What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-07-14 compared with 2020-08-13 · 365 added, 340 removed, 94 unchanged (88% of the section changed)

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Company has traded on the Over the Counter Bulletin Board (“OTCBX”) under the symbol “SMDM”.

below is the range of high and low sales prices for our common stock during Fiscal 2020 and Fiscal 2019.

Set forth below

is the range of high and low sales prices for our common stock during Fiscal 2021 and Fiscal 2020.

FISCAL PERIOD

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Fourth quarter (January 1 - March 31, 2020)

of July 28, 2020, based upon information received from our transfer agent, there were approximately 188 record holders of our

outstanding common stock.

of this filing, based upon information received from our transfer agent, there were approximately 189 record holders of our outstanding

common stock.

This number does not include:

beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers

and other fiduciaries, or

beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other

fiduciaries, or

broker-dealers

or other participants who hold or clear shares directly or indirectly through the Depository Trust Company, or its nominee,

have never declared or paid cash dividends on our common stock and our Board of Directors intends to continue its policy for the

foreseeable future.

Future dividend policy will depend upon our earnings, financial condition, contractual restrictions and other

factors considered relevant by our Board of Directors and will be subject to limitations imposed under Delaware law.

or other participants who hold or clear shares directly or indirectly through the Depository Trust Company, or its nominee, Cede

have never declared or paid cash dividends on our common stock and our Board of Directors intends to continue its policy for the foreseeable

Future dividend policy will depend upon our earnings, financial condition, contractual restrictions and other factors considered

relevant by our Board of Directors and will be subject to limitations imposed under Delaware law.

COMPENSATION PLAN INFORMATION

following table summarizes our equity compensation plan information as of March 31, 2021:

ISSUANCE UNDER EQUITY

PLAN CATEGORY

NUMBER OF SECURITIES

TO BE ISSUED UPON

EXERCISE OF OUTSTANDING

WEIGHTED-AVERAGE

EXERCISE PRICE OF

NUMBER OF SECURITIES

REMAINING AVAILABLE

COMPENSATION PLANS

SECURITIES IN

ISSUANCE UNDER EQUITY PLAN CATEGORY

NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS

WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS

NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE COMPENSATION PLANS (EXCLUDING SECURITIES IN COLUMN (A))

Equity Compensation Plans approved by Security Holders

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STOCK ISSUANCES

August 30, 2019 the Company issued 60,000 shares of its common stock to a former director who exercised stock options at an average

exercise price of $.17 per share.

June 12, 2019, the Company issued 32,890 shares of its common stock to our Board of Directors at $0.38 per share, pursuant to

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

of the above issuances and sales were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(2) of the Securities

No advertising or general solicitation was employed in offering the securities.

The offerings and sales were made to a limited

number of persons, all of whom were accredited investors, business associates of the Singing Machine or executive officers of

the Singing Machine, and transfer was restricted by the Singing Machine in accordance with the requirement of the Securities Act.

In addition to representations by the above-reference persons, we have made independent determinations that all of the above-referenced

persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment,

and that they understood the speculative nature of their investment.

Furthermore, all of the above-referenced persons were provided

with access to our Securities and Exchange Commission filings.

October 30, 2020 the Company issued 440,000 shares of its common stock to three executive officers who exercised stock options at an

average exercise price of $.06 per share.

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

annual director compensation plan for the fiscal year ending March 31, 2021.

of the above issuances and sales were deemed to be exempt under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.

advertising or general solicitation was employed in offering the securities.

The offerings and sales were made to a limited number of

persons, all of whom were accredited investors, business associates of the Singing Machine or executive officers of the Singing Machine,

and transfer was restricted by the Singing Machine in accordance with the requirement of the Securities Act.

In addition to representations

by the above-reference persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated

investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative

nature of their investment.

Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange

Commission filings.

OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

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following discussion should be read in conjunction with the Financial Statements and Notes thereto.

Our fiscal year ends

This document contains certain forward-looking statements regarding anticipated trends in our financial condition

and results of operations and our business strategy.

Our fiscal year ends March 31.

document contains certain forward-looking statements regarding anticipated trends in our financial condition and results of operations

and our business strategy.

(See Part I, Item 1A, “Risk Factors “).

forward-looking statements are based largely on our current expectations and are subject to a number of risks and

uncertainties.

Actual results could differ materially from these forward-looking statements.

Important factors to consider in

evaluating such forward-looking statements include (i) changes in external factors or in our internal budgeting process which

might impact trends in our results of operations;

(ii) unanticipated working capital or other cash requirements;

changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in

which we operate;

and (iv) various competitive market factors that may prevent us from competing successfully in the

These forward-looking statements are based largely on

our current expectations and are subject to a number of risks and uncertainties.

Actual results could differ materially from these forward-looking

Important factors to consider in evaluating such forward-looking statements include (i) changes in external factors or in

our internal budgeting process which might impact trends in our results of operations;

(ii) unanticipated working capital or other cash

requirements;

(iii) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries

in which we operate;

and (iv) various competitive market factors that may prevent us from competing successfully in the marketplace.

included in this Annual Report that do not relate to present or historical conditions are called “forward-looking statements”

within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,

1934, as amended.

