-to date income or loss as long as

the tax benefits for any losses are expected to be realized during the year or would be recognizable as a deferred tax asset at

the end of the year eliminating the requirement of a valuation allowance for that interim period.

There is specific guidance for

circumstances in which an entity incurs a loss on a year-to-date basis that exceeds the anticipated ordinary loss for the year,

which is an exception to the general guidance in Subtopic 740-270.

This new guidance is effective for fiscal years, and interim

periods within those fiscal years, beginning after December 15, 2020.

We are currently evaluating the potential effects of this

updated guidance on our condensed consolidated financial statements and related disclosures.

December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740).

Among several issues addressed in this ASU,

there was one area that may potentially affect the Company’s calculations of interim income tax provision or benefit.

guidance specifies that an entity should apply the annual effective tax rate to the year-to date income or loss as long as the

tax benefits for any losses are expected to be realized during the year or would be recognizable as a deferred tax asset at the

end of the year eliminating the requirement of a valuation allowance for that interim period.

There is specific guidance for circumstances

in which an entity incurs a loss on a year-to-date basis that exceeds the anticipated ordinary loss for the year, which is an

exception to the general guidance in Subtopic 740-270.

This new guidance is effective for fiscal years, and interim periods within

those fiscal years, beginning after December 15, 2020.

We are currently evaluating the potential effects of this updated guidance

on our condensed consolidated financial statements and related disclosures.

June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”

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expected losses that might not yet have met the threshold of being probable.

amendments in ASU 2016-03 for smaller reporting companies are effective for fiscal years beginning after April 1, 2023 including

interim periods within that fiscal year.

Early adoption is permitted.

We are currently evaluating the potential effects of this

updated guidance on our condensed consolidated financial statements and related disclosures.

The amendments in ASU 2016-03 for smaller reporting

companies are effective for fiscal years beginning after April 1, 2023 including interim periods within that fiscal year.

adoption is permitted.

We are currently evaluating the potential effects of this updated guidance on our condensed consolidated

financial statements and related disclosures.

5 - INVENTORIES, NET

are comprised of the following components:

September 30,

June 30, 2020

March 31, 2020

Finished Goods

Inventory in Transit

Estimated Amount

of Future Returns

Less:Inventory

Estimated Cost of Future Returns

Less:Inventory Reserve

Inventories, net

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

PROPERTY AND EQUIPMENT

summary of property and equipment is as follows:

September 30,

June 30, 2020

March 31, 2020

Computer and office equipment

2 unchanged sentences

Molds and tooling

expense for the three months ended September 30, 2020 and 2019 was approximately $68,000 and $60,000, respectively.

expense for the six months ended September 30, 2020 and 2019 was approximately $139,000 and $119,000, respectively.

Accumulated depreciation

expense for the three months ended June 30, 2020 and 2019 was approximately $71,000 and $59,000, respectively.

BANK FINANCING

3 unchanged sentences

replaced the Company’s previous revolving credit facility with PNC Bank which was terminated on June 16, 2020.

signed a two-year Loan and Security Agreement for a $10.0 million financing facility with Crestmark Bank (“Crestmark Facility”)

on eligible accounts receivable.

The outstanding loan balance cannot exceed $10.0 million during peak selling season between July

1 and December 31and is reduced to a maximum of $5.0 million between January 1 and July 31.

Costs associated with closing of the

Intercreditor Revolving Credit Facility of approximately $74,000 are deferred and will be amortized over one year.

three and six months ended September 30, 2020 the Company incurred amortization expense of approximately $18,000 and $21,000,

respectively associated with the amortization of deferred financing costs from the Intercreditor Revolving Credit Facility.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

signed a two-year Loan and Security Agreement for a $10.0 million financing facility with Crestmark Bank on eligible accounts

The outstanding loan balance cannot exceed $10.0 million during peak selling season between July 1 and December 31and

is reduced to a maximum of $5.0 million between January 1 and July 31.

Costs associated with closing of the Intercreditor Revolving

Credit Facility of approximately $74,000 are deferred and are being amortized over the term of the agreement.

During the three

months ended June 30, 2020 the Company incurred amortization expense of approximately $3,000 associated with the amortization

of deferred financing costs from the Intercreditor Revolving Credit Facility.

the Crestmark Facility:

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shall maintain a base dilution reserve of 1% for each 1% of dilution over 15%.

will implement an availability block of 20% of amounts due on Iron Horse Credit (“IHC”) Intercreditor Revolving

Credit Facility.

will implement an availability block of 20% of amounts due on Iron Horse Intercreditor Revolving Line of Credit.

pay-down of the loan to zero in January and February each year.

Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in Accounts Receivable

Crestmark Facility is secured by a security interest in all assets including a first security interest in Accounts Receivable

and Inventory.

4 unchanged sentences

or a minimum average loan balance of $2,000,000.

For the three and six months ended September 30, 2020 the Company recorded interest

expense of approximately $51,000.

There was no interest expense on the Crestmark Facility for the three months

ended June 30, 2020 and 2019.

The Crestmark Facility expires on June 15, 2022.

As of September 30, 2020, the Company had an

outstanding balance of approximately $134,000 on the Crestmark Facility.

addition, the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for

up to $2,500,000 in inventory financing.

the IHC Facility:

There was no outstanding balance on the Crestmark

Facility as of June 30, 2020.

addition, the Company also executed a two-year Loan and Security Agreement with IHC for up to $2,500,000 in inventory financing.

Under the IHC Facility:

rate shall not exceed the lower of (a) 70% of the inventory cost or (b) 85% of Net Orderly Liquidation Value (NOLV) as determined

by an independent third-party appraiser engaged by IHC.

Company must maintain a fixed charge coverage ratio test of 1:1 times measured on a rolling 12-month basis, defined as earnings

before interest, taxes, depreciation and amortization (“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.

financial covenant has been waived for the first six months of the IHC Facility.

by an independent third-party appraiser engaged by Iron Horse.

Company must maintain a fixed charge coverage ratio test of 1:1 times measured on a rolling 12-month 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.

This financial covenant has been waived for the first six months of the IHC Facility.

IHC Facility is secured by a perfected security interest in the Company’s inventory.

3 unchanged sentences

the prior month or a minimum average loan balance of $1,000,000.

