What changed in this filing

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Item 1. Business

2021-07-14 compared with 2020-08-13 · 196 added, 362 removed, 0 unchanged (100% of the section changed)

Singing Machine Company, Inc., (“Company,”

“Singing Machine,”

“we,”

“us,”

“our”) is engaged in the development, production, marketing and distribution of consumer karaoke audio equipment,

toy products, licensed products, accessories, music, and audio consumer electronic products.

We contract for the manufacturing

of all our electronic equipment products with factories located in China.

We have also collaborated with a music content service

provider that allows the Company to offer karaoke downloads, and streaming subscription services.

This collaboration provides

the Company with a distribution platform for digital music sales and subscriptions and furthermore it opens up the Company’s

music sales to customers who purchase our competitors’

karaoke machines as well.

The capabilities of the Company’s

music distribution system include the ability to download or stream selections from this content library, creating the opportunity

to open new revenue sources through the sale of subscriptions.

were incorporated in California in 1982.

We originally sold our products exclusively to professional and semi-professional singers.

In 1988, we began marketing karaoke equipment for home use.

We believe we are the first company to introduce the home karaoke

products to the United States (“U.S.”).

In May 1994, we merged into a wholly-owned subsidiary incorporated in Delaware

with the same name.

As a result of that merger the Delaware corporation became the successor to the business and operations of

the California corporation and retained the name The Singing Machine Company, Inc.

(“SMC”).

In December 2005, we formed

a wholly-owned subsidiary SMC (Comercial Offshore De Macau) Limitada in Macau, China (“SMC Macau”

or “Macau

subsidiary”), to provide sales, financing, shipping, engineering and sourcing support for Singing Machine and Subsidiaries.

Our Macau subsidiary has been approved to operate its business in Macau as Macau Offshore Company (MOC) and is exempt for the

Macau corporate income tax.

In February 2008, we formed a wholly-owned subsidiary SMC Logistics, Inc.

(“SMC-L”), a

California corporation, to manage the U.S.

domestic logistics and fulfillment warehouse servicing for the Company and in April

2008 a wholly-owned subsidiary, SMC Music, Inc.

(“SMC-M”) to contract with third party music providers.

trades on the Over the Counter Bulletin Board (“OTCQX”) under the symbol “SMDM”.

Our principal executive

offices are located in Fort Lauderdale, Florida.

Company is partially held by koncepts International Limited (“koncepts”) who is major shareholder of the Company,

owning approximately 49% of our shares of common stock outstanding on a fully diluted basis as of March 31, 2020.

is also partly held by Treasure Green Holdings Ltd.

(“Treasure Green) who owns approximately 2% of our common stock.

total approximately 51% of the Company’s shares of common stock on a fully diluted basis as of August 12, 2020 are owned

by koncepts and Treasure Green.

most of the Fiscal Year, China Sinostar Group Company Limited (Sinostar and its subsidiaries collectively referred to herein as

the “Sinostar Group”

or “Sinostar”) held 100% of the common stock of koncepts and Treasure Green.

Sinostar is a company whose principal activities include property development, property management, property investment, management

of hydroelectric power stations, and design and sale of electronic products through its various subsidiaries.

We do business with

a number of entities that are indirectly wholly-owned or majority owned subsidiaries of Sinostar, including Starlight R&D

Ltd (“Starlight R&D”), Starlight Consumer Electronics USA, Inc., (“SCE”), Cosmo Communications Corporation

of Canada, Inc.

(“Cosmo”) and Star Light Electronics Company Ltd (Starlite), among others.

On December 12, 2019, Sinostar

transferred the assets of its consumer electronics division (including all of its shares of koncepts and Treasure Green)

to Fairy King Prawn Holdings Limited (“Fairy King”), an investment holding company incorporated in the British Virgin

Islands, principally owned by the Company’s Chairman, Philip Lau.

overall objective of the Singing Machine is to create an efficient platform for the development, manufacture, and world-wide marketing

and distribution of home entertainment based consumer electronics.