Such forward-looking statements involve known and unknown risks and uncertainties and other factors that could

cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements.

Forward-looking statements may include, without limitation, statements relating to our plans, strategies, objectives, expectations

and intentions.

Words such as “believes,”

Such forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual

results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements.

Forward-looking statements

may include, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions.

Words such as

“believes,”

“forecasts,”

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“will,”

and similar expressions are intended to identify forward-looking statements.

Our ability to predict or project

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

Forward-looking statements should not

be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or

by which, such performance or results will be achieved.

and similar expressions are

intended to identify forward-looking statements.

Our ability to predict or project future results or the effect of events on our operating

results is inherently uncertain.

Forward-looking statements should not be read as a guarantee of future performance or results, and will

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

primary objectives for the fiscal year ended March 31, 2021 (“Fiscal 2021”) were to:

our revenues by expanding our product lines and customer base;

the general and administrative costs to accommodate loss of revenue;

the general and administrative costs while increasing revenue;

ending inventory on hand;

profitability;

decreased by approximately $5.1 million or approximately 11% primarily due to reduced holiday foot traffic at large wholesale

customers and lower than expected sales of the newly introduced Carpool Karaoke product.

Gross profit margins increased by approximately

1.5 margin points to 26.8% primarily due to the high margin yield of the Carpool Karaoke product.

Operating expenses (excluding

bad debt expense and recovery) increased approximately $0.8 million primarily due to unreimbursed out-of-pocket expenses of approximately

$0.7 million associated with warehousing and destruction of damaged goods received by one major customer and additional

insurance cost of approximately $0.1 million for credit protection on another major customer.

Inventory on hand increased by approximately

$1.6 million primarily due to significant overstock returns of the Carpool Karaoke product as well as traditional product associated

with reduced holiday foot traffic major wholesale customers.

Net loss increased by approximately $3.5 million primarily due to

increased operating expenses associated with one-time losses incurred relating to water damaged goods, an increase in discretionary

marketing spending associated with the rollout of the new Carpool Karaoke product and increases in co-op marketing programs.

OF OPERATIONS The following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage

increased by approximately $7.3 million or approximately 19.0% primarily due to a significant sales increase of the Carpool Karaoke product

and increased demand in home entertainment products primarily due to school closures, lockdowns and quarantines caused by COVID-19.

were no one-time reductions in revenue as in the prior fiscal year when revenue was reduced by approximately $1.7 million from chargebacks

from one major customer due to water damaged goods received.

Gross profit margins increased by approximately 5.6 margin points to 26.8%

primarily due to the high margin yield contribution from the Carpool Karaoke product and a significant reduction in co-op promotion incentives

as several major customers did not offer their usual holiday campaigns.

Operating expenses decreased approximately $0.6 million primarily

due a decrease in discretionary marketing expenses as the Company did not incur costs associated with the one-time promotion rollout

of the new Carpool Karaoke that were incurred in the prior fiscal year.

Inventory on hand decreased by approximately $2.1 million primarily

due the sale of excess inventory from the prior fiscal year due to the significant sales increase in the Carpool Karaoke product and

increased demand in home entertainment products associated COVID 19 activity restrictions.

Net income increased by approximately $5.0

million primarily due to the increase in net income from operations and one-time gains associated with the insurance recovery and vendor

settlement of losses incurred in the prior fiscal year from the water damaged goods incident.

OF OPERATIONS

The following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage

of the Company’s total revenues:

Total Revenues

For the Fiscal Years Ended

March 31, 2021

March 31, 2020

Cost of Sales

Operating Expenses

Operating (Loss) Income

Other (Expenses), net

(Loss)Income before Tax provision

Benefit from (provision for) Income Taxes

Net (Loss) Income

Operating Income (Loss)

Other Income (Expenses), Net

Income (Loss) Before Income Tax (Provision) Benefit

Income Tax (Provision) Benefit

Net Income (Loss)

YEAR ENDED MARCH 31, 2021 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 2020

sales for the year ended March 31, 2021 (“Fiscal 2021”) were approximately $45.8 million.

This represents a decrease

of approximately $5.1 million as compared to approximately $46.5 million in the fiscal year ended March 31, 2019 (“Fiscal

2019”).

There was a significant decrease in sales to our UK and Canada distributors of $2.1 million and $1.4 million, respectively

as both distributors ended the prior year with significant overstock inventory and purchased less inventory for Fiscal 2020.

August 2019, a major customer charged the Company back for goods that suffered severe water damage due to excess moisture absorbed

in pallets shipped by the factory and as a result we incurred a loss of approximately $1.6 million in net sales.

There was one

major domestic customer who ended the prior year with significant inventory from the prior season and purchased approximately

$1.1 million less for Fiscal 2020.

There was another major domestic customer who returned approximately $0.7 million in overstock

due to less than expected holiday season sales.

