What changed in this filing

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Item 9A. Controls and Procedures

2022-07-14 compared with 2021-07-14 · 1311 added, 859 removed, 784 unchanged (73% of the section changed)

CONTROLS AND PROCEDURES

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

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

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

Based upon this evaluation,

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

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

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

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

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

of implementing new controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

Management’s Report on Disclosure Controls and Procedures

management, under the supervision and with the participation of our Principal Executive Officer (our Chief Executive Officer) and Principal

Financial Officer (our Chief Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures as of March

31, 2022, the end of our fiscal year covered by this report.

The term “disclosure controls and procedures,” as defined in

Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures

of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits

under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange

Commission’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed

to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated

and communicated to the company’s management, including its principal executive and principal financial officers, or person performing

similar functions, as appropriate to allow timely decisions regarding required disclosure.

recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance

of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible

controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, that consider remediation

efforts commenced by the Company as a result of the material weaknesses noted during the assessment of the effectiveness of the Company’s

internal controls over financial reporting as of and for the year ended March 31, 2021, our Chief Executive Officer and Chief Financial

Officer have concluded that, as of such date, our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control over Financial Reporting

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

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

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

not be prevented or detected on a timely basis.

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

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

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

cutoff and the inventory valuation of estimated returns.

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

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

in certain adjusting journal entries.

for Material Weakness in Internal Control over Financial Reporting

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

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

As part of our remediation measures, the

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

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

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

inventory and how they are costed.

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

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

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

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

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

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

of Prior Year Material Weakness in Internal Control over Financial Reporting

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

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

with generally accepted accounting principles.

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

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

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

During Fiscal 2021 the Company’s

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

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

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

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

type of program.

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

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

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

program type.

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

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

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

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

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

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

as a decrease to net sales.

the year ended March 31, 2021, we identified a material weakness in the consolidated financial statements close process which failed

to detect errors which could have been material in the accounting for inventory cutoff and the inventory valuation of estimated returns.

Specifically, the Company had a deficient process to close the consolidated financial statements and prepare comprehensive and timely

account analysis, due in part to a new accounting software system, which resulted in certain adjusting journal entries.

implemented a new Enterprise Resource Planning (“ERP”) software system during the fiscal year ended March 31, 2021 and during

the closing process discovered that the system was not applying the First-In-First Out (“FIFO”) layering formula correctly

to returned goods received.

While we have identified the specific FIFO costing formula that the system must use for returning goods the

curing of this defect in the accounting software system was still in progress as of March 31, 2021.

In addition, due to significant personnel

turnover in our California warehouse facility and the implementation of a new ERP software system there were some communication and training

issues regarding the staging and receiving areas of the warehouse during the end of year physical inventory that caused a material weakness

in properly observing inventory cutoff.

have remediated the FIFO calculation material weakness by manually calculating the FIFO cost of each item in the inventory (including

returned product) at the end of each quarter, comparing the manually calculated inventory valuation to the perpetual inventory valuation

from our accounting software system and recording any difference in cost of goods sold in the consolidated financial statements.

the returned goods valuation defect in the accounting software system to be remediated during the fiscal year ending March 31, 2023 and

will continue to manually calculate the inventory valuation at the end of each quarter until such time that any differences between the

manual calculation and accounting system calculation are deemed immaterial.

have remediated the inventory cutoff weakness with proper training of new personnel involved with the inventory and specifically addressed

procedures prior to the physical inventory conducted for the fiscal year ended March 31, 2022.

Changes in Internal Controls

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

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

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

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

than the remediation of the prior year material weakness, there were no other changes in the Company’s internal controls over financial

reporting during the quarter ended March 31, 2022, that materially affected, or were reasonably likely to materially affect the Company’s

internal control over financial reporting.

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

control over financial reporting.

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

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

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

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

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

and Executive Officers

Fiscal Year Ended March 31, 2021

Global Sales and Marketing

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

Officers are appointed

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

have been elected and qualified.

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

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

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

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

to us by each respective individual:

Executive Officer, Director

Revenue Officer

Financial Officer

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

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

In November 2009, Mr.

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

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

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

He graduated from the University of Rochester with a Bachelors

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

Since taking over as Chief Executive Officer, Mr.

Atkinson has led the Company to seven consecutive years of profitability and growth

Atkinson is a licensed attorney in Florida and Georgia.

He graduated from the University of Rochester with a Bachelor’s

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

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School of Management.

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

of Sales”) since 2008.

During his tenure at the Singing Machine, Mr.

Melo has overseen the sales and operations of the music division

as well as managed the customer service department.

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

Melo held dual roles with

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

and Canada market as well as key U.S.

Effective August 11, 2021, Mr.

Atkinson was appointed to the Board of Directors.

Company believes that Mr.

Atkinson is qualified to serve on the Board of Directors because of his 14+ years of karaoke industry experience

and management experience.

Melo has been with the Company since February 2003.

Melo was appointed as Chief Revenue Officer on April 22, 2022 and has served

as the Vice President of Global Sales and Marketing (“VP of Sales”) since 2008.

During his tenure at the Singing Machine,

Melo has overseen the sales and operations of the music division as well as managed the customer service department.

Before taking

over the responsibility of VP of Sales, Mr.

Melo held dual roles with the Company managing the operations, licensing and sales of the

music division while concentrating on hardware sales for the Latin America and Canada market as well as key U.S.

accounts such as Walmart.

Prior to joining the Company, Mr.

Melo held a consulting role for Rewards

Network formerly Idine.

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

and lowering operating cost.

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

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

Melo has over 15

years of sales, marketing and management experience.

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

Melo held a consulting role for Rewards Network formerly Idine.

Melo’s assignment during

his tenure was improving their operational procedures while increasing efficiencies and lowering operating cost.

Melo also worked

at Coverall North America as Director of Sales managing a startup initiative for the company covering 15 regional office and 40 sales

reps across North America focusing on franchise sales.

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

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

Financial Officer in May 2012.

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Marquis graduated

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

Marquis is a Certified Public

Accountant in the state of Florida.

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

of Directors.

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

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

from Bryant University with a Bachelor’s Degree in Business Administration with a major in accounting.

Marquis is a Certified

Public Accountant in the state of Florida.

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

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

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

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

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

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

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

past 40 plus years.

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

Lau joined the Starlight Group in 2003 as assistant

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

He is also responsible for local sales

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

From 2002 to 2003, he held a marketing executive

position in Storage Technology Corporation.

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

degree in business marketing from Indiana University.

Company believes that Mr.

Judkowitz is qualified to serve on the Board of Directors because he is a qualified CPA with over 18+ years’

experience on the Board.

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

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

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

Kling has been involved in many

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

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

audit committee consisted of Messrs.

Judkowitz (Chairman) and Kling.

The Board has determined that Mr.

Judkowitz qualifies as an “audit

committee financial expert,”

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

The Board has determined that each

Judkowitz and Kling were “independent directors”

within the meaning of the listing standards of the major stock

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

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

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

compensation committee consisted of Messrs.

Judkowitz, Kling and Philip Lau.

The compensation committee considers and authorizes remuneration

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

nominating committee consisted of Messrs.

Philip Lau and Yat Tung Lau.

The nominating committee is responsible for reviewing the qualifications

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

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

for identifying individuals qualified to become directors.

The Nominating Committee seeks to identify director candidates based on input

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

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

In evaluating potential candidates for

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

Company believes that Mr.

Kling is qualified to serve on the Board of Directors because of his success and relationships in the toy industry

and his deep understanding of consumer products and market awareness of mergers and acquisitions in the toy industry.

Peloquin was appointed as a director of the Company on December 1, 2021.

Peloquin was appointed Senior Vice-President, Marketing

and Communications at Stingray Group, Inc.

(“Stingray”) in 2013 and oversees marketing, communication strategies, content

and investor relations.

Peloquin brings more than 20 years of experience as an expert marketer, strategist and inspiring leader.

Prior to joining Stingray, Mr.

Peloquin was Vice President of Marketing at Transcontinental Media Inc.

and Vice President of Transcontinental

Media Inc.’s Digital Marketing Solutions Group from 2010 to 2013.

He also held several executive positions at Reader’s Digest

Magazines Canada Limited and co-founded Equinox Marketing Services.

Peloquin is a CPA, CMA and holds a Bachelor of Commerce from

the School of Management of the Université du Québec à Montréal.

Company believes that Mr.

Peloquin is qualified to serve as a member of the Board of Directors due to his extensive business experience.

Foreman was appointed as director of the Company on May 23, 2022.

Foreman has been a veteran of the toy industry for over

Foreman started his career at Fable Toys as a territory sales rep for the Jersey Shore and within ten years became SVP

for Galoob Toys, where he was primarily responsible for developing the direct import business.

He has founded multiple toy companies

over his career, including co-founding Play-By-Play Toy’s and Novelties and more recently Play Along Toys, a leading toy company,

which was subsequently sold to Jakks Pacific in 2004.

Foreman later went on to found his third start up which became Basic Fun!,

now the makers of Tonka™ trucks, Carebears™, K’NEX™, Lincoln Logs™, Playhut™.

Foreman serves

as CEO of Basic Fun!, which role he has had since he founded the company in 2009.

He has also served on the boards of directors of the

Toy Association and Licensing Merchandisers association.

He currently chairs the Toy Industry trade show committee which is responsible

for the world famous NY Toy Fair.

Company believes that Mr.

Foreman is qualified to serve as a member of the Board of Directors because of his extensive history and experience

in the toy business, including his deep knowledge of licensing, operations, sales and marketing, M&A, and capital markets.

Nominating Committee is responsible for identifying individuals qualified to become directors.

The Nominating Committee seeks to identify

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

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

In evaluating

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

Qualifications

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

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

expert”

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

the person would qualify as an “independent”

director under the listing standards of the OTC;

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

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

the person would qualify as an “independent director”, as such term is defined in the Nasdaq Stock Market Rules;

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

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

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

as set forth in the Company’s Proxy Statement on Schedule 14A filed with the SEC on February 5, 2019.

RELATIONSHIPS

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

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

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

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

persons performing similar functions.

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

We intend to post amendments to or waivers from our Code of Ethics (to the extent applicable to our chief executive officer, principal

financial officer, principal accounting officer or controller or other persons performing similar functions) on our website.

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

as set forth in the Company’s Proxy Statement on Schedule 14A filed with the SEC on October 29, 2021.

OF THE BOARD OF DIRECTORS

members of our Audit Committee are Messrs.

Judkowitz, Kling and Foreman, with Mr.