Interest expense for the three and six months ended September

Interest expense for the three months ended June 30, 2020 and

2019 was approximately $8,000 and $0, respectively.

The IHC Facility expires on June 15, 2022.

As of September 30, 2020,

there was an outstanding balance of $1,022,000.

As of June 30, 2020 and March 31,

2020 there was an outstanding balance of $1,400,000 and $0, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

Credit Facility PNC Bank

5 unchanged sentences

In November 2019, the Company entered

into a Forbearance Agreement with PNC whereby PNC delayed taking action they would have been be entitled to under a default through

into a Forbearance Agreement with PNC whereby PNC delayed taking action it would have been be entitled to under a default through

March 31, 2020.

The Company remained in default of the Forbearance Agreement up until termination of the Revolving Credit Facility

on June 16, 2020 at which time the Company executed the Intercreditor Revolving Credit Facility with Crestmark and IHC.

September 30, 2020, and March 31, 2020 there were no amounts due on the PNC Revolving Credit Facility.

During the three months

ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $0 and $32,000, respectively, on amounts

borrowed against the PNC Revolving Credit Facility.

During the six months ended September 30, 2020 and 2019 the Company incurred

interest expense of approximately $0 and $33,000, respectively on amounts borrowed against the PNC Revolving Credit Facility.

on June 16, 2020 at which time the Company entered into the Intercreditor Revolving Credit Facility with Crestmark and IHC.

June 30, 2020 and March 31, 2020 there were no amounts due on the PNC Revolving Credit Facility.

During the three months ended

June 30, 2020 and 2019 the Company incurred interest expense of approximately $0 and $1,000, respectively, on amounts borrowed

against the PNC Revolving Credit Facility.

Payable Payroll Protection Plan

12 unchanged sentences

For the three

months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively.

the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $2,000 and $0, respectively.

As of September 30, 2020 there was an outstanding balance on the PPP note payable of approximately $444,000.

The Company currently

expects to apply for forgiveness of the entire loan balance.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

months ended June 30, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively.

currently expects to apply for forgiveness of the entire loan balance.

Notes Payable

June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC (“Dimension”) to finance

an entire ERP System project over a term of 60 months at a cost of approximately $365,000.

As of September 30, 2020, the Company

executed three installment notes totaling approximately $365,000 for payments issued to the project vendor.

The installment notes

have 60-month terms with interest rates of 7.58%, 8.55% and 9.25%,

respectively.

The installment notes are payable in monthly installments of $7,459 which include principal and interest.

September 30, 2020, and March 31, 2020 there was an outstanding balance on the installment notes of approximately $312,000 and

$346,000, respectively.

For the three months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately

For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $14,000 and

$7,000, respectively.

the entire ERP System project over a term of 60 months at a cost of approximately $365,000.

As of June 30, 2020 the Company executed

three installment notes totaling approximately $365,000 for payments issued to the project vendor.

The installment notes have

60 month terms with interest rates of 7.58%, 8.55% and 9.25%, respectively.

The installment notes are payable in monthly installments

of $7,459 which include principal and interest.

As of June 30, 2020 and March 31, 2020 there was an outstanding balance on the

installment notes of approximately $328,000 and $346,000, respectively.

For three months ended June 30, 2020 and 2019 the Company

incurred interest expense of approximately $7,000 and $0 respectively.

Debt/Note Payable to Related Party

conjunction with the Crestmark Facility and IHC Facility there is a subordination agreement on related party debt due to Starlight

conjunction with the PNC Revolving Credit Facility there was a subordination agreement on related party debt due to Starlight

Marketing Development, Ltd.

of approximately $803,000.

On June 1, 2020 the remaining amount due on the subordinated debt of approximately

$803,000 was converted to a note payable (“subordinated note payable”) which bears interest at 6%.

As part of the

agreement to convert the subordinated debt to a note payable it

was agreed that interest expense would be accrued at the same 6% interest rate on the unpaid principal retroactively from the

date that previously scheduled payments had been missed.

During the three months ended September 30, 2020 and 2019 interest expense

was approximately $12,000 and $0, respectively on the subordinated note payable and the related party subordinated debt.

the six months ended September 30, 2020 and 2019 interest expense was approximately $24,000 and $2,000, respectively on the subordinated

note payable and the related party subordinated debt.

On June 1, 2020 the remaining amount due on the subordinated debt of

approximately $803,000 was converted to a note payable (“subordinated note payable”) which bears interest at 6%.

As part of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be

accrued at the same 6% interest rate on the unpaid principal retroactively from the date that previously scheduled payments

had been missed.

During the three months ended June 30, 2020 and 2019 interest expense was approximately $12,000 and

$2,000, respectively on the subordinated note payable and the related party subordinated debt, respectively.

connection with the Intercreditor Revolving Credit Facility the Company was required to subordinate the subordinated note payable.

Both the Crestmark Facility and IHC Facility agreements allow for the repayment of the subordinated note payable provided any

amounts borrowed against these credit facilities are paid in full, the Company maintains a 1 :

1 debt coverage ratio and exhibits

sufficient cash liquidity to support on-going operations.

There is no set schedule with regards to repayment of the note and as

such the subordinated note payable has been classified as a non-current liability as of September 30, 2020 and March 31, 2020

on the consolidated balance sheets.

As of September 30, 2020 and March 31, 2020 the remaining amount due on the subordinated debt

was approximately $803,000.

Both Crestmark and IHC facility agreements allow for the repayment of the subordinated note payable provided any amounts borrowed

against these credit facilities are paid in full, the Company maintains a 1 :

1 debt coverage ratio and exhibits sufficient cash

liquidity to support on-going operations.

There is no set schedule with regards to repayment of the note and as such the subordinated

note payable has been classified as a non- current liability as of June 30, 2020 and March 31, 2020 on the condensed consolidated

balance sheets.

As of June 30, 2020 and March 31, 2020 the remaining amount due on the subordinated debt was approximately $803,000.

8 - COMMITMENTS AND CONTINGENCIES

CLAIM SETTLEMENT –

DAMAGED GOODS INCIDENT

of this filing we have we recovered approximately $2,336,000 from our cargo insurance coverage which settled approximately $1,268,000

in insurance claim receivable with the remaining proceeds reflected in other income and (expenses) as a gain from damaged goods

insurance claim in the condensed consolidated statement of operations.

