What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-02-22 · 584 added, 1016 removed, 249 unchanged (87% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

December 31, 2020

March 31, 2020

Current Assets

Accounts receivable, net of allowances of $281,501 and $337,461 respectively

Due from banks

Accounts receivable related party - Winglight Pacific, Ltd

Insurance claim receivable

Accounts receivable, net of allowances of $ 126,156 and

$ 138,580 , respectively

Due from Crestmark Bank

Inventories, net

6 unchanged sentences

Other non-current assets

Liabilities and Shareholders’

Current Liabilities

1 unchanged sentence

Accrued expenses

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

Due to related party - Starlight Electronics Co., Ltd

Due to related party - Starlight Consumer Electronics

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 note payable - Paycheck Protection

Current portion of operating lease liabilities

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

Subordinated related party debt

- Starlight Marketing Development, Ltd.

Total Current Liabilities

Finance leases, net of current portion

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.,

Note payable - Payroll Protection Program, net of current

Operating lease liabilities, net

of current portion

Total Liabilities

Commitments and Contingencies

Shareholders’

Shareholders’ Equity

Preferred stock, $ 1.00 par value;

1,000,000 shares authorized;

no shares issued and

no shares issued and outstanding

Common stock, Class A, $ 0.01 par value;

100,000 shares authorized;

no shares issued and

100,000 shares

no shares issued and outstanding

Common stock, Class B, $ 0.01 par value;

100,000,000 shares authorized;

39,040,748 and 38,557,643

shares issued and outstanding, respectively

100,000,000 shares

39,060,748 and 39,040,748 shares issued and outstanding, respectively

Additional paid-in capital

2 unchanged sentences

( 12,254,191 )

Total Shareholders’

Total Liabilities and Shareholders’

Total Shareholders’

Total Liabilities

and Shareholders’ Equity

notes to the condensed consolidated financial statements

1 unchanged sentence

and Subsidiaries

CONSOLIDATED INCOME STATEMENTS

For the Three Months Ended

For the Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

CONSOLIDATED STATEMENTS OF OPERATIONS

June 30, 2021

Three Months Ended

June 30, 2021

Cost of Goods Sold

3 unchanged sentences

Total Operating Expenses

Income (Loss) from Operations

Loss From Operations

Other Income (Expenses)

Gain from Payroll Protection Plan loan forgiveness

Gain - related party

Gain from damaged goods insurance claim

Gain from extinguishment of accounts payable

Gain - related party

Interest expense

Finance costs

Total Other Income (Expenses), net

Income (Loss) Before Income Tax (Provision) Benefit

Income Tax (Provision) Benefit

Net Income (Loss)

Total Other Income (Expenses),

Loss Before Income Tax Benefit

Income Tax Benefit

$ ( 118,613 )

Net Income (Loss) per Common Share

$ ( 206,804 )

Net Loss per Common Share

Basic and Diluted

Weighted Average Common and Common

Equivalent Shares:

Weighted Average Common and Common Equivalent Shares:

Basic and Diluted

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

December 31, 2020

December 31, 2019

the Three Months Ended

Cash flows from operating activities

Net Income (loss)

$ ( 118,613 )

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

$ ( 206,804 )

Adjustments to reconcile net loss to net cash provided

by (used in) operating activities:

Amortization of deferred financing costs

2 unchanged sentences

Stock based compensation

Gain - related party

Change in net deferred tax assets

Payroll Protection Plan loan forgiveness

Gain - related party

Gain from extinguishment of accounts payable

1 unchanged sentence

Accounts receivable

Due from banks

( 3,251,488 )

Due from Crestmark Bank

Accounts receivable - related parties

Insurance receivable

( 2,879,846 )

Prepaid expenses and other current assets

1 unchanged sentence

Accounts payable

( 2,133,123 )

Accrued expenses

Due to related parties

Customer deposits

Refunds due to customers

Reserve for sales returns

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

Net cash provided by operating activities

Operating lease liabilities, net

of operating leases - right of use assets

Net cash provided by (used in)

operating activities

Cash flows from investing activities

4 unchanged sentences

Proceeds from note payable - Payroll Protection Program

Payment of bank term note

Payment of deferred financing charges

Proceeds from installment notes

Payments on installment notes

Proceeds from subscription receivable

Proceeds from exercise of stock options

Payment on subordinated debt - related party

Payments on finance leases

Net cash provided by financing activities

Net cash provided by financing

Net change in cash

Cash at beginning of period

Cash at beginning of year

Cash at end of period

1 unchanged sentence

Cash paid for interest

Operating leases - right of use assets initial adoption

Operating lease liabilities - initial adoption

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

Operating leases - right of use

assets and lease liabilities at inception of lease

notes to the condensed consolidated financial statements

1 unchanged sentence

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the three months ended December 31, 2020 and 2019

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended June 30, 2021 and 2020

Preferred Stock

Additional Paid in

Subscriptions

Balance at September 30, 2020

Additional Paid

Balance at March 31, 2021

$ ( 12,254,191 )

Employee compensation-stock option

Issuance of common stock - directors

Exercise of stock options

Balance at December 31, 2020

$ (11,058,191 )

Balance at September 30, 2019

Balance at June 30, 2021

$ ( 12,372,804 )

Employee compensation-stock option

Balance at December 31, 2019

$ ( 14,426,556 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

the nine months ended December 31, 2020 and 2019

Preferred Stock

Additional Paid in

Subscriptions

Balance at March 31, 2020

$ ( 14,426,556 )

Employee compensation-stock option

Issuance of common stock - directors

Exercise of stock options

Balance at December 31, 2020

$ (11,058,191 )

Balance at March 31, 2019

Balance at June 30, 2020

$ ( 14,633,360 )

Employee compensation-stock option

Collection of subscription receivable

Exercise of stock options

Issuance of common stock - directors

Balance at December 31, 2019

$ ( 14,633,360 )

4 unchanged sentences

1 – BASIS OF PRESENTATION

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

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

(“SMC-L”) and SMC-Music, Inc.(“SMC-M”) are primarily engaged in the development, marketing, and sale

of consumer karaoke audio systems, accessories, musical instruments and musical recordings.