Judkowitz serving as the Chairperson.

Each of Messrs.

Judkowitz, Kling and Foreman is independent under the rules and regulations of the SEC and the listing standards of the Nasdaq Stock

Market applicable to audit committee members.

Our board of directors has determined that Mr.

Judkowitz qualifies as an audit committee

financial expert within the meaning of SEC regulations and meet the financial sophistication requirements of the Nasdaq Stock Market.

Audit Committee has the responsibility for, among other things, (i) selecting, retaining and overseeing our independent registered public

accounting firm, (ii) obtaining and reviewing a report by independent auditors that describe the accounting firm’s internal quality

control, and any materials issues or relationships that may impact the auditors, (iii) reviewing and discussing with the independent

auditors standards and responsibilities, strategy, scope and timing of audits, any significant risks, and results, (iv) ensuring the

integrity of the Company’s financial statements, (v) reviewing and discussing with the Company’s independent auditors any

other matters required to be discussed by PCAOB Auditing Standard No.

1301, (vi) reviewing, approving and overseeing any transaction

between the Company and any related person and any other potential conflict of interest situations, (vii) overseeing the Company’s

internal audit department, (v) reviewing, approving and overseeing related party transactions, and (viii) establishing and overseeing

procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls

or auditing matters and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or

auditing matters.

members of our Compensation Committee are Messrs.

Judkowitz, Kling and Foreman, with Mr.

Kling serving as the Chairperson.

Our Compensation

Committee has the responsibility for, among other things, (i) reviewing and approving the chief executive officer’s compensation

based on an evaluation in light of corporate goals and objectives, (ii) reviewing and recommending to the Board the compensation of all

other executive officers, (iii) reviewing and recommending to the Board incentive compensation plans and equity plans, (iv) reviewing

and discussing with management the Company’s Compensation Discussion and Analysis and related information to be included in the

annual report on Form 10-K and proxy statements, and (v) reviewing and recommending to the Board for approval procedures relating to

Say on Pay Votes.

and Corporate Governance Committee

members of our Nominating and Corporate Governance Committee are Messrs.

Judkowitz, Kling and Foreman, with Mr.

Foreman serving as the

Our Nominating and Corporate Governance Committee has the responsibility relating to assisting the Board in, among other

things, (i) identifying and screening individuals qualified to become members of our board of directors, consistent with criteria approved

by our board of directors, (ii) recommending to the Board the approval of nominees for director, (ii) developing and recommending to

our board of directors a set of corporate governance guidelines, and (iv) overseeing the evaluation of our board of director.

to March 31, 2022 and as of the date of this report, Digital Power Lending beneficially owns

and BitNile Holdings and Ault may be deemed to beneficially own an aggregate of 1568,849 shares of our common stock

or approximately 52.0% of our outstanding shares.

Digital Power Lending is a wholly owned subsidiary of BitNile Holdings.

Executive Chairman of BitNile Holdings.

long as BitNile continues to hold more than 50% of the voting power of our

Company, we will be a “controlled company” as defined under Nasdaq Marketplace Rules.

so long as we are a controlled company under Nasdaq Marketplace Rules, we are permitted to elect to rely on certain exemptions from corporate

governance rules, including:

exemption from the rule that a majority of our board of directors must be independent directors;

exemption from the rule that the compensation of our CEO must be determined or recommended solely by independent directors;

exemption from the rule that our director nominees must be selected or recommended solely by independent directors.

BitNile has indicated it intends to appoint two

directors to the Board of Directors.

Upon the appointment of the BitNile

nominees, our Board of Directors will increase in size to seven directors, of which less than a majority will be “independent”

as defined under Nasdaq Marketplace Rules.

Family Relationships

is no family relationship between any director and executive officer or among any directors or executive officers.

in Certain Legal Proceedings

directors and executive officers have not been involved in any of the following events during the past ten years:

any bankruptcy petition

filed by or against such person or any business of which such person was a general partner or executive officer either at the time

of the bankruptcy or within two years prior to that time;

any conviction in a criminal

proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order,

judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily

enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated

with any person practicing in banking or securities activities;

being found by a court

of competent jurisdiction in a civil action, the SEC or the CFTC to have violated a Federal or state securities or commodities law,

and the judgment has not been reversed, suspended, or vacated;

being subject of, or a

party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended

or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation

respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection

with any business entity;

being subject of or party

to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity

or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated

with a member.

Board evaluates the independence of each nominee for election as a director of our Company in accordance with the Listing

Rules (the “Nasdaq Listing Rules”) of the Nasdaq Stock Market .

board currently consists of five directors, Gary Atkinson, Harvey Judkowitz, Joseph Kling, Mathieu Peloquin and Jay B.

Judkowitz, Kling and Foreman are “independent directors” within the meaning of the Nasdaq Listing Rules.

have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, and principal accounting

Our Code of Ethics is available on our website at https://singingmachine.com/pages/investors.

WITH SECTION 16(A) OF THE EXCHANGE ACT

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all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended March 31, 2022 were timely filed,

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

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

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

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

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

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

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

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

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

as necessary, by the officers, directors, and security holders required to file such forms except for as set forth in the Delinquent

Section 16(a) section below.

Section 16(a) Reports

Harvey Judkowitz filed a late Form 4 on June 23, 2022 with respect to five transactions;

Joseph Kling filed a late Form 4 on June 23, 2022 with respect to two transactions.

EXECUTIVE COMPENSATION

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

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

COMPENSATION PHILOSPOPHY

Compensation Committee believes that the Company must maintain short and long-term executive compensation plans that enable us to attract

and retain well-qualified executives.

Furthermore, we believe that our compensation plans must also provide a direct incentive for our

executives to create shareholder value.

A well-designed executive compensation plan will align the interests between the executives and

the shareholders as well as creating a positive environment of goals, performances and rewards.

believe that our executive compensation should reflect the success of the management team, rather than the individual, in attaining the

key operating objectives such as revenues growth, operation cost reduction, fund raising and the appreciation of the stock price.

measurement should be established to reward the performance.

We will also evaluate our executive compensation package by comparison to

similar companies to ensure the competitiveness of our compensation.

furtherance of this philosophy, the compensation of our executives generally consists of three components:

base salary, annual cash incentives

and long-term performance-based incentives.

base salaries for executive officers are initially determined by evaluating the responsibility of the position and the experience and

the skill sets of the individual.

Also taken into consideration is the competitiveness of the marketplace for executive talent, including

a comparison of base annual salaries with comparable positions within similar companies.

we award cash bonuses to our management employees and other employees, based on their personal performance in the past year and overall

performance of our Company.

The overall performance of our Company includes the revenue growth, reduction of the operation expenses,

fund raising and the stock price appreciation.

Term Compensation - Stock Option Grants

have utilized stock options to motivate and retain executive officers and other employees for the long-term.

We believe that stock options

closely align the interests of our executive officers and other employees with those of our stockholders and provide a major incentive

to building stockholder value.

Options are typically granted annually and are subject to vesting provisions to encourage officers and

employees to remain employed with the Company.

Our stock options are usually granted at a price equal to or above the fair market value

of our common stock on the date of grant.

As such, executive officers and employee only benefit from the grant of stock options if our

stock price appreciates.

Generally, we try to tie bonus payments to our financial performance.

However, if an individual has made significant

contributions to our Company, we will provide them with a bonus payment for their efforts even if our Company’s financial performance

has not been strong.

COMPENSATION TABLE

following table provides information regarding the compensation earned by or paid to our named executive officers with respect to the

years ended March 31, 2022 and 2021.

Name and Principal Position

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Bernardo Melo

VP Global Sales & Marketing

Chief Revenue Officer

Disclosure to Summary Compensation Table

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

31, 2021 and 2020.

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

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

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

2021 and 2020.

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

However, on January 3, 2014, the Company

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

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

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

lump sum payment equal to one year’s executive base salary if the executive terminates employment.

lump sum of one and a half year’s executive base salary and targeted annual bonus if the Company terminates employment.

outstanding stock options shall be fully vested and exercisable for the remainder of their full term.

outstanding equity-based compensation awards (other than stock options) shall become fully vested with any restrictions removed.

GRANTS IN FISCAL 2021

EQUITY AWARDS AT FISCAL YEAR-END

Atkinson earned an

annual salary of $156,075 for the fiscal year ended March 31, 2022 and $150,000 for the fiscal year ended March 31, 2021.

Marquis earned an annual

salary of $154,154 for the fiscal year ended March 31, 2022 and $150,518 for the fiscal year ended March 31, 2021.

Melo earned an annual

salary of $163,004 for the fiscal year ended March 31, 2022 and $157,200 for the fiscal year ended March 31, 2021.

OPTION AND STOCK AWARDS AT FISCAL YEAR-END

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

awards issued with Board of Directors approval to the named executive officers as of the fiscal year ended March 31, 2022:

and Principal Position

of Securities Underlying Unexercised Options (#) Exercisable

of Securities Underlying Unexercised Options (#) Unexercisable

Incentive Plan Awards:

Name and Principal Position

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive Plan Awards:

Number of Securities Underlying Unexercised Unearned Options (#)

Exercise Price ($)

Expiration Date

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

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

Incentive Plan Awards:

Option Exercise Price ($)

Option Expiration Date

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

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

Equity Incentive Plan Awards:

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

Incentive Plan Awards:

Equity Incentive Plan Awards:

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

Atkinson, CEO - Other stock option awards

Gary Atkinson, CEO - Other stock option awards

- Other stock option awards

Marquis, CFO - Other stock option awards

Lionel Marquis, CFO - Other stock option awards

- Other stock option awards

Melo, VP Sales - Other stock option awards

Bernardo Melo, VP Sales - Other stock option awards

- Other stock option awards

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- Other stock option awards

EXECUTIVE PAY RATIO DISCLOSURE

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

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

Atkinson’s total compensation as reported in the

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

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

year ended March 31, 2021 excluding Mr.

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

awards granted to each employee (excluding Mr.

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

The table below presents the ratio of Mr.

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

Atkinson’s total annual compensation

Median employee’s total annual compensation

Ratio of Chief Executive Officer to median emloyee

- Other stock option awards

April 22, 2022, we entered into employment agreements with each of our Chief Executive Officer, Chief Financial Officer and Chief Revenue

Officer (the “Employment Agreements”).

Employment Agreements for Messrs.

Atkinson and Melo are for a term of three years with automatic renewals for successive one-year terms,

unless either party provides notice of its intention not to extend.