These decreases to net sales of approximately $6.9 million were offset by an increase

in sales to one major customer of approximately $1.5 million where our products were offered in brick and mortar stores in Fiscal

2020 compared to Fiscal 2019 when our products were offered for internet fulfillment only.

profit for Fiscal 2020 was approximately $11.0 million or 26.8% of total revenues compared to approximately $11.8 million or 25.3%

of sales for Fiscal 2019, a decrease of approximately $0.8 million as compared to the same period in the prior year.

in net sales as explained above accounted for approximately $1.3 million of the decrease in gross profit and was offset by an

increase of approximately $0.5 million due to an increase in profit margin.

This represents an increase of

approximately $7.3 million as compared to approximately $38.5 million in the fiscal year ended March 31, 2020 (“Fiscal 2020”).

There was an increase in sales of our Carpool Karaoke Product (“CPK”) of approximately $2.7 million as the product gained

popularity on social media.

There was an increase in product demand and a decrease in overstock returns of approximately $2.0 million

due to the increase in demand for home entertainment products like karaoke related to COVID 19 activity restrictions.

There was no one-time

revenue loss as in the prior fiscal year when we experienced a loss of revenue of approximately $1.6 million of chargebacks from a major

customer due to a water damaged goods incident.

There was a decrease in co-op promotion incentives of approximately $0.9 million as several

major customers did not run customary holiday promotions.

profit for Fiscal 2021 was approximately $12.3 million or 26.8% of total revenues compared to approximately $8.2 million or 21.2% of

sales for Fiscal 2020, an increase of approximately $4.1 million as compared to the same period in the prior year.

The increase in net

sales and decrease in co-op promotion incentives as explained above accounted for approximately $1.6 million and $0.8 million, respectively

of the increase in gross profit.

The remaining increase of approximately $1.6 million was primarily due to an increase in profit margin

primarily from the increased sales of CPK product which yield significantly higher gross profit margin.

profit margin for Fiscal 2021 was 26.8% compared to 21.2% for Fiscal 2020, an increase of 5.6 margin points.

There was an increase

in gross profit margin of approximately $1.7 million or 2.6 margin points due to sales of our new licensed Carpool Karaoke which

yielded average gross profit margins of 61.7%.

This increase was offset by a 1.1 margin point decrease primarily due the margin

yield on the mix of excess core product returned by customers.

fiscal year 2020, our operating expenses increased from approximately $10.7 million to approximately $14.3 million, an increase

of approximately $3.6 million or 33.7% compared to the same period last year.

Selling expenses increased by approximately $2.1

million due to increases in advertising allowance of approximately $0.7 million due to increased holiday sales co-op programs,

an increase in freight expense of approximately $0.7 million due to increases in freight costs and a significant increase

in freight expenses associated with returned and water damaged goods, an increase in discretionary marketing expenses of approximately

$0.3 million associated with one-time expenses associated with the rollout of the new Carpool Karaoke product, an increase in

royalty expense of approximately $0.3 million for royalties associated with the Carpool Karaoke product with the remaining approximately

$0.1 million increase due to an increase in commission expense.

and administrative expenses increased approximately $0.8 million from approximately $5.8 million in Fiscal 2019 to approximately

$6.6 million in Fiscal 2020.

The $0.8 million increase was primarily due to out of pocket expenses of approximately $0.7 million

associated with the warehousing, inspection, and ultimate destruction of the water damaged goods returned by a major customer

and increased credit insurance expense of approximately $0.1 million for J.C.

Penney whose deteriorating financial condition required

extra protection.

This customer accounted for less than 3% of net sales for Fiscal 2020.

was an increase in bad debt expense of approximately $0.8 million primarily due to the bankruptcy filing of two customers of approximately

$0.4 million compared to a partial recovery of approximately $0.4 million from Toys R Us bankruptcy administrative claims in Fiscal

INCOME BEFORE INCOME TAX BENEFIT (PROVISION)

had a loss before income tax benefit of approximately $3.5 million in Fiscal 2020 compared to income before tax provision of approximately

$0.8 million in Fiscal 2019 for a total decrease in net income of approximately $4.3 million.

There was a one-time charge of approximately

$1.1 million in Fiscal 2020 associated with the loss on water damaged goods returned to us by a major customer due to uncertainty

of the recovery amount to be received from insurance coverage and other sources.

As of July 28, 2020 we have recovered all of

the losses including out of pocket expenses from insurance proceeds and a credit to the Company by the factory causing the damage.

The remaining $3.2 million decrease is due to the decrease in sales and increased operating expenses as discussed in Net Sales,

Gross Profit and Operating Expenses above.

The decrease in in co-op

promotion incentives of approximately $0.9 million as explained above accounted for approximately 3.3 points of the increase in gross

profit margin.

There was an increase in gross profit margin of approximately $1.6 million or 1.5 margin points due to increased sales

of our CPK product which yielded average gross profit margins of 59.8%.

The remaining 0.8 margin point increase was primarily due to

the mix of products sold.

fiscal year 2021, our operating expenses decreased from approximately $11.5 million to approximately $10.9 million, a decrease of approximately

$0.6 million compared to the same period last year.