The products are sold by SMC to retailers

and distributors for resale to consumers.

RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

the Company incorrectly accounted

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

with its customers as selling expenses instead of a reduction in net sales for the three and nine months ended December 31, 2019,

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

of the benefit it receives from these arrangements.

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

of shareholders’

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

to condensed consolidated financial statements.

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

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

For the Three Months Ended

December 31, 2019

$ (1,661,940 )

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Loss from Operations

Other Expenses

Interest Expense

Finance Costs

Total Other Expenses

Loss Before Income Tax Benefit

Income Tax Benefit

For the Nine Months Ended

December 31, 2019

$ (2,858,069 )

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Loss from Operations

Other Expenses

Interest Expense

Finance Costs

Total Other Expenses

Loss Before Income Tax Benefit

Income Tax Benefit

$ (1,003,308 )

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

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

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

and SMC-Music, Inc.

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

accessories and musical recordings.

The products are sold directly to distributors and retail customers.

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

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

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

among others.

2 – LIQUIDITY

Company reported a net loss of approximately $ 119 ,000 for the three months ended June 30, 2021 as compared to a net loss of approximately

$ 207 ,000 for the three months ended June 30, 2020.

In May, 2020, the Company received loan proceeds from Crestmark Bank in the amount

of approximately $ 444,000 under the Paycheck Protection Program (“PPP”) established by the government to assist companies

with financial relief due to COVID-19.

The Company used the loan proceeds for loan forgiveness eligible purposes, including payroll,

benefits, rent and utilities, and maintained its existing payroll levels during the forgiveness eligible period.

In June 2021 the Company

received notification from the SBA that the loan had been forgiven in its entirety.

For the three months ended June 30, 2021, a gain

of approximately $448,000 (including principal and interest) from the forgiveness of the loan was included in other income and expenses

in the accompanying condensed consolidated statements of operations.

August 5, 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with Koncepts International

Limited (“Koncepts”) and Treasure Green Holdings, Ltd.

(“Treasure Green”), pursuant to which the Company agreed

to redeem approximately 19,623,155 shares of common stock of the Company (the “Redeemed Shares”).

The closing of the transactions

set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed Shares were assigned and transferred

back to the Company and the Company wired approximately $ 7,162,000 to Koncepts and Treasure Green.

The Redeemed Shares shall be

retired to treasury and shall become available for reissuance in the future.

August 5, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with large institutional

investors and a strategic investor for private placement of (i) 16,500,000 shares of its common stock (the “Shares”) together

with common warrants to purchase up to 16,500,000 shares of common stock for an exercise price of $ 0.35 per share, and (ii) 16,833,333

pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock at an

exercise price of $ 0.01 per share, together with Common Warrants to purchase up to 16,833,333 shares of common stock at an exercise price

of $ 0.35 per share (the “Private Placement”).

Shares issuable upon the exercise of the Pre-Funded Warrants and Common Warrants

are hereinafter referred to as the “Warrant Shares”.

The closing of the Private Placement took place on August 10, 2021,

when the Shares, Common Warrants, and Pre-Funded Warrants were delivered to the purchasers and funds, in the amount of approximately

$ 9,800,000 , were wired to the Company.

Approximately $ 7,200,000 of the funds received were used to execute the Redemption Agreement.

The Company expects an increase in working capital of approximately $ 1,800,000 of working capital after settlement of expenses associated

with closing of these transactions.

believe that current working capital, the availability of cash from our Intercreditor Revolving Credit Facility (See Note 6 – Bank

Financing), additional working capital generated by the private placement and cash generated from our operating forecast will be adequate

to meet the Company’s liquidity requirements for at least the next twelve months.

We believe the Intercreditor Revolving Credit

Facility will be adequate to maintain and grow our business during the remaining term of the agreement.

As both the Crestmark Facility

and the IHC Facility are set to expire on June 15, 2022, the Company expects to negotiate a revision or extension of these debt facilities

upon their maturity however, there can be no assurance that such revision or extension will occur or at what terms.

3 - SUMMARY OF ACCOUNTING POLICIES

1 unchanged sentence

condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries.

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

accompanying unaudited financial statements for the three and nine months ended December 31, 2020 and 2019 have been prepared

in accordance with generally accepted accounting principles applicable to interim financial information and the requirements

of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.

Accordingly, they do not include all

of the information and disclosures required by accounting principles generally accepted in the United States for complete

consolidated financial statements.

In the opinion of management, such condensed consolidated financial statements include all

adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated

financial position and the condensed consolidated results of operations.

condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected

for the full year.

The condensed consolidated balance sheet information as of March 31, 2020 was derived from the audited consolidated

financial statements included in the Company’s Annual Report on Form 10-K/A for the year ended March 31, 2020.

