What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-02-22 compared with 2020-11-16 · 579 added, 556 removed, 686 unchanged (62% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, 2020

December 31, 2020

March 31, 2020

19 unchanged sentences

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

Revolving lines of credit

Revolving line of credit - Iron Horse Credit

Refunds due to customers

4 unchanged sentences

Current portion of operating lease liabilities

Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.

Total Current Liabilities

9 unchanged sentences

1,000,000 shares authorized;

no shares issued and outstanding

Common stock, Class A, $0.01 par value;100,000 shares authorized;

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

no shares issued and

Common stock, Class A, $0.01 par value;

100,000 shares authorized;

no shares issued and

Common stock, Class B, $0.01 par value;

100,000,000 shares authorized;

39,040,748 and 38,557,643

shares issued and outstanding, respectively

Additional paid-in capital

7 unchanged sentences

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED INCOME STATEMENTS

For the Three Months Ended

For the Six Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

For the Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

Cost of Goods Sold

7 unchanged sentences

Gain from extinguishment of accounts payable

Gain - related party

Interest expense

4 unchanged sentences

Net Income (Loss)

$ (1,003,308 )

Net Income (Loss) per Common Share

Basic and Diluted

Weighted Average Common and Common Equivalent Shares:

See notes to the condensed consolidated

financial statements

Weighted Average Common and Common

Equivalent Shares:

notes to the condensed consolidated financial statements

Singing Machine Company, Inc.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

September 30, 2020

September 30, 2019

For the Nine Months Ended

December 31, 2020

December 31, 2019

Cash flows from operating activities

Net Income (loss)

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

$ (1,003,308 )

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

Amortization of deferred financing costs

2 unchanged sentences

Stock based compensation

Gain - related party

Change in net deferred tax assets

2 unchanged sentences

Accounts receivable

(16,575,815 )

(14,759,924 )

Due from banks

6 unchanged sentences

Due to related parties

Customer deposits

Refunds due to customers

1 unchanged sentence

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

Net cash used in operating activities

Net cash provided by operating activities

Cash flows from investing activities

6 unchanged sentences

Payment of deferred financing charges

Proceeds from installment note

Proceeds from installment notes

Payments on installment notes

Proceeds from subscription receivable

1 unchanged sentence

Payment on subordinated debt - related party

Payments on installment notes

Payments on finance leases

12 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the three months ended September 30, 2020 and 2019

the three months ended December 31, 2020 and 2019

Preferred Stock

Additional Paid in

Subscriptions

Balance at June 30, 2020

$ (14,633,360 )

Balance at September 30, 2020

$ (12,225,486 )

Balance at June 30, 2019

$ (12,439,137 )

Employee compensation-stock option

Issuance of common stock - directors

Exercise of stock options

Balance at December 31, 2020

$ (11,058,191 )

Balance at September 30, 2019

$ (11,814,915 )

Employee compensation-stock option

Balance at December 31, 2019

$ (12,572,864 )

Singing Machine Company, Inc.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the six months ended September 30, 2020 and 2019

the nine months ended December 31, 2020 and 2019

Preferred Stock

Additional Paid in

Subscriptions

1 unchanged sentence

$ (14,426,556 )

Balance at September

Employee compensation-stock option

Issuance of common stock - directors

Exercise of stock options

Balance at December 31, 2020

$ (11,058,191 )

4 unchanged sentences

Exercise of stock options

Issuance of common stock

Balance at September

Issuance of common stock - directors

Balance at December 31, 2019

$ (12,572,864 )

10 unchanged sentences

and distributors for resale to consumers.

RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company has determined that in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards

Codification (“ASC”) 606, “Revenue from Contract with Customers , ”

the Company incorrectly accounted

for the cost of its cooperative (“co-op”) promotion allowances (previously referred to as “cooperative advertising”)

with its customers as selling expenses instead of a reduction in net sales for the three and nine months ended December 31, 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

of shareholders’

The effects are confined to the condensed consolidated statements of operations, and these notes

to condensed consolidated financial statements.

The tables below set forth the condensed consolidated statements of operations,

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

For the Three Months Ended

December 31, 2019

$ (1,661,940 )

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Loss from Operations

Other Expenses

Interest Expense

Finance Costs

Total Other Expenses

Loss Before Income Tax Benefit

Income Tax Benefit

For the Nine Months Ended

December 31, 2019

$ (2,858,069 )

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Loss from Operations

Other Expenses

Interest Expense

Finance Costs

Total Other Expenses

Loss Before Income Tax Benefit

Income Tax Benefit

$ (1,003,308 )

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

3- SUMMARY OF ACCOUNTING POLICIES

2 unchanged sentences

inter-company accounts and transactions have been eliminated in the condensed consolidated financial statements.

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 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

for the year ended March 31, 2020.

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

accompanying unaudited financial statements for the three and nine months ended December 31, 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.

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.

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.

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

7 unchanged sentences

However, circumstances could change which may alter future expectations.