Selling expenses decreased by approximately $0.3 million due to a decrease in discretionary

marketing expenses of approximately $0.5 million associated with one-time expenses associated with the rollout of the new CPK Product

in the prior year and offset by an increase of approximately in $0.2 million in royalty expense associated with the increase in licensed

was a decrease in bad debt expense of approximately $0.2 million as only one smaller customer filed for bankruptcy in fiscal 2021 compared

to the bankruptcy filing of two customers of approximately $0.3 million in fiscal 2020.

INCOME (EXPENSES)

income and (expenses), net increased by approximately $1.5 million to approximately $1.2 in other income, net for the fiscal year ended

March 31, 2021 compared to approximately $0.3 million in other expenses, net for the same period ended March 31, 2020.

This increase

in other income, net was primarily due to one-time gains associated with the recovery of approximately $1.1 million in out-of-pocket

expenses relating to a prior year damaged goods insurance claim and a vendor settling accounts payable of $0.4 million from the factory

that caused the damage.

There was an additional one-time gain of approximately $0.2 million from Cosmo, a related party, related to payment

in fiscal 2021 of prior year sales which were reversed and the related receivable was initially deemed uncollectible and written off

in the prior fiscal year.

These increases in other income were offset by an increase in interest expense and amortization of deferred

financing costs of approximately $0.2 million associated with the financing terms of the Crestmark Facility and IHC Facility.

(LOSS) BEFORE INCOME TAX (PROVISION) BENEFIT

had income before income tax provision of approximately $2.6 million in Fiscal 2021 compared to a loss before tax benefit of approximately

$3.5 million in Fiscal 2020 for a total increase in income before income tax provision of approximately $6.1 million.

Net income from

operations contributed approximately $4.6 million of the increase due increases in net sales and gross profit and decreased operating

expenses as explained above.

The increase in other income and expenses, net of $1.5 million as explained above accounted for the remaining

increase in income before income tax provision.

TAX BENEFIT (PROVISION)

management judgment is required in developing our provisions for income taxes, including the determination of foreign tax liabilities,

deferred tax assets and liabilities and any valuation allowances that might be required against deferred tax assets.

evaluates its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it believes

that it is not likely to be realized.

On March 31, 2020 and 2019, we had net deferred tax assets of approximately $1.3 million

and approximately $0.8 million, respectively.

The deferred tax assets on March 31, 2020 were net of a valuation allowance of approximately

$0.1 million due to management’s belief that certain tax assets will more than likely expire prior to the Company’s

ability to realize these assets.

Fiscal 2020 we recognized an income tax benefit of approximately $0.6 million compared to an income tax provision of approximately

management judgment is required in developing our provisions for income taxes, including the determination of foreign tax

liabilities, deferred tax assets and liabilities and any valuation allowances that might be required against deferred tax assets.

Management evaluates its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it

believes that it is not likely to be realized.

On March 31, 2021 and 2020, we had net deferred tax assets of approximately $0.9

million and approximately $1.3 million, respectively.

The deferred tax assets on March 31, 2021 and 2020 were net of a valuation

allowance of approximately $23,000 and approximately $88,000, respectively due to management’s belief that certain tax assets

will more than likely expire prior to the Company’s these assets being realized.

Fiscal 2021 we recognized an income tax provision of approximately $0.5 million compared to an income tax benefit of approximately $0.6

million in Fiscal 2020.

The Company’s effective tax rate for the fiscal year ended March 31, 2020 was approximately

18.1% as compared to 20.1% for Fiscal 2019.

The Company’s effective tax rate for the fiscal year ended March 31, 2021 was approximately 17.4% as compared

to 18.1% for Fiscal 2020.

operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions.

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any claims can require an extended period to resolve.

In management’s opinion, adequate provisions for income taxes have

a result of the foregoing, we had a net loss of approximately $2.9 million and net income of $0.6 million for Fiscal 2020 and

Fiscal 2019, respectively.

In management’s opinion, adequate provisions for income taxes have been made.

a result of the foregoing, we had net income of approximately $2.2 million and a net loss of approximately $2.9 million for Fiscal 2021

and Fiscal 2020, respectively.

AND CAPITAL RESOURCES

March 31, 2020, we had cash on hand of approximately $0.3 million as compared to cash on hand of approximately $0.2 million on

March 31, 2019.

The increase of cash on hand of approximately $0.1 million was primarily due to approximately $0.4 million provided

by operating activities and approximately $0.2 million in net cash provided by financing activities offset by approximately $0.5

million used for the purchase of fixed assets.

March 31, 2021, we had cash on hand of approximately $0.4 million as compared to cash on hand of approximately $0.3 million on March

The increase of cash on hand of approximately $0.1 million was primarily due to approximately $0.2 million provided by operating

activities and approximately $0.1 million in net cash provided by financing activities offset by approximately $0.2 million used for

the purchase of fixed assets.

As of March 31, 2021 our working capital was approximately $5.9 million.

the next twelve-month period, we plan on financing our working capital needs primarily from:

Vendor financing –

All our key vendors in China have agreed to manufacture on behalf of the Company without advanced payments and

have extended payment terms to the Company.

The terms with the factories are sufficient to cover the factory direct import sales which

are expected to account for approximately 50% of the total revenues in Fiscal 2022.