For the three and six months ended September 30, 2020 the

gain from damaged goods insurance claim was approximately $937,000 and $1,068,000, respectively.

is not aware of any legal proceedings other than matters that arise in the ordinary course of business.

have operating lease agreements for offices and a warehouse facility in Florida, California and Hong Kong expiring in various

years through 2024.

of August 19, 2020 management is not aware of any legal proceedings other than matters that arise in the ordinary course of business.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

have operating lease agreements for offices and a warehouse facility in Florida, California and Macau expiring in various years

through 2024.

entered into an operating lease agreement, effective October 1, 2017, for the corporate headquarters located in Fort Lauderdale,

5 unchanged sentences

for our logistics operations.

On June 15, 2020 we executed a three-year lease extension which will expire on August 31, 2023.

The renewal base rent payment is $65,300 with a 3% increase every 12 months for the remaining term of the extension.

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.

On June 15, 2020 we executed a three-year lease extension

which will expire on August 31, 2023.

The renewal base rent payment will be $65,300 with a 3% increase every 12 months for the

remaining term of the extension.

entered into an operating lease agreement, effective May 1, 2018, for 424 square feet of office space in Macau.

4 unchanged sentences

expense for our operating leases is recognized on a straight-line basis over the lease terms.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

May 25, 2018 and June 4, 2018, we entered into two long-term capital leasing arrangements with Wells Fargo Equipment Finance (“Wells

4 unchanged sentences

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

As of September 30, 2020 and March 31, 2020, the remaining amounts due on these capital leasing arrangements was approximately

As of June 30, 2020 and March 31, 2020 the remaining amounts due on these capital leasing arrangements was approximately

$14,000 and $18,000, respectively.

For the three months ended September 30, 2020 and 2019 the Company incurred interest expense

of $109 and $239, respectively.

For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of

For the three months ended June 30, 2020 and 2019 the Company incurred interest expense of

$154 and $274, respectively.

balance sheet information related to leases as of September 30, 2020 is as follows:

Operating lease - right-of-use

Finance leases as a component of Property

and equipment, net of accumulated depreciation of $15,027

Current portion

of operating leases

Current portion

of finance leases

Operating lease

liabilities, net of current portion

Finance leases,

net of current portion

Supplemental statement

of operations information related to leases for the three and six months ended September 30, 2020 is as follows:

Operating lease expense

as a component of general and administrative expenses

balance sheet information related to leases as of June 30, 2020 is as follows :

Operating lease - Right-of-use assets

Finance leases as a component of Property and equipment,

net of accumulated depreciation of $13,472

Current portion of operating leases

Current portion of finance leases

Operating lease liabilities, net of current portion

statement of income information related to leases for the three months ended June 30, 2020 is as follows:

Operating lease expense as a component of general and administrative expenses

Finance lease cost

Depreciation of

leased assets as a component of depreciation

Interest on lease

liabilities as a component of interest expense

Supplemental cash

flow information related to leases for the six months ended September 30, 2020 is as follows:

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flow

paid for operating leases

Financing cash flow

paid for finance leases

Lease term and Discount

Depreciation of leased assets as a component of Depreciation

Interest on lease liabilities as a component of Interest Expense

cash flow information related to leases for the three months ended June 30, 2020 is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow paid for operating leases

Financing cash flow paid for finance leases

term and Discount Rate

Weighted average remaining lease term (months)

4 unchanged sentences

Finance leases

maturities of operating and finance lease liabilities outstanding as of September 30, 2020 are as follows:

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

maturities of operating and finance lease liabilities outstanding as of June 30, 2020 are as follows:

Operating Leases

Finance Leases

2020, for the remaining 6 months

Total Minimum

Future Payments

Total Minimum Future Payments

Imputed Interest

Value of Lease Liabilities

Present Value of Lease Liabilities

9 - STOCK OPTIONS

the six months ended September 30, 2020 and 2019 the Company issued 0 and 100,000 stock options, respectively at an exercise price

of $0 and $.38 to directors as compensation for their service.

the three months ended June 30, 2020 and 2019 the Company issued 0 and 100,000 stock options, respectively at an exercise price

of $0 and $.38, respectively;

to directors as compensation for their service.

fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the assumptions

2 unchanged sentences

term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.

summary of stock option activity for the three months ended June 30, 2020 is summarized below:

June 30, 2020

Weighted Average Exercise Price

Stock Options:

Balance at beginning of period

Balance at end of period

Options exercisable at end of period

following table summarizes information about employee stock options outstanding at June 30, 2020

Range of Exercise Price

Number Outstanding at June 30, 2020

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable at June 30, 2020

Weighted Average Exercise Price

number of options outstanding as of June 30, 2020 includes 1,080,000 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2020 and 2019

summary of stock option activity for the six months ended September 30, 2020 is summarized below:

Average Exercise Price

Stock Options:

Balance at beginning of

Balance at end

exercisable at end of period

following table summarizes information about employee stock options outstanding at September 30, 2020:

of Exercise Price

Outstanding at September 30, 2020

Average Remaining Contractural Life

Average Exercise Price

Exercisable at September 30, 2020

Average Exercise Price

Total number of options outstanding as of September 30, 2020 includes 1,080,000 options issued to five current and two former

directors as compensation and 1,150,000 options issued to key employees that were not issued from the Plan.

10 - GEOGRAPHICAL INFORMATION

to customers outside of the United States for the three and six months ended September 30, 2020 and 2019 were primarily made by

the Macau Subsidiary in US dollars.

to customers outside of the United States for the three months ended June 30, 2020 and 2019 were primarily made by the Macau Subsidiary

in US dollars.

Sales by geographic region for the periods presented are as follows:

FOR THE THREE MONTHS ENDED

FOR THE SIX MONTHS ENDED

September 30,

(as restated)

THREE MONTHS ENDED

June 30, 2020

June 30, 2019

(as restated)

1 unchanged sentence

North America

Total Net Sales

geographic area of sales was based on the location where the product is delivered.

10 –RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

transactions listed below are related to the Company as they are all with affiliates of our Chairman of the Board, Mr.

TO/FROM RELATED PARTIES

September 30, 2020 and March 31, 2020, the Company had amounts due to related parties in the amounts of approximately $244,000

and $502,000, respectively for services provided by these companies and licensing fees for use of pedestal model molds and tools

owned by the parent company.