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

All inter-company

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

The accompanying unaudited financial

statements for the three months ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted

in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of Form 10-Q

and Article 10 of Regulation S-X of the Securities and Exchange Commission.

Accordingly, they do not include all of the information and

disclosures required by US GAAP for complete consolidated financial statements.

In the opinion of management, such condensed consolidated

financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed

consolidated financial position and the condensed consolidated results of operations.

The condensed consolidated results of operations

for the periods presented are not necessarily indicative of the results to be expected for the full year.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

condensed consolidated balance sheet information as of March 31, 2021 was derived from the audited consolidated financial statements

included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021.

The interim condensed consolidated financial

statements should be read in conjunction with that report.

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

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 condition.

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.

1 unchanged sentence

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

reserves based upon historical collection experience.

Should business conditions deteriorate or any major customer default on

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

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

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

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.

Should business conditions deteriorate or any major customer default on its obligations to the Company, this allowance

may need to be significantly increased, which would have a negative impact on operations.

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

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

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 condensed

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

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 condensed consolidated statement

of operations and translations are recorded in a separate component of shareholders’ equity.

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 more than the Federal Deposit Insurance Corporation

insured amounts.

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

The Company also maintains cash balances in foreign financial institutions.

The amounts at foreign financial

institutions at December 31, 2020 and March 31, 2020 are approximately $801,000 and $217,000, respectively.

The amounts at foreign financial institutions at

June 30, 2021 and March 31, 2021 are approximately $ 109,000 and $ 225,000 , respectively.

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

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

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

Inventories also include an estimate for the net

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

As of December 31, 2020 and

March 31, 2020 the estimated amounts for these future inventory returns were approximately $1,846,000 and $1,367,000,

respectively.

The Company reduces inventory on hand to its net realizable value on an item-by-item basis when it is apparent

that the expected realizable value of an inventory item falls below its original cost.

A charge to cost of sales results when

the estimated net realizable value of specific inventory items declines below cost.

Management regularly reviews the

Company’s investment in inventories for such declines in value.

As of December 31, 2020 and March 31, 2020 the Company

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

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

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

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

future inventory returns due to warranty and allowance programs.

As of June 30, 2021 and March 31, 2021 the estimated amounts for these

future inventory returns were approximately $ 501,000 and $ 528,000 , respectively.

The Company reduces inventory on hand to its net realizable

value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost.

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

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

As of June 30, 2021 and March 31, 2021 the

Company had inventory reserves of approximately $ 636,000 for estimated excess and obsolete inventory.

FINANCING COSTS

Company classifies deferred financing costs incurred when obtaining or renewing revolving credit facilities as assets in the accompanying

condensed consolidated balance sheets as it is likely that during certain periods during non-peak season there will be no balance due

on these credit facilities to offset the deferred financing costs.

In June 2021, the Company incurred approximately $ 38,000 in deferred

financing costs associated with the one-year renewal of the Iron Horse Credit facility (IHC Facility) which are being amortized over

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 2020

FINANCING COSTS

Company classifies deferred financing costs incurred when obtaining or renewing revolving credit facilities as assets in the accompanying

condensed consolidated balance sheets as it is likely that during certain periods during non-peak season there will be no balance

due on these credit facilities to offset the deferred financing costs.

In June 2020, the Company incurred approximately $74,000

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

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

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

Company follows FASB ASC 842, “Leases”.

The ASC requires lessees to recognize leases on the balance sheet and disclose

key information about leasing arrangements.

The 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 are classified

as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

(See Note 6–

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.” No impairment was recorded as of June 30, 2021 and 2020.

Company follows FASB ASC 842, “Leases”.

The ASC requires lessees to recognize leases on the balance sheet and disclose key

information about leasing arrangements.

The 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 are classified as finance

or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

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 liability is equal to

the present value of the remaining minimum lease payments.

The asset is based on the liability, subject to certain adjustments.

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

The Company utilizes the implicit rate for its finance leases.

1 unchanged sentence

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 subordinated debt to Starlight Marketing Development, Ltd.

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

interest accrued at a rate similar to market rates.

The carrying amount on the revolving lines of credit approximate fair value

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

The carrying amount on the Payroll Protection

Program note payable approximates fair value due the relatively short period to maturity as management intends to apply for total

forgiveness of the loan in the current fiscal year.

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 at a point in time.

The Company determines revenue recognition

utilizing the following five steps:

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

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

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

of the product or service for each performance obligation.

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 control of the goods sold is transferred to the customer, in an

amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange

for those goods.

The Company determines revenue recognition utilizing the following five steps:

(1) identification of the contract with

a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination

of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenue when,

or as, the Company transfers control of the product or service for each performance obligation.

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

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.

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.

For both three-month periods ended June 30, 2021 and 2020, co-op promotion incentives were

approximately $ 272,000 .

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 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.

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

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

fund allowances to our customers.

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

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

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

For the three months ended December 31,

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

For the nine months ended

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

incurred in fulfilling contracts with customers include administrative costs associated with the procurement of goods are included

in general and administrative expenses, in-bound freight costs are included in the cost of goods sold and accrued sales representative

commissions are included in selling expenses in the accompanying 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 9 –

GEOGRAPHICAL 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

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 was approximately $2,966,000 and $1,224,000 as of December 31, 2020 and March 31, 2020,

respectively.

is derived from four different major product lines.

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

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

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 9 – GEOGRAPHICAL 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 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 was approximately $ 750,000 and $ 960,000 as of June 30, 2021 and March 31, 2021, respectively.

was derived from four different major product lines.