The Company will also seek new revenue opportunities through

hardware-based music content delivery and the creation of a community based entertainment platform.

The Company intends to leverage

our valuable customer base and strong relationships with our factories to achieve our organic growth initiatives.

Growth Strategy

intend to pursue various initiatives to execute our organic growth strategy which is designed to enhance our market presence,

expand our customer base and be an industry leader in new product development.

Key elements of our organic growth strategy include:

Historically karaoke has been our core business.

The Singing Machine brand is widely recognized as a leader in

karaoke and consequently we hold a dominant market share in the business.

While consistently a market leader, the Company has

determined that it needs to diversify and expand its core focus in order to grow its business.

The Company has therefore refocused

its self-perception and is determined to build on its success by defining ourselves as a provider of quality home entertainment

not just home karaoke hardware.

Critical to this strategy, the Company continued to market a line of toy products branded

We intend to grow our line of sing-along music themed toy products at lower opening price points.

We believe this toy

line, if successful, can leverage existing relationships with our current retail partners and help the Company organically grow.

Last year we acquired a license from CBS for the series “Carpool Karaoke”

featured on the Late Late

Show with James Corden.

Inspired by the segment that has become a global, viral hit with over 2.3 billion views online, Carpool

Karaoke The Mic allows friends and family to sing along to their favorite songs in their cars and recreate their favorite moments

from the show.

This product got off to a slower than expected start in Fiscal 2020 but has recently generated great deal of interest

recently on social media and we intend to leverage this attention and market this product in different sales channels.

Access to Digital Karaoke Music Offerings .

Karaoke content has been exceedingly harder to find in physical format (CD+G discs)

at retail stores.

It remains the Company’s strategy to better promote our streaming App available on iOS and Android platforms

to provide better music choices for our customers.

It is also the Company’s strategy to work with its music partner, Stingray,

to improve features to enhance the value proposition of the App to our customers.

On International Growth .

We believe that we have the most recognized and trusted brand in the world for consumer karaoke.

We also have the most karaoke product offerings and features of any of our competitors in the karaoke market.

We have been and

will continue aggressively pursuing international business outside of North America to capture a vastly untapped market for home

The Company’s early efforts to open up new international markets has been successful.

Through economies of scale

and financed on a direct import basis, we believe this is one of the major areas in which we can substantially increase our revenues.

Internationally, our products are currently distributed in Australia, Canada, United Kingdom, Ireland, Sweden, Norway, Finland,

Spain, Italy, and Mexico.

currently have four different product lines which consist in total of over 35 different models.

The product lines consist of the

Karaoke Machines represent the majority of our karaoke machines currently sold.

These machines incorporate traditional karaoke

features such as CD+G playback, echo, and voice control features, sound enhancement, built-in monitors, A/V out connections

to TV for scrolling lyrics, and microphone inputs.

Built-in cameras, Bluetooth and recording functions are available in some

select models.

The retail price range is from $49 to $199.

This product line accounted for approximately 70% of total revenue

for fiscal 2020.

Karaoke Machines represent a line of digital karaoke machines capable of playing back digital karaoke content.

These machines

include custom proprietary software to play high-definition digital downloaded content from our Singing Machine download store.

These machines offer a full range of features including searching, playlist creation, Bluetooth, full motion videos, lead

vocal, and HDMI output.

The retail price range is from $79 to $199.

This product line accounted for approximately 14% of total

revenue in fiscal 2020.

Kids Toy Products represents a new category of products for the Company, launched in the Fall of fiscal 2018.

These toy products

range from youth Bluetooth microphones to sing-along music players.

The retail price range is from $19.99 to $39.99.

product line accounted for approximately 2% of total revenue in fiscal 2020.

Products represents a category of products done in collaboration between Singing Machine and third-party licensors.

This includes

product lines like “Carpool Karaoke”

plus any future licenses that we take on.