Marquis’s Employment Agreement provides for a term of eighteen

months with automatic renewals for successive one-year terms unless either party provides notice of its intention not to extend.

to the Employment Agreements, as compensation for their service as executives of the Company, the executives will receive:

salary per annum (the “Base Salary”), set forth below and commensurate benefits, as described in the Employment Agreement;

(2) eligibility, subject to their continued employment with the Company, to earn an annual bonus (the “Annual Bonus”);

eligibility, also subject to their continued employment with the Company, to participate in the Company’s 2022 Equity Incentive

Plan, or any successor plan, subject to the terms of such plan;

and (4) entitlement, also subject to the executives’ continued

employment with the Company, to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses

incurred by them in connection with the performance of their duties for the Company and the Company’s expense reimbursement policies

and procedures.

executives’ base salaries are as follows:

Gary Atkinson:

with an automatic increase to $225,000 on the first anniversary of the Employment Agreement;

provided the Company remains profitable.

Lionel Marquis:

with an automatic increase to $185,000 on the first anniversary of the Employment Agreement provided the Company remains profitable.

Bernardo Melo:

with an automatic increase to $225,000 on the first anniversary of the Employment Agreement;

provided the Company remains profitable.

addition to the payment of accrued amounts due to the executives, the Employment Agreements each provide for the payment of severance

to the Executives in a lump sum payment equal to two times the sum of the executive’s base salary and annual bonus for the year

in which the termination occurs, in the event of the termination of the Agreement by the Company without Cause (as defined in the Employment

Agreement), or upon the Company’s election not to renew the Employment Agreement or by the executive for Good Reason (as defined

in the Employment Agreement).

The Employment Agreements provide for payments to the executive of certain amounts in the event of the

executive’s death or disability (as defined in the Employment Agreement).

the event the executive’s employment is terminated by the executive for Good Reason (as defined in the Employment Agreement) on

account of its failure to renew the Employment Agreement or without Cause (as defined in the Employment Agreement”) within twelve

months of a Change in Control (as defined in the Employment Agreement), the executive shall be entitled to receive a lump sum payment

equal to two times the base salary and annual bonus for the year in which the termination takes place.

of severance under the Employment Agreement is conditioned upon the executive’s execution of a release in favor of the Company.

Employment Agreements superseded the change of control agreements previously entered into by the Company in January 2014 with each of

its three executive officers.

April 22, 2022, our Board of Directors approved a Bonus Plan (the “Bonus Plan”) for our

executive officers.

Bonus Plan offers a cash bonus, stock options, and stock grants to the executives based on the Company’s EBITDA at its fiscal year

The value of the cash bonus and number of stock options and grants increases based on the Company’s percentage of net sales.

The Bonus Plan also provides for a one-time option grant to the executives upon the successful listing of the Company’s shares

of common stock on the Nasdaq Stock Market, LLC.

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

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Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Comepnsation Earnings

Nonqualified Deferred

All Other Compensation

Peter Hon (3)

Harvey Judkowitz

to Note 1 “Stock Based Compensation”

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

Phillip Lau (3)

Yat Tung Lau (3)

Mathieu Peloquin

to Note 1 “Stock Based Compensation” in the Notes to the Consolidated Financial Statements included elsewhere in this Annual

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

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Judkowitz and Kling is 11,678 and 523, respectively.

aggregate stock awards held by Messrs.

The aggregate

stock awards held by Messrs.

Hon, Yat Tung Lau and Philip Lau is 1,832, 1,485 and 523, respectively.

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Hon, Yat Tung Lau and Philip Lau is 3,334, 2,667 and 2,667 respectively.

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

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

Our five non-employee directors during Fiscal 2021

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

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

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

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

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

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

The payment will

be made on or before March 31.

Hon, Yat Tung Lau, and Philip Lau resigned effective August 10, 2021.

our fiscal year ended March 31, 2022, our compensation package for our non-employee directors consisted of grants of stock options, cash

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

compensate our directors as follows:

initial grant of 667 stock options with an exercise price determined as the closing price on the day of joining the board.

vest in one year and expire in ten years while they are board members or the lesser of five years or remaining life of the stock

option once they are no longer board members.

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

The payment will be made on

or before March 31.

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

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be made on or before March 31.

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

Stockholder Meeting.

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

not receive another option grant.

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

Committee meetings and telephone board

meetings will be compensated with a $250 fee.

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

is requested.

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

September 6, 2001.

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

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

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

individual in any one fiscal year.

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

split, declaration of a stock dividend or similar event.

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

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

As of this date the

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

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

Except as expressly

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

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

disability, retirement or death.

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

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

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

In the event of any of the foregoing, the Compensation

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

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

annual grant of 667 stock options with an exercise price determined as the closing price on the day of the Annual Stockholder Meeting.

If the Annual Meeting is held less than 6 months after the board member first joined the board he or she will not receive another

option grant.

$500 fee for each board meeting and annual meeting attended.

Committee meetings and telephone board meetings will be compensated

with a $250 fee.

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

EQUITY INCENTIVE PLAN

April 12, 2022, our Board of Directors adopted the 2022 Equity Incentive Plan, or the 2022 Plan.

The 2022 Plan provides for the issuance

of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance

awards and other stock or cash-based awards collectively, the “Awards.” Awards may be granted under the 2022 Plan to the

Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

maximum number of shares of common stock initially available for issuance under the 2022 Plan is 233,334 shares of common stock and thereafter

an annual increase shall be added as of the first day of the Company’s fiscal year beginning in 2023, equal to the least of (i)

5% of the outstanding common stock on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, (ii)

33,334 shares, and (iii) a lesser amount as determined by the Board of Directors.

The shares of common stock subject to stock awards

granted under the 2022 Plan that lapse, terminate, expire prior to exercise, are canceled or are forfeited, shall again become available

for issuance under the 2022 Plan.

Shares subject to a stock award under the 2022 Plan shall not again be made available for issuance

or delivery under the 2022 Plan if such shares are (i) shares tendered by a participant or retained by the Company as full or partial

payment to the Company for the exercise or purchase price of an award or (ii) shares used to satisfy tax withholding obligations in connection

with an award.

Notwithstanding

any other provision of the 2022 Plan to the contrary, unless the plan administrator determines otherwise with respect to a particular

award, in the event of a change of control, if and to the extent an outstanding award is not converted, assumed, substituted for or replaced

by the successor company, then such award will terminate upon effectiveness of the change of control.

Prior to the change of control,

the plan administrator may approve accelerated vesting and/or lapse of forfeiture or repurchase restrictions with respect to all or a

portion of the unvested portions of such awards, any such determinations to be made by the plan administrator in its sole discretion.

A change in control includes:

acquisitions of beneficial ownership of more than 50% of our total voting power;

change in the composition of the board of directors during any two-year period such that the individuals who, as of the beginning

of such two-year period, constitute the board of directors cease for any reason to constitute at least a majority of the board, as

defined in the 2022 Plan;

consummation of a company transaction, as defined in the 2022 Plan.

Board of Directors may amend, suspend or terminate the 2022 Plan or a portion of it at any time;

however, to the extent required by applicable

law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the 2022 Plan.

The 2022 Plan is scheduled

to terminate automatically in ten (10) years following the earlier of (a) the date the Board of Directors adopted the 2022 Plan and (b)

the date the shareholders approved the 2022 Plan.

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

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

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

our common stock by:

directors and former directors of the Singing Machine,

named executive officers of the Singing Machine;

known to own more than 5% of our common stock.

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

following table sets forth certain information regarding the beneficial ownership of our common stock as of July 14, 2022, unless

otherwise noted below, for the following:

person or entity known to own beneficially more than 5% of our outstanding common stock as of the date indicated in the corresponding

of the named executive officers:

current directors and executive officers as a group.

ownership is based on 3,017,700 shares of our common stock issued and outstanding.

In computing the number and percentage of shares

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

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

for computing the percentage ownership of any other person.

In computing the number and percentage of shares beneficially

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

or exercisable within 60 days of July 14, 2022 are counted as outstanding, but these shares are not counted as outstanding and to

be beneficially owned by that person, for computing the percentage ownership of any other person.

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

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

Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

As of July 13, 2021

Name and Address of Beneficial Owner

Amount and Nature of Certain Beneficial Ownership of Common Stock

Percentage of outstanding shares of common stock

Security Ownership of Management:

Name of Beneficial Owner

Stock Beneficially

Percentage of

Directors and Officers:

Gary Atkinson (1)

1 unchanged sentence

Bernardo Melo (1)

Philip Lau (1,2)

Harvey Judkowitz (1)

Joseph Kling (1)

Yat Tung Lau (1)

Peter Hon (1)

Officers & Directors as a Group (8 persons)

Security Ownership of Certain Beneficial Owners:

Fairy King Ltd.

Arts Electronics Ltd.

Gentle Boss Investments Ltd (4)

* Less than 1%

Total Shares of Common Stock as of July 13, 2021

Stock Options Exercisable within 60 days of July 13, 2021

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

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

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

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

by Philip Lau.

“Fairy King”

is defined in Part I, Item 1 under “Business Overview.”

Koncepts International Ltd.

Green Holdings, Ltd.

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

The address for Fairy King Prawn, Ltd.

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

Fairy King Prawn,

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

The address for Arts Electronics Ltd.

is Room 101, Fo Tan Ind CTR 1/F, 26-28 Au Pui Wan, Fo Tan, Shatin N.T.

The address for Gentle Boss Investments Ltd.

is Unit 6, 9/F, Tower B, 55 Hoi Yuen Road, Kwun Tong, Kowloon Hong Kong.

Mathieu Peloquin

All Executive Officers and Directors as a Group (7 persons)

Beneficial owners of more than 5%:

BitNile Holdings.

Armistice Capital Master Fund Ltd.

Stingray Group Inc.

Represents less than 1%

(1) Includes as to the person indicated, the following

outstanding stock options to purchase shares of the Company’s Common Stock issued under 2001 Stock Option Plan and other stock

option awards, which will be vested and exercisable within 60 days of July 14, 2022:

10,000 options held by Gary Atkinson, 19,167 options

held by Bernardo Melo, 5,500 options held by Lionel Marquis, 2,000 options held by Harvey Judkowitz, and 3,334 options held by Joseph

(2) Based solely upon Schedule 13D/A jointly

filed with the Securities and Exchange Commission on July 11, 2022 by BitNile Holdings, Inc.

(“BitNile Holdings”), a

Delaware corporation, Digital Power Lending, LLC (“Digital Power Lending”), a California limited liability company and

subsidiary of BitNile Holdings, and Milton C.