Disaggregated revenue from these product lines for the three months ended June 30,

2021 and 2020 consisted of the following:

OF DISAGGREGATION OF REVENUE

June 30, 2021

June 30, 2020

Three Months Ended

Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

(as restated)

June 30, 2021

June 30, 2020

Classic Karaoke Machines

Download Karaoke Machines

SMC Kids Toys

Licensed Product

Music and Accessories

SMC Kids Toys

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 the three months ended December 31, 2020 and 2019 shipping and handling expenses were approximately

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

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

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

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 the three months ended June 30, 2021 and 2020 shipping and handling expenses

were approximately $ 151,000 and $ 83,000 , respectively.

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

1 unchanged sentence

BASED COMPENSATION

Company follows the provisions of the FASB ASC 718-20, “Compensation –

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 condensed consolidated statements of operations over the service period (generally the vesting period).

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

Employee stock option compensation expense for the

three and nine months ended December 31, 2020 and 2019 includes the estimated fair value of options granted, amortized on a straight-line

basis over the requisite service period for the entire portion of the award.

For the three months ended December 31, 2020 and

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

Company follows the provisions of the FASB ASC 718-20, “Compensation – 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 condensed consolidated statements 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 for the three months ended June 30, 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 three months ended June 30, 2021 and 2020, the stock option expense was approximately $ 5,000 and

$ 0 , respectively.

AND DEVELOPMENT COSTS

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

These expenses are shown as a component of, general and

These expenses are shown as a component of selling, general and

administrative expenses in the condensed consolidated statements of operations.

For the three months ended December 31, 2020 and

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

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

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

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

Under the asset and liability

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

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

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

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

Under ASC 740, the effect on deferred tax

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

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

As of December 31, 2020 and March 31, 2020 the Company recognized a valuation allowance reserve of approximately $88,000 for

deferred tax assets relating to net operating loss carryforwards that the Company will more than likely not be able to

realize prior to their expiration.

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

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

the nine months ended December 31, 2020 and 2019 we estimated our effective tax rate to be approximately 23% and 22%, respectively.

As of December 31, 2020 and March 31, 2020 the Singing Machine had net deferred tax assets of approximately $413,000 and $1,286,000,

respectively.

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

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

The Company recorded an income

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

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

Company recognizes a liability for uncertain tax positions.

An uncertain tax position is defined as a position in a

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

unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or

annual periods.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not

that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the

The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50%

likelihood of being realized upon ultimate resolution.

As of December 31, 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 the three and nine months ended December 31, 2020 are as follows:

three months ended December 31, 2020

For the nine months ended December 31, 2020

Basic weighted average common shares outstanding

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

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

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

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

market price during the period using the treasury stock method.

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

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

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

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

For the three months ended June 30, 2021 and 2020, these

amounts totaled approximately $ 31,000 and $ 13,000 , respectively.

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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 2020

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

Company recognizes a liability for uncertain tax positions.

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

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

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

The Company may recognize

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

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

The Company measures the tax benefits recognized based on the

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

As of June 30, 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 (LOSS) EARNINGS PER SHARE

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

net income (loss) 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 the three months ended June 30, 2021 and 2020, options to purchase 1,660,000 shares and

2,230,000 shares of common stock, respectively have been excluded from diluted earnings per share as the result would have been

anti-dilutive.

OF NEW ACCOUNTING STANDARDS

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

several issues addressed in this ASU, there was one area potentially affecting Company’s calculations of interim income tax provision

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

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

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

There is specific guidance for circumstances

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

exception to the general guidance in Subtopic 740-270.

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

those fiscal years, beginning after December 15, 2020.

We are currently evaluating the potential effects of this updated guidance

on our consolidated financial statements and related disclosures.

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

(Topic 326) .

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

to the general guidance in Subtopic 740-270.

The Company adopted the standard for the interim period ended June 30, 2021.

of this standard did not have a material effect on our condensed consolidated financial statements.

ACCOUNTING PRONOUNCEMENTS

June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses” (Topic 326) .

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 for smaller reporting companies are effective

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

Early adoption is permitted.

We are currently evaluating the potential effects of this

updated guidance on our consolidated financial statements and related disclosures.

currently evaluating the potential effects of this updated guidance on our condensed consolidated financial statements and related disclosures.

4 - INVENTORIES, NET

are comprised of the following components:

Finished Goods

3 unchanged sentences

Inventories, net

are comprised of the following components:

5 – PROPERTY AND EQUIPMENT

summary of property and equipment is as follows:

OF PROPERTY AND EQUIPMENT

Computer and office equipment

2 unchanged sentences

Molds and tooling

and equipment, gross

Accumulated depreciation

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

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

BANK FINANCING

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 which

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

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

on eligible accounts receivable.

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

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

Costs associated with closing of the

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

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

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

and equipment, net

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 2020

expense for the three months ended June 30, 2021 and 2020 was approximately $ 68,000 and $ 71,000 , respectively.

6 – BANK FINANCING

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

associated with the closing of the Intercreditor Revolving Credit Facility of approximately $ 74,000 were deferred and were amortized

over one year.

During the three months ended June 30, 2021 and 2020 the Company incurred amortization expense of approximately $ 17,000

and $ 3,000 , respectively associated with the amortization of deferred financing costs from the Intercreditor Revolving Credit Facility.

As of June 30, 2021 there was approximately $1,500,000 of available borrowings under these facilities.

the Crestmark Facility:

1 unchanged sentence

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

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

Credit Facility.