This product line accounted for

approximately 5% of total revenue in fiscal 2020.

remaining 9% of total revenue was from the sales of karaoke related accessories consisting primarily of microphones, music subscriptions

and downloads, and other miscellaneous electronic accessories.

karaoke machines and music are sold nationally and internationally to a broad spectrum of customers, primarily through mass merchandisers,

department stores, direct mail catalogs and showrooms, music and record stores, national chains, specialty stores and warehouse

Our product lines are currently sold by the following retailers, among others:

Amazon.com, Best Buy, Costco, Sam’s

Club, Target, and Wal-Mart Our sales strategy includes offering domestic sales as well as direct import sales made direct to the

Our strategy of selling products from a domestic warehouse enables us to provide timely delivery and serve as a domestic

supplier of imported goods.

We purchase karaoke machines overseas from factories in China for our own account and warehouse the

products in leased facilities in California.

We are responsible for costs of shipping, insurance, customs clearance, duties, storage

and distribution related to such products and, therefore, domestic sales command higher sales prices than direct import sales.

We generally sell from our own inventory in less than container-sized lots.

Domestic sales also include our new rapidly growing

business of e-commerce in which we ship product directly to the end-consumer.

Import Sales.

We ship some hardware products sold by us directly to customers from China through SMC Macau.

Sales made through

our subsidiary are completed by either delivering products to the customers’

common carriers at the shipping point or by

shipping the products to the customers’

distribution centers, warehouses, or stores.

Direct import sales are made in larger

quantities (generally container sized lots) to customers worldwide, which pay SMC Macau pursuant to their own international, irrevocable,

transferable letters of credit or on open account.

fiscal 2020, approximately 43% of sales revenues were from direct import sales and 57% of revenues were domestic sales.

within the U.S.

are primarily made by our in-house sales team and our independent sales representatives.

Our independent sales

representatives are paid a commission based upon sales made in their respective territories.

We utilize some of our outside independent

sales representatives to help us provide service to our mass merchandisers and other retailers.

The sales representative agreements

are generally one (1) year agreements, which automatically renew on an annual basis, unless terminated by either party on 30 days’

Our international sales are primarily made by our in-house sales representatives and our independent distributors.

a percentage of net sales, our sales in the aggregate to our five largest customers during the fiscal years ended March 31, 2020

and 2019, approximately 81% and 86%, respectively.

In fiscal 2020, the top three major customers accounted for approximately 39%,

13% and 11% of our net revenues.

Although we have long-established relationships with all of our customers, we do not have contractual

arrangements to purchase fixed quantities with any of them.

A decrease in business or a loss of any of our major customers could

have a material adverse effect on our results of operations and financial condition.

also market our products at various national and international trade shows each year.

We regularly attend the following trade

shows and conventions:

The Consumer Electronics Show which takes place each January in Las Vegas;

the New York Toy Fair which

occurs each February in New York;

Distoy which occurs every year in May in London;

and the Hong Kong Electronics Show stages each

October in Hong Kong.

believe the Singing Machine brand is one of the most widely recognized karaoke brands in the United States, Canada, Australia

While we continue to heavily focus on our core karaoke business, we wish to expand our business into other product

Our strong product procurement team in Hong Kong and China combined with our experienced sales and service team in

North America enables us to compete not only in the karaoke market but also in other markets, such as musical instruments, licensed

toy products and other consumer electronics products.

of electronic hardware and music products by our customers generally occur after approval involving damaged goods, goods shipped

in error and overstock.

Our policy is to give credit to our customers for the returns in conjunction with the receipt of new replacement

purchase orders.

Our total returns represented 13.1% and 8.2% of our net sales in fiscal 2020 and 2019, respectively.

of 4.9 percentage points in return rate compared to prior fiscal year was due primarily to returns of approximately $1.1 million

in overstock licensed product from one major customer due to the slower than expected results of our launch of the Carpool Karaoke

The Mic product.

This accounted for approximately 2.7 percentage points of the increase with the remaining increase primarily

due to overstock returns from three other major customers.

distribute hardware products to retailers and wholesale distributors through two methods:

shipment of products from inventory

held at our warehouse facilities in California (domestic sales), shipments directly through our Macau subsidiary, and manufacturers

in China of products (direct import sales).