Ault, III (“Ault”), Founder and Executive Chairman of BitNile Holdings.

Represents 1,568,849 shares of common stock, all of which are directly owned by Digital Power Lending and indirectly owned by

BitNile Holdings and Ault.

The address of BitNile is 11411 Southern Highlands Parkway, Suite 240, Las Vegas, NV 89141.

(3) Based solely upon Schedule 13G filed with

the Securities and Exchange Commission on February 14, 2022 by Armistice Capital, LLC which reported that as of February 14, 2022 the

security holder owned 82,303 shares of common stock and 555,556 shares of common stock issuable upon exercise of common warrants.

security holder may not exercise the common warrants to the extent such exercise would cause the security holder, together with its affiliates,

to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock following such exercise,

excluding for purposes of such determination shares of common stock issuable upon exercise of such securities which have not been so

Armistice Capital, LLC (“Armistice Capital”) is the investment manager of Armistice Capital Master Fund Ltd.

“Master Fund”), the direct holder of the shares, and pursuant to an Investment Management Agreement, Armistice Capital exercises

voting and investment power over the securities of the Issuer held by the Master Fund and thus may be deemed to beneficially own the

securities of the Issuer held by the Master Fund.

Boyd, as the managing member of Armistice Capital, may be deemed to beneficially

own the securities of the Issuer held by the Master Fund.

The Master Fund specifically disclaims beneficial ownership of the securities

of the Issuer directly held by it by virtue of its inability to vote or dispose of such securities as a result of its Investment Management

Agreement with Armistice Capital.

The address of Armistice Capital Master Fund Ltd.

is 510 Madison Ave, 7th Floor, New York, NY 10022.

(4) Based solely upon the Schedule 13D/A filed

with the Securities and Exchange Commission on May 26, 2022 by Stingray Group Inc.

(“Stingray”), a corporation incorporated

under the laws of Canada, and Eric Boyko (“Mr.

Pursuant to the Schedule 13D/A, as of May 1, 2022, Mr.

Boyko indirectly

controlled approximately 57.45% of the combined voting power of Stingray’s outstanding shares.

As a result, Mr.

Boyko may be deemed

to share beneficial ownership of the shares of common stock and the warrants held by Stingray.

Does not include 222,223 shares of common

stock issuable upon exercise of common warrants.

The security holder may not exercise the warrants to the extent such exercise would

cause the security holder, together with its affiliates, to beneficially own a number of shares of common stock which would exceed 4.99%

of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable

upon exercise of such securities which have not been so exercised.

The address of Stingray Group Inc.

is 730 Wellington Street, Montréal,

Québec H3C 1T4.

AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

April 12, 2022, our Board of Directors approved The Singing Machine Company, Inc.

2022 Equity Incentive Plan, or the 2022 Plan.

Plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted

stock, stock units, performance awards and other stock or cash-based awards collectively, the “Awards.” Awards may be granted

under the 2022 Plan to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

maximum number of shares of common stock initially available for issuance under the 2022 Plan is 233,333 shares of common stock and thereafter

an annual increase shall be added as of the first day of the Company’s fiscal year beginning in 2023, equal to the least of (i)

5% of the outstanding common stock on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, (ii)

333,334 shares, and (iii) a lesser amount as determined by the Board of Directors.

The shares of common stock subject to stock awards

granted under the 2022 Plan that lapse, terminate, expire prior to exercise, are canceled or are forfeited, shall again become available

for issuance under the 2022 Plan.

following table summarizes our equity compensation plan information as of March 31, 2022:

Plan Category

Number of Securities to be issued upon exercise of outstanding options, warrants and rights

Weighted –average exercise price of outstanding option, warrants and rights

Number of securities remaining available for future issuance under equity compensation Plans

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

transaction may be a related person transaction if any of our directors, executive officers, owners of more than 5% of our common stock,

or their immediate family were involved in a transaction in which the Company was or is to be a participant, and the amount involved

exceeds the lesser of $120,000 or 1% of the average of the Company’s total assets at year end for the last two completed fiscal

The Company engaged in the following related persons transactions in the last two fiscal years or expects to engage in the following

transactions since the end of that two-year period:

TO/FROM RELATED PARTIES

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

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

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

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

our fiscal year ended March 31, 2022 and 2021, the Company did business with entities owned by our former Chairman, Philip Lau.

entities were:

Starlight R&D Ltd (“SLRD”), Starlight Consumer Electronics USA, Inc.

(“SCE”), Cosmo Communications

Corporation of Canada, Inc.

(“Cosmo”), Winglight Pacific, Ltd.

(“Winglight”), and Starlight Electronics Company

On March 31, 2022 and 2021 the Company had approximately $0.1 million due to related parties SLRD, SCE and

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

Lau resigned as Chairman effective August 10, 2021.

our fiscal year ended March 31, 2022 and 2021, the Company did business with Stingray Group Inc (“Stingray”) who is part

of a 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).

On March 31, 2022 and 2021, the Company had approximately $0.2 million and $0.1 million, respectively

due from Stingray for music subscription reimbursement.

Related Party Debt and Note Payable

1 unchanged sentence

Marketing Development, Ltd.

(“subordinated debt”).

(“Subordinated Debt”).

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

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

As part of the

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

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

$72,000 for Fiscal 2020.

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

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

note payable”) to Starlight Marketing Development, Ltd.

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

Note Payable”) to Starlight Marketing Development, Ltd.

Both agreements allow for the repayment of the Subordinated Note Payable

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As of March 31, 2022

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

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

note payable.

and 2021 the remaining principal balance of approximately $352,000 and $503,000, respectfully is classified as a current liability on

the accompanying consolidated balance sheets.

During the fiscal years ended March 31, 2022 and 2021 interest expense was approximately

$20,000 and $35,000, respectively on the Subordinated Note Payable.

the fiscal years ended March 31, 2022 and 2021 interest expense was approximately $0 and $12,000, respectively on the related party Subordinate

both Fiscal 2022 and 2021 the Company paid approximately $0.4 million to SLE as reimbursement for engineering, quality control and other

1 unchanged sentence

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of operations.

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

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

These amounts were

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

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

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

on our 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

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

As part of the agreement, the companies

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

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

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

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

During Fiscal 2022 and 2021 there was a gain of approximately $0.0 million $0.2 million, respectively from Cosmo related to payments

received in Fiscal 2021 on prior year sales and the related receivable previously reversed and written off as they were initially deemed

uncollectible.

Company has a music subscription sharing agreement with Stingray.

For the fiscal years ended March 31, 2022 and 2021 the Company received

music subscription revenue of approximately $0.5 million and $0.4 million, respectively.

These amounts were included as a component of

net sales in the accompanying consolidated statements of income.

Approval or Ratification of Transactions with Related Persons

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Determination of Independence

Board evaluates the independence of each nominee for election as a director of our Company in accordance with the Nasdaq Listing Rules.

All directors who sit on our Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee must also be independent

Board currently consists of five directors, Gary Atkinson, Harvey Judkowitz, Joseph Kling, Mathieu Peloquin, and Jay B.

Board has determined that Messrs.

Judkowitz and Kling are “independent directors”

within the meaning of the listing standards

of major stock exchanges.

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

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

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

PRINCIPAL ACCOUNTING FEES AND SERVICES

following is a summary of the fees billed to the Singing Machine by our independent registered public accounting firms for professional

services rendered for Fiscal 2021 and Fiscal 2020:

Judkowitz, Kling, and Foreman are “independent directors” within the meaning of the Nasdaq

Listing Rules.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to

the Company by its independent registered public accounting firm, EisnerAmper LLP, for professional services rendered

for Fiscal 2022 and Fiscal 2021.

EisnerAmper LLP’s PCAOB firm ID is 274:

All Other Fees

Fees - Consists of fees billed for professional services rendered for the audit of the Singing Machine’s consolidated financial

Audit Fees - Consists of fees billed for professional services rendered for the audit of the Singing Machine’s consolidated financial

statements and review of the interim consolidated financial statements included in quarterly reports and services that were provided

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

Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered

public accounting firm.

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

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

The following financial statements for The Singing Machine Company, Inc.

and Subsidiaries are filed as a part of this report:

Balance Sheets—

March 31, 2021 and 2020.

Statements of Operations—Years ended March 31, 2021 and 2020.

Statements of Cash Flows—Years ended March 31, 2021 and 2020.

Statements of Shareholders’

Equity—Years ended March 31, 2021 and 2020.

Balance Sheets— March 31, 2022 and 2021.

Statements of Income —Years ended March 31, 2022 and 2021.

Statements of Cash Flows—Years ended March 31, 2022 and 2021.

Statements of Shareholders’ Equity—Years ended March 31, 2022 and 2021.

Notes to Consolidated Financial Statements

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statements or notes thereto.

3.1 Certificate of Incorporation of the Singing Machine filed with the Delaware Secretary of State on February 15, 1994 and amendments through April 15, 1999 (incorporated by reference to Exhibit 3.1 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on March 7, 2000).

Certificate of Amendment of the Singing Machine filed with the Delaware Secretary of State on September 29, 2000 (incorporated by reference to Exhibit 3.1 in the Singing Machine’s Quarterly Report on Form 10-QSB for the period ended September 30, 1999 filed with the SEC on November 14, 2000).

3.3 Certificates of Correction filed with the Delaware Secretary of State on March 29 and 30, 2001 correcting the Amendment to our Certificate of Incorporation dated April 20, 1998 (incorporated by reference to Exhibit 3.11 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on April 11, 2000).

Amended By-Laws of the Singing Machine Singing Machine (incorporated by reference to Exhibit 3.14 in the Singing Machine’s Annual Report on Form 10-KSB for the year ended March 31, 2001 filed with the SEC on June 29, 2001).

4.1 Form of Certificate Evidencing Shares of Common Stock (incorporated by reference to Exhibit 3.3.

of the Singing Machine’s registration statement on Form SB-2 filed with the SEC on March 7, 2000).

Amended and Restated 1994 Management Stock Option Plan (incorporated by reference to Exhibit 10.6 to the Singing Machine’s registration statement on Form SB-2 filed with the SEC on March 28, 2001, File No.

Year 2001 Stock Option Plan (incorporated by reference to Exhibit 10.1 of the Singing Machine’s registration statement on Form S-8 filed with the SEC on September 13, 2002, File No.

Securities Purchase Agreement dated February 21, 2007, by and between The Singing Machine Company, Inc.

and koncepts International Limited.

(incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on February 27, 2007)

Registration Rights Agreement dated February 21, 2007, by and between The Singing Machine Company, Inc.

and koncepts International Limited.

(incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on February 27, 2007)

Certificate of Incorporation of the Singing Machine filed with the Delaware Secretary of State on February 15, 1994 and amendments through April 15, 1999 (incorporated by reference to Exhibit 3.1 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on March 7, 2000).

Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on September 29, 2000 (incorporated by reference to Exhibit 3.1 in the Singing Machine’s Quarterly Report on Form 10-QSB for the period ended September 30, 1999 filed with the SEC on November 14, 2000).

Corrected Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on March 27, 2001 (incorporated by reference to Exhibit 3.13 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on April 11, 2001).

Corrected Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on April 4, 2001 (incorporated by referenced to Exhibit 3.12 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on April 11, 2001).

Certificate of Correction to Corrected Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on April 20, 2001.

Certificate of Amendment to the Certificate of Incorporation filed with the Delaware Secretary of State on January 27, 2006.

Certificate for Renewal and Revival of Charter filed with Delaware Secretary of State on September 25, 2012.

Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on May 19, 2022 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on May 25, 2022).

Amended By-Laws of the Singing Machine (incorporated by reference to Exhibit 3.14 in the Singing Machine’s Annual Report on Form 10-KSB for the year ended March 31, 2001 filed with the SEC on June 29, 2001).

Description of Registrant’s Securities.

Lease for Lakeside Plaza executive offices dated July 31, 2011 by and between The Singing Machine Company, Inc.

and Lakeside IV, LLC (incorporated by reference to the Singing Machine’s Current Report on Form 10-K filed with the SEC on June 29, 2011).

Lease for Ontario, CA warehouse dated January 31, 2013 by and between The Singing Machine Company, Inc.

and Majestic-CCCIV Partners (incorporated by reference to the Singing Machine’s Current Report on Form 10-K filed with the SEC on June 28, 2013).

Executive Change of Control Agreement dated January 3, 2014 by and between The Singing Machine Company, Inc.

and Gary Atkinson, Bernardo Melo, and Lionel Marquis ((incorporated by reference to the Singing Machine’s Current Report on Form 10-K filed with the SEC on June 30, 2014).

First Amendment to Standard Industrial Lease dated June 15, 2020.

Intercreditor Agreement with Crestmark and Iron Horse, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Loan and Security Agreement with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Schedule to Loan and Security Agreement with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Promissory Note with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Loan and Security Agreement with Iron Horse, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

14 Subordination Agreement with Starlight Marketing, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Promissory Note with Starlight Marketing, dated June 1, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

and Gary Atkinson, Bernardo Melo, and Lionel Marquis ((incorporated by reference to the Singing Machine’s Current Report on Form 10-K filed with the SEC on June 30, 2014).

First Amendment to Standard Industrial Lease dated June 15, 2020 (incorporated by reference to the Singing Machine’s Annual Report on Form 10-K filed with the SEC on August 13, 2020).

Intercreditor Agreement with Crestmark and Iron Horse, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Loan and Security Agreement with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Schedule to Loan and Security Agreement with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Promissory Note with Crestmark, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Loan and Security Agreement with Iron Horse, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Subordination Agreement with Starlight Marketing, dated June 11, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Promissory Note with Starlight Marketing, dated June 1, 2020 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 16, 2020).

Stock Redemption Agreement, dated as of August 5, 2021, by and among The Singing Machine Company, Inc., Koncepts International, Ltd.

and Treasure Green Holdings, Ltd.

(incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on August 12, 2021).

The Singing Machine 2022 Equity Incentive Plan (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 18, 2022)

Employment Agreement by and between The Singing Machine Company, Inc.

and Gary Atkinson (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 22, 2022).

Employment Agreement by and between The Singing Machine Company, Inc.

and Lionel Marquis (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 22, 2022).

Employment Agreement by and between The Singing Machine Company, Inc.

and Bernardo Melo (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 22, 2022).

Form of Indemnification Agreement to be entered into with the Registrant and each of its officers and directors (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on May 27, 2022).

List of subsidiaries of The Singing Machine Company Inc.

(incorporated by reference to The Singing Machine’s Registration Statement on Form S-1 filed with the SEC on April 13, 2022)

Certification of Gary Atkinson, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

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

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

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

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

31, 2021 and 2020;

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

(iv) Consolidated Statements

of Shareholders’

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

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith

** Furnished herewith

Compensatory plan or arrangement.

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SINGING MACHINE COMPANY, INC.

July 14, 2022

Gary Atkinson

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GARY ATKINSON

Executive Officer

Executive Officer and Director

Executive Officer)

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Financial Officer)

Mathieu Peloquin

HARVEY JUDKOWITZ

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TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’

Consolidated Statements of Shareholders’ Equity

Notes to Consolidated Financial Statements

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have audited the accompanying consolidated balance sheets of The Singing Machine Company, Inc.

and Subsidiaries (the “Company”)

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

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

and Subsidiaries (the “Company”)

as of March 31, 2022 and 2021, and the related consolidated statements of operations, cash flows, and shareholders’ equity for

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

In our opinion,

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

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

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

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

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

financial statements based on our audits.

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

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

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

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

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

Accordingly, we express no such opinion.

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

The Company selectively participates in retailer’s promotional incentives to maximize sales of the Company’s products on

the retail floor or to assist in developing consumer awareness of new product launches, by providing marketing allowances to their customers.

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

The Company’s accrual for promotional

The Company’s reserve for sales returns were approximately $1.0 million as of March 31, 2022.

The Company’s accrual for promotional

incentives was approximately $0.5 million as of March 31, 2022.

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

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

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

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

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

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(2) recalculating

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

from those customers;

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

independent assumptions;

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

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

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

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

described in Note 3 to the consolidated financial statements, the Company’s inventories are stated at the lower of cost or net

realizable value.

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

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

as of the reporting date.

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financial statements.

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

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

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

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

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

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

used in determining the inventory reserve;

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

and testing the mathematical accuracy;

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

Company’s net realizable value;

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

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

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

have served as the Company’s auditor since 2016.

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

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

Eisner Amper LLP

have served as the Company’s auditor since 2016.

EISNERAMPER LLP

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Accounts receivable, net of allowances of $ 122,550 and $ 138,580 , respectively

Due from banks

Accounts receivable related party - Winglight Pacific, Ltd

Insurance claim receivable

Due from Crestmark Bank

Accounts receivable related party - Stingray Group, Inc.

Inventories, net

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Other non-current assets

Liabilities and Shareholders’

Liabilities and Shareholders’ Equity

Current Liabilities

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

Due to related party - Starlight Electronics Co., Ltd

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

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Operating lease liabilities, net of current portion

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

Common stock, Class A, $0.01 par value;

100,000 shares authorized;

issued and outstanding

Common stock, Class B, $0.01 par value;

no shares issued and outstanding

Common stock, $ 0.01 par value;

100,000,000 shares authorized;

39,040,748 and 38,557,643 shares issued and outstanding, respectively

1,221,209 and 1,301,358 shares issued and

outstanding, respectively

Additional paid-in capital

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( 12,254,191 )

Total Shareholders’

Total Liabilities and Shareholders’

notes to the consolidated financial statements

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

See notes to the consolidated financial statements

Singing Machine Company, Inc.

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STATEMENTS OF OPERATIONS

March 31, 2022

March 31, 2021

For the Twelve Months Ended

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General and administrative expenses

Bad debt expense

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expenses)

Income from Operations

Other Income (Expense)

Gain from Paycheck Protection Plan loan forgiveness

Gain - related party

Gain from damaged goods insurance claim

Gain from settlement 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)

$ (2,857,000 )

Net Income (Loss) per Common Share

Weighted Average Common and Common Equivalent Shares:

notes to the consolidated financial statements

The Singing Machine Company, Inc.

Total Other Income (Expense), net

Income Before Income Tax Provision

Income Tax Provision

Net Income per Common Share

Weighted Average Common and Common

Equivalent Shares:

See notes to the consolidated financial statements

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

STATEMENTS OF CASH FLOWS

March 31, 2022

March 31, 2021

For the Twelve Months Ended

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Cash flows from operating activities

Net Income (Loss)

$ (2,857,000 )

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

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

Amortization of deferred financing costs

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Change in allowance for bad debts

Loss from disposal of property and equipment

Stock based compensation

Change in net deferred tax assets

Paycheck Protection Plan loan forgiveness

Gain - related party

Gain from settlement of accounts payable

Gain from extinguishment of accounts payable

Changes in operating assets and liabilities:

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Due from banks

( 2,168,682 )

Accounts receivable - related parties

Insurance receivable

( 8,399,489 )

Prepaid expenses and other current assets

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Accounts payable

Income Taxes Payable

( 3,190,530 )

Accrued expenses

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

Net cash provided by operating activities

Net cash (used in) provided by operating activities

( 2,011,930 )

Cash flows from investing activities

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Cash flows from financing activities

Proceeds from Issuance of stock - net of transaction expenses

Payment of redemption and retirement of treasury stock

( 7,162,451 )

Net Proceeds from revolving lines of credit

Proceeds from note payable - Payroll Protection Program

Payment of bank term note

Payment of deferred financing charges

Proceeds from installment notes

Payments on installment notes

Proceeds from subscription receivable

Proceeds from exercise of stock options

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Cash paid for interest

Operating leases - right of use assets initial adoption

Operating lease liabilities - initial adoption

Equipment purchased under capital lease

Issuance of common stock and warrants for stock issuance expenses

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

notes to the consolidated financial statements

See notes to the consolidated financial statements

Singing Machine Company, Inc.

and Subsidiaries

STATEMENTS OF SHAREHOLDERS’

STATEMENTS OF SHAREHOLDERS’ EQUITY

the twelve months ended March 31, 2021 and 2022

Subscriptions

at March 31, 2020

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compensation-stock option

of subscription receivable

of stock options

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( 12,254,191 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 4,301,147 )

( 2,854,762 )

( 7,162,451 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of subscription receivable

of stock options

of common stock - directors

at March 31, 2022

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1 - BASIS OF PRESENTATION

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

“SMC”, “The Singing Machine”),

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

(“SMCL”)

and SMC-Music, Inc.

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

accessories and musical recordings.

The products are sold directly to distributors and retail customers.

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

approximately 49% of our shares of common stock outstanding on a fully diluted basis as of March 31, 2021.

The Company is also partly

held by Treasure Green Holdings Ltd.