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

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

1 unchanged sentence

and Inventory.

Notwithstanding the foregoing, Crestmark shall subordinate its first security interest in inventory to IHC as agreed

between all parties.

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 %.

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.

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

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

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 .

For the three months ended June 30, 2021 and 2020, the Company recorded interest expense of approximately

$ 45,000 and $ 0 , respectively.

The Crestmark Facility expires on June 15, 2022 .

As of December

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

In addition, the Company executed a two-year Loan

and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $2,500,000 in inventory financing.

As of June 30, 2021 and March 31, 2021 the Company had

no outstanding balance on the Crestmark Facility.

addition, the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $ 2,500,000

in inventory financing.

the IHC Facility:

1 unchanged sentence

by an independent third-party appraiser engaged by IHC.

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

before interest, taxes, depreciation and amortization (“EBITDA”) less non-financed capital expenditures, cash

dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness.

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

As of December 31, 2020, the Company is in

compliance with this covenant.

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

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 June 30, 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 for the three and nine months ended December

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 .

Costs associated with the renewal of the IHC Facility of approximately $38,000 were

deferred and are being amortized over one year.

Interest expense under the IHC Facility for the three months ended June 30, 2021 and

2020 was approximately $ 39,000 and $ 8,000 , respectively.

The IHC Facility expires on June 15, 2022 .

As of December 31, 2020,

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

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 be entitled to under a default through

March 31, 2020.

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

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

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

During the three months

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

borrowed against the PNC Revolving Credit Facility.

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

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

As of June 30, 2021 and March 31,

2021, there was an outstanding balance of approximately $ 365,000 and $ 65,000 , 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

Payable Payroll Protection Plan

May 5, 2020, the Company received loan proceeds from Crestmark in the amount of approximately $ 444,000 under the Paycheck Protection

Program (“PPP”).

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

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

of the qualifying business.

The loans and accrued interest may be forgivable to the extent the Company uses the loan proceeds

for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness

may be reduced if the borrower terminates employees or reduces salaries during the eligible period.

The unforgiven portion of

the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments until a forgiveness application

has been accepted and reviewed by the SBA, and the SBA has provided Crestmark with the loan forgiveness amount.

For the three

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

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

As of December 31, 2020 there was an outstanding balance on the PPP note payable of approximately $444,000.

The Company currently

expects to apply for forgiveness of the entire loan balance.

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.

In June 2021 the Company received

notification from the SBA that the loan had been forgiven in its entirety and we were notified by Crestmark that the debt was discharged.

For the three months ended June 30, 2021, a gain of approximately $ 448,000 (including principal and interest) from the forgiveness of

the loan was included in other income and expenses in the accompanying condensed consolidated statements of operations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

2 unchanged sentences

Notes Payable

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

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

As of December 31, 2020, the Company

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

The installment notes

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

The installment notes are payable in monthly

installments of $7,459 which include principal and interest.

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

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

For the three months ended December 31,

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

For the nine months ended December 31, 2020 and 2019

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

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 June 30, 2021, the Company executed three installment

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

The installment notes have 60-month terms with interest

rates of 7.58 % , 8.55 % and 9.25 % , respectively.

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

and interest.

As of June 30, 2021 and March 31, 2021 there was an outstanding balance on the installment notes of approximately $ 265,000

and approximately $ 281,000 , respectively.

For the three months ended June 30, 2021 and 2020 the Company incurred interest expense of

approximately $ 6,000 and $ 7,000 , respectively.

Debt/Note Payable to Related Party

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

Starlight Marketing Development, Ltd.

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

Development, Ltd.

of approximately $ 803,000 .

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

debt of approximately $803,000 was converted to a note payable (“subordinated note payable”) which bears interest

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

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

payments had been missed.

During the three months ended December 31, 2020 and 2019 interest expense was approximately $12,000

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

During the nine months ended

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

and the related party subordinated debt.

On June 1, 2020 the remaining amount due on the subordinated debt of approximately $ 803,000

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

As part of the agreement to convert

the subordinated debt to a note payable it was agreed that interest expense would be accrued at the same 6 % interest rate on the unpaid

principal retroactively from the date that previously scheduled payments had been missed.

During the three months ended June 30, 2021

and 2020 interest expense was approximately $ 9,000 and $ 12,000 , respectively on the subordinated note payable and the related party subordinated

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

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

February 2021.

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

repayment requirements of the Crestmark Facility and IHC Facility agreements.

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

Year Ended December 31,

Revolving Line of Credit Iron Horse Credit

Installment Notes

Note Payable Payroll Protection Program

Subordinated Related Party Debt

2025 and beyond

Scheduled Payments

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 June 30, 2021 the Company met repayment requirements of the Intercreditor Revolving Credit Facility

to make principal payments totaling $300,000.

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

of June 30, 2021 and March 31, 2021, the remaining amount due on the note payable was approximately $ 503,000 .

The remaining amount due

on the subordinated note payable was classified as a current liability as of June 30, 2021 and March 31, 2021 on the condensed consolidated

balance sheets.

7 - COMMITMENTS AND CONTINGENCIES

CLAIM SETTLEMENT –

DAMAGED GOODS INCIDENT

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

approximately $1,268,000 in an insurance claim receivable with the remaining proceeds reflected in other income and (expenses)

as a gain from damaged goods insurance claim in the condensed consolidated statements of operations.

For the three and nine months

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

The insurance

claim is now closed.

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

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.

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 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 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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 2020

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

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 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 .

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

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.