COLLECTIBILITY

COLLECTABILITY

OF ACCOUNTS RECEIVABLE

4 unchanged sentences

reserves based upon historical collection experience.

Company is subject to chargebacks from customers for cooperative marketing programs, defective returns, return freight and handling

Should business conditions deteriorate or any major customer default on

its obligations to the Company, this allowance may need to be significantly increased, which would have a negative impact on operations.

Company is subject to chargebacks from customers for cooperative promotional programs, defective returns, return freight and handling

charges that are deducted from open invoices and reduce collectability of open invoices.

Should business conditions deteriorate

or any major customer default on its obligations to the Company, this allowance may need to be significantly increased, which

would have a negative impact on operations.

CURRENCY TRANSLATION

4 unchanged sentences

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

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

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

such amounts were not material during the periods presented.

5 unchanged sentences

The amounts at foreign financial

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

institutions at December 31, 2020 and March 31, 2020 are approximately $801,000 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 these

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 promotional programs.

As of December 31, 2020 and

March 31, 2020 the estimated amounts for these future inventory returns were approximately $1,846,000 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 December 31, 2020 and March 31, 2020 the Company

had inventory reserves of approximately $917,000 and $434,000 respectively for estimated excess and obsolete

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

12 unchanged sentences

less than the carrying amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance

with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-05,

“Accounting for the Impairment or Disposal of Long-Lived Assets.”

with FASB ASC 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Company follows FASB ASC 842, “Leases”.

47 unchanged sentences

sold is transferred to the customer, in an amount, referred to as the transaction price, that reflects the consideration to which

the Company is expected to be entitled in exchange for those goods.

The Company determines revenue recognition utilizing the following

(1) identification of the contract with a customer, (2) identification of the performance obligations in the contract

(promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction

price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product

or service for each performance obligation.

the Company is expected to be entitled in exchange for those goods at a point in time.

The Company determines revenue recognition

utilizing the following five steps:

(1) identification of the contract with a customer, (2) identification of the performance

obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation

of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control

of the product or service for each performance obligation.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

6 unchanged sentences

the Company expects to receive for the sale of these goods.

Company selectively participates in a retailer’s co-op promotion initiatives to maximize sales of the Company’s

products on the retail floor or to assist in developing consumer awareness of new product launches, by providing marketing

fund allowances to our customers.

As these co-op promotion initiatives are not a distinct good or service and the Company

cannot reasonably estimate the fair value of the benefit it receives from these arrangements, the cost of these allowances at

the time they are offered to the customers are recorded as a reduction to net sales.

For the three months ended December 31,

2020 and 2019, co-op promotion allowances were approximately $858,000 and $1,662,000, respectively.

For the nine months ended

December 31, 2020 and 2019, co-op promotion allowances were approximately $2,032,000 and $2,858,000, 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.

commissions are included in selling expenses in the accompanying 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

10 unchanged sentences

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,

Company’s reserve for sales returns was approximately $2,966,000 and $1,224,000 as of December 31, 2020 and March 31, 2020,

respectively.

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:

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

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

ended December 31, 2020 and 2019 consisted of the following:

Three Months Ended

Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

(as restated)

Classic Karaoke Machines

8 unchanged sentences

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 December 31, 2020 and 2019 shipping and handling expenses were approximately

$512,000 and $675,000, respectively.

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

For the nine months ended December 31, 2020 and 2019 shipping and handling expenses were

approximately $900,000 and $989,000, respectively.

8 unchanged sentences

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

three and nine months ended December 31, 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.

incurred for producing and publishing advertising of the Company are charged to operations the first time the advertising takes

The Company has entered into cooperative advertising agreements with its major customers that specifically indicate that

the customer must spend the cooperative advertising fund upon the occurrence of mutually agreed events.

The percentage of the

cooperative advertising allowance ranges from 1% to 13% of the purchase.

The customers must advertise the Company’s products

in the customer’s catalog, local newspaper and other advertising media.

The customer must submit the proof of the performance

(such as a copy of the advertising showing the Company’s products) to

the Company to request the allowance.

The customer does not have the ability to spend the allowance at their discretion.

believes that the identifiable benefit from the cooperative advertising program and the fair value of the advertising benefit

is equal or greater than the cooperative advertising expense.

Advertising expense for the three months ended September 30, 2020

and 2019 was approximately $1,094,000 and $1,419,000, respectively.

Advertising expense for the six months ended September 30,

2020 and 2019 was approximately $1,415,000 and $1,780,000, respectively As of September 30, 2020 and March 31, 2020 there was

an accrual for cooperative advertising allowances of $653,000 and $685,000, respectively.

These amounts were a component of accrued

expenses in the condensed consolidated balance sheets.

For the three months ended December 31, 2020 and

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

For the nine months ended December 31, 2020 and 2019, the stock option

expense was $5,000 and $15,000, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

3 unchanged sentences

and development costs are charged to results of operations as incurred.