On September 30, 2020 and March 31, 2020, the Company had $0 and $100,000 due from a related party

for goods sold to this company.

the three months ended September 30, 2020 and 2019 the Company sold approximately $0 and $778,000, respectively to Winglight Pacific,

(“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

September 30, 2020 and 2019 was NA and 23.9%, respectively.

June 30, 2020 and March 31, 2020, the Company had amounts due to related parties in the amounts of approximately $402,000 and

$502,000, respectively for services provided by these companies and licensing fees for use of pedestal model molds and tools owned

by the parent company.

On June 30, 2020 and March 31, 2020, the Company had $0 and $100,000 due from a related party for goods

sold to this company.

the three months ended June 30, 2020 and June 30, 2019 the Company sold approximately $0 and $74,000 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, 2020 and 2019 was 0% and 21.7%, respectively.

The product was shipped to Cosmo Communications of Canada (“Cosmo”),

2 unchanged sentences

included as a component of net sales in the accompanying condensed consolidated statements of operations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

the three months ended September 30, 2020 and 2019 the Company sold approximately $0 and $168,000, respectively of product directly

the three months ended June 30, 2020 and 2019 the Company sold approximately $0 and $71,000, respectively of product directly

to Cosmo from its California warehouse facility.

6 unchanged sentences

approximately $685,000.

the six months ended September 30, 2020 and 2019 the Company sold approximately $0 and $852,000, respectively to Winglight at

a discounted price similar to prices granted to major direct import customers shipped internationally with freight prepaid.

average gross profit margin on sales to Winglight for the six months ended September 30, 2020 and 2019 was NA and 23.7%, respectively.

The product was shipped to Cosmo.

These amounts were included

as a component of net sales in the accompanying condensed consolidated statements of operations.

the six months ended September 30, 2020 and 2019 the Company sold approximately $0 and $239,000, 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.

Company incurred service expenses from Starlight Electronics Co, Ltd, (“SLE”) a related party.

The services from SLE

were approximately $90,000 for the three months ended September 30, 2020 and 2019.

The services from SLE for the six months ended

September 30, 2020 and 2019 were approximately $181,000 and $191,000 respectively.

These amounts were included as a component

of general and administrative expenses in the accompanying condensed consolidated statements of operations.

for the three month ended June 30, 2020 and 2019 were approximately $91,000 and $101,000, 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

7 unchanged sentences

The liability for defective goods is included in the reserve for sales returns on the condensed consolidated balance sheets.

in the Company’s reserve for sales returns are presented in the following table:

September 30,

Reserve for sales returns

at beginning of the year

Provision for estimated sales returns

Sales returns

Reserve for sales

returns at end of the period

REFUNDS DUE TO CUSTOMERS

of September 30, 2020 and March 31, 2020 the amount of refunds due to customers was approximately $121,000 and $807,000, respectively.

Refunds due to customers at September 30, 2020 were primarily due to one major customer for overstock returns.

Refunds due to

customers at March 31, 2020 were primarily due to one major customer which reflects approximately $1,691,000 of chargebacks less

approximately $1,181,000 that the customer had deducted on payment remittances to the Company as of March 31, 2020.

The remaining

$297,000 was primarily due to amounts due to two major customers for overstock returns.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2020 and 2019

in the Company’s reserve for sales returns are presented in the following table:

Three Months Ended

June 30, 2020

June 30, 2019

Reserve for sales returns at beginning of the year

Provision for estimated sales returns

Sales returns received

Reserve for sales returns at end of the period

REFUNDS DUE TO CUSTOMERS

of June 30, 2020 and March 31, 2020 the amount of refunds due to customers was approximately $391,000 and $807,000, respectively.

Refunds due to customers at June 30, 2020 were primarily due to one major customer which reflects approximately $1,691,000 of

chargebacks less approximately $1,381,000 that the customer had deducted on payment remittances to the Company as of June 30,

The remaining $81,000 was primarily due to amounts due to another major customer for overstock returns.

Refunds due to customers

at March 31, 2020 were primarily due to one major customer which reflects approximately $1,691,000 of chargebacks less approximately

$1,181,000 that the customer had deducted on payment remittances to the Company as of March 31, 2020.

The remaining $297,000 was

primarily due to amounts due to two major customers for overstock returns.

(See Note 3 –

14 - EMPLOYEE BENEFIT PLANS

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.

charged to operations for contributions to this plan and administrative costs during the three months ended September 30, 2020

and 2019 totaled approximately $20,000 and $18,000, respectively.

The amounts charged to operations for contributions to this

plan and administrative costs during the six months ended September 30, 2020 and 2019 totaled approximately $34,000 and $32,000,

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.

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

The amounts charged to operations for contributions to this plan and administrative costs during the three months

ended June 30, 2020 and 2019 totaled approximately $14,000.

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.

15 - CONCENTRATIONS OF CREDIT AND SALES RISK

3 unchanged sentences

are concentrated with several large customers.

At September 30,

2020, 93% of accounts receivable were due from four customers in North America that individually owed over 10% of total accounts

At March 31, 2020, 82% of accounts receivable were due from three customers in North America that individually owed

over 10% of total accounts receivable.

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.

three months ended September 30, 2020, there were three customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 46%, 20%, and 10% respectively.

For the three

months ended September 30, 2019, there were two customers who individually accounted for 10% or more of the Company’s net

Revenue derived from these customers as a percentage of net sales were 42% and 12%, respectively.

the six months ended September 30, 2020, there were three customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 43%, 20% and 14%, respectively.

months ended September 30, 2019, there was one customer who individually accounted for 10% or more of the Company’s net

Revenue derived from this customer as a percentage of net sales was 49%.

At June 30, 2020, 74% of accounts receivable were due from three customers in North

America that individually owed over 10% of total accounts receivable.

At March 31, 2020, 82% of accounts receivable were due from

four customers in North America that individually owed over 10% of total accounts receivable.

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

For the three months ended June 30, 2020, 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 43%, 18% and 11%,

respectively.

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 product sales were 85% and 13%,

respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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or the effect of events on our operating results is inherently uncertain.

