What changed in this filing

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Item 1. Financial Statements

2021-11-22 compared with 2021-08-16 · 623 added, 494 removed, 339 unchanged (77% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

receivable, net of allowances of $ 256,901 and $ 138,580 , respectively

from Crestmark Bank

receivable related party - Stingray Group, Inc.

expenses and other current assets

financing costs

Current Assets

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

$ 138,580 , respectively

Due from Crestmark Bank

Inventories, net

Prepaid expenses and other current assets

Deferred financing costs

Total Current Assets

Property and equipment, net

Deferred tax assets

Operating Leases - right of use assets

Other non-current assets

Liabilities and Shareholders’

and equipment, net

Leases - right of use assets

non-current assets

and Shareholders’ Equity

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

to related party - Starlight R&D, Ltd.

lines of credit

due to customers

for sales returns

portion of finance leases

portion of installment notes

portion of note payable - Paycheck Protection Program

portion of operating lease liabilities

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

Current Liabilities

Accounts payable

Accrued expenses

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

Reserve for sales returns

Current portion of finance leases

Current portion of installment notes

Current portion of note payable - Paycheck Protection

Current portion of operating lease liabilities

Subordinated related party debt

- Starlight Marketing Development, Ltd.

Total Current Liabilities

Installment notes, net of current portion

Note payable - Payroll Protection Program, net of current

Operating lease liabilities, net

of current portion

Total Liabilities

Commitments and Contingencies

Shareholders’ Equity

Preferred stock, $ 1.00 par value;

leases, net of current portion

notes, net of current portion

payable - Payroll Protection Program, net of current portion

lease liabilities, net of current portion

and Contingencies

Shareholders’

stock, $ 1.00 par value;

1,000,000 shares authorized;

no shares issued and outstanding

Common stock, Class A, $ 0.01 par value;

100,000 shares

stock, Class A, $ 0.01 par value;

100,000 shares authorized;

no shares issued and outstanding

Common stock, Class B, $ 0.01 par value;

100,000,000 shares

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

Additional paid-in capital

Accumulated deficit

stock, Class B, $ 0.01

and 39,040,748

shares issued and outstanding, respectively

paid-in capital

( 14,535,193 )

( 12,254,191 )

Total Shareholders’

Total Liabilities

and Shareholders’ Equity

Shareholders’ Equity

Liabilities and Shareholders’ Equity

notes to the condensed consolidated financial statements

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and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

June 30, 2021

Three Months Ended

June 30, 2021

Cost of Goods Sold

CONSOLIDATED STATEMENTS OF INCOME

the Three Months Ended

the Six Months Ended

of Goods Sold

and administrative expenses

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

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

Interest expense

Finance costs

Total Other Income (Expenses),

Loss Before Income Tax Benefit

Income Tax Benefit

$ ( 118,613 )

$ ( 206,804 )

Net Loss per Common Share

Basic and Diluted

From Operations

Income (Expenses)

from Paycheck Protection Plan loan forgiveness

- related party

from damaged goods insurance claim

from extinguishment of accounts payable

Other (Expenses) Income, net

Before Income Tax Provision

Tax Provision

Income per Common Share

Weighted Average Common and Common Equivalent Shares:

Basic and Diluted

notes to the condensed consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

the Three Months Ended

Cash flows from operating activities

the Six Months Ended

flows from operating activities

to reconcile net income to net cash used in operating activities:

of deferred financing costs

in inventory reserve

in allowance for bad debts

from disposal of property and equipment

based compensation

in net deferred tax assets

from Paycheck Protection Plan loan forgiveness

- related party

from extinguishment of accounts payable

in operating assets and liabilities:

( 9,409,973 )

( 16,575,815 )

Adjustments to reconcile net loss to net cash provided

by (used in) operating activities:

Amortization of deferred financing costs

Change in inventory reserve

Change in allowance for bad debts

Stock based compensation

Change in net deferred tax assets

Payroll Protection Plan loan forgiveness

Gain - related party

Gain from extinguishment of accounts payable

Changes in operating assets and liabilities:

Accounts receivable

from Crestmark Bank

receivable - related parties

( 13,721,821 )

Due from Crestmark Bank

Accounts receivable - related parties

Insurance receivable

( 1,071,606 )

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

expenses and other current assets

non-current assets

to related parties

due to customers

for sales returns

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

cash used in operating activities

flows from investing activities

of property and equipment

cash used in investing activities

flows from financing activities

from issuance of stock - net of transaction expenses

of redemption and retirement of treasury stock

( 7,162,452 )

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 (used in)

operating activities

Cash flows from investing activities

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities

Net Proceeds from revolving lines of credit

Proceeds from note payable - Payroll Protection Program

Payment of deferred financing charges

Payments on installment notes

Proceeds from exercise of stock options

Payments on finance leases

Net cash provided by financing

Net change in cash

Cash at beginning of year

Cash at end of period

Supplemental disclosures of cash flow information:

Cash paid for interest

Operating leases - right of use

assets and lease liabilities at inception of lease

proceeds from revolving lines of credit

from note payable - Paycheck Protection Program

of deferred financing charges

on installment notes

from exercise of stock options

on subordinated debt - related party

on finance leases

cash provided by financing activities

change in cash

at beginning of year

at end of period

disclosures of cash flow information:

paid for interest

purchased under capital lease

of common stock and warrants for stock issuance expenses

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

notes to the condensed consolidated financial statements

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended June 30, 2021 and 2020

Preferred Stock

Additional Paid

Balance at March 31, 2021

the three months ended September 30, 2021 and 2020

at June 30, 2021

$ ( 12,372,804 )

Employee compensation-stock option

Exercise of stock options

Balance at June 30, 2021

Issuance of stock

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 19,623,155 )

( 4,111,459 )

Balance at March 31, 2020

( 2,854,762 )

Balance at June 30, 2020

( 7,162,452 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of stock options

of stock options , shares

at September 30, 2021

$ ( 14,535,193 )

at June 30, 2020

$ ( 14,633,360 )

at September 30, 2020

$ ( 12,225,486 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the six months ended September 30, 2021 and 2020

at March 31, 2021

$ ( 12,254,191 )

Issuance of stock

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 19,623,155 )

( 4,111,459 )

( 2,854,762 )

( 7,162,452 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of stock options

at September 30, 2021

$ ( 14,535,193 )

at March 31, 2020

$ ( 14,426,556 )

at September 30, 2020

$ ( 12,225,486 )

notes to the condensed consolidated financial statements

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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.

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

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

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

The products are sold by SMC to retailers and distributors

for resale to consumers.

2 – LIQUIDITY AND RECENT EQUITY EVENTS

Company for the six months ended September 30, 2021 reported net income of approximately $ 574,000 and used cash in operating activities

of approximately $ 576,000 as compared to net income of approximately $ 2,201,000 and used cash in operating activities of approximately

$ 674,000 for the six months ended September 30, 2020.

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

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

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

For the six months ended September 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”).

in the accompanying condensed consolidated statements of income.

August 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with its majority shareholders,

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

(“Treasure Green”), pursuant to

which the Company redeemed 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.

back to the Company and retired.

August 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) 16,500,001 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

with common warrants to purchase up to 16,500,000 shares of common stock with 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

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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.

$ 9,832,000 , were received by the Company.

Approximately $ 7,162,000 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.

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

The Redeemed Shares were retired and are available for

reissuance in the future.

believe that current working capital, including the net cash obtained from the Purchase and Redemption Agreements along with the availability

of cash from our Intercreditor Revolving Credit Facility (See Note 6 – Bank Financing), and cash expected to be generated from

our operating forecast will be adequate to meet the Company’s liquidity requirements for at least the next twelve months.

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 Bank (“Crestmark Facility”) and the Iron Horse Credit (“IHC”) Facility (“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

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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.

statements for the three months and six months ended September 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

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

financial statements.

financial condition.