Line of Credit - The Company now has an Intercreditor Revolving Credit Facility expiring on June 15, 2022 with Crestmark Bank for a $10.0

million facility (decreasing to $5.0 million in off-peak season) on eligible accounts receivable and a $2.5 million facility on eligible

inventory with Iron Horse Credit expiring on June 15, 2022.

As both the Crestmark Facility and the IHC Facility are set to expire on

June 15, 2022, the Company expects to negotiate a revision or extension of these debt facilities upon their maturity however, there

can be no assurance that such revision or extension will occur or at what terms.

Approximately $2.0 million of borrowings are available

under all our credit facilities as of the date of this filing.

Company believes that our working capital, available borrowings and cash flows from operating activities are sufficient to meet our cash

flow needs for at least the next twelve months from the date of this Form 10K filing.

provided by operating activities in Fiscal 2021 was approximately $0.2 million.

There was a net loss of approximately $2.9

There was an increase in insurance receivable of approximately $1.3 million associated with the water damaged goods

pending insurance claim and an increase in inventory of approximately $1.8 million primarily due to significant overstock returns

and excess Carpool Karaoke inventory as sales of this product did not meet estimates.

These decreases in net cash provided

by operating activities were offset by an increase in accounts payable of approximately $4.2 million due to significant hold back

of payments from the factory that caused the damaged goods issue pending collection of insurance proceeds, an increase in accrued

expenses of approximately $0.7 million associated with estimated remaining co-op advertising credits not yet deducted by customers,

an increase in refunds due to customers of approximately $0.8 million primarily due to the unpaid portion of chargebacks for damaged

goods due to one customer, and approximately $0.7 million due to related parties for services provided by the parent company and

licensing fees for use of pedestal model molds and tooling belonging to the parent company.

There was net income of approximately $2.2 million.

There was a decrease in inventory of approximately $2.1 million primarily due to increased demand for our CPK product through social

media awareness and increased demand for our home-based entertainment products during the COVID pandemic which allowed us to sell through

most of the excess inventory from the prior fiscal year.

There was a decrease in insurance receivable of approximately $1.3 million associated

with the recovery of a pending insurance claim associated with water damaged goods in the prior fiscal year.

These increases in cash

provided by operations were offset by a reduction in accounts payable of approximately $3.2 million primarily due to the payment of significant

amounts held back from the factory that caused the damaged goods issue in the prior fiscal year upon receipt of the related insurance

claim proceeds.

There was an increase in amounts due from banks of approximately $2.2 million due to excess cash collected over amounts

due on the lines of credit associated with the operating cash generated from the reduction in inventory.

There was a decrease in refunds

due to customers of approximately $0.7 million associated with the settlement of the unpaid portion of chargebacks for damaged goods

due to one customer from the prior fiscal year.

provided by operating activities in Fiscal 2020 was approximately $0.4 million.

There was a decrease in inventory of approximately

$2.5 million primarily due to the sale of prior year’s excess inventory purchased for two major customers one of whom (Toys

R Us) filed for bankruptcy.

There was a decrease in amounts due from related parties decreased by approximately $0.9 million due

collections made on related party shipments.

There was an increase in accrued expenses of approximately $0.2 million and an increase

in reserve for estimated sales returns of approximately $0.2 million.

These increases in cash provided by operating activities

of approximately $3.9 million were offset by increases in amounts due from PNC Bank for collections in excess of amounts due on

the revolving credit facility of approximately $2.2 million, a decrease in accounts payable of approximately $0.8 million related

to the decrease in sales requiring less product purchases and an increase in accounts receivable of approximately $0.7 million.

used by investing activities for Fiscal 2020 of approximately $0.5 million were primarily due to the purchase of a new business

reporting system for approximately $0.3 million and the purchase of molds and tooling for new karaoke models of approximately

$0.2 million.

There was a net loss of approximately $2.9 million.

was an increase in insurance receivable of approximately $1.3 million and an increase in inventory of approximately $1.8 million primarily

due to significant overstock returns and excess Carpool Karaoke inventory as sales of this did not meet estimates.

These decreases in

net cash provided by operating activities were offset by an increase in accounts payable of approximately $4.2 million due to significant

hold back of payments from the factory that caused the damaged goods issue pending collection of insurance proceeds, an increase in accrued

expenses of approximately $0.7 million associated with estimated remaining co-op promotion incentives not yet deducted by customers,

an increase in refunds due to customers of approximately $0.8 million primarily due to the unpaid portion of chargebacks for damaged

goods due to one customer, and approximately $0.7 million due to related parties for services provided by the parent company and licensing

fees for use of pedestal model molds and tooling belonging to the parent company.

used by investing activities for Fiscal 2021 of approximately $0.2 million were primarily due to the purchase of molds and tooling for

new karaoke models.

Cash used by investing activities for Fiscal 2020 of approximately $0.5 million were primarily due to the purchase

of molds and tooling for new karaoke models.

of a new business reporting system for approximately $0.3 million and the purchase of molds and tooling for new karaoke models of approximately

cash provided by financing activities for Fiscal 2021 was approximately $0.1 million.