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

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

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

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

OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

Supplemental balance sheet information related to leases as of June 30, 2021 is as follows:

Operating lease - right-of-use assets

Finance leases as a component of property and equipment, net of accumulated depreciation of $16,582

Current portion of operating leases

Current portion of finance leases

Operating lease liabilities, net of current portion

Finance leases, net of current portion

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

December 31, 2020 is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Supplemental statement of operations information related to leases for the three months ended June 30, 2021 is as follows:

Three Months Ended

Nine Months Ended

December 31, 2020

June 30, 2021

Operating lease expense as a component of general and administrative expenses

Finance lease cost

Depreciation of leased assets as a component of depreciation

Interest on lease liabilities as a component of interest expense

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

Supplemental cash flow information related to leases for the three months ended June 30, 2021 is as follows:

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

4 unchanged sentences

Operating leases

Finance leases

Weighted average discount rate

Operating leases

Finance leases

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

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

Year ended December 31,

maturities of operating lease liabilities outstanding as of June 30, 2021 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

Operating Leases

Finance Leases

2021, for the remaining 6 months

Total Minimum Future Payments

2 unchanged sentences

8 - STOCK OPTIONS

the nine months ended December 31, 2020 and 2019 the Company issued 100,000 stock options at an exercise price of $.29 and $.38,

respectively to directors as compensation for their service.

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

assumptions outlined below.

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

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

all employees.

The following inputs were used to value each option grant:

nine months ended December 31, 2020:

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

and an expected term of three years.

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

December 31, 2020

the three months ended June 30, 2021 and 2020 the Company did not issue any stock options.

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

outlined below.

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

summary of stock option activity for the three months ended June 30, 2021 is summarized below:

OF STOCK OPTION ACTIVITY

June 30, 2021

Number of Options

4 unchanged sentences

Options exercisable at end of period

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

following table summarizes information about employee stock options outstanding at June 30, 2021:

OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Range of Exercise Price

Outstanding at December 31, 20

Average Remaining Contractural Life

Average Exercise Price

Exercisable at December 31, 2020

Average Exercise Price

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

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

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2020 and 2019

COMMON STOCK ISSUANCES

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

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

The Company recorded director compensation

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

Outstanding at June 30, 2021

Weighted Average Remaining Contractural Life

Weighted Average Exercise Price

Exercisable at June 30, 2021

Weighted Average Exercise Price

$ .12 - $ .38

$ .47 - $ .55

* Total number of

options outstanding as of June 30, 2021 includes 580,000 options issued to five current directors and one former director as compensation

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

of June 30, 2021, there was unrecognized expense of approximately $ 5,000 remaining on options currently vesting over time with approximately

four months remaining until these options are fully vested.

intrinsic value of vested options as of June 30, 2021 was approximately $ 180,000 .

9 - GEOGRAPHICAL INFORMATION

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

the Macau Subsidiary in US dollars.

to customers outside of the United States for the three months ended June 30, 2021 and 2020 were primarily made by the Macau Subsidiary

in US dollars.

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

OF REVENUE BY GEOGRAPHICAL REGION

FOR THE THREE MONTHS ENDED

FOR THE NINE MONTHS ENDED

(as restated)

North America

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

10 –RELATED PARTY TRANSACTIONS

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

TO/FROM RELATED PARTIES

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

parties for goods and services sold to these companies.

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

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

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

(“Winglight”),

a related party.

During the nine months ended December 31, 2020 and 2019 the Company sold approximately $0 and $852,000, respectively

to Winglight at a discounted price similar to prices granted to major direct import customers shipped internationally with freight

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

23.7%, respectively.

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

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

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

to Cosmo from its California warehouse facility.

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

$0 and $284,000, respectively of product directly to Cosmo from its California warehouse facility.

These amounts were included

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

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

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 $685,000.

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

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

as initially deemed uncollectible.

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

The services from SLE

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

The services from SLE for the nine months ended

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

These amounts were included as a component

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

10 – RELATED PARTY TRANSACTIONS

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

TO RELATED PARTIES

June 30, 2021 and March 31, 2021, the Company had amounts due to related parties in the amounts of approximately $ 63,000 for services

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2021 and 2020

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 $ 685,000 .

During the three months ended June 30, 2021, there was a gain of approximately $ 11,000 from Cosmo related to payments received in Fiscal

2022 on prior year sales and the related receivable previously reversed and written off as initially deemed uncollectible.

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

The services from SLE were

approximately $ 91,000 for both of the three months ended June 30, 2021 and 2020.

These amounts were included as a component of general

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

11 – RESERVE FOR SALES RETURNS

6 unchanged sentences

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 condensed consolidated balance sheets.

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

Reserve for sales returns at beginning of the year

The liability

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

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

SCHEDULE OF RESERVE FOR SALES RETURNS

Six Months Ended

Reserve for sales returns at beginning of the fiscal year

Provision for estimated sales returns

Sales returns received

( 1,128,000 )

Reserve for sales returns at end of the period

12 – REFUNDS DUE TO CUSTOMERS

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

Refunds due to customers at December 31, 2020 were primarily due to one customer for overstock returns.

Refunds due to customers

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

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

The remaining $297,000 was

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

of June 30, 2021 and March 31, 2021 the amount of refunds due to customers was approximately $ 94,000 and $ 145,000 , respectively, primarily

due to one customer for overstock returns.

13 - EMPLOYEE BENEFIT PLANS

Company has a 401(k) plan for its employees to which the Company makes contributions at rates dependent on the level of each employee’s

contributions.