However, circumstances could change which may alter future expectations.

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to respond to normal business conditions.

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

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

collection experience.

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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

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

of income 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

1 unchanged sentence

The amounts at foreign financial institutions at

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

September 30, 2021 and March 31, 2021 are approximately $ 748,000 and $ 225,000 , respectively.

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

3 unchanged sentences

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.

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

these future inventory returns were approximately $ 1,276,000 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

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

As of September 30, 2021

and March 31, 2021 the Company had inventory reserves of approximately $ 690,000 and $ 636,000 , respectively for estimated excess and obsolete

FINANCING COSTS

3 unchanged sentences

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

financing costs associated with the one-year renewal of 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

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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.

of Long-Lived Assets.” No impairment was recorded as of September 30, 2021 and 2020.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

Company follows FASB ASC 842, “Leases”.

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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,

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.

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, due from related parties, 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.

The carrying amounts on the revolving line of credit approximates fair value due the relatively short period to maturity

and related interest accrued at market rates.

RECOGNITION AND RESERVE FOR SALES RETURNS

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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 recognizes revenue when the goods are delivered and control of the goods sold is transferred

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

to be entitled in exchange for those goods.

The Company determines revenue recognition utilizing the following 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.

(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).

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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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

For the three months ended September 30, 2021 and 2020 co-op promotion incentives were approximately

$ 738,000 and $ 902,000 , respectively.

For the six months ended September 30, 2021 and 2020 co-op promotion incentives were approximately

$ 1,010,000 and $ 1,174,000 , 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.

are included in selling expenses in the accompanying condensed consolidated statements of income 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 11 – Geographical Information).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

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

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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

June 30, 2021

June 30, 2020

Classic Karaoke Machines

Licensed Product

Music and Accessories

SMC Kids Toys

Total Net Sales

Company’s reserve for sales returns were approximately $ 1,864,000 and $ 960,000 as of September 30, 2021 and March 31, 2021, respectively.

is derived from five different major product lines.

Disaggregated revenue from these product lines for the three and six months ended

September 30, 2021 and 2020 consisted of the following:

SCHEDULE OF DISAGGREGATION OF REVENUE

Karaoke Machines

and Accessories

Subscriptions

AND HANDLING COSTS

1 unchanged sentence

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

condensed consolidated statements of operations.

For the three months ended September 30, 2021 and 2020 shipping and handling

expenses were approximately $ 134,000 and $ 305,000 , respectively.

For the six months ended September 30, 2021 and 2020 shipping and handling

expenses were approximately $ 285,000 and $ 388,000 , respectively.

These expenses are classified as a component of selling expenses in

the accompanying condensed consolidated statements of income.

BASED COMPENSATION

1 unchanged sentence

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).

in the condensed consolidated statements of income 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.

Employee stock option compensation expense for the three and six months ended September

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 September 30, 2021 and 2020, the stock option expense was approximately

$ 8,000 and $ 0 , respectively.

For the six months ended September 30, 2021 and 2020, the stock option expense was approximately $ 13,000

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 selling, general and

administrative expenses in the condensed consolidated statements of operations.

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

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

These expenses are shown as a component of general and administrative

expenses in the condensed consolidated statements of income.

For the three months ended September 30, 2021 and 2020, these amounts totaled

approximately $ 19,000 and $ 2,000 , respectively.

For the six months ended September 30, 2021 and 2020, these amounts totaled $ 50,000 and

$ 15,000 respectively.

Company follows the provisions of FASB ASC 740 “Accounting for Income Taxes.” Under the asset and liability method of ASC

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a valuation allowance is recognized.

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.

For the six months

ended September 30, 2021 and 2020 we estimated our effective tax rate to be approximately 20 % and 25 % , respectively.

As of September

30, 2021 and March 31, 2021 the Singing Machine had net deferred tax assets of approximately $ 741,000 and $ 887,000 , respectively.