Domestic sales are made to customers located throughout North America from inventories

maintained at our warehouse facilities in California.

In the fiscal year ended March 31, 2020, approximately 57% of our sales

were shipped from our domestic warehouses (“Domestic Sales”) and 43% were sales shipped directly from China (“Direct

Import Sales”).

MANUFACTURING

AND PRODUCTION

karaoke machines are manufactured and assembled by third parties pursuant to design specifications provided by us.

we have ongoing relationships with five factories, located in Guangdong Province of the People’s Republic of China, which

assemble our karaoke machines.

During fiscal 2021, we anticipate that 100% of our karaoke products will be produced by these factories,

who have verbally agreed to extend financing to us.

We believe that the manufacturing capacity of our factories is adequate to

meet the demands for our products in fiscal year 2021.

However, if our primary factory in China was prevented from manufacturing

and delivering our karaoke products, our operation would be severely disrupted until alternative sources of supply are located.

In manufacturing our karaoke related products, these factories use molds and certain other tooling, most of which are owned by

Our products contain electronic components manufactured by other companies such as Panasonic, Sanyo, Toshiba, and Sony.

manufacturers purchase and install these electronic components in our karaoke machines and related products.

The finished products

are packaged and labeled under our trademark, The Singing Machine (R) and private labels.

main office in China is located in Hong Kong which has recently experienced some political unrest and anti-government protests

from citizens of Hong Kong.

Should tensions continue to escalate it could potentially affect our employees and disrupt our ability

to perform necessary administrative tasks required to manage the supply chain with our suppliers.

our equipment manufacturers purchase our supplies from a small number of large suppliers, all of the electronic components and

raw materials used by us are available from several sources of supply.

We depend on limited suppliers for some key components

and the loss of any single supplier may have a material long-term adverse effect on our business, operations, or financial condition.

To ensure that our high standards of product quality are met and that factories consistently meet our shipping schedules, we utilize

Hong Kong and China based employees as our representatives.

These employees include product inspectors who are knowledgeable about

product specifications and work closely with the factories to verify that such specifications are met.

Additionally, key personnel

frequently visit our factories for quality assurance and to support good working relationships.

of the electronic equipment sold by us is warrantied to the end user against manufacturing defects for a period of ninety (90)

days for labor and parts.

All music sold is similarly warrantied for a period of 30 days.

During the fiscal years ended March

31, 2020 and 2019, warranty claims have not been material to our results of operations.

business is highly competitive.

Our major competitors for karaoke machines and related products are Singsation, Ion Audio, Singtrix,

Karaoke USA, licensed property karaoke products and other consumer electronics companies.

We believe that competition for karaoke

machines is based primarily on price, product features, reputation, delivery times, and customer support.

We believe that our

brand name is well recognized in the industry and helps us compete in the karaoke machine category.

Our primary competitors for

download or streaming karaoke music are Youtube, Sybersound, Smule, and Karaoke Anywhere.

We believe that competition for karaoke

music is based primarily on popularity of song titles, price, reputation, and delivery times.

addition, we compete with all other existing forms of entertainment including, but not limited to, motion pictures, video arcade

games, home video games, theme parks, nightclubs, television and prerecorded tapes, CD’s, and DVD’s.

Our financial

position depends, among other things, on our ability to keep pace with changes and developments in the entertainment industry

and to respond to the requirements of our customers.

Many of our competitors have significantly greater financial, marketing,

and operating resources and broader product lines than we do.

have obtained registered trademarks for The Singing Machine name and the logo in the U.S., Canada, Australia, Hong Kong, China,

European Union, Japan, Mexico and the Republic of Korea.

We have also obtained registered trademarks for SMC Kids and the logo

in the U.S., Canada, Australia, European Union, and the Republic of Korea.

In 2003 we also obtained two U.S.

design patents for

karaoke machines, patent numbers US D505,960 S and US D524,325 S.

trademarks are a significant asset because they provide product recognition.