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

In total approximately 51%

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

koncepts and Treasure Green are owned by Fairy King Prawn Holdings Limited (“Fairy King”), an investment holding company

incorporated in the British Virgin Islands, principally owned by the Company’s Chairman, Philip Lau.

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

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

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

among others.

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.

SMC-Music, Inc.

(“SMCM”) and SMC (HK) Limited (“SMH”), 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

EQUITY EVENTS

May 23, 2022, the Company effected a reverse stock split of its shares of common stock in a ratio of 1:30.

The reverse stock split was

affected to meet The Nasdaq Capital Market’s minimum bid price requirement.

All information in these consolidated financial statements

have been retroactively adjusted to give effect to this 1-for-30 reverse stock split.

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”) (entities that are principally owned

by the Company’s former Chairman, Philip Lau) pursuant to which the Company redeemed 654,105 shares of common stock of the Company

(the “Redeemed Shares”).

The 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 in consideration of a payment by the Company of approximately

$ 7,162,000 to koncepts and Treasure Green.

The Redeemed Shares were retired and returned to the unissued authorized capital of the Company.

Prior to August 10, 2021, the Company was partially held by koncepts who was major shareholder of the Company that owned approximately

49 % of our shares of common stock outstanding on a fully diluted basis as of March 31, 2021.

The Company was also partly held by Treasure

Green who owned approximately 2 % of our common stock.

In total approximately 51 % of the Company’s shares of common stock on a fully

diluted basis as of March 31, 2021 were previously owned by koncepts and Treasure Green.

koncepts and Treasure Green are owned by Fairy

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

owned by the Company’s former Chairman, Philip Lau .

to the Redemption Agreement, neither koncepts nor Treasure Green remained shareholders of the Company and SLRD, SCE, Cosmo, Winglight

and SLE are no longer related parties.

to August 10, 2021 we did 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 Canada, Inc.

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

Ltd (“SLE”), among others.

May 23, 2022, the “Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital

Corp., who acted as the sole underwriter (the “Underwriter”), in a firm commitment underwritten public offering (the “Offering”)

pursuant to which the Company sold to the Underwriter 1,000,000 shares (the “Shares”) of common stock, par value $ 0.01 per

share (the “Common Stock”) for gross proceeds of $ 4.0 million prior to deducting underwriting discounts and commissions and

other estimated offering expenses of approximately $ 0.7 million.

The price to the public in the Offering is $ 4.00 per Share, before underwriting

discounts and commissions.

The offering closed on May 26, 2022.

to the terms of the Underwriting Agreement, the Company agreed to issue to the Underwriter warrants to purchase up to 100,000 shares

of Common Stock representing 10.0 % of the Shares sold in this Offering, excluding any Shares sold through the over-allotment option.

The warrants are exercisable six months from the commencement of sales under the offering, have an exercise price of $ 5.00 per share

and expire five years from the date of issuance.

Common Stock was approved to list on the Nasdaq Capital Market under the symbol “MICS” and began trading on the Nasdaq Capital

Market on May 24, 2022.

Shares were offered and sold to the public pursuant to the Company’s registration statement on Form S-1 (File No.

initially filed by the Company with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,

as amended (the “Securities Act”) on April 13, 2022 and declared effective by the SEC on May 23, 2022.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

2 – LIQUIDITY

Company reported net income of approximately $ 0.2 million and used cash in operating activities of approximately $ 2.0 million for the

fiscal year ended March 31, 2022.

The current Intercreditor Revolving Credit Facility with Crestmark Bank is under an evergreen arrangement

that terminates upon written notice by the Company and is subject to a termination fee if terminated by the Company anytime other than

the annual renewal date of June 11.

Our credit facility with Iron Horse Credit that was to expire on June 11, 2022, however absent any

termination notice given by the Company to IHC, was automatically renewed for another twelve-month term and is subject to a termination

fee if terminated by the Company prior to the twelve-month renewal date.

The Company believes that our cash on hand, working capital

(net of cash), cash expected to be generated from our operating forecast, along with the availability of cash from our credit facilities

(See Note 6 – BANK FINANCING) will be adequate to meet the Company’s liquidity requirements for at least twelve months from

the filing of this report.

3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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.

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OF ACCOUNTS RECEIVABLE

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

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

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and expenses.

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

would be recorded in a separate component of shareholders’

Net gains and losses resulting from foreign exchange transactions are recorded in the statements of income and translations

would be recorded in a separate component of shareholders’ equity.

Any such amounts were not material during the periods presented.

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The amounts at foreign financial institutions at March

31, 2021 and 2020 were approximately $0.2 million.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

31, 2022 and 2021 were approximately $ 0.1 million and $ 0.2 million, respectively.

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

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future inventory returns due to warranty and allowance programs.

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

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

The Company reduces inventory on hand to its

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

its original cost.

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

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

As of March 31, 2021 and

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

As of March 31, 2022 and 2021 the estimated amounts for these future

inventory returns were approximately $ 0.6 million and $ 0.7 million, respectively.

The Company reduces inventory on hand to its net realizable

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

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

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

As of March 31, 2022 and 2021 the Company

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

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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.”

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

of Long-Lived Assets.”

AND EQUIPMENT

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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,

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

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RECOGNITION AND RESERVE FOR SALES RETURNS

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

All revenue is generated

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

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

the retail floor or to assist in developing consumer awareness of new product launches, by providing marketing fund allowances to our

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during fiscal 2021.

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

The Company’s

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

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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 consolidated statements of income as our underlying customer agreements are less

than one year.

the Company has no overstock return privileges in its vendor agreements with its customers, the Company does provide for variable consideration

contingent upon the occurrence of uncertain future events.

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

amount depending on the type of consideration.

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

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

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

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

Company’s reserve for sales returns were approximately $ 1.0 million as of both March 31, 2022 and 2021.

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 13 – SEGMENT INFORMATION).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

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31, 2022 and 2021

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

hardware and the Company has no other material business segments (See NOTE 10 –

SEGMENT INFORMATION).

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

occurrence of uncertain future events.

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

on the type of consideration.

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

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

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

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

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

fiscal 2022 and 2021 revenue was derived from five different major product lines.

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lines consisted of the following:

SCHEDULE OF DISAGGREGATION OF REVENUE

March 31, 2022

March 31, 2021

Revenue by Product Line

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Karaoke Machines

Licensed Products

Microphones and Accessories

SMC Kids Toys

Licensed Products

Music Subscriptions

2 unchanged sentences

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

fulfill the Company’s promise to transfer the goods.

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

$1.2 million.

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

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

Stock Compensation Awards Classified as Equity”.

fulfill the Company’s promise to transfer the goods.

For Fiscal 2022 and 2021 shipping and handling expenses were approximately

$ 0.9 million and $ 1.2 million, respectively.

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

statements of income.

Company follows the provisions of 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 consolidated statement of operations over the service period (generally the vesting period).

The Company uses the Black-Scholes

option valuation model to value stock options.

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

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

in the 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 in fiscal years ended March 31, 2022 and 2021 includes

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

of the award.

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

For the fiscal years ended March 31, 2022 and 2021, the stock option expense was approximately $ 22,000 and $ 10,000 , respectively.

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

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the year ended March 31, 2022:

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

term of three years.

expected dividend yield of 0 % , risk-free interest rate between 0.43 % and 0.96 % , respectively with

volatility between 149.5 % and 157.0 % , respectively with an expected term of three years .

the year ended March 31, 2021:

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term of three years .

Company’s directors were issued shares of stock as compensation for their service.

For the years ended March 31, 2022 and 2021,

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

the stock compensation expense to directors was $ 5,000 and $ 12,500 , respectively.

AND DEVELOPMENT COSTS

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These expenses are shown as a component of general and

administrative expenses in the consolidated statements of operations.

administrative expenses in the consolidated statements of income.

For both years ended March 31, 2022 and 2021, these amounts totaled

approximately $ 0.1 million.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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

Under the asset and liability method of ASC

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

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The Company measures the tax benefits recognized based on the

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

As of March 31, 2021 and 2020 there

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

The Company recognizes

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

The Company currently has no liabilities

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

largest benefit that has a greater than 50% likelihood of being

realized upon ultimate resolution.

As of March 31, 2022 and 2021 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

OF EARNINGS (LOSS) PER SHARE

of dilutive shares for fiscal years ended March 31, 2022 and 2021 are as follows:

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

Fiscal year ended March 31, 2022

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

Diluted net income

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

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

treasury stock method.

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

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

OF NEW ACCOUNTING STANDARDS

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.

The guidance specifies

that an entity should apply the annual effective tax rate to the year-to date income or loss as long as the tax benefits for any losses

are expected to be realized during the year or would be recognizable as a deferred tax asset at the end of the year eliminating the requirement

of a valuation allowance for that interim period.

There is specific guidance for circumstances in which an entity incurs a loss on a

year-to-date basis that exceeds the anticipated ordinary loss for the year, which is an exception to the general guidance in Subtopic

The Company adopted the standard for the fiscal year ended March 31, 2021.

The adoption of this standard did not have a material

effect on our consolidated financial statements.

Pre-funded warrants

to purchase 561,111 shares of common stock are included in basic weighted average shares outstanding as deemed outstanding.

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 fiscal years ended March 31, 2022 and 2021, options to purchase approximately 9,000

and 12,000 shares of common stock, respectively, have been included in the calculation of diluted net income per share For the fiscal

years ended March 31, 2022 and 2021 options and warrants to purchase approximately 56,000 and 25,000 shares of common stock respectively,

have been excluded in the calculation of diluted net income per share as the result would have been anti-dilutive.

ACCOUNTING PRONOUNCEMENTS :

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

(Topic 326) .

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.

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

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

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

The amendments in ASU 2016-03 for smaller reporting companies are effective

for the Company beginning April 1, 2023, including interim periods within that fiscal year.

Early adoption is permitted.

We are currently evaluating the potential

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

We are currently

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

4 – INVENTORIES, NET

are comprised of the following components:

SCHEDULE OF INVENTORY

Finished Goods

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Total Inventories

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

5 - PROPERTY AND EQUIPMENT

summary of property and equipment is as follows:

SUMMARY OF PROPERTY AND EQUIPMENT

Computer and office equipment

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Accumulated depreciation

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

expense for fiscal years ended 2022 and 2021 was approximately $ 0.2 million and $ 0.2 million, respectively.

6 – FINANCING

Intercreditor

1 unchanged sentence

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

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

The Company signed a two-year

Loan and Security Agreement for a $10.0 million financing facility (decreasing to $5.0 million in off-peak season) with Crestmark Bank

(“Crestmark Facility”) on eligible accounts receivable.