Company recorded an income tax provision of approximately $ 174,000 and $ 821,000 for the three months ended September 30, 2021 and 2020,

respectively.

The Company recorded an income tax provision of approximately $ 146,000 and $ 742,000 for the six months ended September

30, 2021 and 2020, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

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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.

As of September 30, 2021, there were

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

The Company recognizes

2 unchanged sentences

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

OF EARNINGS PER SHARE

of dilutive shares for the three and six months ended September 30, 2021 and 2020 are as follows:

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

the three months ended September 30, 2021

the three months ended September 30, 2020

the six months ended September 30, 2021

the six months ended September 30, 2020

weighted average common shares outstanding

of dilutive stock options

weighted average common shares outstanding

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

Pre-funded warrants

to purchase 16,833,333 shares of common stock are included in basic weighted average shares outstanding as deemed outstanding.

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 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.

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.

For the three and six months ended September 30, 2021, options to purchase approximately

336,000 and 371,000 shares of common stock, respectively, have been included in the calculation of diluted net income per share as compared

to approximately 550,000 and 425,000 shares that were included in the calculation of diluted net income per share for the three and six

months ended September 30, 2020.

For the three and six months ended September 30, 2021, options and warrants to purchase approximately

35,456,667 shares of common stock, have been excluded in the calculation of diluted net income per share as compared to approximately

780,000 shares that were excluded in the calculation of diluted net income per share for the three and six months ended September 30,

2020 as the result would have been anti-dilutive.

ACCOUNTING PRONOUNCEMENTS

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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.

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.

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

4 - INVENTORIES, NET

Finished Goods

Inventory in Transit

Estimated Amount of Future Returns

Less:Inventory Reserve

We are currently evaluating the potential effects of this updated guidance

on our condensed consolidated financial statements and related disclosures.

OF NEW ACCOUNTING STANDARDS

August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts

in Entity’s Own Equity (Subtopic 815-40),” to address the complexity in accounting for certain financial instruments with

characteristics of liabilities and equity.

Amongst other provisions, the amendments in this ASU significantly changed the guidance on

the derivative scope exception for contracts in an entity’s own equity such that fewer freestanding instruments, like warrants,

will require liability treatment.

ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning

after December 15, 2021.

However, early adoption is permitted as early as fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2020.

The Company adopted the new standard on April 1, 2021.

adoption of ASU 2020-06 did not have a material effect on the Company’s condensed consolidated financial statements.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

4 - INVENTORIES, NET

are comprised of the following components:

Amount of Future Returns

Less:Inventory

5 – PROPERTY AND EQUIPMENT

summary of property and equipment is as follows:

OF PROPERTY AND EQUIPMENT

Computer and office equipment

Furniture and fixtures

Warehouse equipment

Molds and tooling

and equipment, gross

SUMMARY OF PROPERTY AND EQUIPMENT

and office equipment

Accumulated depreciation

and equipment, net

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

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

expense for the three months ended September 30, 2021 and 2020 was approximately $ 67,000 and $ 68,000 , respectively.

Depreciation expense

for the six months ended September 30, 2021 and 2020 was approximately $ 135,000 and $ 139,000 , respectively.

6 – BANK FINANCING

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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.

Loan and Security Agreement for a $ 10.0 million financing facility under the Crestmark Facility on eligible accounts receivable.

outstanding loan balance cannot exceed $ 10.0 million during peak selling season between July 1 and December 31and is reduced to a maximum

of $ 5.0 million between January 1 and July 31.

Costs associated with closing of the Intercreditor Revolving Credit Facility of approximately

$ 74,000 were deferred and were amortized over one year.

During the three months ended September 30, 2021 and 2020 the Company incurred

amortization expense of approximately $ 9,000 and $ 18,000 , respectively associated with the amortization of deferred financing costs from

the Intercreditor Revolving Credit Facility.