These expenses are shown as a component of selling, general

and administrative expenses in the condensed consolidated statements of operations.

For the three months ended September 30, 2020

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

For the six months ended September 30, 2020 and

These expenses are shown as a component of, general and

administrative expenses in the condensed consolidated statements of operations.

For the three months ended December 31, 2020 and

2019, these amounts totaled approximately $33,000 and $13,000, respectively.

For the nine months ended December 31, 2020 and 2019,

these amounts totaled $48,000 and $36,000, respectively.

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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

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

Under the asset and liability

method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to

differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the

years in which those temporary differences are expected to be recovered or settled.

Under ASC 740, the effect on deferred tax

assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.

As of December 31, 2020 and March 31, 2020 the Company recognized a valuation allowance 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 nine months ended December 31, 2020 and 2019 we estimated our effective tax rate to be approximately 23% and 22%, respectively.

As of December 31, 2020 and March 31, 2020 the Singing Machine had net deferred tax assets of approximately $413,000 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

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.

The Company recorded an income tax provision of approximately $264,000 for the three months ended December 31, 2020

and an income tax benefit of approximately $240,000 for the three months ended December 31, 2019.

The Company recorded an income

tax provision of approximately $1,006,000 for the nine months ended December 31, 2020 and an income tax benefit of approximately

$295,000 for the nine months ended December 31, 2019.

Company recognizes a liability for uncertain tax positions.

7 unchanged sentences

likelihood of being realized upon ultimate resolution.

As of September 30, 2020, there were no uncertain tax positions that

As of December 31, 2020, there were no uncertain tax positions that

resulted in any adjustment to the Company’s provision for income taxes.

3 unchanged sentences

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.

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.

OF EARNINGS (LOSS) PER SHARE

of dilutive shares for the three and nine months ended December 31, 2020 are as follows:

three months ended December 31, 2020

For the nine months ended December 31, 2020

Basic weighted average common shares outstanding

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

net income per share is based on the weighted average number of shares of common stock outstanding during the period.

net income per share reflects the potential dilution assuming shares of common stock were issued upon the exercise of outstanding

in-the-money options and the proceeds thereof were used to purchase shares of the Company’s common stock at the average

market price during the period using the treasury stock method.

For the three and nine months ended December 31, 2020, options

to purchase approximately 271,000 and 374,000 shares of common stock, respectively, have been included in the calculation of diluted

net income per share as compared to approximately 371,000 shares that were excluded for both the three and nine months ended December

31, 2019, as the result would have been anti-dilutive.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2020 and 2019

ACCOUNTING PRONOUNCEMENTS

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 consolidated financial statements and related disclosures.

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

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We are currently evaluating the potential effects of this

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

updated guidance on our consolidated financial statements and related disclosures.

3 - INVENTORIES, NET

are comprised of the following components:

September 30,

Finished Goods

5 unchanged sentences

summary of property and equipment is as follows:

September 30,

Computer and office equipment

3 unchanged sentences

Accumulated depreciation

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.

expense for the three months ended December 31, 2020 and 2019 was approximately $65,000 and $77,000, respectively.

expense for the nine months ended December 31, 2020 and 2019 was approximately $204,000 and $196,000, respectively.

BANK FINANCING

9 unchanged sentences

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,

three and nine months ended December 31, 2020 the Company incurred amortization expense of approximately $19,000 and $40,000,

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

31, 2020 and 2019

the Crestmark Facility:

11 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

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.

For the three and nine months ended December 31, 2020 the Company recorded interest

expense of approximately $100,000 and $151,000, respectively.

The Crestmark Facility expires on June 15, 2022.

As of December

31, 2020, the Company had no outstanding balance on the Crestmark Facility.

In 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:

5 unchanged sentences

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

As of December 31, 2020, the Company is in

compliance with this covenant.

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 and nine months ended December

31, 2020 was approximately $41,000 and $103,000, 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 December 31, 2020,

there was an outstanding balance of approximately $65,000.

Credit Facility PNC Bank

9 unchanged sentences

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.

December 31, 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

ended December 31, 2020 and 2019 the Company incurred interest expense of approximately $0 and $86,000, respectively, on amounts

borrowed against the PNC Revolving Credit Facility.

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

During the nine months ended December 31, 2020 and 2019 the Company incurred

interest expense of approximately $0 and $119,000, respectively on amounts borrowed against the PNC Revolving Credit Facility.

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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.

months ended December 31, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively.

the nine months ended December 31, 2020 and 2019 the Company incurred interest expense of approximately $3,000 and $0, respectively.

As of December 31, 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.

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.

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 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 $7,000.

For the six months

ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $14,000 and $7,000,

respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2020 and 2019

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 December 31, 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 December 31, 2020, and March 31, 2020 there was an outstanding

balance on the installment notes of approximately $297,000 and $346,000, respectively.

For the three months ended December 31,

2020 and 2019 the Company incurred interest expense of approximately $6,000.