The outstanding loan balance cannot exceed $10.0 million during peak

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

Costs associated

with closing of the Intercreditor Revolving Credit Facility of approximately $74,000 were deferred and are being amortized over one year.

During fiscal years ended March 31, 2021 and 2020 the Company incurred amortization expense of approximately $62,000 and $0, respectively

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

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 31 and is reduced to a maximum

of $ 5.0 million between January 1 and July 31 with the ability to exceed when required.

Costs associated with closing of the Intercreditor

Revolving Credit Facility of approximately $ 74,000 were deferred and were amortized over one year.

During the fiscal years ended March

31, 2022 and 2021 the Company incurred amortization expense of approximately $ 45,000 and $ 62,000 , 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

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

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

Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in Accounts Receivable

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

The Crestmark Facility expires on June 15, 2022.

March 31, 2021 and 2020 the Company had no outstanding balance on the Crestmark Facility.

In addition, the Company executed a two-year

Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $2.5 million in inventory financing.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

The Crestmark Facility is under an evergreen arrangement that

terminates upon written notice by the Company and is subject to a termination fee if terminated by the Company anytime other than the

annual renewal date of June 11.

As of March 31, 2022 and 2021 the Company had no outstanding balance on the Crestmark Facility.

the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $ 2.5 million

in inventory financing.

the IHC Facility:

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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.

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As of March 31, 2022, the Company was in compliance with this covenant.

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

The IHC Facility bears interest at 1.292 %

per month or 15.51 % annually.

Interest shall be calculated on the higher of the actual average monthly loan balance from the prior

month or a minimum average loan balance of $1,000,000.

Interest expense under the IHC Facility for the fiscal years ended March 31,

2021 and 2020 was approximately $0.1 million and $0.0 million, respectively.

The IHC Facility expires on June 15, 2022.

31, 2021 and 2020, there was an outstanding balance of approximately $65,000 and $0, respectively.

both the Crestmark Facility and the IHC Facility are set to expire on June 15, 2022, the Company expects to negotiate a

revision or extension of these debt facilities upon their maturity however, there can be no assurance that such revision or extension

will occur or at what terms.

Credit Facility PNC Bank

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

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

Intercreditor Revolving Credit Facility with Crestmark and IHC.

In September 2019, the Company defaulted on the PNC Revolving Credit

Facility due to non-compliance with the fixed charge coverage ratio requirement.

In November 2019, the Company entered into a Forbearance

Agreement with PNC whereby PNC delayed taking action they would have been entitled to under a default through March 31, 2020.

remained in default of the Forbearance Agreement up until termination of the Revolving Credit Facility on June 16, 2020 at which time

the Company executed the Intercreditor Revolving Credit Facility with Crestmark and IHC.

As of March 31, 2021, and 2020 there were no

amounts due on the PNC Revolving Credit Facility.

During the fiscal years ended March 31, 2021 and 2020 the Company incurred interest

expense of approximately $0.0 million and $0.1 million, respectively on amounts borrowed against the PNC Revolving Credit Facility.

Interest shall be calculated on the higher of the actual average monthly loan balance from the prior month

or a minimum average loan balance of $ 1,000,000 .

Interest expense under the IHC Facility for the fiscal years ended March 31, 2022and

2021 was approximately $ 0.2 million and $ 0.1 million, respectively.

The IHC Facility was to expire on June 11, 2022, however, absent

any termination notice given to IHC by the Company, the current financing arrangement automatically renewed for another twelve-month

term and is subject to a termination fee if terminated by the Company prior to the twelve-month renewal date.

As of March 31, 2022 and

2021, there was an outstanding balance of approximately $ 2.5 million and $ 0.1 million, respectively.

As of March 31, 2022 there was approximately

$ 2.0 million of available borrowings under these facilities.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

Payable Payroll Protection Plan

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

Program (“PPP”).

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

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

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

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

The amount of loan forgiveness may be reduced if the borrower

terminates employees or reduces salaries during the eligible period.

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

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

Administration (“SBA”), and the SBA has provided Crestmark with the loan forgiveness amount.

For the fiscal years ended March

31, 2021 and 2020 the Company incurred interest expense of approximately $4,000 and $0, respectively.

As of March 31, 2021 and 2020 there

was an outstanding balance on the PPP note payable of approximately $0.4 million and $0.0 million, respectively.

In June 2021 the Company

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

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

Program (the “PPP”).

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

Act”), which provided 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 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.

For the fiscal year ended March 31, 2022, 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 consolidated statements of income.

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.

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

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

As of March 31, 2021, the Company executed three installment

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and interest.

For both fiscal years ended March 31, 2021 and 2020 there was an outstanding balance on the installment notes of approximately

$0.3 million.

For the fiscal years ended March 31 2021 and 2020 the Company incurred interest expense of approximately $26,000 and $23,000,

respectively.

For the fiscal years ended March 31, 2022 and 2021 there was an outstanding balance on the installment notes of approximately

$ 0.2 million and $ 0.3 million, respectively.

For the fiscal years March 31, 2022 and 2021 the Company incurred interest expense of approximately

$ 21,000 and $ 26,000 , 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.

of approximately $803,000.

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

approximately $803,000 was converted to a note payable (“subordinated note payable”) which bears interest at 6%.

of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be accrued at the same

6% interest rate on the unpaid principal retroactively from the date that previously scheduled payments had been missed.

fiscal years ended March 31, 2021 and 2020 interest expense was approximately $47,000 and $74,000, respectively on the subordinated

note payable and the related party subordinated debt.

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

Development, Ltd.

On June 1, 2020, the remaining amount due on the subordinated debt of approximately $ 0.8 million 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 fiscal years ended March 31, 2022 and 2021 interest expense

was approximately $ 20,000 and $ 47,000 , respectively, on the Subordinated Note Payable and the related party subordinated debt.

the Crestmark Facility and IHC Facility agreements allow for the repayment of the Subordinated Note Payable provided any amounts borrowed

against these credit facilities are paid in full, the Company maintains a 1 :

1 debt coverage ratio and exhibits sufficient cash liquidity

to support on-going operations.

As of March 31, 2022, the Company met repayment requirements of the Intercreditor Revolving Credit Facility

and has made cumulative principal payments totaling approximately $ 0.4 million.

During the next twelve months the Company intends on

making additional payments and pay off of the remaining balance outstanding provided the Company meets all repayment requirements of

the financing facility in place.

of March 31, 2022 and 2021 the remaining amount due on the Subordinated Note Payable was approximately $ 0.3 million and $ 0.5 million,

respectively.

The remaining amount due on the Subordinated Note Payable was classified as a current liability as of March 31, 2022 and

2021 on the consolidated balance sheets.

7 - COMMITMENTS AND CONTINGENCIES

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 the Company committed employment practice violations against

a former temporary employee not employed by us.

Management has investigated the allegation and has engaged an employment attorney to

defend the lawsuit.

The case is still in discovery and no trial date has been set.

Management does not believe the claims have merit

and does not believe the lawsuit will have a material adverse effect on our financial results.

April 29, 2022, a complaint was filed by Tunnel IP LLC against the Company in the U.S District Court for the Southern District of Florida.

The Complaint alleges that one of the Company’s products, SDL2093, infringes on U.S.

On June 24, 2022, Tunnel

IP agreed to dismiss all claims against the Company with prejudice.

than as disclosed above, we are not a party to, and our property is not the subject of, any material legal proceedings.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2022 and 2021

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

Both the Crestmark Facility and IHC Facility agreements allow for the repayment of the subordinated note payable provided any

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

1 debt coverage ratio and exhibits

sufficient cash liquidity to support on-going operations.

As of March 31, 2021 the Company met repayment requirements of the

Intercreditor Revolving Credit Facility to make principal payments totaling $0.3 million.

During the next twelve months the Company

intends on making additional payments and pay off the remaining balance outstanding provided the Company meets all repayment

requirements of the Crestmark Facility and IHC Facility agreements.

of March 31, 2021 and 2020 the remaining amount due on the note payable was approximately $0.5 million and $0.8 million, respectively.

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

balance sheets.

6 - COMMITMENTS AND CONTINGENCIES

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

Superior Court of San Bernadino County.

The complaint alleges an employee of SMCL committed employment practice violations against a

former temporary employee not employed by SMC Logistics.

Management has investigated the allegation and has engaged with an employment

attorney to defend the lawsuit.

Management does not believe the claims have merit and does not believe the lawsuit will have a material

adverse effect on our financial results.

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

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

Right-of-use assets represent the

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

to make lease payments arising from the lease.

Right-of-use assets represent the Company’s

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

arising from the lease.

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

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

The asset is based on the liability, subject to

certain 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

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.

have operating lease agreements for offices and a warehouse facility in Florida, California and Macau expiring in various years through

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

where we lease approximately 6,500 square feet of office space.

The lease expires on March 31, 2024 .

The base rent payment is approximately

$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.

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 warehouse space in Ontario, California for our logistics operations.

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

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

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

The rent is fixed at

approximately $1,600 per month for the duration of the lease which expired on April 30, 2021.

In May 2021 we executed a one-year lease

extension which will expire on April 30, 2022.

The renewal 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 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 expired

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.

Rent expense on the new lease was fixed at approximately

$ 1,700 per month for the duration of the lease term.

We elected not renew our lease of our office space in Macau and all administrative

duties previously performed in this office are now performed by our administrative team in Hong Kong.

Our administrative team in Hong

Kong are subcontractors who work in office space provided and owned by Starlight Electronics Limited (“SEL”).

approximately $ 30,000 per month for our subcontracted Hong Kong staff which includes the use of office space.

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 one dollar.

As of March 31, 2021 and March 31, 2020, the remaining amounts due on these capital leasing arrangements was approximately $3,000 and

$18,000, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

balance sheet information related to leases as of March 31, 2021 is as follows:

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

forklift in the amount of approximately $ 24,000 .

The lease 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 March 31, 2022 and March 31, 2021, the remaining

amounts due on this capital leasing arrangement was approximately $ 18,000 and $ 20,000 , respectively.

For the fiscal years ended March

31, 2022 and 2021 the Company incurred interest expense of $ 1,160 and $ 0 , respectively.