During the six months ended September 30, 2021 and 2020 the Company incurred amortization

expense of approximately $ 26,000 and $ 18,000 , respectively associated with the amortization of deferred financing costs from the Intercreditor

Revolving Credit Facility.

the Crestmark Facility:

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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

will implement an availability block of 20% of amounts due on Iron Horse Credit Intercreditor Revolving Credit Facility.

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

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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.

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

For the six months ended September 30, 2021 and 2020 the Company recorded interest expense of approximately $ 96,000 and $ 51,000 ,

respectively.

The Crestmark Facility expires on June 15, 2022 .

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.

As of September 30, 2021, the Company had an outstanding balance of approximately

$ 1,052,000 on the Crestmark Facility.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

addition, the Company executed a two-year Loan and Security Agreement with Iron Horse Credit for up to $ 2,500,000 in inventory financing.

the IHC Facility:

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was waived for the first six months of the IHC Facility.

As of June 30, 2021, the Company was in compliance with this covenant.

As of September 30, 2021, the Company was in compliance with this covenant.

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

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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.

Interest expense for the three months ended September 30, 2021 and 2020 were approximately

$ 48,000 and $ 54,000 , respectively.

Interest expense for the six months ended September 30, 2021 and 2020 were approximately $ 86,000 and

$ 54,000 , respectively.

The IHC Facility expires on June 15, 2022 .

As of June 30, 2021 and March 31,

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

As of September 30, 2021 and March 31, 2021, there was an outstanding

balance of approximately $ 990,000 and $ 65,000 , respectively.

of September 30, 2021 there was approximately $ 1,448,000 of available borrowings under these facilities.

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

2 unchanged sentences

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

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

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.

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 was payable over two years at an interest

rate of 1%, with a deferral of payments until a forgiveness application was accepted and reviewed by the Small Business Administration

(“SBA”), and the SBA 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.

six months ended September 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 income.

Notes Payable

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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.

As of September 30, 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 September 30, 2021, and March 31, 2021 there was an outstanding balance on the installment notes

of approximately $ 248,000 and $ 281,000 , respectively.

For the three months ended September 30, 2021 and 2020 the Company incurred interest

expense of approximately $ 5,000 and $ 7,000 , respectively.

For the six months ended September 30, 2021 and 2020 the Company incurred interest

expense of approximately $ 11,000 and $ 14,000 , respectively.

Debt/Note Payable to Related Party

7 unchanged sentences

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

During the three months ended September 30,

2021 and 2020 interest expense was approximately $ 5,000 and $ 12,000 , respectively on the subordinated note payable and the related party

subordinated debt.

During the six months ended September 30, 2021 and 2020 interest expense was approximately $ 14,000 and $ 24,000 , respectively

on the subordinated note payable and the related party subordinated debt.

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

3 unchanged sentences

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.

As of September 30, 2021 the Company met repayment requirements of the Intercreditor Revolving Credit

Facility to make principal payments totaling $ 450,000 .

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 agreements.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

of September 30, 2021 and March 31, 2021, the remaining amount due on the note payable was approximately $ 353,000 and $ 503,000 respectively.

The remaining amount due on the subordinated note payable was classified as a current liability as of September 30, 2021 and March 31,

2021 on the condensed consolidated balance sheets.

7 - COMMITMENTS AND CONTINGENCIES

January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus

originating in Wuhan, China (“COVID-19”) and the risks to the international community.

The WHO declared COVID-19 a global

pandemic on March 11, 2020 and since that time many of the previously imposed restrictions and other measures which were instituted in

response have been subsequently reduced or lifted.

However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration

and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional

strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual timeline to achieve a sufficient level

of herd immunity among the general population.

Accordingly, the COVID-19 pandemic may continue to have negative effects on the health

economy for the foreseeable future.

We continue to experience various degrees of manufacturing cost pressures due to raw

material and electronic component shortages as well as inflationary price increases.

Although we regularly monitor the financial health

and operations of companies in our supply chain, and use alternative suppliers when necessary and available, financial hardship or government

restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw

materials or components required to manufacture our products and adversely affect our operations.