For the nine months ended December 31, 2020 and 2019

the Company incurred interest expense of approximately $20,000 and $14,000, 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

Marketing Development, Ltd.

conjunction with the Crestmark Facility and IHC Facility there is 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.

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.

During 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

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 December 31, 2020 and 2019 interest expense was approximately $12,000

and $0, respectively on the subordinated note payable and the related party subordinated debt.

During the nine months ended

December 31, 2020 and 2019 interest expense was approximately $36,000 and $0, respectively on the subordinated note payable

and the related party subordinated debt.

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

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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.

As of December 31, 2020, the Company missed the first scheduled payment

due on December 31, 2020 and obtained a waiver from the subordinated note holder allowing the first payment to be deferred until

February 2021.

The Company intends to make additional payments per the note repayment schedule providing the Company meets all

repayment requirements of the Crestmark Facility and IHC Facility agreements.

maturities of outstanding debt as of December 31, 2020 are as follows:

Year Ended December 31,

Revolving Line of Credit Iron Horse Credit

Installment Notes

Note Payable Payroll Protection Program

Subordinated Related Party Debt

2025 and beyond

Scheduled Payments

6 - COMMITMENTS AND CONTINGENCIES

INSURANCE CLAIM SETTLEMENT –

GOODS INCIDENT

As of this filing we have 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.

CLAIM SETTLEMENT –

DAMAGED GOODS INCIDENT

the nine-months ended December 31, 2020, we have recovered approximately $2,336,000 from our cargo insurance coverage which settled

approximately $1,268,000 in an 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 statements of operations.

For the three and nine months

ended December 31, 2020 the gain from damaged goods insurance claim was approximately $0 and $1,068,000, respectively.

The insurance

claim is now closed.

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

31, 2020 and 2019

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

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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

$10,000 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

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

$6,000 and $18,000, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

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

balance sheet information related to leases as of December 31, 2020 is as follows:

Operating lease - right-of-use assets

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Finance leases, net of current portion

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

Supplemental statement of operations information related to leases for the three and nine months ended

December 31, 2020 is as follows:

Three Months Ended

Six Months Ended

September 30 2020

Nine Months Ended

December 31, 2020

Operating lease expense as a component of general and administrative expenses

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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:

Supplemental cash flow information related to leases for the nine months ended December 31, 2020 is as follows:

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

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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

31, 2020 and 2019

maturities of operating and finance lease liabilities outstanding as of December 31, 2020 are as follows:

Year ended December 31,

Operating Leases

Finance Leases

2020, for the remaining 6 months

Total Minimum Future Payments

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7 - 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.

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

outlined below.

The expected volatility is based upon historical volatility of our stock and other contributing factors.

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 six months ended September 30, 2020 is summarized below:

September 30, 2020

the nine months ended December 31, 2020 and 2019 the Company issued 100,000 stock options at an exercise price of $.29 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 outlined below.

The expected volatility is based upon historical volatility of our stock and other contributing

The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for

all employees.

The following inputs were used to value each option grant:

nine months ended December 31, 2020:

expected dividend yield of 0%, risk-free interest rate of 0.18%, volatility of 146.7%

and an expected term of three years.

summary of stock option activity for the nine months ended December 31, 2020 is summarized below:

December 31, 2020

Number of Options

Weighted Average

Exercise Price

Weighted Average Exercise Price

Stock Options:

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Options exercisable at end of period

following table summarizes information about employee stock options outstanding at December 31, 2020:

Range of Exercise Price

Outstanding at December 31, 20

Average Remaining Contractural Life

Average Exercise Price

Exercisable at December 31, 2020

Average Exercise Price

Total number of options outstanding as of December 31, 2020 includes 600,000 options issued to five current and two former directors

as compensation and 1,040,000 options issued to key employees that were not issued from the Plan.

of December 31, 2020 there was unrecognized expense of approximately $15,000 remaining on options currently vesting over time

with approximately ten months remaining until these options are fully vested.

intrinsic value of vested options as of December 31, 2020 was approximately $121,000.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

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31, 2020 and 2019

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

Range of Exercise Price

Number Outstanding at September 30, 2020

Weighted Average Remaining Contractural Life

Weighted Average Exercise Price

Number Exercisable at September 30, 2020

Weighted 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.

COMMON STOCK ISSUANCES

November 6, 2020, the Company issued 43,105 shares of its common stock to its Board of Directors valued at $0.29 per share, pursuant

to our annual director compensation plan for the fiscal year ending March 31, 2020.

The Company recorded director compensation

of $12,500 during the three and nine months ended December 31, 2020, respectively.

9 - 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

to customers outside of the United States for the three and nine months ended December 31, 2020 and 2019 were primarily made by

the Macau Subsidiary in US dollars.

1 unchanged sentence

FOR THE THREE MONTHS ENDED

FOR THE SIX MONTHS ENDED

September 30,

FOR THE NINE MONTHS ENDED

(as restated)

North America

3 unchanged sentences

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.