We received loan proceeds from Crestmark in the

amount of approximately $0.4 million under the Paycheck Protection Program.

We received additional proceeds from our inventory line of

credit of approximately $0.1 million.

These proceeds were offset by principal payments made on subordinated related party debt of $0.3

million and payments on financed leases and installment notes of approximately $0.1 million.

provided by financing activities for Fiscal 2020 was approximately $0.2 million.

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portion of the bank term note and payments on financed leases and installment notes.

In Fiscal 2019, $0.5 million was used for

scheduled payments on the bank term note.

of March 31, 2020 our working capital was approximately $4.3 million.

Our current liabilities of approximately $9.5 million include:

payable of approximately $5.0 million of which approximately $4.6 million were amounts due to product vendors which will be

settled with insurance proceeds and borrowings on Intercreditor Revolving Credit Facility.

expenses of approximately $1.5 million of which approximately $0.2 million was accrued payroll, approximately $0.7 million

was due to customers for advertising and co-op allowances, approximately $0.2 million for other accrued expenses, approximately

$0.1 million for accrued interest on subordinated related party debt, approximately $0.1 million for accrued royalties related

to Carpool Karaoke and approximately $0.2 million for accrued product repairs.

to related parties of approximately $0.5 million for Hong Kong office administrative expenses and mold and tooling licensing

due to customers of approximately $0.8 million - the amount will be satisfied by future purchases or refunds.

for sales returns of approximately $1.2 million –

the amount will be satisfied by future purchases or refunds.

portion of operating lease liabilities of approximately $0.3 million.

portion of installment notes and capital lease payments of approximately $0.1 million.

CAPITAL REQUIREMENTS DURING THE SHORT AND LONG TERM

the next twelve-month period, we plan on financing our working capital needs primarily from:

Vendor financing –

Some of our key vendors in China have agreed to manufacture on behalf of the Company without advanced

payments and have extended payment terms to the Company.

The terms with the factories are sufficient to cover the factory direct

import sales which are expected to account for approximately 50% of the total revenues in Fiscal 2021.

Line of Credit - The Company now has an Intercreditor Revolving Credit Facility expiring on June 15, 2022 with Crestmark Bank

for a $10.0 million facility on eligible accounts receivable and a $2.5 million facility on eligible inventory with Iron Horse

Approximately $1.5 million of borrowings are available under all our credit facilities as of the date of this filing.

sell all of our products in U.S.

dollars and pay for all of our manufacturing costs in either U.S.

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

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

(See Note 5 –

BANK FINANCING).

As of this filing, we have borrowed approximately $0.8 million on the IHC Facility, which provides

for a maximum loan amount of $2.5 million on eligible inventory approximately $0.4 million on our Crestmark Facility which will make

available up to $10.0 million of eligible accounts receivable as the next twelve months progress.

As of this filing the Company has approximately

$1.0 million currently available from these two credit facilities based on eligible inventory with IHC and eligible accounts receivable

with Crestmark.

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

by the factory.

As a result, we incurred a loss in cash flow of approximately $1.6 million in lost revenue and approximately $0.8 million

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

filing we have we recovered approximately $2.3 million from our cargo insurance coverage which settled approximately $1.3 million in

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

claim in the consolidated statement of operations.

For the fiscal years ended March 31, 2021 and 2020, the gain from damaged goods insurance

claim was approximately $1.1 million and $0.0 million, respectively.

We also secured vendor invoice credits of approximately $0.4 million

from the factory that caused the damage which is reflected as gain from extinguishment of accounts payable in the consolidated statement

of operations.

May 5, 2020, the Company received loan proceeds from Crestmark Bank in the amount of approximately $0.4 million under the Paycheck Protection

Program (“PPP”).

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

which provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying

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

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

The amount of loan forgiveness may be reduced if the borrower

terminates employees or reduces salaries during the eligible period.

The unforgiven portion of the PPP loan is payable over two years

at an interest rate of 1%, with a deferral of payments until a forgiveness application has been accepted and reviewed by the SBA, and

the SBA has provided Crestmark with the loan forgiveness amount.

For the year ended March 31, 2021 the Company incurred interest expense

of approximately $4,000.

June 2021, the Company was notified by the Small Business Administration that the loan had been forgiven in

its entirety.

sell most of our products in U.S.

dollars with some sales to certain Canadian customers in Canadian Dollars and pay for all of our manufacturing

costs in either U.S.

or Hong Kong dollars.

expenses of the Macau office are paid in either Hong Kong dollars or Macau Pataca (MOP).

The exchange rate of the Hong Kong dollar

We are subject to risks involved in the exchange rate between the Canadian and US dollar however,

even though exchange rate has fluctuated between $1.21 to $1.33 CAD to the U.S.

Dollar during peak selling and collection season in Fiscal

2021 sales volume sold in Canadian dollars was not significant and the associated exchange rates did not have a material impact on the

Company’s financial results.

Operating expenses of the Macau office are paid in either Hong Kong dollars or Macau Pataca (MOP).

The exchange rate of the Hong Kong dollar to the U.S.

dollar has been relatively stable at approximately HK $7.75 to U.S.