September 11, 2020 a Complaint was filed against the Company’s SMCL subsidiary and various staffing agencies used by SMCL in a

7 unchanged sentences

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

entered into an operating lease agreement, effective October 1, 2017, for the corporate headquarters located in Fort Lauderdale, Florida

6 unchanged sentences

On June 15, 2020 we executed a three-year lease extension which will expire on August 31, 2023 .

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

entered into an operating lease agreement, effective May 1, 2018, for 424 square feet of office space in Macau.

The rent is fixed at

approximately $ 1,600 per month for the duration of the lease which 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.

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

May 2021 we executed a one-year lease for 424 square feet of office space in Macau 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.

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

Current portion of operating leases

Operating lease liabilities, net of current portion

July 1, 2021 we entered into a long-term capital leasing arrangement with Union Credit Corporation to finance the leasing of a used reach

truck vehicle in the amount of approximately $ 24,000 .

The leases require monthly payments in the amount of approximately $ 755 per month

over a total lease term of 36 months which commenced on July 1, 2021.

The agreement has an effective interest rate of 9.9 % and the Company

has the option to purchase the equipment at the end of the lease term for one dollar.

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

remaining amounts due on this capital leasing arrangement was approximately $ 22,000 and $ 0 , respectively.

For the three and six months

ended September 30, 2021 and 2020 the Company incurred interest expense of $ 376 and $ 0 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

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

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

lease - right-of-use assets

leases as a component of Property and equipment, net of accumulated depreciation of $ 694

portion of operating leases

portion of finance leases

lease liabilities, net of current portion

leases, net of current portion

statement of operations information related to leases for the three and six months ended September 30, 2021 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

June 30, 2021

Operating lease expense as a component of general and administrative expenses

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:

Operating cash flow paid for operating leases

Financing cash flow paid for finance leases

Lease term and Discount Rate

Weighted average remaining lease term (months)

Operating leases

Weighted average discount rate

Operating leases

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

lease expense as a component of general and administrative expenses

of leased assets as a component of depreciation

on lease liabilities as a component of interest expense

cash flow information related to leases for the six months ended September 30, 2021 is as follows:

OF SUPPLEMENTAL CASH FLOW INFORMATION

paid for amounts included in the measurement of lease liabilities:

cash flow paid for operating leases

cash flow paid for finance leases

term and Discount Rate

Weighted average

remaining lease term (months)

Weighted average

discount rate

maturities of operating and finance lease liabilities outstanding as of September 30, 2021 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

Operating Leases

for the remaining 3 months

Total Minimum Future Payments

Minimum Future Payments

Imputed Interest

Present Value of Lease Liabilities

8 - STOCK OPTIONS

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

Value of Lease Liabilities

8 - STOCK OPTIONS AND WARRANTS

the six months ended September 30, 2021 and 2020 the Company issued 40,000 and 0 stock options, respectively at an exercise price of

$ .29 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

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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:

six months ended September 30, 2021:

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

of 0.43 %, volatility of 149.5 % and an expected term of three years .

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

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

Weighted Average Exercise Price

Stock Options:

Balance at beginning of period

Balance at end of period

Options exercisable at end of period

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

OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Range of Exercise Price

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 .

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

SUMMARY OF STOCK OPTION ACTIVITY

Average Exercise Price

at beginning of period

at end of period

exercisable at end of period

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

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

of Exercise Price

Outstanding at September 30, 2021

Average Remaining Contractural Life

Average Exercise Price

Exercisable at September 30, 2021

Average Exercise Price

Total number of options outstanding

as of September 30, 2021 includes 660,000

options issued to two current and four former

directors as compensation, 1,040,000

options issued to key employees.

per the execution of the August 2021 private placement as disclosed in Note 2 and Note 10, common warrants and pre-funded warrants issued

and outstanding as of September 30, 2021 as follows:

OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Warrants outstanding

at March 31, 2021

warrants issued

outstanding at September 30, 2021

of September 30, 2021, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

Common Warrants

of Pre-funded Warrants

Pre-funded warrants expire on the dates they are exercised.

outstanding warrants are fully vested.