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

another related company and the Company’s primary distributor of its products to Canada at that time.

These amounts were

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

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

December 31, 2020 and March 31, 2020, in the aggregate the Company had approximately $0 and $100,000, respectively, due from related

parties for goods and services sold to these companies.

December 31, 2020 and March 31, 2020, the Company had amounts due to related parties in the amounts of approximately $129,000

and $502,000 for facility fees, storage and administrative services provided to the Company by these related parties.

the three months ended December 31, 2020 and 2019 the Company did not sell any products to Winglight Pacific, Ltd.

(“Winglight”),

a related party.

During the nine months ended December 31, 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

The average gross profit margin on sales to Winglight for the nine months ended December 31, 2020 and 2019 was NA and

23.7%, respectively.

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

and the Company’s primary distributor of its products to Canada at that time.

the three months ended December 31, 2020 and 2019 the Company sold approximately $0 and $45,000 respectively, of product directly

to Cosmo from its California warehouse facility.

These amounts were included as a component of net sales in the accompanying condensed

consolidated statements of operations.

During the nine months ended December 31, 2020 and 2019 the Company sold approximately

$0 and $284,000, 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.

July 30, 2020, the Company and Cosmo reached agreement that Cosmo would no longer be the Company’s Canadian distributor

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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

These amounts were 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 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.

During the three and nine months ended December 31, 2020, there was a gain of approximately $188,000 from

Cosmo related to the payment in fiscal 2021 on prior year sales and the related receivable previously reversed and written off

as initially deemed uncollectible.

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.

for the three months ended December 31, 2020 and 2019 were approximately $91,000.

The services from SLE for the nine months ended

December 31, 2020 and 2019 were approximately $272,000 and $282,000, respectively.

These amounts were included as a component

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

RESERVE FOR SALES RETURNS

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

Six Months Ended

September 30,

Reserve for sales returns at beginning of the year

3 unchanged sentences

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.

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.

of December 31, 2020 and March 31, 2020 the amount of refunds due to customers was approximately $102,000 and $807,000, respectively.

Refunds due to customers at December 31, 2020 were primarily due to one 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.

13 - EMPLOYEE BENEFIT PLANS

2 unchanged sentences

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

charged to operations for contributions to this plan and administrative costs during the three months ended December 31, 2020

and 2019 totaled approximately $20,000 and $15,000, 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,

plan and administrative costs during the nine months ended December 31, 2020 and 2019 totaled approximately $54,000 and $47,000,

respectively.

4 unchanged sentences

Company derives a majority of its revenues from retailers of products in the United States.

The Company’s allowance for

doubtful accounts is based upon management’s estimates and historical experience and reflects the fact that accounts

receivable are concentrated with several large customers.

At September 30, 2020, 93% of accounts receivable were due from

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

At March 31, 2020, 82% of

accounts receivable were due from three customers in North America that individually owed over 10% of total accounts

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2020 and 2019

At December 31, 2020, 41% of accounts

receivable were due from two customers in North America that individually owed over 10% of total accounts receivable.

31, 2020, 82% of accounts receivable were due from three customers in North America that individually owed over 10% of total accounts

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 gross sales were 44%, 21%, and 12% respectively.

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

Revenue derived from these customers as a percentage of gross sales were 36%, 13% and 11%, 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 this customer as a percentage of gross sales were 40%, 20% and 15%, respectively.

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

Revenue derived from these customers as a percentage of gross sales were 43% and 10%, respectively.

three months ended December 31, 2020, there were five customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 22%, 22%, 19%, 12%, and 12% respectively.

the three months ended December 31, 2019, there were four customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 25%, 21%, 13% and 10%, respectively.

the nine months ended December 31, 2020, there were four customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 34%, 19%, 13% and 13% respectively.

nine months ended December 31, 2019, 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 38%, 14% and 10%, respectively.

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

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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:

percentage of net sales for the three and nine months ended December 31, 2020 and 2019:

Singing Machine Company, Inc.

2 unchanged sentences

For Three Months Ended

For the Six Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

For Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

Cost of Goods Sold

5 unchanged sentences

Income (Loss) from Operations

Other Income (Expenses)

Other Income and (Expenses)

Gain from damaged goods insurance claim

Gain from extinguishment of accounts payable

Gain from vendor credit for damaged goods

Contigency gain - related party

Interest expense

Financing costs

Total Other Income (expenses), net

Total Other Income and (Expenses)

Income (Loss) Before Income Tax (Provision) Benefit

1 unchanged sentence

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 $23,188,000 from $20,082,000 an increase of approximately

$3,106,000 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

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.

The remaining

increase in sales of approximately $474,000 was primarily due to increased internet product demand from two major customers during

the three months ended September 30, 2020.

profit for the quarter ended September 30, 2020 increased to approximately $6,725,000 from $5,642,000 an increase of approximately

ENDED DECEMBER 31, 2020 COMPARED TO THE QUARTER ENDED DECEMBER 31, 2019

sales for the quarter ended December 31, 2020 increased to approximately $16,973,000 from $13,858,000 an increase of approximately

$3,115,000 as compared to the same period ended December 31, 2019.