Contributions made by the Company are limited to the maximum allowable for federal income tax purposes.

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

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

The amounts charged to operations for contributions to this

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

respectively.

The amounts are included as a component of general and administrative expense in the accompanying condensed consolidated

statements of operations.

The amounts charged

to operations for contributions to this plan and administrative costs during the three months ended June 30, 2021 and 2020 totaled approximately

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

The amounts are included as a component of general and administrative expense in the accompanying

condensed consolidated statements of operations.

The Company does not provide any post-employment benefits to retirees.

1 unchanged sentence

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

At December 31, 2020, 41% of accounts

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

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

Company generates most of its revenue from retailers of products in the United States with a significant amount of sales concentrated

with several large customers the loss of which could have an adverse impact on the financial position of the Company.

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

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

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

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

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

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

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

Revenue derived from these customers as a percentage of net sales were 38%, 14% and 10%, respectively.

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

FORWARD-LOOKING

following discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere

in this quarterly report.

This document contains certain forward-looking statements including, among others, anticipated trends

in our financial condition and results of operations and our business strategy.

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

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

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

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

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

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

Forward-looking statements

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

such as “believes,”

“forecasts,”

“intends,”

“possible,”

“estimates,”

“anticipates,”

“expects,”

“plans,”

“should,”

“could,”

“will,”

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

Our ability to predict or project future results

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

Forward-looking statements should not be read as a guarantee

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

or results will be achieved.

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

(i) changes in external factors

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

(ii) unanticipated working capital

or other cash requirements;

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

changes in the industries in which we operate;

and (iv) the effects of adverse general economic conditions, both within the United

States and globally, (v) vendor price increases and decreased margins due to competitive pricing during the economic downturn

(vi)various competitive market factors that may prevent us from competing successfully in the marketplace and (vii) other factors

described in the risk factors section of our Annual Report on Form 10-K, this Quarterly Report on 10-Q, or in our other filings

made with the SEC.

are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only

as of the date hereof.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking

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

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

(“SMC-L”) and SMC-Music, Inc.(“SMC-M”) are primarily engaged in the development, marketing, and sale

of consumer karaoke audio systems, accessories, musical instruments and musical recordings.

The products are sold by SMC to retailers

and distributors for resale to consumers.

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

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

record stores, and specialty stores.

Representative

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

Our business has historically

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

fiscal years.

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

We are uncertain

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

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

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

during the period from September through December in anticipation of the holiday season, which includes Christmas.

A substantial

majority of our sales occur during the second quarter ending September 30 and the third quarter ending December 31.

second and third quarter, combined, accounted for approximately 85% and 94% of net sales in fiscal 2020 and 2019, respectively.

COVID-19 pandemic has significantly affected U.S.

consumer shopping patterns and caused the health of the U.S.

economy to deteriorate.

We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration

of its impact on our business and our financial results.

If the outbreak of COVID-19 is not effectively and timely controlled,

our business operations, financial condition, and liquidity may be materially and adversely affected as a result of prolonged

disruptions in consumer spending, a lack of demand for our products, forced retail store closures and other factors that we cannot

The extent to which COVID-19 will impact our business and our financial results will depend on future developments which

are highly uncertain and cannot be predicted.

OF OPERATIONS

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

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

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For Three Months Ended

For Nine Months Ended

December 31, 2020

December 31, 2019

December 31, 2020

December 31, 2019

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Depreciation and amortization

Total Operating Expenses

Income (Loss) from Operations

Other Income and (Expenses)

Gain from damaged goods insurance claim

Gain from vendor credit for damaged goods

Contigency gain - related party

Interest expense

Financing costs

Total Other Income and (Expenses)

Income (Loss) Before Income Tax (Provision) Benefit

Income Tax (Provision) Benefit

Net Income (Loss)

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

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

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

This increase was primarily due to an increase in sales to

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

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

approximately $803,000.

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

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

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

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

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

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

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

points of the increase.

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

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

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

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

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

from the quarter ended December 31, 2019.

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

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

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

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

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

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

There was an increase in payroll expense

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

payments made to our California warehouse personnel.

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

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

The remaining variance was primarily due to other

variable expenses associated with the increase in net sales.

(LOSS) INCOME FROM OPERATIONS

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

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

The increase in income from operations of approximately

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

of approximately $250,000 as explained above.

INCOME (EXPENSES)

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

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

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

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

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

deemed uncollectible.

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

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

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

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

$758,000 for the same period a year ago.

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

(Loss) from Operations and Income Taxes.

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

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

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

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

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

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

our other major customers.

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

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

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

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

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

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

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

of the increase.

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

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

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

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

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

from the nine months ended December 31, 2019.

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

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

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

product sales.

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

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

There was an increase in payroll expense

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

payments made to our California warehouse personnel.

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

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

with the remaining variance due to other variable administrative expenses.

(LOSS) FROM OPERATIONS

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

of approximately $1,132,000 for the nine months ended December 31, 2019.

The increase in income from operations of approximately

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

INCOME (EXPENSES)

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

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

2019 primarily due to the recovery of approximately $1,068,000 in out-of-pocket expenses relating to a prior year damaged goods

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

There was a gain

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

reversed and written off as initially deemed uncollectible.

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

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

Facility and IHC Facility.

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

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

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

INCOME (LOSS)

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

$1,003,000 for the same period a year ago.

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

(Loss) from Operations and Income Taxes.

AND CAPITAL RESOURCES

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

December 31, 2019.