Forward-looking statements should not be read as a guarantee

of future performance or results and will not necessarily be accurate indications of the times at, or by which, such performance

or results will be achieved.

Forward- looking statements should not be read as a

guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which, such

performance or results will be achieved.

factors to consider in evaluating such forward-looking statements include, but are not limited to:

17 unchanged sentences

“Financial Statements”

as of and for the three and

six months ended September 30, 2020 and 2019, in order to correct an error in our accounting for co-op promotion allowances in

our previously issued financial statements.

The impact of the accounting correction is further illustrated in Note 2 of the “Notes

to the Condensed Consolidated Financial Statements”.

Accordingly, the Management’s Discussion and Analysis of Financial

Condition and Results of Operations set forth below are revised for the effects of these restatements.

as of and for the three months

ended June 30, 2020 and 2019, in order to correct an error in our accounting for co-op promotion allowances in our previously

issued financial statements.

The impact of the accounting correction is further illustrated in Note 2 of the “Notes to the

Condensed Consolidated Financial Statements”.

Accordingly, the Management’s Discussion and Analysis of Financial Condition

and Results of Operations set forth below are revised for the effects of these restatements.

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,

(“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.

products are sold throughout North America, Europe and Australia primarily through major mass merchandisers and warehouse clubs,

on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms, music and

record stores, and specialty stores.

(“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.

products are sold throughout North America, Europe, Australia and South Africa primarily through major mass merchandisers and

warehouse clubs, on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms,

music and record stores, and specialty stores.

Representative

customers include Amazon, Best Buy, BJ’s Wholesale, Costco, Sam’s Club, Target, and Wal-Mart.

Our business has historically

been subject to seasonal fluctuations causing our revenues to vary from quarter to quarter and between the same periods in different

fiscal years.

customers include Amazon, Best Buy, BJ’s Wholesale, Costco, Sam’s Club, Target, JC Penney and Wal-Mart.

has historically been subject to seasonal fluctuations causing our revenues to vary from quarter to quarter and between the same

periods in different fiscal years.

Our products are manufactured for the most part based on the purchase indications of our customers.

We are uncertain

of how significantly our business would be harmed by a prolonged economic recession, but we anticipate that continued contraction

of consumer spending would negatively affect our revenues and profit margins.

We are uncertain of how significantly our business would be harmed by a prolonged economic recession, but we anticipate that continued

contraction of consumer spending would negatively affect our revenues and profit margins.

of consumer electronics and toy products in the retail channel are highly seasonal, with a majority of retail sales occurring

15 unchanged sentences

following table sets forth, for the periods indicated, certain items related to our consolidated statements of operations as a

percentage of net sales for the three and six months ended September 30, 2020 and 2019 as restated:

Three Months Ended

the Six Months Ended

(as restated)

percentage of net sales for the three months ended June 30, 2020 and 2019:

For Three Months Ended

June 30, 2020

June 30, 2019

(as restated)

3 unchanged sentences

Selling expenses

General and administrative

Depreciation and

General and administrative expenses

Depreciation and amortization

Total Operating Expenses

Income (Loss) from

Loss from Operations

Other Income (Expenses)

Gain from damaged

goods insurance claim

Gain from extinguishment

of accounts payable

Gain from damaged goods insurance claim

Gain from vendor credit for damaged goods

Interest expense

Financing costs

Total Other Income

(expenses), net

Income (Loss) Before

Income Tax (Provision) Benefit

Income Tax (Provision)

Net Income (Loss)

ENDED SEPTEMBER 30, 2020 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2019

sales for the quarter ended September 30, 2020 increased to approximately $22,285,000 from approximately $19,055,000 an increase

of approximately $3,230,000 as compared to the same period ended September 30, 2019.

Sales of our Carpool Karaoke The Mic (“CPK”)

product increased by approximately $1,098,000 during the three months ended September 30, 2020 compared to the same period ended

September 30, 2019.

During the three months ended September 30, 2019, we received notification from a major customer that several

containers of goods from multiple vessels purchased direct import by the customer had arrived severely water damaged which resulted

in estimated customer chargebacks and a reduction of sales of approximately $1,534,000 for this one-time prior year incident.

There was a decrease in co-op promotion allowances of approximately $125,000 with the remaining increase in sales of approximately

$473,000 primarily due to increased internet product demand from two major customers during the three months ended September 30,

profit for the quarter ended September 30, 2020 increased to approximately $5,823,000 from approximately $4,615,000 an increase

of approximately $1,208,000 as compared to the same period in the prior year.

The increase in net sales contributed approximately

$873,000 to the increase in gross profit.

The prior year one-time damaged goods incident during the three months ended September

30, 2019 contributed approximately $286,000 of the variance in gross profit.

The decrease in co-op promotion allowances contributed

approximately $125,000 of the variance to gross profit with the remaining variance due to the gross profit on the mix of products

profit margin for the three months ended September 30, 2020 was 26.1% compared to 24.2% for the three months ended September 30,

The increase in CPK product sales which yield substantially more gross profit margin than our traditional product accounted

for approximately 1.2 margin points of the 1.9 gross profit margin point increase, the decrease in co-op promotion allowances

contributed approximately 0.7 margin points of the variance.

the quarter ended September 30, 2020, total operating expenses decreased to approximately $3,384,000 compared to approximately

Total Other Income (Expenses), net

Loss Before Income Tax Benefit

Income Tax Benefit

ENDED JUNE 30, 2020 COMPARED TO THE QUARTER ENDED JUNE 30, 2019

sales for the quarter ended June 30, 2020 decreased to approximately $3,052,000 from $4,640,000, a decrease of $1,588,000 as

compared to the same period ended June 30, 2019.

The primary reason for the decrease was due to a large Black Friday shipment

of approximately $3,334,000 which shipped to one major customer last year compared to this year as the factory was delayed in

ramping up its capacity and the customer delayed commitments and release of purchase orders due to COVID-19.

increase of approximately $103,000 in co-op promotion expense.

These decreases were offset by an increase of approximately

$1,670,000 in sales to two major customers who ordered replenishment goods due to increased demand for karaoke products

during the pandemic.

The remaining variance of approximately $179,000 was due to an increase in sales to various other

profit for the quarter ended June 30, 2020 increased to approximately $962,000 from $819,000 an increase of $143,000 as

compared to the same period in the prior year.