This increase was primarily due to an increase in sales to

two major customers of approximately $2,798,000 due in part to the continued success of the Carpool Karaoke Microphone (“CPK”)

product and increased demand in consumer electronics products due to COVID-19 and a reduction in co-op promotion allowances of

approximately $803,000.

profit for the quarter ended December 31, 2020 increased to approximately $4,974,000 from $2,371,000 an increase of approximately

$2,603,000 as compared to the same period in the prior year.

The increase in CPK product sales contributed approximately

$638,000 to the increase in gross profit.

The one-time damaged goods incident during the three months ended September 30, 2019

contributed approximately $286,000 of the variance in gross profit with the remaining increase due to the gross profit on the

mix of products sold.

profit margin for the three months ended September 30, 2020 was 29.0% compared to 28.1% for the three months ended September

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

for approximately 0.7 margin points of the 0.9 gross profit margin point increase with the remaining 0.2 increase

in margin points attributed to the mix of products sold.

the quarter ended September 30, 2020, total operating expenses decreased to approximately $4,287,000 compared to approximately

Approximately $601,000 of the increase was commensurate with the

increase in net sales, approximately $803,000 was due to a decrease in co-op promotion allowances with the remaining variance

primarily due to an increase in profit margin on the mix of products sold.

profit margin for the three months ended December 31, 2020 was 29.3% compared to 17.1% for the three months ended December 31,

The increase in CPK product sales which yielded significantly higher profit margin accounted for approximately 5.1 margin

points of the increase.

The decrease in co-op promotion allowances accounted for approximately 4.9 points of the 12.2 margin point

increase with the remaining 2.2 points in margin increase due to the higher margin yield in the remaining mix of products sold.

the quarter ended December 31, 2020, total operating expenses increased to approximately $3,481,000 compared to approximately

$3,260,000 from the same period in the prior year.

This represents a decrease in total operating expenses of approximately $496,000

from the quarter ended September 30, 2019.

Selling expenses decreased by approximately $111,000, primarily due reduced discretionary

marketing expenses associated with CPK product of approximately $200,000 and offset by increased royalty expense on CPK product

of approximately $148,000 due to the increase in sales.

The remaining decrease was primarily due to reductions in advertising

allowance programs for the holidays.

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.

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

This represents an increase in total operating expenses of approximately $221,000

from the quarter ended December 31, 2019.

Selling expenses decreased by approximately $250,000, There was a reduction in discretionary

marketing spending of approximately $181,000 associated with one-time roll-out expenses of the CPK product in the prior fiscal

year with the remaining decrease primarily due to a decrease in freight expense associated with a one-time freight charge in the

prior fiscal year for damaged goods received by one major customer.

and administrative expenses increased by approximately $483,000 to approximately $1,925,000 for the three months ended December

31, 2020 compared to approximately $1,442,000 for the same period ended December 31, 2019.

There was an increase in payroll expense

of approximately $346,000 primarily due to payment of officer and key employee bonuses as well as additional COVID related bonus

payments made to our California warehouse personnel.

There was an increase in rent expense of approximately $78,000 from the new

lease renewal for the California warehouse which commenced in September 2020.

The remaining variance was primarily due to other

variable expenses associated with the increase in net sales.

(LOSS) INCOME FROM OPERATIONS

was income from operations of approximately $1,493,000 for the three months ended December 31, 2020 compared to a loss from operations

of approximately $889,000 for the three months ended December 31, 2019.

The increase in income from operations of approximately

$2,382,000 was primarily due to the increase in gross profit of approximately $2,603,000 offset by a decrease in selling expenses

of approximately $250,000 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

$184,000, respectively, due to management’s best estimate of the Company’s full year effective tax rate of approximately

25.2% and 18.3%, respectively.

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

income and (expenses), net increased by approximately $48,000 to approximately $61,000 in other expenses, net for the three months

ended December 31, 2020 compared to approximately $109,000 in other expenses, net for the same period ended December 31, 2019.

There was an increase in interest expense and amortization of deferred financing costs of approximately $140,000 associated with

the financing terms of the Crestmark Facility and IHC Facility which was offset by a gain of approximately $188,000 from Cosmo

related to the payment in fiscal 2021 on prior year sales and the related receivable previously reversed and written off as initially

deemed uncollectible.

the three months ended December 31, 2020 and 2019 the Company recognized an income tax provision of approximately $264,000 and

an income tax benefit of approximately $240,000, respectively, due to management’s best estimate of the Company’s

full year effective tax rate of approximately 23.0% and 22.7%, respectively.

the three months ended December 31, 2020 there was net income of approximately $1,167,000 compared to a net loss of approximately

$758,000 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 $26,511,000 from $24,891,000 an increase of approximately

$1,620,000 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 $7,959,000 from approximately $6,630,000

an increase of approximately $1,329,000 as compared to the same period in the prior year.