We believe that our intellectual property is significantly

protected, but there are no assurances that these rights can be successfully asserted in the future or will not be invalidated,

circumvented or challenged.

offer karaoke music through our Singing Machine Karaoke Download Store, Community, and iPhone/iPad App through a partnership with

Stingray Digital Group (“Stingray”).

Stingray holds all licensing agreements directly with the music publishers and

is responsible for all royalty payments.

We share a revenue split with Stingray on all karaoke videos streamed or downloaded by

our customers.

Stingray is the leading multi-platform music service provider in the world, with an estimated 110 million Pay-TV

subscribers in 111 countries around the world.

Geared towards individuals and businesses alike, the company’s commercial

entities include leading digital music and video services Stingray Music, Concert TV and The KARAOKE Channel.

Stingray also offers

various business solutions, including music and digital display-based solutions through its Stingray Business division.

karaoke machines must meet the safety standards imposed in various national, state, local, and provincial jurisdictions.

machines sold in the U.S.

are designed, manufactured and tested to meet the safety standards of Underwriters Laboratories, Inc.

(“ULE”) or Electronic Testing Laboratories (“ETL”).

In Europe and other foreign countries, our products

are manufactured to meet the Consumer Electronics (“CE”) marking requirements.

CE marking is a mandatory European

product marking and certification system for certain designated products.

When affixed to a product and product packaging, CE

marking indicates that a particular product complies with all applicable European product safety, health and environmental requirements

within the CE marking system.

Products complying with CE marking are now accepted to be safe in 28 European countries.

ULE or ETL certification does not mean that a product complies with the product safety, health and environmental regulations contained

in all fifty states in the United States.

Therefore, we maintain a quality control program designed to ensure compliance with

all applicable U.S.

and federal laws pertaining to the sale of our products.

Our production and sale of music products is subject

to federal copyright laws.

manufacturing operations of our foreign suppliers in China are subject to foreign regulation.

China has permanent “normal

trade relations”

(“NTR”) status under U.S.

tariff laws, which provides a favorable category of U.S.

import duties.

China’s NTR status became permanent on January 1, 2002.

In July, 2018, the U.S.

government imposed tariffs on many products

imported from China.

All of our products are manufactured and imported from China however, only our microphones are currently

subject to a 7.5% tariff.

Should the government decide to expand its list of products to include our karaoke products that would

subject our products to tariffs in the future, there could be a significant increase in the landed cost of our products.

are unable to mitigate these increased costs through price increases we could experience reductions in revenues, gross profit

margin and results from operations.

AND SEASONAL FINANCING

business is highly seasonal, with consumers making a large percentage of karaoke purchases around the traditional holiday season

in our second and third quarter ending September 30 and December 31.

These seasonal purchasing patterns and requisite production

lead times cause risk to our business associated with the underproduction or overproduction of products that do not match consumer

Retailers also attempt to manage their inventories more tightly, requiring that we ship products closer to the time that

retailers expect to sell the products to consumers.

These factors increase the risk that we may not be able to meet demand for

certain products at peak demand times, or that our own inventory levels may be adversely affected by the need to pre-build products

before orders are placed.

As of March 31, 2020, we had inventory of approximately $7.6 million (net of reserves totaling approximately

$0.4 million) compared to inventory of approximately $6.0 million as of March 31, 2019 (net of reserves totaling approximately

$0.3 million).

financing of seasonal working capital during Fiscal 2020 was from a Revolving Credit Facility from PNC Bank (“Revolving

Credit Facility”) and vendor extended accounts payable terms from certain China manufacturers.

The Revolving Credit Facility

was terminated on June 16, 2020.

On June 16, 2020, the Company executed a tri-party Intercreditor Agreement for a Revolving Line

of Credit (Intercreditor Revolving Credit Facility”) on eligible accounts receivable and inventory.

The Company signed a

two-year Loan and Security Agreement for a $10,000,000 financing facility with Crestmark, a division of Meta Bank, NA (“Crestmark”)

on eligible accounts receivable.