There was an increase in gross profit of 13.9 margin points or approximately

$510,000 due to a higher yielding mix of sales at full margin as compared to last year’s sales of primarily Black

Friday promotional goods which yielded significantly lower margin.

There was an increase in co-op promotion allowances of

approximately $103,000.

This increase in gross profit margin was offset by a decrease of approximately $264,000 in gross

profit due to the decrease in net sales.

the quarter ended June 30, 2020, total operating expenses decreased to approximately $1,733,000 compared to approximately

$1,921,000 from the same period in the prior year.

This represents a decrease in total operating expenses of approximately

from the quarter ended September 30, 2019.

and administrative expenses decreased by approximately $393,000 to approximately $1,842,000 for the three months ended September

30, 2020 compared to approximately $2,235,000 for the same period ended September 30, 2019.

There were one-time expenses incurred

during the three months ended September 30, 2019 including approximately $219,000 in out-of-pocket expenses associated with the

damaged goods incident and approximately $135,000 in accounts receivable insurance for J C Penney that did not reoccur during

the three months ended September 30, 2020.

The remaining decrease was primarily due to a reduction in travel and entertainment

expenses associated with COVID-19 limitations.

$188,000 from the quarter ended June 30, 2019.

Selling expenses decreased by approximately $191,000 of which approximately

$142,000 was due to a decrease in discretionary marketing expenses associated with the rollout of the Carpool Karaoke product

spent during the same period in the prior year.

The remaining difference was due to a decrease in variable selling expenses

commensurate with the decrease in net sales.

FROM OPERATIONS

was income from operations of approximately $2,439,000 for the three months ended September 30, 2020 compared to income from operations

of approximately $859,000 for the three months ended September 30, 2019.

The increase in income from operations of approximately

$1,580,000 was primarily due to the increase in gross profit and reduction in operating expenses as explained above.

INCOME (EXPENSES)

income and (expenses) increased by approximately $841,000 to approximately $790,000 in other income, net for the three months

ended September 30, 2020 compared to approximately $51,000 in other expenses for the same period ended September 30, 2019 primarily

due to the recovery of approximately $937,000 in out-of-pocket expenses relating to a prior year damaged goods insurance claim.

This increase in other income was offset by an increase in interest expense and amortization of deferred financing costs of approximately

$96,000 associated with the financing terms of the Crestmark Facility and IHC Facility.

the three months ended September 30, 2020 and 2019 the Company recognized an income tax provision of approximately $821,000 and

from operations decreased approximately $331,000 this quarter to approximately $771,000 for the three months ended June 30, 2020

compared to a loss from operations of approximately $1,102,000 for the same period ended June 30, 2019.

There was an increase

in gross profit of approximately $143,000 as explained in Net Sales and Gross Profit.

There was a decrease of approximately $188,000

in operating expenses as explained in Operating Expenses.

the three months ended June 30, 2020 and 2019 the Company recognized an income tax benefit of approximately $79,000 and $239,000,

respectively, due to management’s best estimate of the Company’s full year effective tax rate of approximately 27.6%

and 21.5%, respectively.

the three months ended September 30, 2020 there was net income of approximately $2,408,000 compared to net income of approximately

$624,000 for the same period a year ago.

The increase in net income was primarily due to the same reasons discussed in Income

from Operations, Other Income (Expenses) and Income Taxes.

MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2019

sales for the six months ended September 30, 2020 increased to approximately $25,337,000 from $23,695,000 an increase of approximately

$1,642,000 as compared to the same period ended September 30, 2019.

Sales of our CPK product increased by approximately $939,000

during the six months ended September 30, 2020 compared to the same period ended September 30, 2019.

During the six months ended

September 30, 2019, we received notification from a major customer that several containers of goods from multiple vessels purchased

direct import by the customer had arrived severely water damaged which resulted in estimated customer chargebacks and a reduction

of sales of approximately $1,534,000 for this prior year one-time incident.

These increases in net sales were offset by a reduction

in sales of approximately $826,000 to J C Penney due to their pending bankruptcy.

profit for the six months ended September 30, 2020 increased to approximately $6,785,000 from approximately $5,434,000 an increase

of approximately $1,351,000 as compared to the same period in the prior year.

The increase in net sales as indicated in Net Sales

contributed approximately $432,000 increase in gross profit margin.

The one-time damaged goods incident during the six months

ended September 30, 2019 contributed approximately $296,000 of the variance in gross profit with the remaining increase attributed

to a decrease in co-op promotion allowances of approximately $22,000 and increased gross profit on the mix of products sold.

profit margin for the six months ended September 30, 2020 was 26.8% compared to 22.9% for the six months ended September 30, 2019.

The increase in CPK product sales which yield substantially more gross profit margin than our traditional product accounted for

approximately 1.5 of the 3.9 gross profit margin point increase with the remaining increase in margin points attributed to the

mix of products sold.

the six months ended September 30, 2020, total operating expenses decreased to approximately $5,118,000 compared to approximately

$5,677,000 from the same period in the prior year.

This represents a decrease in total operating expenses of approximately $559,000

from the six months ended September 30, 2019.

Selling expenses decreased by approximately $177,000 primarily due to reduced discretionary

marketing expense of approximately $343,000 associated with the CPK product and offset by an increase of royalty expenses of approximately

$130,000 due to the increase in CPK product sales with the remaining variance due to a decrease in freight expense associated

with the prior year one-time charge to freight expense due to the damaged goods incident.

and administrative expenses decreased by approximately $401,000 to approximately $3,205,000 for the six months ended September

30, 2020 compared to approximately $3,606,000 for the same period ended September 30, 2019.

There were one-time expenses incurred

during the three months ended September 30, 2019 including approximately $219,000 in out-of-pocket expenses associated with the

damaged goods incident and approximately $135,000 in accounts receivable insurance for J C Penney that did not reoccur during

the three months ended September 30, 2020.

There was a decrease in travel and entertainment of approximately $153,000 due to canceled

trade shows and other limitations associated with COVID-19.

These increases in general and administrative expenses were offset

by an increase in outside computer services associated with the implementation of our new ERP system.

(LOSS) FROM OPERATIONS

was income from operations of approximately $1,668,000 for the six months ended September 30, 2020 compared to a loss from operations

of approximately $243,000 for the six months ended September 30, 2019.