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

Net cash provided by operating

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

by operating activities for the same period a year ago.

See below for discussion of borrowing availability under our existing

lending arrangements.

the nine months ended December 31, 2020 there was a decrease in insurance receivable of approximately $1,268,000 as we received

proceeds for the one-time damaged goods incident that occurred in the prior fiscal year as well as a gain from the extinguishment

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

There was a decrease in inventory of approximately

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

There was a seasonal increase in reserves

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

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

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

These increases in cash provided by operations were offset

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

There was an increase in amounts due

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

Crestmark Bank.

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

year damaged goods claims with one major customer.

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

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

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

During the nine

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

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

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

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

segments in general.

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

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

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

These increases in cash provided by operations were offset

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

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

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

There were increases in related party accounts

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

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

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

Investing activities consisted primarily of purchases

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

In the prior fiscal year, the Company invested

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

consisting primarily of purchases of new product molds and tooling.

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

provided by financing activities of approximately $140,000 for the same period ended of the prior year.

We received loan

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

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

In the prior fiscal year we received

approximately $284,000 from a financing arrangement with Dimension Funding to finance implementation of a new Enterprise

Resource Planning system.

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

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

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

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

16, 2020 (See Note 5 –

Bank Financing).

As of this filing, we have borrowed approximately $65,000 on the IHC Facility, which

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

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

As of this filing the Company

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

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

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

shipped by the factory.

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

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

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

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

goods insurance claim in the condensed consolidated statement of operations.

For the three and nine months ended December 31,

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

We also secured vendor invoice

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

in the condensed consolidated statement of operations for the nine months ended December 31, 2020.

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

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.

The unforgiven

portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments until a forgiveness application

has been accepted and reviewed by the SBA, and the SBA has provided Crestmark with the loan forgiveness amount.

For the three

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

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

AND QUARTERLY RESULTS

Historically,

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

orders for systems and music merchandise during the Christmas holiday season) and to a lesser extent the first and fourth quarters

of the fiscal year.

Sales in our second and third fiscal quarters, combined, accounted for approximately 85% and 94% of net sales

in fiscal 2020 and 2019, respectively.

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

to customers, as well as other factors.

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

a quarter-to-quarter basis.

ACCOUNTING POLICIES

Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles,

which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently

As the number of variables and assumptions affecting the judgement increases such judgements become even more subjective.

While management believes that its assumptions are reasonable and appropriate, actual results may be materially different than

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

2020 Form 10K/A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

required for small reporting companies.

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 June 30, 2021, 78 % of accounts receivable were due from three

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

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.

the three months ended June 30, 2021, there were four customers who individually accounted for 10% or more of the Company’s net

Revenue from these customers as a percentage of net sales were 45 %, 18 %, 14 % and 14 %, respectively.

For the three months ended

June 30, 2020, there were three customers who individually accounted for 10% or more of the Company’s net sales.

Revenues from

these customers as a percentage of net sales were 43 %, 18 % and 11 %.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

15 – SUBSEQUENT EVENTS

August 5, 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with Koncepts International

Limited (“Koncepts”) and Treasure Green Holdings, Ltd.

(“Treasure Green”), pursuant to which the Company agreed

to redeem approximately 19,623,155 shares of common stock of the Company (the “Redeemed Shares”).

The closing of the transactions

set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed Shares were assigned and transferred

back to the Company and the Company wired approximately $ 7,162,000 to Koncepts and Treasure Green.

The Redeemed Shares shall be

retired to treasury and shall become available for reissuance in the future.

to the Redemption Agreement, neither Koncepts nor Treasure Green will remain shareholders of the Company.

August 5, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with large institutional

investors and a strategic investor for private placement of (i) 16,500,000 shares of its common stock (the “Shares”) together

with common warrants to purchase up to 16,500,000 shares of common stock for an exercise price of $ 0.35 per share, and (ii) 16,833,333

pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock at an

exercise price of $ 0.01 per share, together with Common Warrants to purchase up to 16,833,333 shares of common stock at an exercise price

of $ 0.35 per share (the “Private Placement”).

Shares issuable upon the exercise of the Pre-Funded Warrants and Common Warrants

are hereinafter referred to as the “Warrant Shares”.

to the terms of the Purchase Agreement the Company is obligated to use commercially reasonable best efforts to file a registration statement

providing for the resale by the purchasers of the Shares and Warrant Shares being sold in the Private Placement, as soon as practicable

(and in any event within 30 days of the closing of the Private Placement).

Under the Purchase Agreement the Company is also obligated

to use its reasonable best efforts to submit an application to have the Company’s common stock listed on a national exchange by

December 31, 2021, and to use its reasonable best efforts to have the Shares and Warrant Shares listed on such national exchange as soon

as practicable following the submission of such application.

closing of the Private Placement took place on August 10, 2021, when the Shares, Common Warrants, and Pre-Funded Warrants were delivered

to the purchasers and funds, in the amount of approximately $ 9,800,000 , were wired to the Company.

Approximately $ 7,200,000 of the funds

received were used to execute the Redemption Agreement.

The Company expects an increase in working capital of approximately $ 1,800,000

of working capital after settlement of expenses of approximately $ 800,000 associated with closing of these transactions .

RAY.B) “(Stingray”), a leading music, media and technology is part of the group of investors who

participated in the Private Placement and have acquired a minority interest in the Company.

Stingray is a long-standing business partner

with the Company that provides our customers with music content from their extensive library of expertly produced and licensed karaoke

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

What changed 10-Q

Item 1. Financial Statements