Further, the Company also executed a two-year Loan and Security Agreement with Iron Horse Credit

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

Both agreements automatically renew each year until expiration

unless advance written notification is given and both agreements expire on June 15, 2022.

The combined facility provides the Company

with up to $12,500,000 in financing during the Company’s peak season.

Fiscal 2021, we plan on financing our inventory purchases by borrowing on our Intercreditor Revolving Credit Facility and using

payment terms that have been granted to us by the factories in China.

of July 28, 2020 we employed 32 full-time employees.

We have 1 administrative employee located at SMC Macau’s office with

the remaining 31 employees based in the U.S.

employees include 3 executive officers, 13 engaged in warehousing and administrative

logistics/technical support and 15 in accounting, marketing, sales and administrative functions.

Singing Machine Company, Inc., a Delaware corporation (the “Company,”

“SMC”, “The Singing Machine”),

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

(“SMCL”)

and SMC-Music, Inc.

(“SMCM”), are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment,

accessories and musical recordings.

The products are sold directly to distributors and retail customers.

do business with a number of entities that are principally owned by the Company’s Chairman, Philip Lau, including Starlight R&D

Ltd (“SLRD”), Starlight Consumer Electronics USA, Inc., (“SCE”), Cosmo Communications Corporation of Canada,

(“Cosmo”), Winglight Pacific, Ltd (“Winglight”) and Starlight Electronics Company Ltd (“SLE”),

among others.

Machine is a leading global karaoke and music entertainment company that specializes in the design and production of quality karaoke

and music enabled consumer products for adults and children.

SMC’s products are among the most widely available karaoke products

in the world.

SMC’s mission is to “create joy through music.”

In order to deliver on this mission, SMC is focused on

the following multi-prong approach:

the short-term, improve profitability by optimizing operations and continue to expand gross margins.

the mid-to-long-term, continue to grow our global distribution and expand into new product categories that take advantage of SMC’s

vast distribution relationships and sourcing abilities.

portfolio of owned and licensed brands and products are organized into the following categories:

Karaoke —including

our flagship brand Singing Machine , SMC’s karaoke line is driven by quality products at affordable price points that deliver

great value to our customers.

All of Singing Machine’s karaoke products are Bluetooth™

enabled to allow access digital music

content via SMC’s mobile apps available on iOS and Android platforms.

The core karaoke line offers best-in-class innovative features

enable customers to output video to a TV screen, correct singer’s pitch in real-time, stream karaoke content directly

to the machine, sing duets, display scrolling lyrics in-time with the song, and play custom karaoke CD+G discs.

Its products are sold

directly to consumers via its retail channels, ecommerce, own website, and distributors worldwide.

This product category accounted for

approximately 76% of the Company’s net sales in fiscal 2021.

Products —including brands such as Carpool Karaoke .

In 2019, SMC entered into a 3-year license agreement with CBS®

for its Carpool Karaoke brand, made popular by James Corden on The Late Late Show with James Corden.

The Company launched an innovative

Carpool Karaoke Microphone that works specifically in the car.

The Company is actively exploring other new licensing opportunities.

product category accounted for approximately 10% of the Company’s net sales in fiscal 2021.

and Accessories —

the Company currently offers a line of traditional microphone accessories that are compatible with Singing

Machine karaoke machines.

These microphones feature an assortment of colors, come wired or wireless, and may include new features like

party lighting and voice changing effects.

The Company is also seeing growth in portable Bluetooth®

microphones which are marketed

under the Party Machine brand.

This product category accounted for approximately 10% of the Company’s net sales in fiscal

Machine Kids Youth Electronics —including the brand Singing Machine Kids .

SMC’s Kids line of products offer fun

music entertainment features designed specifically for children.

SMC Kids products provide a high quality introduction to singing and

music entertainment for young singers and offer innovative features like voice changing effects, recording, Bluetooth™

compatibility,

and portability.

This product category accounted for approximately 3% of the Company’s net sales in fiscal 2021.

Subscriptions —in conjunction with its premium partner, Stingray Digital, the Company offers karaoke music subscription services

for the iOS and Android platforms as well as a web-based download store and integrated streaming services for Singing Machine hardware.

The Company currently offers almost 20,000 licensed karaoke songs in the catalog.

This product category accounted for approximately 1%

of the Company’s net sales in fiscal 2021.

Development and Design

development is a key element of our strategic growth plan.

We strive to delivery many new exciting consumer products to market every

single year to retain our presence as the market-leader in consumer karaoke products.

Strategic product development is done in-house

from our corporate headquarters in Fort Lauderdale, FL where we identify new potential categories, features, and price points.

are created in conjunction with contract product designers and inventors in collaboration with our contract manufacturers in China to

deliver fun products that represent tremendous value to our customers.

In addition to new products, we always look for ways to improve

existing products to hit more affordable price points or improve features based upon market feedback.

operates in one principal industry segment across geographically diverse marketplaces, selling our products globally to large, national

retailers as well as independent retailers, on our retailer’s websites, and our own direct to consumer website.

In North America,

our customers include Amazon.com, Costco, Sam’s Club, Target and Wal-Mart.

Our largest international territories are the U.K.

Australia where we sell through international distributors, representatives, and to select international retail customers in geographic

locations where we do not have a direct sales presence.

and Manufacturing

source our products from a variety of contract manufacturers in southern China.

We are not dependent on any one supplier as we use many

manufacturers (currently over 5) to make our products.

We maintain a Hong Kong office that provides us with factory management, sourcing,

quality control, engineering, and product development.

We buy finished goods from our suppliers and generally do not source raw materials

for manufacturing, however in limited circumstances where we develop proprietary hardware and software, we will secure the proprietary

circuits and provide to our contract manufacturers for assembly into the final product.

While we are not responsible to source raw materials,

we rely on our contract manufacturers’

ability to secure injected plastic, wood cabinets, integrated circuits, TFT panels, speaker

drivers, and other components that are necessary for assembly into our final products.

goods are produced by our contract manufacturers and are either shipped via ocean vessels to our distribution center in Ontario, California

or we utilize a direct import program where our retail customers coordinate to pick up the goods FOB China.

The direct import program

allows our customers to take advantage of better ocean container rates through bigger volume and allows us to bypass our California warehouse.

We maintain a third-party logistics warehouse in Canada where we sell directly to retail customers and independent channels in Canada.

Historically, most of our customers pick up goods from our warehouse (freight collect).

and Marketing

products are marketed and sold through our direct sales team, working in conjunction with independent sales representatives that provide

sales and customer support for our retail customers in North America.

Sales are recognized upon transfer of title to our customers and

are made utilizing standard credit terms of approximately 60-90 days.

Our sales terms indicate that we only accept returns for defective

merchandise, however we have accepted overstock returns from our retail partners in the past.

seek to expand our direct-to-consumer sales, which we believe will increase overall gross margins and also increase brand awareness.

promotion and consumer engagement are key elements in the youth electronics, toy, and music categories.

Historically, a significant percentage

of our promotional spending has been structured as co-op promotion incentives with our large retail partners.

We continue to focus our

marketing efforts on growing brand awareness among our target consumer demographic, optimizing marketing investments, and executing an

integrated marketing strategy.

We believe an important component of our future growth is based on speaking to the right customer, with

the right content, in the right channel, at the right time.

We have implemented online marketing, social media, and digital analytics

tools, which allow us to better measure the performance of our marketing activities, learn from our consumers, and receive valuable insights

into industry and competitor activities.

service is a critical component of our marketing strategy.

We maintain a U.S.-based internal customer service department within our corporate

headquarters that responds to customer inquiries, investigates and resolves issues, and is available to assist customers and consumers

during business hours.

youth electronics, toy, and music industry has many participants, none of which has dominant market share, though certain companies may

have disproportionate strength in specific product categories.

We compete with a number of different companies in a variety of categories,

although there is no single company that competes with us across all of our product categories.