The increase in income from operations of approximately

$1,911,000 was primarily due to the increase in gross profit and reduction in operating expenses as explained above.

INCOME (EXPENSES)

income and (expenses) increased by approximately $1,333,000 to approximately $1,276,000 in other income, net for the six months

ended September 30, 2020 compared to approximately $57,000 in other expenses for the same period ended September 30, 2019 primarily

due to the recovery of approximately $1,068,000 in out-of-pocket expenses relating to a prior year damaged goods insurance claim

and a vendor extinguishing accounts payable of $390,000 from the factory that caused the damage.

This increase in other income

was offset by an increase in interest expense and amortization of deferred financing costs of approximately $125,000 associated

with the financing terms of the Crestmark Facility and IHC Facility.

the six months ended September 30, 2020 and 2019 the Company recorded an income tax provision of approximately $742,000 and an

income tax benefit of approximately $55,000, respectively, due to management’s best estimate of the Company’s full

year effective tax rate of approximately 25.2% and 18.3%, respectively.

INCOME (LOSS)

the six months ended September 30, 2020 there was net income of approximately $2,201,000 compared to a net loss of approximately

income and (expenses) increased by approximately $491,000 to approximately $485,000 in other income, net for the three months

ended June 30, 2020 compared to approximately $6,000 in other expenses for the same period ended June 30, 2019 primarily due to

the recovery of approximately $521,000 in out-of-pocket expenses relating a prior fiscal year damaged goods insurance claim and

a vendor extinguishing accounts payable of $390,000 from the factory that caused the damage.

Liquidity and Capital

the three months ended June 30, 2020 net loss decreased to approximately $207,000 compared to a net loss of approximately $870,000

for the same period a year ago.

The decrease in net income was primarily due to the same reasons discussed in Income

(Loss) from Operations, Other Income (Expenses) and Income Taxes.

The increase in net loss was primarily due to the same reasons discussed in Loss from Operations,

Income Taxes and Other Income (Expenses).

AND CAPITAL RESOURCES

of September 30, 2020, Singing Machine had cash on hand of approximately $1,071,000 as compared to cash on hand of approximately

$2,255,000 on September 30, 2019.

We had working capital of approximately $6,999,000 as of September 30, 2020.

Net cash used in

operating activities was approximately $674,000 for the six months ended September 30, 2020, as compared to approximately $2,216,000

used in operating activities for the same period a year ago.

During the six months ended September 30, 2020 there was an increase

in accounts receivable of approximately $16,576,000 due to a seasonal increase in sales and a seasonal increase in inventories

of approximately $1,072,000 due to receipt of inventory for peak season, and a decrease in refunds due to customers of approximately

$686,000 as most of the refunds due to the damaged goods incident from the prior year were refunded to the customer.

These increases

in cash used in operating activities were offset by an increase in accounts payable of approximately $9,498,000 due to seasonal

purchases of product for the peak season and a decrease in insurance receivable of approximately $1,268,000 as we received proceeds

for the one-time damaged goods incident that occurred in the prior fiscal year.

There was a decrease in amounts due from banks

of approximately $2,388,000 due to excess cash collected in excess of amounts due on the revolving credit facilities with PNC

Bank and Crestmark Bank and a seasonal increase in reserve for sales returns of approximately $499,000.

cash used in operating activities was approximately $2,216,000 for the six months ended September 30, 2019, as compared to approximately

$5,400,000 used in operating activities for the same period a year ago.

During the six months ended September 30, 2019 there was

an increase in accounts receivable of approximately $14,760,000 due to seasonal increase in sales, an increase in inventories

of approximately $9,264,000 due to peak seasonal purchases as well as expedited inventory receipts in order to mitigate increased

costs due to new tariff assessments.

There was an increase in insurance claim receivable of approximately $1,248,000 relating

to damaged goods claims from one customer.

These increases in cash used in operating activities were offset by an increase in

accounts payable of approximately $16,615,000 due to seasonal purchases of product for the peak season, an increase in reserve

for sales returns of approximately $2,334,000 of which approximately $1,100,000 is due to anticipated return of new product from

one major customer.

There was a decrease in amounts due from PNC bank of approximately $2,237,000 due to excess cash collected

in excess of amounts due on the Revolving Credit facility at year end being utilized in peak season operations and an increase

in refunds due to customers of approximately $1,617,000 due to chargebacks from one major customer for damaged goods.

cash used in investing activities for the six months ended September 30, 2020 was approximately $85,000 as compared to approximately

$213,000 used in investing activities for the same period ended a year ago and consisted primarily of purchases of molds and tooling

for new products.

cash provided by financing activities for the six months ended September 30, 2020 was approximately $1,485,000 compared to cash

provided by financing activities of approximately $4,472,000 for the same period ended of the prior year.

We borrowed approximately

$1,156,000 from our Crestmark Facility and IHC Facility for working capital and received loan proceeds from Crestmark in the amount

of approximately $444,000 under the Paycheck Protection Program.

These financing activities were offset by payments made on deferred

finance charges associated with the closing of the Crestmark and IHC Facilities of approximately $74,000 with the remaining difference

used to pay scheduled installments on installment notes and finance leases.

the six months ended September 30, 2019, we borrowed approximately $4,429,000 from our Revolving Credit Facility for working capital

and received approximately $176,000 from a financing arrangement with Dimension Funding to finance implementation of a new Enterprise

Resource Planning system.

These increases in cash provided by financing activities were offset by payments of finance leases and

the bank term note of approximately $132,000.

of June 30, 2020, Singing Machine had cash on hand of approximately $1,805,000 as compared to cash on hand of approximately $345,000

on June 30, 2019.

We had working capital of approximately $3,891,000 as of June 30, 2020.

Net cash used in operating activities

was approximately $244,000 for the three months ended June 30, 2020, as compared to approximately $25,000 provided by operating

activities for the same period a year ago.

During the three months ended June 30, 2020 there was a decrease in accounts payable

of approximately $2,913,000 as the Company paid past due invoices to the vendor that caused the damaged goods incident as explained

There was a seasonal decrease in reserves for sales returns of approximately $844,000, a decrease in accrued expenses of

approximately $521,000 and a decrease in refunds due to customers of approximately $415,000 primarily due to repayment of chargebacks

to one customer for damaged goods received as explained below.