9 – AUGUST 2021 STOCK REDEMPTION

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

Green, pursuant to which the Company redeemed 19,623,155 shares of common stock of the Company (the “Redeemed Shares”).

closing of the transaction 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 paid approximately $ 7,162,000 to Koncepts and Treasure Green.

Shares were retired and are available for reissuance in the future.

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

10 – AUGUST 2021 PRIVATE PLACEMENT

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

investors and the strategic investor for private placement of (i) 16,500,001 shares of its common stock (the “Shares”)

together with Common Warrants to purchase up to 16,500,000 shares of common stock with 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”).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

Common Warrants and Pre-Funded Warrants are collectively referred to as (the “Warrants”).

The Warrants are exercisable at

any time at the option of the holder, have a term of 5 years from the issuance date and provide for cashless exercise under certain conditions.

The Company determined that the Warrants meet the conditions for equity classification.

Shares issuable upon exercise of the Warrants

are hereinafter referred to as the “Warrant Shares”.

The exercise price and number of the Warrant Shares are subject to anti-dilution

and other adjustments for certain stock dividends, stock splits, subsequent rights offerings, pro rata distributions or certain equity

structure changes.

to the terms of the Purchase Agreement, on September 3, 2021, the Company filed a registration statement providing for the resale by

the purchasers of the Shares and Warrant Shares sold in the Private Placement, which registration statement became effective on September

Additionally, under the terms of the Purchase Agreement, the Company is 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 and Warrants were delivered to the purchasers and funds,

in the amount of approximately $ 9,832,000 , were received by the Company.

Approximately $ 7,162,000 of the funds was used to execute the

Redemption Agreement (See Note 9 – August 2021 Stock Redemption).

(“Stingray” or the “strategic investor”), 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 content and is now a related party (see Note 12- Related Party Transactions).

connection with the Private Placement, on July 6, 2021, the Company entered into a Placement Agency Agreement with A.G.P./Alliance Global

Partners (“AGP”), which provided for AGP to serve as the exclusive placement agent, advisor or underwriter (the “placement

agent services”).

Pursuant to the Placement Agency Agreement, upon closing of the Private Placement, the Company paid AGP placement

fees of $ 630,000 (representing 7% of the gross proceeds raised in the Private Placement excluding proceeds raised from the strategic

investor, plus 3.5% of the aggregate gross proceeds raised from the strategic investor), and issued AGP warrants to purchase 1,333,333

shares of the Company’s common stock (the “Advisor Warrants”) (representing 5 % of the aggregate number of Shares and

Pre-Funded Warrants sold in the Private Placement, excluding the Shares sold to the strategic investor).

The Advisor Warrants have the

same exercise price ($ 0.35 ) and terms as the Common Warrants issued in the Private Placement.

The Company estimated the fair value of

the Advisor Warrants to be approximately $ 359,000 using the Black-Scholes Model based on the following input assumptions:

price of $ 0.33 , expected life of the warrants of 2.5 years;

stock price volatility of 168 %;

dividend yield of 0 %;

and the risk-free interest

rate of 2.65 %.

addition to the placement fees paid to AGP, the Company incurred additional offering costs for direct incremental legal, consulting,

accounting and filing fees related to the Private Placement of approximately $ 390,000 , of which one consultant was issued 571,428 shares

of restricted common stock with an aggregate fair value of approximately $ 189,000 and a cash payment of $ 100,000 .

Total offering costs

related to the Private Placement amounted to approximately $ 1,379,000 , which is recorded as an offset to additional paid in capital in

the accompanying condensed consolidated statements of stockholders’ equity.