Our largest direct competitors are Singsation®,

Singtrix®, eKids®, Bonaok, Karaoke USA™, and Ion®

primary method of competition in the industry consists of brand positioning, product innovation, quality, price, and timely distribution.

Our competitive strengths include our ability to develop innovative new products, speed to market, our relationships with major retailers,

and the quality and pricing of our products.

rely on a combination of trademarks, patents, and trade secrets to protect our intellectual property.

Our current U.S.

patents include

various designs for karaoke products.

The issued U.S.

patents expire at various times depending on the date of issuance during the next

In certain circumstances, we will partner with third parties to develop proprietary products, and, where appropriate, we have

license agreements related to the use of third-party innovation in our products.

The duration of our trademark registrations varies from

country to country.

However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations

are properly maintained.

to the Company’s top five customers together comprised approximately 90% and 80% of our net sales in fiscal 2021 and 2020, respectively.

In fiscal 2021, revenues from four of these customers represented greater than 10% of net sales at a percentage of 36%, 20%, 13% and

12% of total net sales.

In fiscal 2020, revenues from three of these customers represented greater than 10% of net sales at a percentage

of 41%, 13%, and 10% of total net sales.

have no long-term contracts with these customers, and as a result, our success depends heavily on our customers’

willingness to

purchase and provide shelf space for our products.

do experience heightened seasonal demand for our products in our second and third quarters of our fiscal year.

In Fiscal 2021 and Fiscal

2020, approximately 86% and 85%, respectively of our net sales shipped in our second and third quarters.

However, we continually look

for products and new categories to reduce our reliance on seasonality.

of our products is designed to comply with all applicable mandatory and voluntary safety standards.

In the United States, these safety

standards are promulgated by federal, state and independent agencies such as the US Consumer Product Safety Commission, ASTM, the Federal

Communications Commission, the Food and Drug Administration, the Federal Trade Commission, and various states Attorney Generals and state

regulatory agencies.

All of our products are independently tested by third party laboratories accepted by the Consumer Product Safety

Commission to verify compliance to applicable safety standards.

A similar approach is used to design and test products sold internationally.

carry product liability insurance that provides us with $10,000,000 coverage with a minimal deductible.

We consult with our insurers

to ascertain appropriate liability coverage for our product mix.

We believe our current coverage is adequate for our existing business

and will continue to evaluate our coverage in the future in line with our expanding sales and product breadth.

believe that the development, attraction and retention of employees is an important factor to our Company’s success.

employees a wide range of benefits, including 100% paid health benefits for the employee, generous leave, vacation, and personal paid

time-off, 12 paid company holidays a year, and flexible work hours to work-from-home.

To support the advancement of our employees, we

offer training and development programs encouraging advancement from within.

As of the filing of this document we had 33 employees, 16

of which are located at our corporate office and 17 at our logistics center in Ontario, California.

During peak shipping season (July

thru December), we rely heavily on temporary labor at our logistics warehouse to handle the increased shipment volume.

Environmental

may be subject to legal and financial obligations under environmental, health and safety laws in the United States and in other jurisdictions

where we operate.

We are not currently aware of any material environmental liabilities associated with any of our operations.

Company is incorporated under the laws of the State of Delaware and was formed in 1994.

We are publicly traded on the OTCQX Market under

the symbol “SMDM”Our principal executive offices are located at 6301 NW 5 th Way, Suite 2900, Fort Lauderdale,

FL, and our telephone number is (954) 596-1000.

We maintain our corporate website at www.singingmachine.com .

file reports with the Securities and Exchange Commission (“SEC”), including an annual report on Form 10-K, quarterly reports

on Form 10-Q, current reports on Form 8-K, and amendments to those reports that we file with, or furnish to, the SEC.

The SEC maintains

an Internet website, www.sec.gov , that contains reports, proxy and information statements and other information that we file electronically

with the SEC.

Our website also includes corporate governance information, including our Code of Ethics and our Board committee charters.

The information contained on our website does not constitute a part of this report.

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-K

Item 1. Business