$1.00 since 1983 and, accordingly, has not represented

a currency exchange risk to the U.S.

1983 and, accordingly, has not represented a currency exchange risk to the U.S.

The exchange rate of the MOP to the U.S.

dollar is MOP $8.00 to U.S.

exchange rates have been stable for several years we cannot assure you that the exchange rate between the United States, Macau

and Hong Kong currencies will continue to be stable and exchange rate fluctuations may have a material effect on our business,

financial condition or results of operations.

is approximately MOP $8.00 to U.S.

While exchange rates have been stable for several years, we cannot assure you that the exchange

rate between the United States, Macau, Hong Kong and Canadian currencies will continue to be stable and exchange rate fluctuations may

have a material effect on our business, financial condition or results of operations.

AND QUARTERLY RESULTS

Historically,

our operations have been seasonal, with the highest net sales occurring in the second and third quarters (reflecting increased

orders for equipment and music merchandise during the Christmas selling months) and to a lesser extent the first and fourth quarters

of the fiscal year.

Sales in our fiscal second and third quarter, combined, accounted for approximately 98% and 94% of net sales

in Fiscal 2020 and Fiscal 2019, respectively.

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

to customers, as well as other factors.

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

a quarter-to-quarter basis.

has not had a significant impact on the Company’s operations.

The Company has historically passed any price increases on

to its customers since prices charged by the Company are generally not fixed by long-term contracts.

BALANCE SHEET ARRANGEMENTS

our operations have been seasonal, with the highest net sales occurring in the second and third quarters (reflecting increased orders

for equipment and music merchandise during the Christmas selling months) and to a lesser extent the first and fourth quarters of the

Sales in our fiscal second and third quarter, combined, accounted for approximately 86% and 85% of net sales in Fiscal 2021

and Fiscal 2020, respectively.

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

customers, as well as other factors.

The fulfillment of orders can therefore significantly affect results of operations on a quarter-to-quarter

ACCOUNTING POLICIES AND ESTIMATES

prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States

As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable

based on the information available.

These estimates and assumptions affect the reported amounts of assets and liabilities at the

date of the financial statements and the reported amounts of revenues and expenses for the periods presented.

The significant

accounting policies which management believes are the most critical to aid in fully understanding and evaluating our reported

financial results included accounts receivable allowance for doubtful accounts and reserves on inventory.

prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information

These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses for the periods presented.

The significant accounting policies which management believes

are the most critical to aid in fully understanding and evaluating our reported financial results included accounts receivable allowance

for doubtful accounts and reserves on inventory.

RECEIVABLE AND COLLECTIBILITY

Singing Machine’s accounts receivable consist of amounts due from customers in the ordinary course of business.

receivable are carried at cost, net of allowances for uncollectible amounts.

Provisions for losses are charged to operations in

amounts sufficient to maintain an allowance for losses at a level considered adequate to cover probable losses inherent in the

Company’s accounts receivable.

The Singing Machine’s allowance for doubtful accounts is based on management’s

estimates of the creditworthiness of its customers, current economic conditions and historical information, and, in the opinion

of management, is believed to be an amount sufficient to respond to normal business conditions.

Management sets 100% reserves

for customers in bankruptcy and other reserves based upon historical collection experience.

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.

In Fiscal 2020 the Company purchased credit insurance of approximately $0.1 million

Penney whose deteriorating financial condition required extra protection.

The Company is subject to chargebacks from

customers for cooperative marketing programs, defective returns, return freight and handling charges that are deducted from open

invoices and reduce collectability of open invoices.

Accounts receivable

are carried at cost, net of allowances for uncollectible amounts.

Provisions for losses are charged to operations in amounts sufficient

to maintain an allowance for losses at a level considered adequate to cover probable losses inherent in the Company’s accounts

The Singing Machine’s allowance for doubtful accounts is based on management’s estimates of the creditworthiness

of its customers, current economic conditions and historical information, and, in the opinion of management, is believed to be an amount

sufficient to respond to normal business conditions.

Management sets 100% reserves for customers in bankruptcy and other reserves based

upon historical collection experience.

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.

The Company is subject

to chargebacks from customers for co-op promotion incentives, defective returns, return freight and handling charges that are deducted

from open invoices and reduce collectability of open invoices.

ON INVENTORIES

Singing Machine establishes a reserve on inventory based on the expected net realizable value of inventory 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.

On March 31, 2020 and 2019 the Company had inventory

reserves of approximately $0.4 million and $0.3 million, respectively.

Singing Machine establishes a reserve on inventory based on the expected net realizable value of inventory 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.

On March 31, 2021 and 2020 the Company had inventory reserves of approximately

$0.6 million and $0.4 million, respectively.

RECOGNITION AND RESERVE FOR SALES RETURNS

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All revenue is generated from contracts with customers.

The Company recognizes revenue when when the goods are delivered and control of the goods 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 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.

The Company recognizes revenue when control of the goods 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 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.

Company’s contracts with customers consist of one performance obligation (the sale of the Company’s products).

Company’s contracts have no financing elements, payment terms are less than 120 days and have no further contract asset

or liability obligations once control of goods is transferred to the customer.