These decreases in cash used in operating activities were offset

by a decrease in amounts due from PNC Bank and Crestmark for collections on accounts receivable that exceeded amounts due on the

PNC and Crestmark Revolving Credit Facilities of approximately $2,121,000, a decrease in insurance receivable of approximately

$1,269,000 primarily due to proceeds received from the damaged goods insurance claim as explained below.

Inventories decreased

by approximately $698,000 primarily due to one major customer buying goods for a summer program due to the increased demand for

karaoke products.

cash provided by operating activities was approximately $25,000 for the three months ended June 30, 2019.

During the three months

ended June 30, 2019 there was an decrease in amounts due from PNC bank for collections on accounts receivable that exceeded amounts

due on the PNC Revolving Credit Facility of approximately $2,237,000, an increase in accounts payable of approximately $5,102,000

due to seasonal purchases of product for the upcoming season and an increase in customer deposits of approximately $203,000.

increases in cash provided by operating activities were offset by a net loss of approximately $870,000, an increase in accounts

receivable of approximately $3,103,000 primarily due to shipment of Black Friday goods to one major customer, and an increase

in inventories of approximately $2,535,000 due to seasonal increase in products purchased for the upcoming season.

increase in prepaid expenses of approximately $543,000 due to prepaid royalties, licenses and promotion expenses primarily associated

with the launch of the new Carpool Karaoke product in July 2019 and a seasonal decrease in reserve of sales returns of approximately

cash used in investing activities for the three months ended June 30, 2020 was approximately $45,000 as compared to approximately

$160,000 for the same period ended a year ago and consisted primarily of purchases of molds and tooling for new products.

cash provided by financing activities for the three months ended June 30, 2020 was approximately $1,749,000.

We borrowed $1,400,000

for our IHC Facility and received loan proceeds from Crestmark in the amount of approximately $444,000 million under the Paycheck

Protection Program.

These financing activities were offset by payments made on deferred finance charges associated with the closing

of the Crestmark and IHC Facilities of approximately $74,000 with the remaining difference used to pay scheduled installments

on installment notes and finance leases.

cash provided by financing activities for the three-month period ended June 30, 2019 was approximately $501,000 We borrowed

approximately $627,000 from our PNC Revolving Credit Facility for working capital which was offset by payments of

finance leases and the bank term note of approximately $129,000.

June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility with Crestmark and IHC on eligible accounts receivable

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Bank Financing).

As of this filing, we have borrowed approximately $599,000 on the IHC Facility,

which provides for a maximum loan amount of $2,500,000 on eligible inventory and borrowed approximately $4,156,000 on our Crestmark

Facility which will make available up to $10,000,000 of eligible accounts receivable as the fiscal year progresses.

filing the Company has approximately $4,546,000 currently available from these two credit facilities.

As of this filing, we have borrowed $1,400,000 on the IHC Facility, which provides

for a maximum loan amount of $2,500,000 on eligible inventory and plan on borrowing on our Crestmark Facility which will make

available up to $10,000,000 of eligible accounts receivable as the fiscal year progresses.

As of this filing the Company has approximately

$2,500,000 currently available from these two credit facilities.

August 2019, a major customer received goods that were significantly water damaged due to excess moisture absorbed in pallets

1 unchanged sentence

As a result we incurred a loss in cash flow of approximately $1,559,000 in revenue and approximately $849,000

in additional out of pocket expenses to retrieve, inspect, warehouse and properly destroy the goods in the prior fiscal year.

As of this filing we have we recovered approximately $2,336,000 from our cargo insurance coverage which settled approximately

$1,268,000 in insurance claim receivable with the remaining proceeds reflected in other income and (expenses) as a gain from damaged

goods insurance claim in the condensed consolidated statement of operations.

For the three and six months ended September 30,

2020 the gain from damaged goods insurance claim was approximately $937,000 and $1,068,000, respectively.

We also secured vendor

invoice credits of $390,000 from the factory that caused the damage which is reflected as gain from extinguishment of accounts

payable in the condensed consolidated statement of operations for the six months ended September 30, 2020.

in additional out of pocket expenses to retrieve, inspect, warehouse and properly destroy the goods.

As of this filing we have

we have recovered approximately $2,245,000 from our cargo insurance coverage consisting of settlement of approximately $1,268,000

in insurance claim receivable, approximately $131,000 reflected as gain from damaged goods insurance claim in the condensed consolidated

statement of operations for the three months ended June 30, 2020 with the remaining gain on recovery of approximately $846,000

subsequently received in July 2020 which will be recognized as a gain from damaged goods insurance claim in the next quarter ending

September 30, 2020.

We also secured vendor invoice credits of $390,000 from the factory that caused the damage which is reflected

as gain from extinguishment of accounts payable in the condensed consolidated statement of operations for the three months ended

June 30, 2020.

May 5, 2020, the Company received loan proceeds from Crestmark Bank in the amount of approximately $440,000 under the Paycheck

10 unchanged sentences

For the three

and six months ended September 30, 2020 the Company incurred interest expense of approximately $1,000 and $2,000, respectively.

The Company currently expects to apply for forgiveness of the entire loan balance.

believe that the cash on hand, the availability of cash from our Intercreditor Revolving Credit Facility, our projections to reduce

excess inventory during the next year, and cash generated from our operating forecast will be adequate to meet the Company’s

months ended June 30, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively.

currently expects to apply for forgiveness of the entire loan balance.

believe that the availability of cash from our Intercreditor Revolving Credit Facility, proceeds from the insurance claim settlement,

proceeds from the PPP loan and our projections to reduce excess inventory during the next year will be adequate to meet the Company’s

liquidity requirements for at least the next twelve months.

15 unchanged sentences

in fiscal 2020 and 2019, respectively.

Our results of operations may also fluctuate from quarter to quarter as a result of the

amount and timing of orders placed and shipped to customers, as well as other factors.

The fulfillment of orders can therefore

significantly affect results of operations on a quarter-to-quarter basis.

results of operations may also fluctuate from quarter to quarter as a result of the amount and timing of orders placed and shipped

to customers, as well as other factors.

The fulfillment of orders can therefore significantly affect results of operations on

a quarter-to-quarter basis.

has not had a significant impact on our operations.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements