What changed in this filing

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Item 9A. Controls and Procedures

2021-07-14 compared with 2020-08-13 · 1072 added, 1052 removed, 571 unchanged (79% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

of the end of the period covered by this Annual Report, we conducted an evaluation as required by Rule 13a-15(b) and Rule 15d-15(b)

of the Exchange Act, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer

of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).

Based upon this

evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were

designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter

how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management

necessarily is required to apply its judgment in evaluating the relationship between the benefit of desired controls and procedures

and the cost of implementing new controls and procedures.

of the end of the period covered by this Annual Report, we conducted an evaluation as required by Rule 13a-15(b) and Rule 15d-15(b) of

the Exchange Act, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our

disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).

Based upon this evaluation,

our Chief Executive Officer and Chief Financial Officer concluded that due to the material weakness described below, our disclosure controls

and procedures were not effective at a reasonable assurance level as of the end of the period covered by this Report.

designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how

well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily

is required to apply its judgment in evaluating the relationship between the benefit of desired controls and procedures and the cost

of implementing new controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)

and 15d-15(f) under the Exchange Act.

This rule defines internal control over financial reporting as a process designed by, or

under the supervision of Company management to provide reasonable assurance regarding the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance with U.S.

Management has assessed the effectiveness

of our internal control over financial reporting using the components established in the Internal Control-Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted

accounting principles.

A material weakness is any deficiency, or combination of deficiencies, in internal control over financial

reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial

statements will not be prevented or detected on a timely basis.

upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial

reporting was effective as of the year covered by this Annual Report.

is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and

15d-15(f) under the Exchange Act.

This rule defines internal control over financial reporting as a process designed by, or under the

supervision of Company management to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with U.S.

Management has assessed the effectiveness of our internal

control over financial reporting using the components established in the Internal Control-Integrated Framework (2013) issued by

the Committee of Sponsoring Organizations of the Treadway Commission.

system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of

financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

A material weakness is any deficiency, or combination of deficiencies, in internal control over financial reporting, such

that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will

not be prevented or detected on a timely basis.

upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting

was not effective as of the year covered by this Annual Report.

consolidated financial statements close process failed to detect errors which could have been material in the accounting for inventory

cutoff and the inventory valuation of estimated returns.

Specifically, the Company currently has a deficient process to close the consolidated

financial statements and prepare comprehensive and timely account analysis, due in part to a new accounting software system, which resulted

in certain adjusting journal entries.

for Material Weakness in Internal Control over Financial Reporting

Company’s management has begun to design and implement certain remediation measures to address the above-described material weakness

and enhance the Company’s internal control in order to remediate this material weakness.

As part of our remediation measures, the

Company has identified and will implement plans to enhance the Company’s process and controls including the following measures:

Company implemented a new Enterprise Resource Planning (“ERP”) system in Fiscal 2021 that contributed to the material

Management has identified system processing errors specifically related to when returned goods are recognized in

inventory and how they are costed.

Management is currently working with our third-party systems support group to correct these system

plans on strengthening the ERP system training for both finance and warehouse personnel with regards to inventory cutoff and valuation

procedures to insure personnel working with inventory are thoroughly familiar with procedures for processing returns.

will also assess whether current resources are adequate to maintain proper inventory controls once the system errors have been remediated

and additional training is completed and will explore the possibility of additional third-party assistance if necessary.

of Prior Year Material Weakness in Internal Control over Financial Reporting

the year ended March 31, 2020, management identified a material weakness in our internal controls over financial reporting related to

the design and implementation of control activities intended to mitigate the risk that transactions be incorrectly accounted for in accordance

with generally accepted accounting principles.

Specifically, we did not maintain effective internal controls over the accounting for

costs related to our co-op promotion incentives, pursuant to ASC 606, Revenue from Contract with Customers, as we incorrectly recorded

these allowances as selling expenses when they should be recorded as a reduction in net sales.

During Fiscal 2021 the Company’s

management has addressed this identified material weakness and implemented remediation measures to strengthen the Company’s internal

controls over the accounting for costs related to our co-op promotion incentives.

insure these co-op promotion incentives are properly recorded management has implemented the following controls:

customer programs are initially granted, they are specifically identified as to whether it is a freight related program or another

type of program.

program is entered by the sales department into the Company’s ERP system and given a reference number that generally corresponds

to the identification number assigned by the customer for that program.

program is classified as either a freight program or “other”

program type.

the customer charges the Company back for a co-op incentive program as a deduction on a payment remittance, the accounting department

matches the identity number of the deduction taken by the customer in the ERP system and records the deduction against the matching

co-op incentive program deduction taken by the customer cannot be recorded unless the identification number can be matched in the

there are any unmatched program deductions, they are researched with the sales department for the underlying agreement and when resolved

both the missing program and subsequent deduction are entered into the ERP system.

ERP system is programmed to record the programs identified as freight programs as selling expenses and all other programs are recorded

as a decrease to net sales.

Changes in Internal Controls

were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2020, that

materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding

internal control over financial reporting.

Management’s report was not subject to attestation by the Company’s independent

registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report

in this Annual Report.

than the material weakness identified above and the remediation of the prior year material weakness, there were no other changes in the

Company’s internal controls over financial reporting during the quarter ended March 31, 2021, that materially affected, or were

reasonably likely to materially affect the Company’s internal control over financial reporting.

Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal

control over financial reporting.

Management’s report was not subject to attestation by the Company’s independent registered

public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual

OTHER INFORMATION

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

following table sets forth certain information with respect to our executive officers, directors and significant employees as

of March 31, 2020.

following table sets forth certain information with respect to our executive officers, directors and significant employees as of March

and Executive Officers

Fiscal Year Ended March 31, 2021

Gary Atkinson

Bernardo Melo

VP Global Sales and Marketing

Lionel Marquis

Harvey Judkowitz

Global Sales and Marketing

are elected or appointed to serve until the next annual meeting and until their successors are elected and qualified.

are appointed to serve for one year until the meeting of the Board of Directors following the annual meeting of stockholders and

until their successors have been elected and qualified.

Any officer elected or appointed by the Board or appointed by an executive

officer or by a committee may be removed by the Board either with or without cause, and in the case of an officer appointed by

an executive officer or by a committee, by the officer or committee that appointed him or by the president.

following information sets forth the backgrounds and business experience of our directors and executive officers and has been

provided to us by each respective individual:

Officers are appointed

to serve for one year until the meeting of the Board of Directors following the annual meeting of stockholders and until their successors

have been elected and qualified.

Any officer elected or appointed by the Board or appointed by an executive officer or by a committee

may be removed by the Board either with or without cause, and in the case of an officer appointed by an executive officer or by a committee,

by the officer or committee that appointed him or by the president.

following information sets forth the backgrounds and business experience of our directors and executive officers and has been provided

to us by each respective individual:

Atkinson joined the Company in January 2008 and served as General Counsel and Corporate Secretary.

In November 2009, Mr.

was appointed as Interim Chief Executive Officer and was promoted as the Company’s permanent Chief Executive Officer in

Since taking over as Chief Executive Officer, Gary has led the Company to seven consecutive years of profitability

and growth in sales.

was appointed as Interim Chief Executive Officer and was promoted as the Company’s permanent Chief Executive Officer in May, 2012.

Since taking over as Chief Executive Officer, Gary has led the Company to seven consecutive years of profitability and growth in sales.

Atkinson is a licensed attorney in the State of Florida and Georgia.

He graduated from the University

of Rochester with a Bachelors Degree in Economics and has been awarded a dual-degree J.D./M.B.A.

from Case Western Reserve University

School of Law and Weatherhead School of Management.

He graduated from the University of Rochester with a Bachelors

Degree in Economics and has been awarded a dual-degree J.D./M.B.A.

from Case Western Reserve University School of Law and Weatherhead

School of Management.

Melo has been with the Company since February 2003 and has served as the Vice President of Global Sales and Marketing (“VP

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During his tenure at the Singing Machine, Mr.

Melo has overseen the sales and operations of the music

division as well as managed the customer service department.

Melo has overseen the sales and operations of the music division

as well as managed the customer service department.

Before taking over the responsibility of VP of Sales, Mr.

dual roles with the Company managing the operations, licensing and sales of the music division while concentrating on hardware

sales for the Latin America and Canada market as well as key U.S.

Melo held dual roles with

the Company managing the operations, licensing and sales of the music division while concentrating on hardware sales for the Latin America

and Canada market as well as key U.S.

accounts such as Walmart.

Prior to joining the Company, Mr.

Melo held a consulting role for Rewards Network formerly Idine.

Melo’s assignment during his tenure was improving their

operational procedures while increasing efficiencies and lowering operating cost.

Melo also worked at Coverall North America

as Director of Sales managing a startup initiative for the company covering 15 regional office and 40 sales reps across North

America focusing on franchise sales.

Melo has over 15 years of sales, marketing and management experience.

Marquis joined the Company in June 2008 as Controller and Principal Accounting Officer and was appointed as the Company’s

Chief Financial Officer in May, 2012.

Melo held a consulting role for Rewards

Network formerly Idine.

Melo’s assignment during his tenure was improving their operational procedures while increasing efficiencies

and lowering operating cost.

Melo also worked at Coverall North America as Director of Sales managing a startup initiative for the

company covering 15 regional office and 40 sales reps across North America focusing on franchise sales.

Melo has over 15

years of sales, marketing and management experience.

Marquis joined the Company in June 2008 as Controller and Principal Accounting Officer and was appointed as the Company’s Chief

Financial Officer in May, 2012.

For the past 26 years Mr.

Marquis has served as Controller and or Chief Financial Officer

for several manufacturing and distribution companies in the South Florida area.

Some of these companies include Computer Products,

Inc (Artesyn Technologies Inc), US Plastic Lumber Corp., Casi-Rusco, (division of Interlogix Inc.), DHF Industries, Inc and Ingear

Fashions, Inc.

Marquis graduated from Bryant University with a Bachelors Degree in Business Administration with a major in

Marquis is a Certified Public Accountant in the state of Florida.

Lau joined the Company’s board of directors on February 15, 2015 and was appointed as Chairman of the Company’s

Board of Directors.

Marquis has served as Controller and or Chief Financial Officer for several

manufacturing and distribution companies in the South Florida area.

Some of these companies include Computer Products, Inc (Artesyn Technologies

Inc), US Plastic Lumber Corp., Casi-Rusco, (division of Interlogix Inc.), DHF Industries, Inc and Ingear Fashions, Inc.

Marquis graduated

from Bryant University with a Bachelors Degree in Business Administration with a major in accounting.

Marquis is a Certified Public

Accountant in the state of Florida.

Lau joined the Company’s board of directors on February 15, 2015 and was appointed as Chairman of the Company’s Board

of Directors.

Lau served as Chairman and Managing Director of the Starlight Group of companies since September of 1989.

Lau has over 48 years of management experience in the consumer electronics industry and is a director in a number of Starlight

group companies.

over 49 years of management experience in the consumer electronics industry and is a director in a number of Starlight group companies.

Judkowitz has served as a director of the Company since March 29, 2004 and is the chairman of the Audit Committee.

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Judkowitz has conducted his own CPA practices.

He has served

as the Chairman and CEO of UniPro Financial Services, a diversified financial services company up until the company was sold in

September of 2005.

He has served as

the Chairman and CEO of UniPro Financial Services, a diversified financial services company up until the company was sold in September

He was formerly the President and Chief Operating Officer of Photovoltaic Solar Cells, Inc.

Hon has served as a director of the Company since January 12, 2007.

Hon has been a non-executive of the Starlight Group

Hon passed the College of Law qualifying examination in 1969 in the United Kingdom and began practicing law in

Hong Kong in that year after being admitted to the High Court of Hong Kong.

He has been the principal of Hon and Co, a law firm

in Hong Kong for the past 40 plus years.

Hon has been a non-executive of the Starlight Group since

Hon passed the College of Law qualifying examination in 1969 in the United Kingdom and began practicing law in Hong Kong in

that year after being admitted to the High Court of Hong Kong.

He has been the principal of Hon and Co, a law firm in Hong Kong for the

past 40 plus years.

Tung Lau has served as a director of the Company since January 12, 2007.

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to the Chairman of the Board of Starlight International and is now head of corporate relations.

He is also responsible for local

sales in China and heads the computer information system department for the Starlight Group.

From 2002 to 2003, he held a marketing

executive position in Storage Technology Corporation.

Lau received an MBA from the University of Minnesota and also holds

a Bachelor of Arts degree in business marketing from Indiana University.

He is also responsible for local sales

in China and heads the computer information system department for the Starlight Group.

From 2002 to 2003, he held a marketing executive

position in Storage Technology Corporation.

Lau received an MBA from the University of Minnesota and also holds a Bachelor of Arts

degree in business marketing from Indiana University.

Kling was appointed as a director of the Company on May 9, 2017.

Kling has spent his entire career in the toy industry,

most notably serving as CEO of View-Master, the iconic stereoscopic toy company, which later purchased Ideal Toy from CBS and

later became View-Master Ideal, publicly traded on the Nasdaq.

View-Master Ideal later acquired California Plush Toys and the

entire group was later acquired by Tyco Toys in 1989.

Kling later went into private M&A consulting and sat on the board of

Russ Berrie & Co (currently known as Kids Brands, Inc.) for 21 years advising on the acquisition of several toy companies.

Kling has also served on the Board of Crown Crafts, a large distributor of infant, toddler, and juvenile consumer products

and on the board of Lancit Media Entertainment, a children’s and family media production company (formerly listed on the

Kling has been involved in many major toy company acquisitions of brands such as Melissa & Doug and

Kling has spent his entire career in the toy industry, most

notably serving as CEO of View-Master, the iconic stereoscopic toy company, which later purchased Ideal Toy from CBS and later became

View-Master Ideal, publicly traded on the Nasdaq.

View-Master Ideal later acquired California Plush Toys and the entire group was later

acquired by Tyco Toys in 1989.

Kling later went into private M&A consulting and sat on the board of Russ Berrie & Co (currently

known as Kids Brands, Inc.) for 21 years advising on the acquisition of several toy companies.

Kling has also served on the Board

of Crown Crafts, a large distributor of infant, toddler, and juvenile consumer products and on the board of Lancit Media Entertainment,

a children’s and family media production company (formerly listed on the Nasdaq).

Kling has been involved in many

major toy company acquisitions of brands such as Melissa & Doug and Brio.

have an audit committee, a compensation committee and a nominating committee.

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The Board has determined that Mr.

Judkowitz qualifies as

an “audit committee financial expert,”

Judkowitz qualifies as an “audit

committee financial expert,”

as defined under Item 407 of Regulation S-K of the Exchange Act.

has determined that each of Messrs.

The Board has determined that each

Judkowitz and Kling were “independent directors”

within the meaning of the listing

standards of the major stock exchanges.

The audit committee recommends the engagement of independent auditors to the board, initiates

and oversees investigations into matters relating to audit functions, reviews the plans and results of audits with our independent

auditors, reviews our internal accounting controls, and approves services to be performed by our independent auditors.

within the meaning of the listing standards of the major stock

The audit committee recommends the engagement of independent auditors to the board, initiates and oversees investigations

into matters relating to audit functions, reviews the plans and results of audits with our independent auditors, reviews our internal

accounting controls, and approves services to be performed by our independent auditors.

compensation committee consisted of Messrs.

Judkowitz, Kling and Philip Lau.

The compensation committee considers and authorizes

remuneration arrangements for senior management and grants options under, and administers our employee stock option plan.

The compensation committee considers and authorizes remuneration

arrangements for senior management and grants options under, and administers our employee stock option plan.

nominating committee consisted of Messrs.

Philip Lau and Yat Tung Lau.

The nominating committee is responsible for reviewing the

qualifications of potential nominees for election to the Board of Directors and recommending the nominees to the Board of Directors

for such election.

provided in our nominating committee charter and our Company’s corporate governance principles, the Nominating Committee

is responsible for identifying individuals qualified to become directors.

The Nominating Committee seeks to identify director

candidates based on input provided by a number of sources, including (1) the Nominating Committee members, (2) our other directors,

(3) our shareholders, (4) our Chief Executive Officer or Chairman, and (5) third parties such as professional search firms.

evaluating potential candidates for director, the Nominating Committee considers the entirety of each candidate’s credentials.

The nominating committee is responsible for reviewing the qualifications

of potential nominees for election to the Board of Directors and recommending the nominees to the Board of Directors for such election.

provided in our nominating committee charter and our Company’s corporate governance principles, the Nominating Committee is responsible

for identifying individuals qualified to become directors.

The Nominating Committee seeks to identify director candidates based on input

provided by a number of sources, including (1) the Nominating Committee members, (2) our other directors, (3) our shareholders, (4) our

Chief Executive Officer or Chairman, and (5) third parties such as professional search firms.

In evaluating potential candidates for

director, the Nominating Committee considers the entirety of each candidate’s credentials.

Qualifications

for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to

the existing composition of the Board of Directors.

for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing

composition of the Board of Directors.

However, at a minimum, candidates for director must possess:

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appropriate and relevant business experience and acumen.

addition to these minimum qualifications, the Nominating Committee also takes into account when considering whether to nominate

a potential director candidate the following factors:

addition to these minimum qualifications, the Nominating Committee also takes into account when considering whether to nominate a potential

director candidate the following factors:

the person possesses specific industry expertise and familiarity with general issues affecting our business;

the person’s nomination and election would enable the Board to have a member that qualifies as an “audit committee

financial expert”

as such term is defined by the Securities and Exchange Commission (the “SEC”) in Item

401 of Regulation S-K;

the person’s nomination and election would enable the Board to have a member that qualifies as an “audit committee financial

expert”

as such term is defined by the Securities and Exchange Commission (the “SEC”) in Item 401 of Regulation

the person would qualify as an “independent”

director under the listing standards of the OTC;

importance of continuity of the existing composition of the Board of Directors to provide long term stability and experienced

importance of diversified Board membership, in terms of both the individuals involved and their various experiences and areas

of expertise.

importance of continuity of the existing composition of the Board of Directors to provide long term stability and experienced oversight;

importance of diversified Board membership, in terms of both the individuals involved and their various experiences and areas of

have been no material changes to the procedures by which stockholders may recommend nominees to the Company’s board of directors

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RELATIONSHIPS

are no family relationships among any of our officers or other directors, except for Chairman Philip Lau who is the father of

Director Yat Tung Lau and the uncle of Gary Atkinson, the Company’s CEO.

have adopted a Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of the Singing

Machine, including our principal executive officer, our principal financial officer, and our principal accounting officer or controller

or other persons performing similar functions.

are no family relationships among any of our officers or other directors, except for Chairman Philip Lau who is the father of Director

Yat Tung Lau and the uncle of Gary Atkinson, the Company’s CEO.

have adopted a Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of the Singing Machine,

including our principal executive officer, our principal financial officer, and our principal accounting officer or controller or other

persons performing similar functions.

A copy of the Code of Ethics is posted on the Company’s website at www.singingmachine.com.

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WITH SECTION 16(A) OF THE EXCHANGE ACT

16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of

our equity securities to file reports of securities ownership and changes in such ownership with the SEC.

Officers, directors,

and greater-than-ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms

that they file.

solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe

that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended March 31, 2020 were

timely filed, as necessary, by the officers, directors, and security holders required to file such forms except for the following:

Harvey Judkowitz filed a Form 5 in lieu of filing a timely Form 4 with respect to one transaction;

Peter Hon filed a Form 5 in lieu of filing a timely Form 4 with respect to one transaction;

Yat-Tung Lau filed a Form 5 in lieu of filing a timely Form 4 with respect to one transactions;

Philip Lau filed a Form 5 in lieu of filing a timely Form 4 with respect to one transactions;

Joseph Kling filed a Form 5 in lieu of filing a timely Form 4 with respect to one transactions.

16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of our equity

securities to file reports of securities ownership and changes in such ownership with the SEC.

Officers, directors, and greater-than-ten-percent

stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file.

solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe that

all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended March 31, 2021 were timely filed,

as necessary, by the officers, directors, and security holders required to file such forms except for the following:

Harvey Judkowitz filed a Form 5 in lieu of filing a timely Form 4 with respect to two transactions;

Peter Hon filed a Form 5 in lieu of filing a timely Form 4 with respect to two transactions;

Yat-Tung Lau filed a Form 5 in lieu of filing a timely Form 4 with respect to two transactions;

Philip Lau filed a Form 5 in lieu of filing a timely Form 4 with respect to two transactions;

Joseph Kling filed a Form 5 in lieu of filing a timely Form 4 with respect to two transactions;

Gary Atkinson filed a Form 4 with respect to one transaction;

Lionel Marquis filed a Form 4 with respect to one transaction;

Bernardo melo filed a Form 4 with respect to one transaction.

EXECUTIVE COMPENSATION

following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive

Officer and other named executive officers of our Company (collectively, the “named executive officers”) for Fiscal

following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer

and other named executive officers of our Company (collectively, the “named executive officers”) for Fiscal 2021.

COMPENSATION TABLE

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Disclosure to Summary Compensation Table

Atkinson does not have an employment contract with the Company and had an annual salary of $150,000 for the fiscal year ended

March 31, 2020 and 2019.

Marquis does not have an employment contract with the Company and had an annual salary of $150,000 for the fiscal year ended March

Atkinson does not have an employment contract with the Company and had an annual salary of $150,000 for the fiscal years ended March

31, 2021 and 2020.

Marquis does not have an employment contract with the Company and had an annual salary of $150,518 for the fiscal year ended March 31,

2021 and $149,153 for the fiscal year ended March 31, 2020.

Melo does not have an employment contract with the Company and had an annual salary of $157,200 for the fiscal years ended March 31,

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of June 28, 2021, the Company did not have any employment contracts with any of its employees.

However, on January 3, 2014, the

Company entered into agreements with the three executive officers named above that if an executive’s employment is terminated

by the executive or the Company following a change in control, the executive will be entitled to the following within 10 days

of termination:

However, on January 3, 2014, the Company

entered into agreements with the three executive officers named above that if an executive’s employment is terminated by the executive

or the Company following a change in control, the executive will be entitled to the following within 10 days of termination:

accrued and unpaid compensation due to the executive as of the date of termination.

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EQUITY AWARDS AT FISCAL YEAR-END

following table sets forth information with respect to outstanding grants of options to purchase our common stock under our Year

2001 Stock Option Plan as well as other stock option awards issued with Board of Directors approval to the named executive officers

as of the fiscal year ended March 31, 2020:

Principal Position

following table sets forth information with respect to outstanding grants of options to purchase our common stock under stock option

awards issued with Board of Directors approval to the named executive officers as of the fiscal year ended March 31, 2021:

and Principal Position

of Securities Underlying Unexercised Options (#) Exercisable

of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive

Incentive Plan Awards:

Number of Securities Underlying Unexercised Unearned Options (#)

Exercise Price ($)

Option Expiration

Shares or Units of Stock That Have Not Vested (#)

Expiration Date

of Shares or Units of Stock That Have Not Vested (#)

Equity Incentive

Value of Shares or Units of Stock That Have Not Vested ($)

Incentive Plan Awards:

Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

Equity Incentive

Incentive Plan Awards:

Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Gary Atkinson, CEO - Year 2001 Stock Option Plan

- Other stock option awards

Lionel Marquis, CFO - Year 2001 Stock Option Plan

Atkinson, CEO - Other stock option awards

Other stock option awards

Marquis, CFO - Other stock option awards

Other stock option awards

Bernardo Melo, VP Sales - Year 2001 Stock Option Plan

Other stock option awards

Melo, VP Sales - Other stock option awards

Other stock option awards

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EXECUTIVE PAY RATIO DISCLOSURE

Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the total annual compensation of

the chief executive officer to the median employee’s total annual compensation.

Atkinson’s total compensation

as reported in the Executive Summary Compensation Table is compared to the median employee’s total compensation as reflected

in the ratio table below.

The median employee was determined using the quarterly average number of active full-time employees

and a subcontractor for the fiscal year ended March 31, 2020 excluding Mr.

All wages, cash bonuses, contractor payments,

and fair market value of stock option awards granted to each employee (excluding Mr.

Atkinson) were included in determining the

median employee’s total compensation.

Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the total annual compensation of the chief

executive officer to the median employee’s total annual compensation.

Atkinson’s total compensation as reported in the

Executive Summary Compensation Table is compared to the median employee’s total compensation as reflected in the ratio table below.

The median employee was determined using the quarterly average number of active full-time employees and a subcontractor for the fiscal

year ended March 31, 2021 excluding Mr.

All wages, cash bonuses, contractor payments, and fair market value of stock option

awards granted to each employee (excluding Mr.

Atkinson) were included in determining the median employee’s total compensation.

The table below presents the ratio of Mr.

Atkinson’s total annual compensation

to the median employee’s total annual compensation.

Atkinson’s total annual compensation to the median employee’s total annual compensation.

Atkinson’s total annual compensation

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Ratio of Chief Executive Officer to median emloyee

following table sets forth with respect to the named director, compensation information inclusive of equity awards and payments

made in Fiscal 2020.

following table sets forth with respect to the named director, compensation information inclusive of equity awards and payments made

in Fiscal 2021.

Fees Earned or Paid in Cash

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to Note 1 “Stock Based Compensation”

in the Notes to the Consolidated Financial Statements included elsewhere in this

Annual Report for the relevant assumptions used to determine the valuation of our option awards.

in the Notes to the Consolidated Financial Statements included elsewhere in this Annual

Report for the relevant assumptions used to determine the valuation of our option awards.

As of March 31, 2021 the aggregate number of stock awards held by Messrs.

Judkowitz and Kling is 350,337 and 15,668, respectively.

The aggregate stock awards held by Messrs.

aggregate stock awards held by Messrs.

Hon, Yat Tung Lau and Philip Lau is 54,942, 44,525 and 15,668, respectively.

As of March 31, 2021 the aggregate number of Company stock options held by Messrs.

Judkowitz and Kling is 160,000 and 60,000,

respectively and Messrs.

Judkowitz and Kling is 180,000 and 80,000, respectively

Hon, Yat Tung Lau and Philip Lau is 100,000, 80,000 and 80,000 respectively.

Fiscal 2020, our compensation package for our non-employee directors consisted of grants of stock options, cash payments, stock

issuances and reimbursement of costs and expenses associated with attending our board meetings.

Our five non-employee directors

during Fiscal 2020 were Messrs.

Fiscal 2021, our compensation package for our non-employee directors consisted of grants of stock options, cash payments, stock issuances

and reimbursement of costs and expenses associated with attending our board meetings.

Our five non-employee directors during Fiscal 2021

Judkowitz, Hon, Kling, Yat Tung Lau and Philip Lau.

Fiscal 2021, we have utilized the following compensation policy for our directors:

initial grant of 20,000 Singing Machine stock options with an exercise price determined as the closing price on the day of

joining the board.

The options will vest in one year and expire in ten years while they are board members or the lesser of

five years or remaining life of the stock option once they are no longer board members.

initial grant of 20,000 Singing Machine stock options with an exercise price determined as the closing price on the day of joining

The options will vest in one year and expire in ten years while they are board members or the lesser of five years or

remaining life of the stock option once they are no longer board members.

annual cash payment of $7,500 will be made for each completed full year of service or prorated for a partial year.

will be made on or before March 31.

annual stock grant of stock equivalent in value to $2,500 for each completed full year of service or prorated for a partial

The payment will

be made on or before March 31.

annual stock grant of stock equivalent in value to $2,500 for each completed full year of service or prorated for a partial year.

The stock price at grant will be determined at the closing price on the day of the Annual Stockholder Meeting.

grant will be made on or before March 31.

annual grant of 20,000 Singing Machine stock options with an exercise price determined as the closing price on the day of

the Annual Stockholder Meeting.

If the Annual Meeting is held less than 6 months after the board member first joined the board

he or she will not receive another option grant.

The actual grant will

be made on or before March 31.

annual grant of 20,000 Singing Machine stock options with an exercise price determined as the closing price on the day of the Annual

Stockholder Meeting.

If the Annual Meeting is held less than 6 months after the board member first joined the board he or she will

not receive another option grant.

board members will receive a $500 fee for each board meeting and annual meeting they attend.

Committee meetings and telephone

board meetings will be compensated with a $250 fee.

expenses will be reimbursed for attending board, committee and annual meetings or when their presence at a location away from

home is requested.

June 1, 2001, our Board of Directors approved the Year 2001 Plan and it was approved by our shareholders at our special meeting

held September 6, 2001.

The Year 2001 Plan was developed to provide a means whereby directors and selected employees, officers,

consultants, and advisors of the Company may be granted incentive or non-qualified stock options to purchase common stock of the

The Year 2001 Plan authorized an aggregate of 1,950,000 shares of the Company’s common stock with a maximum of

450,000 shares to any one individual in any one fiscal year.

The shares of common stock available under the Year 2001 Plan were

subject to adjustment for any stock split, declaration of a stock dividend or similar event.

At March 31, 2020, we had granted

940,000 options under the Year 2001 Plan 200,000 of which had expired, 160,000 which had been exercised and 580,000 of which remained

outstanding and fully vested.

As of this date the Year 2001 Plan has expired and no further options can be issued thereunder.

Committee meetings and telephone board

meetings will be compensated with a $250 fee.

expenses will be reimbursed for attending board, committee and annual meetings or when their presence at a location away from home

is requested.

June 1, 2001, our Board of Directors approved the Year 2001 Plan and it was approved by our shareholders at our special meeting held

September 6, 2001.

The Year 2001 Plan was developed to provide a means whereby directors and selected employees, officers, consultants,

and advisors of the Company may be granted incentive or non-qualified stock options to purchase common stock of the Company.

2001 Plan authorized an aggregate of 1,950,000 shares of the Company’s common stock with a maximum of 450,000 shares to any one

individual in any one fiscal year.

The shares of common stock available under the Year 2001 Plan were subject to adjustment for any stock

split, declaration of a stock dividend or similar event.

At March 31, 2021, we had granted 690,000 options under the Year 2001 Plan 210,000

of which had expired, 440,000 which had been exercised and 40,000 of which remained outstanding and fully vested.

As of this date the

Year 2001 Plan has expired and no further options can be issued thereunder.

granted under the Year 2001 Plan are not transferable except by will or applicable laws of descent and distribution.

expressly determined by the Compensation Committee, no option under the Year 2001 Plan is exercisable after thirty (30) days following

an individual’s termination of employment with the Company or a subsidiary, unless such termination of employment occurs

by reason of such individual’s disability, retirement or death.

The obligations of the Company under the Year 2001 Plan

are binding on (1) any successor corporation or organization resulting from the merger, consolidation or other reorganization

of the Company or (2) any successor corporation or organization succeeding to all or substantially all of the assets and business

of the Company.

In the event of any of the foregoing, the Compensation Committee may, at its discretion, prior to the consummation

of the transaction, offer to purchase, cancel, exchange, adjust or modify any outstanding options, as such time and in such manner

as the Compensation Committee deems appropriate.

Except as expressly

determined by the Compensation Committee, no option under the Year 2001 Plan is exercisable after thirty (30) days following an individual’s

termination of employment with the Company or a subsidiary, unless such termination of employment occurs by reason of such individual’s

disability, retirement or death.

The obligations of the Company under the Year 2001 Plan are binding on (1) any successor corporation

or organization resulting from the merger, consolidation or other reorganization of the Company or (2) any successor corporation or organization

succeeding to all or substantially all of the assets and business of the Company.

In the event of any of the foregoing, the Compensation

Committee may, at its discretion, prior to the consummation of the transaction, offer to purchase, cancel, exchange, adjust or modify

any outstanding options, as such time and in such manner as the Compensation Committee deems appropriate.

January 1, 2001, we adopted a voluntary 401(k) plan.

All employees with at least one year of service are eligible to participate

in our 401(k) plan.

We make a matching contribution of 100% of salary deferral contributions up to 3% of pay, plus 50% of salary

deferral contributions from 3% to 5% of pay for each payroll period.

The amounts charged to earnings for contributions to this

plan and administrative costs during the years ended March 31, 2020 and 2019 totaled approximately $63,000 and $70,000, respectively.

All employees with at least one year of service are eligible to participate in our

We make a matching contribution of 100% of salary deferral contributions up to 3% of pay, plus 50% of salary deferral contributions

from 3% to 5% of pay for each payroll period.

The amounts charged to earnings for contributions to this plan and administrative costs

during the years ended March 31, 2021 and 2020 totaled approximately $74,000 and $63,000, respectively.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

following table sets forth as of August 12, 2020 (the “record date”), certain information concerning beneficial

ownership of our common stock by:

following table sets forth as of June 25, 2021 (the “record date”), certain information concerning beneficial ownership of

our common stock by:

directors and former directors of the Singing Machine,

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ownership is based on 39,040,748 shares of our common stock issued and outstanding.

In computing the number and percentage of

shares beneficially owned by a person, shares of common stock subject to convertible securities and options currently convertible

or exercisable, or convertible or exercisable within 60 days of August 12, 2020 are counted as outstanding, but these shares

are not counted as outstanding for computing the percentage ownership of any other person.

used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act

of 1934 as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment

power (including the power to dispose or direct the disposition of) with respect to the security through any contract, arrangement,

understanding, relationship or otherwise, including a right to acquire such power(s) during the next 60 days.

Unless otherwise

noted below, and subject to applicable property laws, to our knowledge each person has sole investment and sole voting power over

the shares shown as beneficially owned by them.

Unless otherwise noted, the principal address of each of the directors and officers

listed below is c/o The Singing Machine Company, Inc., 6301 NW 5 th Way, Suite 2900, Fort Lauderdale, FL 33309.

In computing the number and percentage of shares

beneficially owned by a person, shares of common stock subject to convertible securities and options currently convertible or exercisable,

or convertible or exercisable within 60 days of July 14, 2021 are counted as outstanding, but these shares are not counted as outstanding

for computing the percentage ownership of any other person.

used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934

as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power

(including the power to dispose or direct the disposition of) with respect to the security through any contract, arrangement, understanding,

relationship or otherwise, including a right to acquire such power(s) during the next 60 days.

Unless otherwise noted below, and subject

to applicable property laws, to our knowledge each person has sole investment and sole voting power over the shares shown as beneficially

owned by them.

Unless otherwise noted, the principal address of each of the directors and officers listed below is c/o The Singing Machine

Company, Inc., 6301 NW 5 th Way, Suite 2900, Fort Lauderdale, FL 33309.

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

of August 12, 2020

As of July 13, 2021

Name and Address of Beneficial Owner

Amount and Nature

of Certain Beneficial

Percentage of

Amount and Nature of Certain Beneficial Ownership of Common Stock

Percentage of outstanding shares of common stock

Security Ownership of Management:

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Security Ownership of Certain Beneficial Owners:

Fairy King (2)

Fairy King Ltd.

Arts Electronics Ltd.

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* Less than 1%

Total Shares of Common Stock as of August 12, 2020

Stock Options Exercisable within 60 days of August, 2020

Includes as to the person indicated, the following outstanding stock options to purchase shares of the Company’s Common

Stock issued under 2001 Stock Option Plan, which will be vested and exercisable within 60 days of the record date:

420,000 options

held by Gary Atkinson, 775,000 options held by Bernardo Melo, 285,000 options held by Lionel Marquis, 160,000 options held by

Harvey Judkowitz, 60,000 options held by Joseph Kling, 80,000 options held by Peter Hon, 60,000 held by Yat Tung Lau and 60,000

held by Philip Lau.

Total Shares of Common Stock as of July 13, 2021

Stock Options Exercisable within 60 days of July 13, 2021

Includes as to the person indicated, the following outstanding stock options to purchase shares of the Company’s Common Stock issued

under 2001 Stock Option Plan and other stock option awards, which will be vested and exercisable within 60 days of the record date:

options held by Gary Atkinson, 575,000 options held by Bernardo Melo, 165,000 options held by Lionel Marquis, 160,000 options held by

Harvey Judkowitz, 60,000 options held by Joseph Kling, 80,000 options held by Peter Hon, 60,000 held by Yat Tung Lau and 60,000 held

by Philip Lau.

“Fairy King”

2 unchanged sentences

Green Holdings, Ltd.

own 18,682,679 and 940,476, respectively of the Company’s Common Stock and are wholly owned subsidiaries

of Fairy King.

The address for Fairy King is:

own 18,682,679 and 940,476, respectively of the Company’s Common Stock and are wholly owned subsidiaries of

The address for Fairy King Prawn, Ltd.

5/F Shing Dao Industrial Bldg., 232 Aberdeen Rd., Hong Kong.

Fairy King is owned

by Philip Lau, our Chairman of the Board.

Fairy King Prawn,

is owned by Philip Lau, our Chairman of the Board.

The address for Arts Electronics Ltd.

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TO/FROM RELATED PARTIES

March 31, 2020 the Company had approximately $0.5 million due to related parties for services provided by these companies and

licensing fees for use of pedestal model molds and tools owned by the parent company.

March 31, 2021 the Company had approximately $0.1 million due to related parties SLRD, SCE and SLE for services provided by these companies

and licensing fees for use of pedestal model molds and tools owned by them.

On March 31, 2020, the Company had approximately $0.5

$0.3 million due from related parties for goods and services sold to these companies.

million due from related parties SLRD, SCE and SLE for goods and services sold these companies.

Related Party Debt and Note Payable

connection with the Revolving Credit Facility the Company was required to subordinate related party debt to Starlight Marketing

Development, Ltd.

connection with the Revolving Credit Facility with PNC Bank, the Company was required to subordinate related party debt to Starlight

Marketing Development, Ltd.

(“subordinated debt”).

The subordinated debt of approximately $924,000 bore interest at 6% and was

scheduled to be paid in quarterly installments of $123,000 which include interest and commenced September 30, 2017 and ending

on the debt maturity date of June 30, 2019.

Quarterly installment payments of $123,000 due on the last day of each fiscal quarter

were not been made since September 2017;

however a payment of $25,000 which includes principal and interest, was made during the

On June 1, 2020 the remaining amount due on the subordinated debt of approximately $803,000 was converted to a note

payable which bears interest at 6%.

As part of the agreement to convert the subordinated debt to a note payable it was agreed

that interest expense would be accrued on the unpaid principal retroactively from the date that scheduled payments had been missed

resulting in an incremental charge to interest expense of approximately $72,000 for the Fiscal 2020.

the years ended March 31, 2020 and 2019 interest expense was approximately $74,000 and $21,000, respectively on the related party

subordinated debt.

The subordinated debt of approximately $924,000 bore interest at 6% and

was scheduled to be paid in quarterly installments of $123,000 which included interest and commenced September 30, 2017 and ending on

the debt maturity date of June 30, 2019.

Quarterly installment payments of $123,000 due on the last day of each fiscal quarter were not

made since September 2017 however, a payment of $25,000 which included principal and interest, was made during Fiscal 2020.

2020 the remaining amount due on the subordinated debt of approximately $803,000, which was classified as a non-current liability on

the consolidated financial statements as of March 31, 2020, was converted to a note payable which bears interest at 6%.

As part of the

agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be accrued on the unpaid principal

retroactively from the date that scheduled payments had been missed resulting in an incremental charge to interest expense of approximately

$72,000 for Fiscal 2020.

the years ended March 31, 2021 and 2020 interest expense was approximately $12,000 and $74,000, respectively on the related party subordinated

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

note payable”) to Starlight Marketing Development, Ltd.

Both agreements allow for the repayment of the subordinated note

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

1 debt coverage

ratio and exhibits sufficient cash liquidity to support on-going operations.

There is no set schedule with regards to payment

of the note and as such note has been classified as a non-current liability for the year ended March 31, 2020 on the consolidated

balance sheets.

As of March 31, 2019 the remaining amount due on the subordinated debt was approximately $815,000 and was classified

as a current liability on the consolidated balance sheets.

both Fiscal 2020 and 2019 the Company paid approximately $0.4 million to Starlight Electronics Company, Ltd (“SLE”)

as reimbursement for engineering, quality control and other administrative services performed on our behalf in China.

These expense

reimbursements were included in general and administrative expenses on our consolidated statements of operations.

Fiscal 2020 and 2019 the Company sold approximately $0.9 million and $1.2 million, respectively of product to Winglight Pacific,

(“Winglight”) a related company, for direct shipment to Cosmo Communications of Canada, Ltd (“Cosmo”),

another related company, at discounted pricing granted to major direct import customers shipped internationally with freight prepaid.

The average gross profit margin on sales to Winglight for Fiscal 2020 and 2019 was 23.7% and 30.1%, respectively.

These amounts

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

Fiscal 2020 and 2019 the Company sold approximately $0.3 million and $0.4 million, respectively of product to Cosmo from our California

warehouse facility.

These goods were sold at a discounted price, similar to prices granted to major direct import customers shipped

internationally with freight prepaid.

The average gross profit margin on sales to Cosmo yielded 26.6% and 22.5%, respectively.

These amounts were included as a component of net sales in the accompanying consolidated statements of operations.

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

the Company became the sole and exclusive distributor of the Company’s products in Canada.

As part of the agreement, the

companies executed a Purchase and Sales agreement whereby the Company acquired all of Cosmo’s karaoke inventory for approximately

Both agreements allow for the repayment of the subordinated note payable

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

1 debt coverage ratio and

exhibits sufficient cash liquidity to support on-going operations.

There is no set schedule with regards to payment of the note however,

during Fiscal 2021 the Company was able to make principal payments of $300,000 on the subordinated note payable.

As of March 31, 2021

the remaining principal balance of approximately $503,000 is classified as a current liability on the accompanying consolidated balance

During the years ended March 31, 2021 and 2020 interest expense was approximately $35,000 and $0, respectively on the subordinated

note payable.

both Fiscal 2021 and 2020 the Company paid approximately $0.4 million to SLE as reimbursement for engineering, quality control and other

administrative services performed on our behalf in China.

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of operations.

Fiscal 2021 and 2020 the Company sold approximately $0.0 million and $0.9 million, respectively of product to Winglight for direct shipment

to Cosmo at discounted pricing granted to major direct import customers shipped internationally with freight prepaid.

These amounts were

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

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

Company became the sole and exclusive distributor of the Company’s products in Canada.

As part of the agreement, the companies

executed a Purchase and Sales agreement whereby the Company acquired all of Cosmo’s karaoke inventory for approximately $0.7 million.

During Fiscal 2021 there was a gain of approximately $0.2 million from Cosmo related to payments received in Fiscal 2021 on prior year

sales and the related receivable previously reversed and written off as they were initially deemed uncollectible.

Approval or Ratification of Transactions with Related Persons

believe that the terms of all of the above transactions are commercially reasonable and no less favorable to us than we could

have obtained from an unaffiliated third party.

Our policy requires that all related parties recuse themselves from negotiating

and voting on behalf of our company in connection with related party transactions.

While we do not maintain a written policy with

respect to related party transactions, our board of directors routinely reviews potential transactions with those parties we have

identified as related parties prior to the consummation of the transaction.

Each transaction is reviewed to determine that a related

party transaction is entered into by us with the related party pursuant to normal competitive negotiation.

We also generally require

that all related parties recuse themselves from negotiating and voting on behalf of the Company in connection with related party

transactions.

believe that the terms of all of the above transactions are commercially reasonable and no less favorable to us than we could have obtained

from an unaffiliated third party.

Our policy requires that all related parties recuse themselves from negotiating and voting on behalf

of our company in connection with related party transactions.

While we do not maintain a written policy with respect to related party

transactions, our board of directors routinely reviews potential transactions with those parties we have identified as related parties

prior to the consummation of the transaction.

Each transaction is reviewed to determine that a related party transaction is entered into

by us with the related party pursuant to normal competitive negotiation.

We also generally require that all related parties recuse themselves

from negotiating and voting on behalf of the Company in connection with related party transactions.

Determination of Independence

1 unchanged sentence

Judkowitz and Kling are “independent directors”

within the meaning of the listing

standards of major stock exchanges.

The audit committee recommends the engagement of independent auditors to the board, initiates

and oversees investigations into matters relating to audit functions, reviews the plans and results of audits with our independent

auditors, reviews our internal accounting controls, and approves services to be performed by our independent auditors.

within the meaning of the listing standards

of major stock exchanges.

The audit committee recommends the engagement of independent auditors to the board, initiates and oversees

investigations into matters relating to audit functions, reviews the plans and results of audits with our independent auditors, reviews

our internal accounting controls, and approves services to be performed by our independent auditors.

PRINCIPAL ACCOUNTING FEES AND SERVICES

5 unchanged sentences

by EisnerAmper, LLP, respectively.

Other Fees - Consists of fees for products and services other than the services reported above including review of proxy statements

and services provided in connection with the audit of China Sinostar, our parent company.

Other Fees - Consists of fees for products and services other than the services reported above including review of proxy statements and

services provided in connection with the audit of China Sinostar, our former parent company.

ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

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These services may include audit services, audit-related services, tax services and other services.

is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services

and is generally subject to a specific budget.

The auditors and management are required to periodically report to the Audit Committee

regarding the extent of services provided by the auditors in accordance with this pre-approval, and the fees for the services

performed to date.

is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is

generally subject to a specific budget.

The auditors and management are required to periodically report to the Audit Committee regarding

the extent of services provided by the auditors in accordance with this pre-approval, and the fees for the services performed to date.

The Audit Committee may also pre-approve particular services on a case-by-case basis.

43 unchanged sentences

Certifying Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.*

following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 formatted in

The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 formatted in XBRL:

(i) Consolidated Balance Sheets as of March 31 2021 and 2020;

(ii) Consolidated Statements of Operations for the two years

ended March 31, 2020 and 2019;

(ii) Consolidated Statements of Operations for the two years ended March

31, 2021 and 2020;

(iii) Consolidated Statements of Cash Flows for the two years ended March 31, 2021 and 2020;

Consolidated Statements of Shareholders’

Equity for the two years ended March 31, 2020 and 2019 and (v) Notes to the Consolidated

Financial Statements.

(iv) Consolidated Statements

of Shareholders’

Equity for the two years ended March 31, 2021 and 2020 and (v) Notes to the Consolidated Financial Statements.

Filed herewith

1 unchanged sentence

FORM 10-K SUMMARY

accordance with the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, The Singing Machine Company,

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

accordance with the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, The Singing Machine Company, Inc.

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SINGING MACHINE COMPANY, INC.

August 13, 2020

Gary Atkinson

Executive Officer

accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of The Singing Machine Company, Inc.

accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on

behalf of The Singing Machine Company, Inc.

and in the capacities and on the dates indicated.

22 unchanged sentences

as of March 31, 2021 and 2020, and the related consolidated statements of operations, cash flows, and shareholders’

for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the

Company as of March 31, 2020 and 2019, and the consolidated results of their operations and their cash flows for each of the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

in Accounting Principle

discussed in Note 3 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2020

due to the adoption of Accounting Standards Codification Topic 842, Leases.

each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31,

2021 and 2020, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity

with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company

Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission

and the PCAOB.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

EisnerAmper LLP

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Consideration

described in Note 1 to the consolidated financial statements, the Company provides for variable consideration 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.

Variable consideration primarily includes reserves for sales returns and accruals for promotional

The Company estimates variable consideration under its return 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 Company selectively participates in retailer’s promotional 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 allowances to their customers.

The Company’s reserve for sales returns were approximately $1.0 million as of March 31, 2021.

The Company’s accrual for promotional

incentives was approximately $0.5 million as of March 31, 2021.

identified management’s estimates for variable consideration as a critical audit matter due to the fact that there was significant

judgment required by management with respect to measurement uncertainty, as the calculation of these reserves and allowances includes

assumptions such as product sell through at retailers, as well historical product sales used to predict future sales in evaluating the

net realizable value of inventory returns.

This in turn led to a high degree of auditor judgment, subjectivity and effort in applying

the procedures related to those assumptions.

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial

We obtained an understanding and evaluated the design of controls over the Company’s estimates for variable consideration.

Our procedures also included, among others,(1) recalculating the sales return reserve based on our review of returns received subsequent

to year end and the net realizable value of the returned goods based on historical margins and product sales projections;

(2) recalculating

the Company’s promotional incentive accrual based on specific customer arrangements and programs along with supporting documentation

from those customers;

(3) performing a sensitivity analysis of the Company’s variable consideration by recalculating using our

independent assumptions;

(4)evaluating the Company’s ability to accurately estimate the sales return reserve by comparing historically

recorded reserves to the actual amount that was ultimately claimed by the retailers;

and (5) analyzing year over year trends in the reserve

and allowance in comparison with revenue trends to further evaluate reasonableness of the estimate and consistency with expectations.

described in Note 1 to the consolidated financial statements, the Company’s inventories are stated at the lower of cost or net

realizable value.

The Company maintains its inventory at the lower of cost or net realizable value based primarily on the age of the

inventory, estimated required sell-through time and whether items are selling below cost.

In determining appropriate inventory reserve

percentages, the Company evaluates a number of factors including its historical write off experience, the specific products affected,

its historic recovery percentages on various methods of liquidations, as well as forecasts of future sales.

Inventories, net, and the

inventory reserve at March 31, 2021, totaled $5.5 million and $0.6 million, respectively.

identified the valuation of inventory as a critical audit matter due to the significant judgments necessary to identify and record the

inventory at the lower of cost or net realizable value timely.

This in turn led to a high degree of auditor judgement, subjectivity and

effort in, performing audit procedures to evaluate management’s estimates of the net realizable value for the inventory on-hand

as of the reporting date.

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated

financial statements.

We obtained an understanding and evaluated the design of controls over the Company’s inventory valuation.

Our procedures related to management’s estimates of the net realizable value of the inventory on-hand as of the reporting date

included the following, among others, (1) evaluating of the appropriateness and consistency of management’s methodology and assumptions

used in determining the inventory reserve;

(2) obtaining the Company’s inventory at the lower of cost or net realizable value calculation

and testing the mathematical accuracy;

(3) testing the accuracy and completeness of the underlying data used in the calculation of the

Company’s net realizable value;

and (4) selecting a sample of inventory items, evaluating historical sales performance relative

to management’s conclusions on the ability to sell through the inventory on-hand at the forecasted levels as well as testing sales

subsequent to year-end to evaluate the Company’s ability to accurately estimate the inventory reserve relative to the net realizable

have served as the Company’s auditor since 2016.

EisnerAmper LLP

Singing Machine Company, Inc.

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Accounts receivable, net of allowances of $138,580 and $337,461, respectively

Due from PNC Bank

Due from banks

Accounts receivable related party - Winglight Pacific, Ltd

5 unchanged sentences

Property and equipment, net

Deferred financing costs, net of current portion

Deferred tax assets

5 unchanged sentences

Accrued expenses

Current portion of bank term note payable

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

1 unchanged sentence

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

Revolving line of credit - Iron Horse Credit

Customer deposits

Refunds due to customers

2 unchanged sentences

Current portion of installment notes

Current portion of note payable - Paycheck Protection Program

Current portion of operating lease liabilities

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

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

Total Current Liabilities

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Installment notes, net of current portion

Note payable - Payroll Protection Program, net of current portion

Operating lease liabilities, net of current portion

Subordinated related party debt - Starlight Marketing Development, Ltd.,

net of current portion

Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion

Total Liabilities

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1,000,000 shares authorized;

no shares issued and outstanding

no shares issued

and outstanding

Common stock, Class A, $0.01 par value;

100,000 shares authorized;

no shares issued and outstanding

issued and outstanding

Common stock, Class B, $0.01 par value;

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Additional paid-in capital

Subscriptions receivable

Accumulated deficit

7 unchanged sentences

STATEMENTS OF OPERATIONS

For the Years En ded

For the Twelve Months Ended

March 31, 2021

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General and administrative expenses

Bad debt expense (recovery)

Bad debt expense

Total Operating Expenses

(Loss) Income from Operations

Other Expenses

Income (Loss) from Operations

Other Income (Expenses)

Gain from damaged goods insurance claim

Gain from settlement of accounts payable

Gain - related party

Interest expense

Finance costs

Total Other Expenses

(Loss) Income Before Income Tax Benefit (Provision)

Income Tax Benefit (Provision)

Net (Loss) Income

Total Other Income (Expenses), net

Income (Loss) Before Income Tax (Provision) Benefit

Income Tax (Provision) Benefit

Net Income (Loss)

$ (2,857,000 )

Net (Loss) Income per Common Share

Net Income (Loss) per Common Share

Weighted Average Common and Common Equivalent Shares:

notes to the consolidated financial statements

Singing Machine Company, Inc.

The Singing Machine Company, Inc.

and Subsidiaries

STATEMENTS OF CASH FLOWS

For the Years Ended

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Twelve Months Ended

March 31, 2021

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Cash flows from operating activities

Net (loss) Income

Net Income (Loss)

$ (2,857,000 )

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

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

Amortization of deferred financing costs

3 unchanged sentences

Change in net deferred tax assets

Gain - related party

Gain from settlement of accounts payable

Changes in operating assets and liabilities:

Accounts receivable

Due from PNC Bank

Due from banks

Accounts receivable - related parties

3 unchanged sentences

Accounts payable

Income Taxes Payable

Accrued expenses

Due to related parties

Customer deposits

Refunds due to customers

6 unchanged sentences

Cash flows from financing activities

Net Proceeds from revolving lines of credit

Proceeds from note payable - Payroll Protection Program

Payment of bank term note

Payment of deferred financing charges

Proceeds from installment notes

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Proceeds from exercise of stock options

Payment on subordinated debt - related party

Payment on subordinated note payable - related party

Payments on finance leases

Net cash provided by (used by) financing activities

Net cash provided by financing activities

Net change in cash

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Cash paid for interest

Equipment purchased under capital lease

Operating leases - right of use assets initial adoption

Operating lease liabilities - initial adoption

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

notes to the consolidated financial statements

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STATEMENTS OF SHAREHOLDERS’

the years ended March 31, 2020 and March 31, 2019

Preferred Stock

Additional Paid

the twelve months ended March 31, 2021 and 2020

Subscriptions

Balance at March 31, 2018

at March 31, 2019

$ (11,569,556 )

Employee compensation-stock option

Exercise of stock options

Director fees

Balance at March 31, 2019

compensation-stock option

of subscription receivable

of stock options

of common stock - directors

at March 31, 2020

(14,426,556 )

Employee compensation-stock option

Collection of subscription receivable

Exercise of stock options

Issuance of common stock - directors

Balance at March 31, 2020

compensation-stock option

of stock options

of common stock - directors

at March 31, 2021

$ (12,254,191 )

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TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

1 - BASIS OF PRESENTATION

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

(“SMC-L”) and SMC-Music, Inc.

(“SMC-M”), 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

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.

(“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.

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, 2021.

The Company 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 March 31, 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 it’s 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.

2 - LIQUIDITY

Company reported net loss of approximately $2.9 million for the fiscal year ended March 31, 2020 as compared to net income of

approximately $0.6 million for the fiscal year ended March 31, 2019.

In August 2019, a major customer received goods that were

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

As a result we incurred a loss

in cash flow of approximately $1.6 million in revenue and approximately $0.8 million in additional out of pocket expenses to retrieve,

inspect, warehouse and properly destroy the goods.

As of July 10, 2020 we have recovered approximately $2.3 million from our

cargo insurance coverage and secured vendor invoice credits of $0.4 million from the factory that caused the damage.

The Company’s

inventory also increased by approximately $1.5 million due to overstock returns as well as excess inventory of the new Carpool

Karaoke product.

On June 16, 2020, the Company executed the 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 on

eligible accounts receivable.

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

to $2,500,000 in inventory financing.

The Intercreditor Revolving Loan Facility expire on June 15, 2022.

The Company has adequate

cash on hand and cash available on its Intecreditor Revolving Credit Facility, approximately $1.4 million as of the date of this

filing, to meet all obligations during this off-peak season.

Management is confident that the availability of cash from our Intercreditor

Revolving Credit Facility and our projections to reduce excess inventory during the next year will be adequate to meet the Company’s

liquidity requirements for at least the next twelve months.

In total approximately 51%

of the Company’s shares of common stock on a fully diluted basis as of March 31, 2021 are owned by koncepts and Treasure Green.

koncepts and Treasure Green are owned by 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.

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.

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OF CONSOLIDATION

accompanying consolidated financial statements include the accounts of the Company, its Macau Subsidiary, SMC-L, and SMC-M.

inter-company accounts and transactions have been eliminated in consolidation for all periods presented.

accompanying consolidated financial statements include the accounts of the Company, its Macau Subsidiary, SMCL, and SMCM.

All inter-company

accounts and transactions have been eliminated in consolidation for all periods presented.

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

reserves, inventory reserves and reserves for promotional incentives that affect the reported amounts of assets and liabilities

and of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues

and expenses during the reporting period.

reserves, inventory reserves and reserves for promotional incentives that affect the reported amounts of assets and liabilities and of

contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses

during the reporting period.

Future events and their effects cannot be determined with absolute certainty;

the determination of estimates requires the exercise of judgment.

Historically, past changes to these estimates have not had a

material impact on the Company’s financial statements.

therefore, the determination

of estimates requires the exercise of judgment.

Historically, past changes to these estimates have not had a material impact on the Company’s

financial statements.

However, circumstances could change which may alter future expectations.

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OF ACCOUNTS RECEIVABLE

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 in an

amount sufficient to respond to normal business conditions.

Management sets 100% reserves for customers in bankruptcy and other

allowances based upon historical collection experience.

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.

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.

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 in an amount sufficient

to respond to normal business conditions.

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

collection experience.

The Company is subject to chargebacks from customers for co-op program incentives, defective returns, return freight

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

Should business conditions deteriorate

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

a negative impact on operations.

CURRENCY TRANSLATION

functional currency of the Macau Subsidiary is the Hong Kong dollar.

The financial statements of the subsidiary are translated

dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for

revenues, costs, and expenses.

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

statement of operations and translations would be recorded in a separate component of shareholders’

Any such amounts

were not material during the periods presented.

The financial statements of the subsidiary are translated to U.S.

dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs,

and expenses.

Net gains and losses resulting from foreign exchange transactions are recorded in the statement of operations and translations

would be recorded in a separate component of shareholders’

Any such amounts were not material during the periods presented.

Concentration

of Credit Risk

times, the Company maintains cash in United States bank accounts that are in excess of the Federal Deposit Insurance Corporation

insured amounts.

times, the Company maintains cash in United States bank accounts that are in excess of the Federal Deposit Insurance Corporation insured

The Company maintains cash balances in foreign financial institutions.

The amounts at foreign financial institutions

at March 31, 2020 and 2019 were approximately $0.2 million.

The amounts at foreign financial institutions at March

31, 2021 and 2020 were approximately $0.2 million.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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

are comprised primarily of electronic karaoke equipment, microphones and accessories, and are stated at the lower of cost or net

realizable value, as determined using the first in, first out method.

Inventories also include an estimate for the net realizable

value of expected future inventory returns due to warranty and allowance programs.

As of March 31, 2020 and March 31, 2019 the

estimated amounts for these future inventory returns were approximately $1.4 million and $0.6 million, respectively.

reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable

value of an inventory item falls below its original cost.

A charge to cost of sales results when the estimated net realizable

value of specific inventory items declines below cost.

Management regularly reviews the Company’s investment in inventories

for such declines in value.

As of March 31, 2020 and 2019 the Company had inventory reserves of approximately and $0.4 million

and $0.3 million, respectively for estimated excess and obsolete inventory.

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

that the carrying amounts may not be recoverable.

If the undiscounted future cash flows attributable to the related assets are

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

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

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

are comprised primarily of electronic karaoke equipment, microphones and accessories, and are stated at the lower of cost or net realizable

value, as determined using the first in, first out method.

Inventories also include an estimate for the net realizable value of expected

future inventory returns due to warranty and allowance programs.

As of March 31, 2021 and March 31, 2020 the estimated amounts for these

future inventory returns were approximately $1.0 million and $1.4 million, respectively.

The Company reduces inventory on hand to its

net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below

its original cost.

A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below

Management regularly reviews the Company’s investment in inventories for such declines in value.

As of March 31, 2021 and

2020 the Company had inventory reserves of approximately and $0.6 million and $0.4 million, respectively for estimated excess and obsolete

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

carrying amounts may not be recoverable.

If the undiscounted future cash flows attributable to the related assets are less than the carrying

amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance with Financial Accounting Standards

Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-05, “Accounting for the Impairment or Disposal

of Long-Lived Assets.”

AND EQUIPMENT

and equipment are stated at cost, less accumulated depreciation.

Expenditures for repairs and maintenance are charged to expense

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful

lives using accelerated and straight-line methods.

Expenditures for repairs and maintenance are charged to expense as incurred.

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using accelerated

and straight-line methods.

VALUE OF FINANCIAL INSTRUMENTS

follow FASB ASC 825, Financial Instruments, which requires disclosures of information about the fair value of certain financial

instruments for which it is practicable to estimate that value.

For purposes of this disclosure, the fair value of a financial

instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than

in a forced sale or liquidation.

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

expenses, refunds due to customers, and due to/from related parties approximates fair value due to the relatively short period

to maturity for these instruments.

The carrying amounts on the bank term note payable, the subordinated debt to Starlight Marketing

Development, Ltd.

(related party) and finance leases approximate fair value either due to the relatively short period to maturity

or the related interest is accrued at a rate similar to market rates.

The carrying amounts on the revolving line of credit approximates

fair value due the relatively short period to maturity and related interest accrued at market rates.

follow FASB ASC 825, Financial Instruments, which requires disclosures of information about the fair value of certain financial instruments

for which it is practicable to estimate that value.

For purposes of this disclosure, the fair value of a financial instrument is the

amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

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

customer deposits, refunds due to customers, and due to related parties approximates fair value due to the relatively short period to

maturity for these instruments.

The carrying amounts on the notes payable, finance leases and installment notes approximate fair value

either due to the relatively short period to maturity or the related interest is accrued at a rate similar to market rates.

amounts on the revolving line of credit approximates fair value due the relatively short period to maturity and related interest accrued

at market rates.

RECOGNITION AND RESERVE FOR SALES RETURNS

Company recognizes revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”.

All revenue is

generated from contracts with customers.

The Company recognizes revenue 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

(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.

All revenue is generated

from contracts with customers.

The Company recognizes revenue when the 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 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 initiatives are not a distinct good or service and the Company cannot reasonably estimate the fair

value of the benefit it receives from these arrangements, the cost of these allowances at the time they are offered to the customers

are recorded as a reduction to net sales.

Co-op promotion incentives were approximately $2.0 million during fiscal 2021 and $2.9 million

during fiscal 2020.

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 to the customer

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

and management estimates.

Company’s reserve for sales returns were approximately $1.2 million and $0.9 million as of March 31, 2020 and March 31,

2019, 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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 –

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.

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

fiscal 2021 and 2020 revenue was derived from five different major product lines.

Disaggregated approximate revenue from these

product lines consisted of the following:

by Product Line

Disaggregated approximate revenue from these product

lines consisted of the following:

Revenue by Product Line

Fiscal Years Ended

1 unchanged sentence

March 31, 2020

Classic Karaoke Machines

Download Karaoke Machines

Karaoke Machines

Licensed Products

Microphones and Accessories

SMC Kids Toys

Licensed Product

Music and Accessories

Music Subscriptions

Total Net Sales

AND HANDLING COSTS

and handling costs are performed by both the Company and third party logistics companies.

Shipping and handling activities are

performed before the customer obtains control of the goods sold to them and are considered activities to fulfill the Company’s

promise to transfer the goods.

For Fiscal 2020 and 2019 shipping and handling expenses were approximately $1.2 million and $0.9

and handling activities are performed before the customer obtains control of the goods sold to them and are considered activities to

fulfill the Company’s promise to transfer the goods.

For both Fiscal 2021 and 2020 shipping and handling expenses were approximately

$1.2 million.

These expenses are classified as a component of selling expenses in the accompanying consolidated statements of operations.

1 unchanged sentence

Stock Compensation Awards Classified as Equity”.

ASC 718-20 requires all share-based payments to employees including grants of employee stock options, be measured at fair value

and expensed in the consolidated statement of operations over the service period (generally the vesting period).

The Company uses

the Black-Scholes option valuation model to value stock options.

Employee stock option compensation expense in fiscal years 2020

and 2019 includes the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period

for the entire portion of the award.

For the years ended March 31, 2020 and 2019, the stock option expense was approximately $20,000

and $52,000, respectively.

ASC 718-20 requires all share-based payments to employees including grants of employee stock options, be measured at fair value and expensed

in the consolidated statement of operations over the service period (generally the vesting period).

The Company uses the Black-Scholes

option valuation model to value stock options.

Employee stock option compensation expense in fiscal years 2021 and 2020 includes the

estimated fair value of options granted, amortized on a straight-line basis over the requisite service period for the entire portion

of the award.

For the years ended March 31, 2021 and 2020, the stock option expense was approximately $10,000 and $20,000, respectively.

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

3 unchanged sentences

the year ended March 31, 2021:

expected dividend yield 0%, risk-free interest rate of 2.08% , volatility of 194.50% and expected

expected dividend yield of 0%, risk-free interest rate of .18%, volatility of 146.7% and expected

term of three years.

the year ended March 31, 2020:

expected dividend yield 0%, risk-free interest rate of 2.08% , volatility of 216.33% and expected

expected dividend yield of 0%, risk-free interest rate of 2.08%, volatility of 194.5% and expected

term of three years.

2 unchanged sentences

the stock compensation expense to directors was $12,500.

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

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

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

The percentage of the

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

The customers must advertise the Company’s products

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

The customer must submit the proof of the performance

(such as a copy of the advertising showing the Company’s products) to the Company to request for the allowance.

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

The Company believes that the identifiable benefit from

the cooperative advertising program and the fair value of the advertising benefit is equal or greater than the cooperative advertising

Advertising expense for the fiscal years ended March 31, 2020 and 2019 was approximately $4.0 million and $3.0 million,

respectively.

As of March 31, 2020 and March 31, 2019, there was an accrual for cooperative advertising allowances of approximately

$0.7 million and $0.6 million, respectively.

These amounts were a component of accrued expenses in the consolidated balance sheets.

AND DEVELOPMENT COSTS

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

These expenses are shown as a component of general

and administrative expenses in the consolidated statements of operations.

For the years ended March 31, 2020 and 2019, these amounts

totaled approximately $0.1 million.

These expenses are shown as a component of general and

administrative expenses in the consolidated statements of operations.

For both years ended March 31, 2021 and 2020, these amounts totaled

approximately $0.1 million.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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

Under the asset and liability method

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

the financial statement carrying amounts of existing assets and liabilities and their respective tax base.

Deferred tax assets

and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

differences are expected to be recovered or settled.

Under ASC 740, the effect on deferred tax assets and liabilities of a change

in tax rates is recognized in income in the period that includes the enactment date.

If it is more likely than not that some portion

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

Under the asset and liability method of ASC

740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial

statement carrying amounts of existing assets and liabilities and their respective tax base.

Deferred tax assets and liabilities are

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to

be recovered or settled.

Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income

in the period that includes the enactment date.

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

a valuation allowance is recognized.

Company recognizes a liability for uncertain tax positions.

An uncertain tax position is defined as a position in a previously

filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law

and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be

sustained on examination by the taxing authorities, based on the technical merits of the position.

The Company measures the tax

benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

As of March 31, 2020 and 2019, there were no uncertain tax positions that resulted in any adjustment to the Company’s provision

for income taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income

The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions.

An uncertain tax position is defined as a position in a previously filed

tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is

reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The Company may recognize

the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination

by the taxing authorities, based on the technical merits of the position.

The Company measures the tax benefits recognized based on the

largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

As of March 31, 2021 and 2020 there

were no uncertain tax positions that resulted in any adjustment to the Company’s provision for income taxes.

The Company recognizes

interest and penalties related to unrecognized tax benefits in its provision for income taxes.

The Company currently has no liabilities

recorded for accrued interest or penalties related to uncertain tax provisions.

OF EARNINGS (LOSS) PER SHARE

of dilutive shares for fiscal years ended March 31, 2021 and 2020 are as follows:

Fiscal year ended March 31, 2021

Fiscal year ended March 31, 2020

Basic weighted average common shares outstanding

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

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

Diluted net income

per share reflects the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options

and the proceeds thereof were used to purchase shares of Company common stock at the average market price during the period using the

treasury stock method.

For fiscal years ended March 31, 2021 and 2020, options to purchase approximately 750,000 shares and

approximately 2,230,000 shares of common stock have been excluded from diluted earnings per share as the result would have been anti-dilutive.

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–

COMMITMENTS AND CONTINGENCIES - LEASES).

Company determines if an arrangement contains a lease at the inception of a contract.

Right-of-use assets represent the Company’s

right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease

payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the commencement date.

The liability

is equal to the present value of the remaining minimum lease payments.

The asset is based on the liability, subject to certain

Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard)

while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard).

As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes its incremental

borrowing rate to discount the lease payments.

The Company utilizes the implicit rate for its finance leases.

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.

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

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 statements.

ACCOUNTING PRONOUNCEMENTS:

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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

INVENTORIES, NET

13 unchanged sentences

expense for fiscal years ended 2021 and 2020 was approximately $0.3 million.

BANK FINANCING

Credit Facility PNC Bank

June 22, 2017, the Company renewed the existing revolving credit facility (the “Revolving Credit Facility”) with PNC

Bank, National Association (“PNC”) for an additional three years which was terminated on June 16, 2020.

The outstanding

loan balance could not exceed $15.0 million during peak selling season between August 1 and December 31 and was reduced to a maximum

of $7.5 million between January 1 and July 31.

At March 31, 2020 there was no amount due on the Revolving Credit Facility.

under the Revolving Credit Facility could not exceed the sum of the following (the “Borrowing Base”):

to 70% of the Company’s eligible domestic and Canadian accounts receivable aged less than 90 days past due as defined

to the lesser of (a) 60% of the cost of eligible inventory or (b) 85% of net orderly liquidation value percentage of eligible

inventory (annual inventory appraisals required);

reserves including a dilution reserve equal to 100% of the Company’s advertising and return accrual reserves.

reserve not to exceed availability generated from eligible accounts receivable.

Revolving Credit Facility included the following sub-limits:

of Credit to be issued limited to $3.0 million.

availability limited to $5.0 million.

million eligible in-transit inventory sublimit within the $5.0 million total inventory.

pay-down to $1.0 million (excluding letters of credit) for any 30 consecutive days between February 1 and April 30.

Revolving Credit Facility had to comply with the following quarterly financial covenants to avoid default:

charge coverage ratio test as defined.

expenditures limited to approximately $0.4 million per year.

of September 30, 2019 the Company defaulted on the Revolving Credit Facility due to non-compliance with the fixed charge coverage

ratio in part due to the loss of margin and expenses associated with the damaged goods discussed above.

In November 2019, the

Company entered into a Forbearance Agreement with PNC Bank National Association (“PNC”) whereby PNC delayed taking

action it would have been be entitled to under a default through March 31, 2020.

The Forbearance Agreement required, among other

matters, the Company to comply with certain conditions and covenants including the following:

implemented a $1,000,000 loan availability block.

required EBITDA hurdles of greater than or equal to $400,000 for the third quarter ending December 31, 2019, of $0 for the

six months ending March 31, 2020 and $(83,000) for the twelve months ending March 31, 2020.

charged a loan pricing increase of .5% until March 31, 2020 which continued until termination of Revolving Credit Facility.

Company remained in default of the forbearance agreement up until termination of the Revolving Credit Facility on June 16, 2020

at which time the Company entered into the Intercreditor Revolving Credit Facility with Crestmark and Iron Horse.

to the Forbearance Agreement interest on the Revolving Line of Credit was accrued at .75% per annum over PNC’s announced

prime rate with an option for the Company to elect the 1, 2 or 3 month fully absorbed PNC LIBOR Rate plus 2.75% per annum with

a default rate of 2% over the applicable rate.

Upon execution of the Forbearance Agreement there was a pricing rate increase of

.5% on the .75% per annum rate and the PNC LIBOR Rate plus 2.75%.

There was an unused facility fee equal to .375% per annum on

the unused portion of the Revolving Credit Facility which was calculated on the basis of a 360 day year for the actual number

of days elapsed and will be payable quarterly in arrears.

During the twelve months ended March 31, 2020 and 2019 the Company incurred

interest expense of approximately $0.1 million and $0.2 million, respectively, on amounts borrowed against the Revolving Credit

During the twelve months ended March 31, 2020 and 2019, the Company incurred an unused facility fee of approximately

$46,000 and $30,000, respectively on the unused portion of the Revolving Credit Facility.

Revolving Line of Credit was secured by first priority security interests in all of the named borrowers’

tangible and intangible

assets as well as first priority security interests of 100% of member or ownership interests of any of its domestic existing or

newly formed subsidiaries and first priority lien on up to 65% of the borrowers’

foreign subsidiary’s existing or

subsequently formed or acquired foreign subsidiaries.

The Revolving Credit Facility was also secured by a related-party debt subordination

agreement with Starlight Marketing Development, Ltd.

in the amount of approximately $803,000.

Costs associated with renewal of

the Revolving Credit Facility of approximately $40,000 were deferred and were amortized over the term of the agreement.

the fiscal years ended March 31, 2020 and 2019 the Company incurred amortization expense of approximately $13,000 associated with

the amortization of deferred financing costs from the Revolving Credit Facility.

Intercreditor

Revolving Credit Facility Crestmark Bank and Iron Horse Credit

June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility on eligible accounts receivable and inventory.

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

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

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

the Crestmark Bank Intercreditor Revolving Credit Line:

June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility 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.

The Company signed a two-year

Loan and Security Agreement for a $10.0 million financing facility (decreasing to $5.0 million in off-peak season) with Crestmark Bank

(“Crestmark Facility”) on eligible accounts receivable.

The outstanding loan balance cannot exceed $10.0 million during peak

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

Costs associated

with closing of the Intercreditor Revolving Credit Facility of approximately $74,000 were deferred and are being amortized over one year.

During fiscal years ended March 31, 2021 and 2020 the Company incurred amortization expense of approximately $62,000 and $0, respectively

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

the Crestmark Facility:

rate shall not exceed 70% of Eligible Accounts Receivable aged less than 90 days from invoice date.

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

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

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

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

financial covenants are waived throughout the agreement.

Crestmark Intercreditor Revolving Credit Facility is secured by a perfected security interest in all assets including a first

security interest in Accounts Receivable and Inventory.

Notwithstanding the foregoing, Crestmark shall subordinate its first security

interest in inventory to Iron Horse as agreed between all parties.

The Crestmark Intercreditor Revolving Credit Facility bears

interest at the Wall Street Journal Prime Rate plus 5.50% with a floor of 8.75%.

Interest and Maintenance Fees shall be calculated

on the higher of the actual average monthly loan balance from the prior month or a minimum average loan balance of $2,000,000.

The Crestmark Intercreditor Revolving Credit Facility expires on June 15, 2022.

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

the Iron Horse Intercreditor Revolving Credit Line:

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

and Inventory.

Notwithstanding the foregoing, Crestmark shall subordinate its first security interest in inventory to IHC as agreed between

The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus 5.50% with a floor of 8.75%.

Maintenance Fees shall be calculated on the higher of the actual average monthly loan balance from the prior month or a minimum average

loan balance of $2.0 million.

For the fiscal years ended March 31, 2021 and 2020 the Company recorded interest expense under the Crestmark

Facility of approximately $0.2 million and $0.0 million, respectively.

The Crestmark Facility expires on June 15, 2022.

March 31, 2021 and 2020 the Company had no outstanding balance on the Crestmark Facility.

In addition, the Company executed a two-year

Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $2.5 million in inventory financing.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

the IHC Facility:

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

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

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

less non-financed capital expenditures, cash dividends and distributions paid and cash taxes paid divided by the sum of interest

and principal on all indebtedness.

This financial covenant has been waived for the first six months of the Intercreditor Revolving

Iron Horse Intercreditor Revolving Credit Facility is secured by a perfected security interest in the Company’s inventory.

The Iron Horse Intercreditor Revolving Credit Facility bears interest at 1.292% per month or 15.51% annually.

Interest shall be

calculated on the higher of the actual average monthly loan balance from the prior month or a minimum average loan balance of

The Iron Horse Intercreditor Revolving Credit Facility expires on June 15, 2022.

connection with the PNC Revolving Line of Credit, the agreement also included a two-year term note (“Term Note”) in

the amount of $1.0 million.

The Term Note bore interest at 1.75% per annum over PNC’s announced prime rate or 1, 2, or 3

month PNC LIBOR Rate plus 3.75%.

The Term Note was payable in quarterly installments of $125,000 plus accrued interest with the

first installment paid on August 1, 2017.

At March 31, 2020 and 2019, the outstanding balance on the Term Note was approximately

$0.0 million and $0.1 million, respectively.

During the years ended March 31, 2020 and 2019 the Company incurred interest expense

of approximately $0 and $22,000, respectively.

by an independent third-party appraiser engaged by IHC.

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

interest, taxes, depreciation and amortization (“EBITDA”) less non-financed capital expenditures, cash dividends and

distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness.

This financial covenant

was waived for the first six months of the IHC Facility.

As of March 31, 2021, the Company was in compliance with this covenant.

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

The IHC Facility bears interest at 1.292%

per month or 15.51% annually.

Interest shall be calculated on the higher of the actual average monthly loan balance from the prior

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

Interest expense under the IHC Facility for the fiscal years ended March 31,

2021 and 2020 was approximately $0.1 million and $0.0 million, respectively.

The IHC Facility expires on June 15, 2022.

31, 2021 and 2020, there was an outstanding balance of approximately $65,000 and $0, respectively.

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.

Credit Facility PNC Bank

June 22, 2017, the Company renewed the existing revolving credit facility (the “PNC Revolving Credit Facility”) with PNC

Bank, National Association (“PNC”) for an additional three years which was terminated on June 16, 2020 and replaced by the

Intercreditor Revolving Credit Facility with Crestmark and IHC.

In September 2019, the Company defaulted on the PNC Revolving Credit

Facility due to non-compliance with the fixed charge coverage ratio requirement.

In November 2019, the Company entered into a Forbearance

Agreement with PNC whereby PNC delayed taking action they would have been entitled to under a default through March 31, 2020.

remained in default of the Forbearance Agreement up until termination of the Revolving Credit Facility on June 16, 2020 at which time

the Company executed the Intercreditor Revolving Credit Facility with Crestmark and IHC.

As of March 31, 2021, and 2020 there were no

amounts due on the PNC Revolving Credit Facility.

During the fiscal years ended March 31, 2021 and 2020 the Company incurred interest

expense of approximately $0.0 million and $0.1 million, respectively on amounts borrowed against the PNC Revolving Credit Facility.

Payable Payroll Protection Plan

May 5, 2020, the Company received loan proceeds from Crestmark 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 Small Business

Administration (“SBA”), and the SBA has provided Crestmark with the loan forgiveness amount.

For the fiscal years ended March

31, 2021 and 2020 the Company incurred interest expense of approximately $4,000 and $0, respectively.

As of March 31, 2021 and 2020 there

was an outstanding balance on the PPP note payable of approximately $0.4 million and $0.0 million, respectively.

In June 2021 the Company

received notification from the SBA that the loan had been forgiven in its entirety.

Notes Payable

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

a new ERP System project over a term of 60 months at a cost of approximately $0.4 million.

Upon approval by Company management,

Dimension released progress payments directly to the project vendor as specific project milestones were met.

Progress payments

were made to the vendor over a period of approximately nine months and the Company was charged financing costs only on the amounts

released to the vendor.

At the end of each quarter, progress payments made to the vendor were converted to installment notes.

As of March 31, 2020 the Company executed two installment notes totaling approximately $0.3 million for payments issued to the

project vendor.

The installment notes have 60 month terms with interest rates of 7.58% and 9.25%, respectively.

The installment

notes are payable in monthly installments of $5,785 which include principal and interest.

As of March 31, 2020 there was an outstanding

balance on the installment notes of approximately $0.3 million.

For the year ended March 31, 2020 the Company incurred interest

expense of approximately $23,000.

April 2020 the Company executed a third installment note in the amount of approximately $0.1 million for the remaining amounts

payable to the project vendor.

The third installment has 60 month payment terms and bears interest at 8.55%.

Initial monthly payments

of $1,674 commenced on April 1, 2020.

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

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

As of March 31, 2021, the Company executed three installment

notes totaling approximately $0.4 million for payments issued to the project vendor.

The installment notes have 60-month terms with interest

rates of 7.58%, 8.55% and 9.25%, respectively.

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

and interest.

For both fiscal years ended March 31, 2021 and 2020 there was an outstanding balance on the installment notes of approximately

$0.3 million.

For the fiscal years ended March 31 2021 and 2020 the Company incurred interest expense of approximately $26,000 and $23,000,

respectively.

Debt/Note Payable to Related Party

subordination agreement was previously amended reducing the amount of related party subordinated debt to the remaining amount

due of approximately $815,000.

Provision was also made to allow repayment of the remaining $815,000 in quarterly installments

of $123,000 including interest accrued at 6% per annum commencing September 30, 2017 and ending on the debt maturity date of June

Payments of $123,000 were only permitted upon receipt of the Company’s quarterly compliance certificate;

having met the mandatory pay-down of the Revolving Credit Facility to $1,000,000 and average excess availability for the prior

30 days (after subtraction of third party trade payables 30 days or more past due) of no less than $1,000,000 after giving effect

to the payment.

As part of the Conditions to Installment Payment of the subordinated debt, payments not made under this note that

could be made as a result of the foregoing prohibition, including payments after the scheduled maturity date, were not be deemed

an Event of Default and could made as soon as the Company was able to demonstrate that it met the liquidity requirements defined

Quarterly installment payments of $123,000 due on the last day of each fiscal quarter have not been made since September

2017 due to the Company not meeting these requirements.

A payment of $25,000 was made in August 2019 with approximately $12,500

paying down the principal and approximately $12,500 paying interest due.

June 1, 2020 the remaining amount due on the subordinated debt of approximately $803,000 was converted to a note payable which

bears interest at 6%.

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

expense would be accrued on the unpaid principal retroactively from the date that scheduled payments had been missed resulting

in an incremental charge to interest expense of approximately $72,000 for the Fiscal 2020.

During the fiscal years ended March

31, 2020 and 2019 interest expense was approximately $74,000 and $21,000, respectively on the related party subordinated debt.

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

note payable”) to Starlight Marketing Development, Ltd.

Both Crestmark and Iron Horse agreements allow for the repayment

of the subordinated note payable provided any amounts borrowed against these credit facilities are paid in full, the Company maintains

1 debt coverage ratio and exhibits sufficient cash liquidity to support on-going operations.

There is no set schedule with

regards to repayment of the note and as such the subordinated note payable has been classified a non-current liability for the

year ended March 31, 2020 on the consolidated balance sheets.

As of March 31, 2019 the remaining amount due on the subordinated

debt was approximately $815,000 and was classified as a current liability on the consolidated balance sheets.

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

Marketing Development, Ltd.

of approximately $803,000.

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

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

of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be accrued at the same

6% interest rate on the unpaid principal retroactively from the date that previously scheduled payments had been missed.

fiscal years ended March 31, 2021 and 2020 interest expense was approximately $47,000 and $74,000, respectively on the subordinated

note payable and the related party subordinated debt.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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

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

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

1 debt coverage ratio and exhibits

sufficient cash liquidity to support on-going operations.

As of March 31, 2021 the Company met repayment requirements of the

Intercreditor Revolving Credit Facility to make principal payments totaling $0.3 million.

During the next twelve months the Company

intends on making additional payments and pay off the remaining balance outstanding provided the Company meets all repayment

requirements of the Crestmark Facility and IHC Facility agreements.

of March 31, 2021 and 2020 the remaining amount due on the note payable was approximately $0.5 million and $0.8 million, respectively.

The remaining amount due on the subordinated note payable was classified as a current liability as of March 31, 2021 on the consolidated

balance sheets.

6 - COMMITMENTS AND CONTINGENCIES

or about February 4, 2020 Singing Machine was named in a product liability complaint alongside Target and Energizer Brands in

the state of Missouri.

It is alleged by the Plaintiff, an individual, that one of Singing Machine’s karaoke products injured

the plaintiff while she was operating the product from battery power.

Plaintiff alleges her injury occurred when battery acid

leaked from the karaoke product.

The plaintiff purchased the karaoke machine at Target and operated the karaoke machine with Energizer

Plaintiff is suing both Singing Machine and Energizer because she is unsure whether the karaoke product or the batteries

caused the battery acid leak.

plaintiff alleges four counts of action against Singing Machine including strict product liability, negligence, breach of warranty,

and failure to warn.

Singing Machine has product liability insurance and the matter has been turned over the matter to insurance

company’s counsel in defending the matter.

The Company does not believe that the resolution

of this matter is likely to have a material adverse effect on the Company’s financial condition, results of operations or

of August 12, 2020 management is not aware of any other legal proceedings other than matters that arise in the ordinary

course of business.

September 11, 2020 a Complaint was filed against the Company’s SMCL subsidiary and various staffing agencies used by SMCL in a

Superior Court of San Bernadino County.

The complaint alleges an employee of SMCL committed employment practice violations against a

former temporary employee not employed by SMC Logistics.

Management has investigated the allegation and has engaged with an employment

attorney to defend the lawsuit.

Management does not believe the claims have merit and does not believe the lawsuit will have a material

adverse effect on our financial results.

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

Company determines if an arrangement contains a lease at the inception of a contract.

Right-of-use assets represent the Company’s

right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease

payments arising from the lease.

Right-of-use assets represent the

Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation

to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the commencement date.

The liability

is equal to the present value of the remaining minimum lease payments.

The asset is based on the liability, subject to certain

Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard)

while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard).

As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes its incremental

borrowing rate to discount the lease payments.

The Company utilizes the implicit rate for its finance leases.

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

through 2024.

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

Florida where we lease approximately 6,500 square feet of office space.

The liability is equal to the present value of the remaining minimum lease payments.

The asset is based on the liability, subject to

certain adjustments.

Operating leases result in straight-line expense (similar to operating leases under the prior accounting

standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting

As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes

its incremental borrowing rate to discount the lease payments.

The Company utilizes the implicit rate for its finance

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

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

where we lease approximately 6,500 square feet of office space.

The lease expires on March 31, 2024.

The base rent payment

is approximately $8,800 per month, subject to annual adjustments.

entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California

for our logistics operations.

The lease expires on August 31, 2020 (original lease term of 87 months).

The base rent payment is

approximately $43,700 per month for the remaining term of the lease.

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

which will expire on August 31, 2023.

The base rent payment is approximately

$9,400 per month, subject to annual adjustments.

entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California for

our logistics operations.

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

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

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

The rent is fixed

at approximately $1,600 per month for the duration of the lease which expires on April 30, 2021.

The lease provides for a renewal

option to extend the lease.

The rent is fixed at

approximately $1,600 per month for the duration of the lease which expired on April 30, 2021.

In May 2021 we executed a one-year lease

extension which will expire on April 30, 2022.

The lease provides for a renewal option to extend the lease.

Rent expense on the new lease

is fixed at approximately $1,700 per month for the duration of the lease term.

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

1 unchanged sentence

Fargo”) to finance the leasing of two used forklift vehicles in the amount of approximately $44,000.

The leases require

monthly payments in the amount of $1,279 per month over a total lease term of 36 months which commenced on June 1, 2018.

The agreement

has an effective interest rate of 4.5% and the Company has the option to purchase the equipment at the end of the lease term for

As of March 31, 2020 and 2019 the remaining amounts due on these capital leasing arrangements was $18,000 and $32,000,

The leases require monthly

payments in the amount of $1,279 per month over a total lease term of 36 months which commenced on June 1, 2018.

The agreement has an

effective interest rate of 4.5% and the Company has the option to purchase the equipment at the end of the lease term for one dollar.

As of March 31, 2021 and March 31, 2020, the remaining amounts due on these capital leasing arrangements was approximately $3,000 and

$18,000, respectively.

For the fiscal years ended March 31, 2020 and 2019 the Company incurred interest expense of $894 and $1,155, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

balance sheet information related to leases as of March 31, 2021 is as follows:

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the years ended March 31, 2021 and 2020 the Company issued the following common stock shares:

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 $0.17 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.

March 31, 2019, the Company accrued a subscription receivable for 20,000 shares of its common stock to a former director who exercised

stock options at an exercise price of $0.11 per share.

The Company received payment of $2,200 in May 2019.

January 24, 2019, the Company issued 60,000 shares of its common stock to a current director who exercised stock options at an

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.

The Company received payment of $4,000 in January 2019.

August 3, 2018 the Company issued 80,000 shares of its common stock to a former director who exercised stock options at an average

exercise price of $.08 per share.

The Company received payment of $6,400 in January 2019.

August 1, 2018, the Company issued 22,725 shares of its common stock to our Board of Directors at $0.55 per share, pursuant to

our annual director compensation plan for the fiscal year ending March 31, 2019.

The value of this issuance was $12,500.

accordance with FASB ASC 210, “Earnings per Share”, basic earnings per share are computed by dividing the net earnings

for the year by the weighted average number of common shares outstanding.

Diluted earnings per share is computed by dividing earnings

for the year by the weighted average number of common shares outstanding including the effect of common stock equivalents.

of March 31, 2020 there were common stock equivalents to purchase 2,230,000 shares of common stock, none of which were included

in the computation of diluted earnings per share because their effect on earnings per share would be anti-dilutive.

For the fiscal

year ended March 31, 2019 there were common stock equivalents to purchase 2,210,000 shares of common stock of which 1,630,000

were included in the computation of diluted earnings 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.

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 $0.17 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

June 1, 2001, the Board of Directors approved the 2001 Stock Option Plan (“Plan”), as amended.

The Plan was developed

to provide a means whereby directors and selected employees, officers, consultants, and advisors of the Company may be granted

incentive or non-qualified stock options to purchase common stock of the Company.

As of March 31, 2020, the Plan had expired and

no shares were available to be issued nor were any additional shares issued from the plan in Fiscal 2020 or 2019.

The Plan was developed to

provide a means whereby directors and selected employees, officers, consultants, and advisors of the Company may be granted incentive

or non-qualified stock options to purchase common stock of the Company.

As of March 31, 2021, the Plan had expired and no shares were

available to be issued nor were any additional shares issued from the plan in Fiscal 2021 or 2020.

summary of stock option activity for each of the years presented is summarized below.

Exercise Price

Number of Options

Weighted Average Exercise Price

Number of Options

Weighted Average Exercise Price

Stock Options:

3 unchanged sentences

following table summarizes information about employee stock options outstanding at March 31, 2021:

Exercise Price

Outstanding at

March 31, 2020

Contractual Life

Exercise Price

Exercisable at

March 31, 2020

Exercise Price

Range of Exercise Price

Outstanding at March 31, 2021

Average Remaining Contractual Life

Average Exercise Price

Exercisable at March 31, 2021

Average Exercise Price

$0.12 - $0.38

$0.47 - $0.55

Total number of options outstanding as of March 31, 2020 includes 1,080,000 options issued to five current and two former directors

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

Total number of options outstanding as of March 31, 2021 includes 600,000 options issued to five current and two former directors as

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

8 - INCOME TAXES

Company files separate tax returns in the United States and in Macau.

The Macau Subsidiary has received approval from the Macau

government to operate its business as a Macau Offshore Company (MOC), and is exempt from the Macau income tax.

For the fiscal

years ended March 31, 2020 and 2019, the Macau Subsidiary recorded no tax provision.

The Macau Subsidiary has received approval from the Macau government

to operate its business as a Macau Offshore Company (MOC), and is exempt from the Macau income tax.

For the fiscal years ended March

31, 2021 and 2020, the Macau Subsidiary recorded no tax provision.

Federal net operating loss carryforward is subject to an IRS Section 382 limitation.

2 unchanged sentences

For the fiscal year ended March 31, 2021

31, 2020 we determined our effective tax rate to be approximately 18.1% and we recorded a tax benefit of approximately $0.6 million

which was net of a valuation reserve of approximately $0.1 million for deferred tax assets that will most likely expire prior

to the Company’s ability to realize them.

For the fiscal year ended March 31, 2019 we determined our effective tax rate

to be approximately 20.1% and we recorded a tax provision of approximately $0.2 million.

The Company also recorded an income tax

receivable of approximately $0.1 million due to the availability of net operating loss carrybacks and alternative minimum tax

credits that were realized for the year ended March 31, 2020.

The income tax receivable was included as a component of prepaid

expenses and other current assets on the accompanying consolidated balance sheet as of March 31, 2020.

income tax(benefit) provision for federal, foreign, and state income taxes in the consolidated statements of income consisted

of the following components for 2020 and 2019:

Income tax benefit:

we determined our effective tax rate to be approximately 17.4% and we recorded a tax provision of approximately $0.5 million which

was net of a valuation reserve of approximately $23,000 for deferred tax assets that will most likely expire prior to being

For the fiscal year ended March 31, 2020 we determined our effective tax rate to be approximately 18.1% and we recorded a

tax benefit of approximately $0.6 million which was net of a valuation reserve of approximately $88,000 for deferred tax assets that

will most likely expire prior to being realized.

The Company also recorded an income tax receivable of approximately $0.1 million

due to the availability of net operating loss carrybacks and alternative minimum tax credits that were realized for the year ended

March 31, 2021.