Revenue is recorded in the amount of consideration

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

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 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

karaoke hardware and the Company has no other material business segments (See NOTE 10).

the Company generally does not allow products to be returned, the Company does provide for variable consideration contingent upon

the occurrence of uncertain future events.

Variable consideration is estimated at the expected value or at the most likely amount

depending on the type of consideration.

Estimated amounts are included in the transaction price to the extent it is probable that

a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration

The Company estimates variable consideration under our return allowance programs for goods returned from the customer

for various reasons, whereby a sales return reserve is recorded based on historic return amounts, specific events as identified

and management estimates.

the fiscal years ended March 31, 2020 and 2019 the Company received sales returns of approximately $5.4 million and $3.8 million,

respectively.

The Company’s

contracts have no financing elements, payment terms are less than 120 days and have no further contract asset or liability obligations

once control of goods is transferred to the customer.

Revenue is recorded in the amount of consideration the Company expects to receive

for the sale of these goods.

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 consolidated statements of operations as our underlying customer agreements are

less than one year.

Company selectively participates in a retailer’s co-op promotion incentives 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

As these co-op promotion incentives 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 fiscal years ended March 31, 2021 and 2020, co-op promotion incentives were approximately

$2.0 million and $2.9 million, respectively.

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

hardware and the Company has no other material business segments (See NOTE 9 –

SEGMENT INFORMATION).

the Company generally does not allow products to be returned, the Company does provide for variable consideration contingent upon the

occurrence of uncertain future events.

Variable consideration is estimated at the expected value or at the most likely amount depending

on the type of consideration.

Estimated amounts are included in the transaction price to the extent it is probable that a significant

reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

The Company estimates variable consideration under our return allowance programs for goods returned from the customer for various reasons,

whereby a sales return reserve is recorded based on historic return amounts, specific events as identified and management estimates.

the fiscal years ended March 31, 2021 and 2020 the Company received sales returns of approximately $4.1 million and $5.4 million, respectively.

The return of products is due to a variety of reasons including defective units, customers’

overstock and

buyer’s remorse.

The primary reason for the 4.9 percentage point increase in returns was primarily due to overstock returns

of licensed goods from one major customer and overstock returns of non-licensed products from three other major customers.

overstock and buyer’s remorse.

The primary reason for the decrease of approximately $1.3 million in returns was primarily due a decrease in overstock returns of licensed

goods from one major customer and overstock returns of non-licensed products from three other major customers.

Company’s reserve for sales returns were approximately $1.0 million and $1.2 million as of March 31, 2021 and 2020, respectively.

4 unchanged sentences

any claims can require an extended period to resolve.

In management’s opinion, adequate provisions for potential income

taxes in the jurisdictions have been made.

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.

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

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

make other estimates in the ordinary course of business relating to sales returns and allowances, warranty reserves, and reserves

for promotional incentives.

In management’s opinion, adequate provisions for potential income taxes in

the jurisdictions have been made.

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.

The effect on deferred tax assets and

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

If it is more likely than

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

make other estimates in the ordinary course of business relating to sales returns and allowances, warranty reserves, and reserves for

promotional incentives.

Historically, past changes to these estimates have not had a material impact on our financial condition.

However, circumstances could change which may alter future expectations.

circumstances could change which may alter future expectations.

OF NEW ACCOUNTING STANDARDS

February 2016, the FASB issued ASU 2016-02, Topic 842, as amended, “Leases”.

The ASU requires lessees to recognize

leases on the balance sheet and disclose key information about leasing arrangements.

The new standard establishes a right-of-use

model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term

longer than twelve months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification

of expense recognition in the income statement.

On April 1, 2019, the Company adopted the new lease standard using the optional

transition method under which comparative financial information will not be restated and continue to apply the provisions of the

previous lease standard in its disclosures for the comparative periods.

(See Note 7–

December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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.

The Company adopted the

standard for the fiscal year ended March 31, 2021.

The adoption of this standard did not have a material effect on our consolidated financial

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”

1 unchanged sentence

This ASU represents

a significant change in the current accounting model by requiring immediate recognition of management’s estimates of current

expected credit losses.

Under the prior model, losses were recognized only as they were incurred, which delayed recognition of

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

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

interim periods within that fiscal year.

a significant change in the current accounting model by requiring immediate recognition of management’s estimates of current expected

credit losses.

Under the prior model, losses were recognized only as they were incurred, which delayed recognition of expected losses

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

The amendments in ASU 2016-03 are effective for our fiscal year beginning

April 1, 2023 including interim periods within that fiscal year.

Early adoption is permitted.

We are currently evaluating the potential effects of this

updated guidance on our consolidated financial statements and related disclosures.

We are currently evaluating the potential

effects of this updated guidance on our consolidated financial statements and related disclosures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements and supplemental data required pursuant to this Item 8 are included in this Annual Report, as a separate

section, commencing on page F-1 and are incorporated herein by reference.

financial statements and supplemental data required pursuant to this Item 8 are included in this Annual Report, as a separate section,

commencing on page F-1 and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 5. Market for Registrant’s Common Equity