11 - GEOGRAPHICAL INFORMATION

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.

to customers outside of the United States for the three and six months ended September 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

North America

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

THREE MONTHS ENDED

SIX MONTHS ENDED

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 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

12 – RELATED PARTY TRANSACTIONS

transactions listed below are related to the Company as Cosmo Communications, Inc (“Cosmo”) and Starlight Electronics Co.,

Ltd (“SLE”) are affiliates of our former Chairman of the Board, Mr.

Additionally, Stingray is part of the group

of investors who participated in the Private Placement and have acquired a minority interest in the Company (see Note 10 – August

2021 Private Placement ).

TO/FROM RELATED PARTIES

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

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

September 30, 2021 and March 31, 2021, the Company had amounts due from Stingray in the amounts of approximately $ 71,000 and $ 88,000 ,

respectively for shared revenue from music content provided to our customers from their library of produced and licensed karaoke content.

Company has a music subscription sharing agreement with Stingray.

For the three months ended September 30, 2021 and 2020 the Company

received music subscription revenue of approximately $ 110,000 and $ 13,000 , respectively.

For the six months ended September 30, 2021

and 2020 the Company received music subscription revenue of approximately $ 224,000 and $ 102,000 , respectively.

These amounts were included

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

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

2 unchanged sentences

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.

During the three and six months ended September 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 SLE.

The services from SLE were approximately $ 90,000 for the three months ended September

30, 2021 and 2020.

The services from SLE for the six months ended September 30, 2021 and 2020 were approximately $ 181,000 and $ 191,000

respectively.

These amounts were included as a component of general and administrative expenses in the accompanying condensed consolidated

statements of income.

13 – RESERVE FOR SALES RETURNS

10 unchanged sentences

SCHEDULE OF RESERVE FOR SALES RETURNS

Six Months Ended

Reserve for sales returns at beginning of the fiscal year

September 30,

Reserve for sales returns at beginning

Provision for estimated sales returns

1 unchanged sentence

( 1,206,491 )

( 1,807,613 )

Reserve for sales returns at end of the period

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2021 and 2020

14 – REFUNDS DUE TO CUSTOMERS

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.

of September 30, 2021 and March 31, 2021 the amount of refunds due to customers was approximately $ 99,000 and $ 145,000 , respectively,

primarily due to one customer for overstock returns.

15 - EMPLOYEE BENEFIT PLANS

3 unchanged sentences

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.

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

approximately $ 17,000 and $ 20,000 , respectively.

The amounts charged to operations for contributions to this plan and administrative

costs during the six months ended September 30, 2021 and 2020 totaled approximately $ 35,000 and $ 34,000 , respectively.

The amounts are

included as a component of general and administrative expense in the accompanying condensed consolidated statements of income.

does not provide any post-employment benefits to retirees.

16 - CONCENTRATIONS OF CREDIT AND SALES RISK

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

The Company’s allowance for

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

receivable are concentrated with several large customers.

At 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

The Company’s allowance for doubtful

accounts is based upon management’s estimates and historical experience and reflects the fact that accounts receivable are concentrated

with several large customers.

At September 30, 2021, 69 % of accounts

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

2021, 70 % of accounts receivable were due from three customers in North America that individually owed over 10 % of total accounts receivable.

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.

For the three months

ended September 30, 2021, there were three customers who individually accounted for 10% or more of the Company’s net sales.

derived from these customers as a percentage of net sales were 49 %, 16 %, and 12 % respectively.

For the three months ended September 30,

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

Revenue derived from these

customers as a percentage of net sales were 46 %, 20 % and 10 %, respectively.

the six months ended September 30, 2021, 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 48 %, 16 % and 14 %, respectively.

For the six months

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

derived from these customers as a percentage of net sales were 43 %, 20 % and 14 %, respectively.

August 2021, the Company secured vendor invoice credits of approximately $ 236,000 from a factory involved with a damaged goods incident

during fiscal 2020 which is reflected as gain from extinguishment of accounts payable in the condensed consolidated statement of income

for the three and six months ended September 30, 2021.

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