The income tax receivable was included as a component of prepaid expenses and other current assets on the

accompanying consolidated balance sheet as of March 31, 2021.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of operations consisted of

the following components for 2021 and 2020:

Income tax provision (benefit):

Total current Federal and State tax benefit

6 unchanged sentences

actual tax provision differs from the “expected”

tax expense for the years ended March 31, 2020 and 2019

(computed by applying the U.S.

tax for the years ended March 31, 2021 and 2020 (computed by applying the

Federal Corporate tax rate of 21 percent to income before taxes) as follows:

Expected tax (benefit) expense

State income taxes, net of Federal income tax (benefit) provision

Expected tax provision (benefit)

State income taxes, net of Federal income tax provision (benefit)

Permanent differences

Deemed dividend from foreign subsidiary

Tax rate differential on foreign earnings

3 unchanged sentences

Correction of state rate

Actual tax (benefit) provision

Actual tax provision (benefit)

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED FINANCIAL STATEMENTS

31, 2021 and 2020

tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

1 unchanged sentence

State NOL Carryforward

AMT credit carryforward

General business credit

1 unchanged sentence

Stock option compensation expense

Stock warrants

Allowance for doubtful accounts

6 unchanged sentences

Prepaid expenses

Net deferred tax liability

Net deferred tax liabilities

Net deferred tax asset

Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and

negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

The analysis performed

to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary

differences and the length of carryback and carryforward periods available under the applicable federal and state laws;

amount and timing of future taxable income.

At March 31, 2020, the Company evaluated the realizability of its deferred tax assets

in accordance with GAAP and concluded that a $87,842 valuation allowance against deferred tax assets was necessary.

The recognition

of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding,

among other considerations, the Company’s history of earnings and projected earnings for fiscal year 2021 and in the future.

March 31, 2020, the Company has federal tax net operating loss carryforwards in the amount of approximately $1.7 million that

begin to expire in the year 2025.

$1.1 million of the net operating loss carryforward is subject to an IRS Section 382 limitation

that limits the amount available to use beginning in Fiscal 2020 to approximately $0.15 million per year.

In addition the

Company has state tax net operating loss carryforwards of approximately $2.0 million that will begin to expire beginning in 2024.

Company is no longer subject to income tax examinations for fiscal years before 2017.

Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative

evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

The analysis performed to assess

the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary differences

and the length of carryback and carryforward periods available under the applicable federal and state laws;

and the amount and timing

of future taxable income.

At March 31, 2021, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP

and concluded that a $22,649 valuation allowance against deferred tax assets was necessary.

The recognition of the remaining net deferred

tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding, among other considerations, the Company’s

history of earnings and projected earnings for fiscal year 2022 and in the future.

March 31, 2021, the Company has federal tax net operating loss carryforwards in the amount of approximately $1.2 million that begin to

expire in the year 2025.

The net operating loss carryforward is subject to an IRS Section 382 limitation that limited the amount available

to use beginning in Fiscal 2020 to approximately $.15 million per year.

In addition, the Company has state tax net operating loss carryforwards

of approximately $3.6 million that will begin to expire beginning in 2024.

9 - SEGMENT INFORMATION

8 unchanged sentences

Contributions made by the Company are limited to the maximum allowable for federal income tax purposes.

charged to operations for contributions to this plan and administrative costs during the fiscal years ended March 31, 2020 and

2019 totaled approximately $63,000 and $70,000, respectively.

The amounts are included as a component of general and administrative

expense in the accompanying Consolidated Statements of Operations.

The Company does not provide any post-employment benefits to

The amounts charged

to operations for contributions to this plan and administrative costs during the fiscal years ended March 31, 2021 and 2020 totaled approximately

$74,000 and $63,000, respectively.

The amounts are included as a component of general and administrative expense in the accompanying

Consolidated Statements of Operations.

The Company does not provide any post-employment benefits to retirees.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

11 - CONCENTRATIONS OF CREDIT RISK, CUSTOMERS, AND SUPPLIERS

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

The Company’s allowance for

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

are concentrated with several large customers.

At March 31, 2020, 82% of accounts receivable were due from four customers in North

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

At March 31, 2019, 62% of accounts receivable were due from

two customers in North America.

derived from three customers in 2020 and 2019 were 63% and 66%, respectively.

Revenues from customers representing greater than

10% of total net sales were derived from top three customers in 2020 and 2019 as percentage of the net sales were 39%, 13% and

11% and 39%, 14% and 13%, respectively.

The loss of any of these customers could have an adverse impact on the Company.

sales derived from the Macau Subsidiary aggregated approximately $4.5 million and $7.6 million in fiscal 2020 and 2019, respectively.

Company is dependent upon foreign companies for the manufacture of all of its electronic products.

The Company’s arrangements

with manufacturers are subject to the risk of doing business abroad, such as import duties, trade restrictions, work stoppages,

foreign currency fluctuations, political instability, and other factors, which could have an adverse impact on its business.

Company believes that the loss of any one or more of their suppliers would not have a long-term material adverse effect because

other manufacturers with whom the Company does business would be able to increase production to fulfill their requirements.

the loss of certain suppliers in the short-term could adversely affect business until alternative supply arrangements are secured.

fiscal years 2020 and 2019, manufacturers in the People’s Republic of China accounted for 100% of the Company’s total

product purchases, including all of the Company’s hardware purchases.

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

The Company’s allowance for doubtful accounts is

based upon management’s estimates and historical experience and reflects the fact that accounts receivable are concentrated with

several large customers.

At March 31, 2021, 70% of accounts receivable were due from four customers in North America that individually

owed over 10% of total accounts receivable.

At March 31, 2020, 82% of accounts receivable were due from four customers in North America

that individually owed over 10% of total accounts receivable.

derived from three customers in 2021 and 2020 were 69% and 64% of total revenue, respectively.

Revenues from customers representing greater

than 10% of total net sales were derived from top four customers in Fiscal 2021 and top three customers in Fiscal 2020 as percentage

of the net sales were 36%, 20%, 13% and 12%, and 41%, 13% and 10%, respectively.

The loss of any of these customers could have an adverse

impact on the Company.

Macau Subsidiary recorded net sales of approximately $4.1 million and $5.1 million in fiscal 2021 and 2020, respectively.

Company is dependent upon foreign companies for the manufacture of all its electronic products.

The Company’s arrangements with

manufacturers are subject to the risk of doing business abroad, such as import duties, trade restrictions, work stoppages, foreign currency

fluctuations, political instability, and other factors, which could have an adverse impact on its business.

The Company believes that

the loss of any one or more of their suppliers would not have a long-term material adverse effect because other manufacturers with whom

the Company does business would be able to increase production to fulfill their requirements.

However, the loss of certain suppliers

in the short-term could adversely affect business until alternative supply arrangements are secured.

fiscal years 2021 and 2020, manufacturers in the People’s Republic of China accounted for 100% of the Company’s total product

purchases, including all of the Company’s hardware purchases.

In 2018 the U.S.

government imposed tariffs of up

to 25% on certain goods 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 currently in place.

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.

If we are unable to mitigate these increased costs through price increases we could experience reductions

in revenues, gross profit margin and results from operations.

government-imposed tariffs of up to 25% on certain

goods 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 currently in place.

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.

RELATED PARTY TRANSACTIONS

TO/FROM RELATED PARTIES

March 31, 2020 the Company had approximately $0.5 million due to related parties for services provided by these companies and

licensing fees for use of pedestal model molds and tools owned by the parent company.

On March 31, 2019, the Company had approximately

$0.3 million due from related parties for goods and services sold these companies.

Fiscal 2020 and 2019 the Company paid approximately $0.4 million to Starlight Electronics Company, Ltd (“SLE”) as

reimbursement for engineering, quality control and other administrative services performed on our behalf in China.

These expense

reimbursements were included in general and administrative expenses on our consolidated statements of operations.

Fiscal 2020 and 2019 the Company sold approximately $0.9 million and $1.2 million, respectively of product to Winglight Pacific,

(“Winglight”) a related company, for direct shipment to Cosmo Communications of Canada, Ltd (“Cosmo”),

another related company, at discounted pricing granted to major direct import customers shipped internationally with freight prepaid.

The average gross profit margin on sales to Winglight for Fiscal 2020 and 2019 was 23.7% and 30.1%, respectively.

These amounts

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

Fiscal 2020 and 2019 the Company sold approximately $0.3 million and $0.4 million, respectively of product to Cosmo from our California

warehouse facility.

These goods were sold at a discounted price, similar to prices granted to major direct import customers shipped

internationally with freight prepaid.

The average gross profit margin on sales to Cosmo yielded 26.6% and 22.5%, respectively.

These amounts were included as a component of net sales in the accompanying consolidated statements of operations.

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

the Company became the sole and exclusive distributor of the Company’s products in Canada.

As part of the agreement, the

companies executed a Purchase and Sale agreement whereby the Company acquired all of Cosmo’s karaoke inventory for approximately

$0.7 million.

March 31, 2021 the Company had approximately $0.1 million due to related parties SLRD, SCE and SLE for services provided by these companies

and licensing fees for use of pedestal model molds and tools owned by them.

On March 31, 2020, the Company had approximately $0.5 million

due from related parties SLRD, SCE and SLE for goods and services sold to these companies.

both Fiscal 2021 and 2020 the Company paid approximately $0.4 million to SLE as reimbursement for engineering, quality control and other

administrative services performed on our behalf in China.

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of operations.

Fiscal 2021 and 2020 the Company sold approximately $0.0 million and $0.9 million, respectively of product to Winglight for direct shipment

to Cosmo at discounted pricing granted to major direct import customers shipped internationally with freight prepaid.

These amounts were

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

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

Company became the sole and exclusive distributor of the Company’s products in Canada.

As part of the agreement, the companies

executed a Purchase and Sales agreement whereby the Company acquired all of Cosmo’s karaoke inventory for approximately $0.7 million.

During Fiscal 2021 there was a gain of approximately $0.2 million from Cosmo related to payments received in Fiscal 2021 on prior year

sales and the related receivable previously reversed and written off as initially deemed uncollectible.

RESERVE FOR SALES RETURNS

return program for defective goods is negotiated with each of our wholesale customers on a year-to-year basis.

Customers are either

allowed to return defective goods within a specified period of time after shipment (between 6 and 9 months) or granted a “defective

allowance”

Customers are either allowed

to return defective goods within a specified period of time after shipment (between 6 and 9 months) or granted a “defective allowance”

consisting of a fixed percentage (between 1% and 5%) off of invoice price in lieu of returning defective products.

The Company does make occasional exceptions to this return policy and accordingly records a sales return reserve based on historic

return amounts, specific exceptions as identified and management estimates.

The Company does make

occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific

exceptions as identified and management estimates.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

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

The liability

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

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

4 unchanged sentences

Reserve for sales returns at end of the year

DAMAGED GOODS INCIDENT

August 2019, we received notification from a major customer that several containers of goods from multiple vessels purchased direct import

by the customer had arrived severely water damaged.

Upon inspection of the damaged goods by insurance surveyors it was their opinion

that the source of the damage was due to moisture in the pallets provided by the factory which caused significant condensation and consequently

water damage to the merchandise.

Actual damage to the goods occurred while the goods were in transit.

We filed insurance claims on our

cargo insurance policy which provided for recovery of the sales value plus additional expenses associated with the damaged goods.

the fiscal year ended March 31, 2020, the customer charged us back a total of approximately $1.7 million for damaged goods consisting

of sales value of approximately $1.6 million which was recorded as a reduction in net sales and approximately $0.1 million in freight

charges which were expensed as a component of sales and marketing expense on the accompanying consolidated statements of operations.

For the fiscal year ended March 31, 2020, we incurred additional related expenses of approximately $0.3 million that were included as

a component of general and administrative expenses on the accompanying consolidated statements of operations.

We recorded a refund due

to the customer of approximately $0.5 million which reflected approximately $1.7 million of chargebacks by the customer less approximately

$1.2 million the customer had deducted on payment remittances to the Company as of March 31, 2020.

We recognized an insurance claim receivable

of approximately $1.3 million (the approximate cost of the damaged goods destroyed) on the accompanying consolidated balance sheets for

March 31, 2020.

Fiscal 2021, we recovered approximately $2.3 million in proceeds from the damaged goods insurance claim which consisted of $1.6 million

of lost sales, approximately $0.1 million in freight costs and approximately $0.6 million in out-of-pocket expenses associated with the

We recognized a one-time gain from the damaged goods claim settlement of approximately $1.1 million (net of the insurance claim

receivable) as other income for the fiscal year ended March 31, 2021 on the accompanying statements of operations.

In addition, we recognized

an additional one-time gain of approximately $0.4 million as other income for the fiscal year ended March 31, 2021 on the accompanying

consolidated statements of operations due settlement of accounts payable by the factory that caused the damage.

REFUNDS DUE TO CUSTOMERS

of March 31, 2020 and 2019 the amount of refunds due to customers was approximately $807,000 and $31,000, respectively Refunds

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

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

The remaining $297,000 is primarily due to amounts due to two major customers for overstock returns.

(See Note 2 –

of March 31, 2021 and 2020 the amount of refunds due to customers was approximately $0.1 million and $0.8 million, respectively.

refunds related to the damaged goods incident were settled with the customer from proceeds from the damaged goods insurance

settlement claim.

Refunds due to customers at March 31, 2021 were primarily due to amounts due to two major customers for

seasonal returns.

Refunds due to customers at March 31, 2020 were primarily due to one major customer which reflects approximately

$1.7 million of chargebacks primarily due to damaged goods received less approximately $1.2 million that the customer had deducted

on payment remittances to the Company as of March 31, 2020.

The remaining $0.3 million was primarily due to amounts due to two major

customers for overstock returns.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

reserves and allowances for years ended March 31, 2021 and 2020 are presented in the following table:

8 unchanged sentences

Inventory reserve

SUBSEQUENT EVENT

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 business.

The loans and accrued interest may be forgivable to the extent the Company uses the

loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eligible period.

unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first

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

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 9A. Controls and Procedures