The increase in CPK product sales

as indicated in Net Sales contributed approximately $542,000 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 the mix of products sold.

profit margin for the six months ended September 30, 2020 was 30.0% compared to 26.6% for the six months ended September

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

for approximately 0.4 of the 3.4 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 increased to approximately $6,292,000 compared to approximately

(Loss) from Operations and Income Taxes.

MONTHS ENDED DECEMBER 31, 2020 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 2019

sales for the nine months ended December 31, 2020 increased to approximately $42,310,000 from $37,552,000 an increase of approximately

$4,758,000 as compared to the same period ended December 31, 2019.

There was an increase in sales of approximately $4,380,000

to one major customer whose internet business flourished during the COVID pandemic and also had significant success selling our

The remaining increase of approximately $378,000 is primarily due to increased sales of our CPK product by some of

our other major customers.

profit for the nine months ended December 31, 2020 increased to approximately $11,759,000 from approximately $7,805,000 an increase

of approximately $3,954,000 as compared to the same period in the prior year.

Approximately $1,037,000 of the increase was commensurate

with the increase in net sales, approximately $826,000 was due to a decrease in co-op promotion allowances with the remaining

variance primarily due to an increase in profit margin on the mix of products sold.

profit margin for the nine months ended December 31, 2020 was 27.8% compared to 20.8% for the nine months ended December 31, 2019.

The increase in CPK product sales which yielded significantly higher profit margin accounted for approximately 3.6 margin points

of the increase.

The decrease in co-op promotion allowances accounted for approximately 2.0 points of the 7.0 margin point increase

with the remaining 1.4 points in margin increase due to the higher margin yield in the remaining mix of products sold.

the nine months ended December 31, 2020, total operating expenses decreased to approximately $8,599,000 compared to approximately

$8,937,000 from the same period in the prior year.

This represents a decrease in total operating expenses of approximately $338,000

from the six months ended September 30, 2019.

Selling expenses decreased by approximately $200,000, 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.

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.

from the nine months ended December 31, 2019.

Selling expenses decreased by approximately $428,000 primarily due to a reduction

in discretionary marketing spending of approximately $525,000 associated with one-time roll-out expenses of the CPK product in

the prior fiscal year offset by an increase of approximately $108,000 in royalty expense associated with the increase in CPK licensed

product sales.

and administrative expenses increased by approximately $81,000 to approximately $5,130,000 for the nine months ended December

31, 2020 compared to approximately $5,049,000 for the same period ended December 31, 2019.

There was an increase in payroll expense

of approximately $386,000 primarily due to payment of officer and key employee bonuses as well as additional COVID related bonus

payments made to our California warehouse personnel.

This increase was offset by a decrease of approximately $346,000 one-time

administrative expenses incurred in the prior year relating to the processing of damaged goods received by one major customer

with the remaining variance due to other variable administrative expenses.

(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.

was income from operations of approximately $3,160,000 for the nine months ended December 31, 2020 compared to a loss from operations

of approximately $1,132,000 for the nine months ended December 31, 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.

$4,292,000 was primarily due the increase in gross profit and decrease in selling and general administrative expenses as explained

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 and (expenses), net increased by approximately $1,380,000 to approximately $1,214,000 in other income, net for the nine

months ended December 31, 2020 compared to approximately $166,000 in other expenses, net for the same period ended December 31,

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.

There was a gain

of approximately $188,000 from Cosmo related to the payment in fiscal 2021 on prior year sales and the related receivable previously

reversed and written off as initially deemed uncollectible.

These increases in other income were offset by an increase in interest

expense and amortization of deferred financing costs of approximately $266,000 associated with the financing terms of the Crestmark

Facility and IHC Facility.

the nine months ended December 31, 2020 and 2019 the Company recognized an income tax provision of approximately $1,006,000 and

an income tax benefit of approximately $295,000, respectively, due to management’s best estimate of the Company’s

full year effective tax rate of approximately 23.0% and 22.7%, 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

the nine months ended December 31, 2020 there was net income of approximately $3,368,000 compared to a net loss of approximately

$1,003,000 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 income was primarily due to the same reasons discussed in Income

(Loss) from Operations and Income Taxes.

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.

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

of December 31, 2020, the Company had cash on hand of approximately $823,000 as compared to cash on hand of approximately $684,000

December 31, 2019.

We had working capital of approximately $7,635,000 as of December 31, 2020.

Net cash provided by operating

activities was approximately $165,000 for the nine months ended December 31, 2020, as compared to approximately $684,000 provided

by operating activities for the same period a year ago.

See below for discussion of borrowing availability under our existing

lending arrangements.

the nine months ended December 31, 2020 there was 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 as well as a gain from the extinguishment

of accounts payable of $390,000 from one vendor related to the damaged goods issue.

There was a decrease in inventory of approximately

$1,781,000 as the Company sold excess inventory left over from the prior fiscal year.

There was a seasonal increase in reserves

for sales returns of approximately $1,742,000.

There was an increase in accrued expenses of approximately $580,000 primarily due

to seasonal co-op promotion allowances, commissions and royalties.

These increases in cash provided by operations were offset

by an increase in accounts receivable of approximately $7,056,000 due to peak season sales.

There was an increase in amounts due

from banks of approximately $1,172,000 due to cash collected in excess of amounts due on the revolving credit facilities with

Crestmark Bank.

There was a reduction in refunds due to customers of approximately $705,000 primarily due to settlement of prior

year damaged goods claims with one major customer.

There was a decrease in accounts payable of approximately $1,470,000 as the

Company sold off excess inventory from the prior year and did not need to purchase as much new inventory to fulfill orders.

cash provided by operating activities was approximately $684,000 for the nine months ended December 31, 2019.

During the nine

months ended December 31, 2019 there was an increase in accounts payable of approximately $5,742,000 as we held back payments

to one vendor who caused the damaged goods issue with one major customer pending resolution of the related insurance claim filed.

There was an increase in reserves for sales returns of approximately $3,650,000 based on anticipated returns of CPK product as

well as in increase in overstock returns of core product due to decreased performance in the consumer electronic and toy industry

segments in general.

There was an increase in accrued expenses of approximately $1,780,000 primarily due to the significant increase

in advertising allowance granted to customers to assist in customer product sell-through related to the CPK product as well as

to help mitigate overstock returns of core product after peak season.

These increases in cash provided by operations were offset

by an increase in accounts receivable of approximately $6,125,000 due to peak season sales, an increase in insurance receivable

of approximately $1,286,000 relating to damaged goods claims from one customer, an increase of approximately $2,229,000 in inventories

due to increased estimated future returns primarily related to the CPK product.

There were increases in related party accounts

receivable of approximately $895,000 due to peak seasonal amounts due for goods shipped to our Canadian distributor.

cash used in investing activities for the nine months ended December 31, 2020 was approximately $89,000 as compared to approximately

$517,000 used in investing activities for the same period ended a year ago.

Investing activities consisted primarily of purchases

of molds and tooling for new products for the nine months ended December 31, 2020.

In the prior fiscal year, the Company invested

in a new Enterprise Resourcing Planning (ERP) system of approximately $304,000 with the remaining cash used in investment activities

consisting primarily of purchases of new product molds and tooling.

cash provided by financing activities for the nine months ended December 31, 2020 was approximately $402,000 compared to cash

provided by financing activities of approximately $140,000 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

We received loan

proceeds from Crestmark in the amount of approximately $444,000 under the Paycheck Protection Program with the remaining

variance primarily due to repayments of installment and capital lease payments.

In the prior fiscal year we received

approximately $284,000 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.

This increase in cash provided by financing activities were offset by payments of finance leases

and the bank term note of approximately $136,000.

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

2 unchanged sentences

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 approximately $65,000 on the IHC Facility, which

provides for a maximum loan amount of $2,500,000 on eligible inventory and had no borrowings on our Crestmark Facility which will

make available up to $10,000,000 of eligible accounts receivable as the next twelve months progress.

As of this filing the Company

has approximately $171,000 currently available from these two credit facilities based on eligible inventory with IHC and a mandatory

pay-down of the Crestmark Facility loan to $0 for the months of January and February.

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

2 unchanged sentences

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 recovered approximately $2,336,000 from our cargo insurance coverage which settled approximately

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.

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.

For the three and nine months ended December 31,

2020 the gain from damaged goods insurance claim was approximately $0 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 nine months ended December 31, 2020.

May 5, 2020, the Company received loan proceeds from Crestmark Bank in the amount of approximately $444,000 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.

and nine months ended December 31, 2020 the Company incurred interest expense of approximately $1,000 and $3,000, 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

liquidity requirements for at least the next twelve months.

We believe the Intercreditor Revolving Credit Facility will be adequate

to maintain and grow our business during the two-year term of the agreement.

If we are unable to comply with the financial covenants

defined in the financing agreement and default on the credit facility, it may have a material adverse effect on our ability to

meet our financial obligations.

monitor the inventory levels and sell through activity of our major customers to properly anticipate defective returns and maintain

the appropriate level of inventory.

We believe that our warranty provision reflects the proper amount of reserves to cover potential

defective sales returns based on historical return ratios and information available from the customers.

AND QUARTERLY RESULTS

9 unchanged sentences

a quarter-to-quarter basis.

has not had a significant impact on our operations.

We generally have adjusted our prices to track changes in the Consumer Price

Index since prices we charge are generally not fixed by long-term contracts.

SHEET ARRANGEMENTS

do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial

condition, revenues, results of operations, liquidity or capital expenditures.

ACCOUNTING POLICIES

4 unchanged sentences

The critical accounting estimates and assumptions have not materially changed from those identified in the Company’s

2020 Annual Report.

2020 Form 10K/A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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

Item 1. Financial Statements