Supplemental balance sheet information related to leases as of March 31, 2022 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

Operating lease - right-of-use assets

4 unchanged sentences

Finance leases, net of current portion

statement of operations information related to leases for the fiscal year ended March 31, 2021 is as follows:

Supplemental statement of operations information related to leases for the fiscal year ended March 31, 2022 is

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Fiscal Year Ended

3 unchanged sentences

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 March 31, 2021 is as follows:

Interest on finance lease liabilities as a component of interest expense

Supplemental cash flow information related to leases for the nine months ended March

31, 2022 is as follows:

OF SUPPLEMENTAL CASH FLOW INFORMATION

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

8 unchanged sentences

Finance leases

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

maturities of operating and finance lease liabilities outstanding as of March 31, 2022 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

Operating Leases

3 unchanged sentences

Present Value of Lease Liabilities

SHAREHOLDERS’

8 – SHAREHOLDERS’ EQUITY

STOCK ISSUANCES

the years ended March 31, 2022 and 2021 the Company issued the following common stock shares:

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

average exercise price of $.06 per share.

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

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

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

price of $0.17 per share.

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

May 17, 2021 the Company issued 667 shares of its common stock to a former member of the Board of Directors who exercised stock options

at an average exercise price of $ 7.20 per share.

August 20, 2021 the Company issued 575 shares of its common stock to our Board of Directors at $ 8.70 per share, pursuant to our annual

director compensation plan for the fiscal year ending March 31, 2022.

December 31, 2021 the Company issued 2,000 shares of its common stock to a member of the Board of Directors who exercised stock options

at an average exercise price of $ 4.50 per share.

October 30, 2020 the Company issued 14,667 shares of its common stock to three executive officers who exercised stock options at an average

exercise price of $ 1.80 per share.

November 6, 2020, the Company issued 1,437 shares of its common stock to our Board of Directors at $ 8.70 per share, pursuant to our annual

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

the years ended March 31, 2022 and 2021 the Company issued the following stock options:

August 23, 2021, the Company issued 1,334 stock options to two members of our Board of Directors at an exercise price of $ 8.70 per share

pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 1, 2021, the Company issued 667 stock options to a new member of our Board of Directors at an exercise price of $ 8.10 per share

pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 22, 2021 the Company issued 1,667 stock options to our Chief Revenue Officer at an exercise price of $ 8.10 per share pursuant

to his compensation plan for the fiscal year ended March 31, 2021.

the year ended March 31, 2022:

expected dividend yield of 0 %, risk-free interest rate between 0.43 % and 0.96 %, respectively with

volatility between 149.5 % and 157.0 % respectively with an expected term of three years .

November 4, 2020, the Company issued 3,334 stock options to five members of our Board of Directors at an exercise price of $ 8.70 per

share pursuant to our annual director compensation plan for the fiscal year ended March 31, 2021.

the year ended March 31, 2021:

expected dividend yield of 0 %, risk-free interest rate of .18 %, volatility of 254.1 % and expected

term of three years .

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2022 and 2021

June 1, 2001, the Board of Directors approved the 2001 Stock Option Plan (“Plan”), as amended.

The Plan was developed to

provide a means whereby directors and selected employees, officers, consultants, and advisors of the Company may be granted incentive

or non-qualified stock options to purchase common stock of the Company.

As of March 31, 2021, the Plan had expired and no shares were

available to be issued nor were any additional shares issued from the plan in Fiscal 2021 or 2020.

summary of stock option activity for each of the years presented is summarized below.

OF STOCK OPTION ACTIVITY

Number of Options

7 unchanged sentences

following table summarizes information about employee stock options outstanding at March 31, 2022:

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Range of Exercise Price

Outstanding at March 31, 2022

Average Remaining Contractual Life

Average Exercise Price

Exercisable at March 31, 2021

Average Exercise Price

$0.12 - $0.38

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable at March 31, 2022

Weighted Average Exercise Price

$ 14.10 - $ 16.50

Total number of options outstanding as of March 31, 2021 includes 600,000 options issued to five current and two former directors as

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

Total number of options outstanding as of March 31, 2022 includes 20,000 options issued to three current and four former directors as

compensation and 36,333 options issued to key employees as compensation.

of March 31, 2022, there was unrecognized expense of approximately $ 12,000 remaining on options currently vesting over time with approximately

six months remaining until these options are fully vested.

vested options as of March 31, 2022 had no intrinsic value .

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 March 31, 2022 are as follows:

OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Number of Shares

Warrants outstanding at March 31, 2021

Common warrants issued

Pre-funded warrants issued

Warrants outstanding at March 31, 2022

of March 31, 2022, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

CommonWarrants

Number of Pre-funded Warrants

Exercise Price

Expiration Date

Effective with the opening of trading on the Nasdaq Stock Market on May 24, 2022, the exercise price of certain warrants issued by the

Company pursuant to the terms of that certain Securities Purchase Agreement dated August 5, 2021, was adjusted so that the exercise price

The warrants are not subject to further adjustment except for customary adjustments for stock dividends and splits, subsequent

rights offerings, prorata distributions and fundamental transactions, as set forth in the warrants.

April 12, 2022, the Board of Directors approved The Singing Machine Company, Inc.

2022 Equity Incentive Plan, or the 2022 Plan.

Plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted

stock, stock units, performance awards and other stock or cash-based awards collectively, the “Awards.” Awards may be granted

under the 2022 Plan to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

maximum number of shares of common stock initially available for issuance under the 2022 Plan is 233,334 shares of common stock and thereafter

an annual increase shall be added as of the first day of the Company’s fiscal year beginning in 2023, equal to the least of (i)

5% of the outstanding common stock on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, (ii)

33,334 shares, and (iii) a lesser amount as determined by the Board of Directors.

The shares of common stock subject to stock awards

granted under the 2022 Plan that lapse, terminate, expire prior to exercise, are canceled or are forfeited, shall again become available

for issuance under the 2022 Plan .

to a stock award under the 2022 Plan shall not again be made available for issuance or delivery under the 2022 Plan if such shares are

(i) shares tendered by a participant or retained by the Company as full or partial payment to the Company for the exercise or purchase

price of an award or (ii) shares used to satisfy tax withholding obligations in connection with an award.

Notwithstanding

any other provision of the 2022 Plan to the contrary, unless the plan administrator determines otherwise with respect to a particular

award, in the event of a change of control, if and to the extent an outstanding award is not converted, assumed, substituted for or replaced

by the successor company, then such award will terminate upon effectiveness of the change of control.

Prior to the change of control,

the plan administrator may approve accelerated vesting and/or lapse of forfeiture or repurchase restrictions with respect to all or a

portion of the unvested portions of such awards, any such determinations to be made by the plan administrator in its sole discretion.

A change in control includes:

acquisitions of beneficial ownership of more than 50 % of our total voting power;

change in the composition of the board of directors during any two-year period such that the individuals who, as of the beginning

of such two-year period, constitute the board of directors cease for any reason to constitute at least a majority of the board, as

defined in the 2022 Plan;

consummation of a company transaction, as defined in the 2022 Plan.

Board of Directors may amend, suspend or terminate the 2022 Plan or a portion of it at any time;

however, to the extent required by applicable

law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the 2022 Plan.

The 2022 Plan is scheduled

to terminate automatically in ten (10) years following the earlier of (a) the date the Board of Directors adopted the 2022 Plan and (b)

the date the shareholders approved the 2022 Plan.

9 – AUGUST 2021 STOCK REDEMPTION

August 5, 2021, the Company entered into the Redemption Agreement with koncepts and Treasure Green, pursuant to which the Company redeemed

654,105 shares of common stock of the Company.

The 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 in consideration of a payment by the Company

of approximately $ 7,162,000 to koncepts and Treasure Green.

The Redeemed Shares were retired and returned to the unissued authorized

capital of the Company.

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) 550,000 shares of its common stock (the “Shares”) together

with Common Warrants to purchase up to 550,000 shares of common stock with an exercise price of $ 10.50 per share, and (ii) 561,111 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 561,111 shares of common stock at an exercise price of $ 10.50 per

share (the “Private Placement”).

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 was 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.

As indicated, the Common Stock was approved to list on the Nasdaq Capital Market under the symbol “MICS”

and began trading on the Nasdaq Capital Market on May 24, 2022.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

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 15- 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 44,445 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 ($ 10.50 ) 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:

common stock price of $ 9.90 ,

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

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 1,905 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 approximately $ 831,000 of which was payment of stock issuance expenses, which is recorded as

an offset to additional paid in capital in the accompanying consolidated statements of stockholders’ equity.

11 - INCOME TAXES

5 unchanged sentences

Federal net operating loss carryforward is subject to an IRS Section 382 limitation.

As of March 31, 2021 and 2020, the Company

had net deferred tax assets of approximately $0.9 million and $1.3 million, respectively.

For the fiscal year ended March 31, 2021

we determined our effective tax rate to be approximately 17.4% and we recorded a tax provision of approximately $0.5 million which

was net of a valuation reserve of approximately $23,000 for deferred tax assets that will most likely expire prior to being

For the fiscal year ended March 31, 2020 we determined our effective tax rate to be approximately 18.1% and we recorded a

tax benefit of approximately $0.6 million which was net of a valuation reserve of approximately $88,000 for deferred tax assets that

will most likely expire prior to being realized.

The Company also recorded an income tax receivable of approximately $0.1 million

due to the availability of net operating loss carrybacks and alternative minimum tax credits that were realized for the year ended

March 31, 2021.

The income tax receivable was included as a component of prepaid expenses and other current assets on the

accompanying consolidated balance sheet as of March 31, 2021.

As of both March 31, 2022 and 2021, the Company

had net deferred tax assets of approximately $ 0.9 million.

For the fiscal year ended March 31, 2022 we determined our effective tax rate

to be approximately 20.0 % and we recorded a tax provision of approximately $ 0.1 million which was net of a valuation reserve of approximately

$ 78,000 for deferred tax assets that will most likely expire prior to being realized.

For the fiscal year ended March 31, 2021 we determined

our effective tax rate to be approximately 17.4 % and we recorded a tax provision of approximately $ 0.5 million which was net of a valuation

reserve of approximately $ 23,000 for deferred tax assets that will most likely expire prior to being realized.

The Company also recorded

an income tax receivable of approximately $ 13,000 due to the availability of net operating loss carrybacks and alternative minimum tax

credits that were realized for the year ended March 31, 2022.

The income tax receivable was included as a component of prepaid expenses

and other current assets on the accompanying consolidated balance sheet as of March 31, 2022.

income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of income consisted of the

following components for 2022 and 2021:

OF PROVISION FOR INCOME TAXES

Income tax provision:

Total current Federal and State tax provision

Total Deferred Federal and State

Total income tax provision

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

TO FINANCIAL STATEMENTS

31, 2022 and 2021

income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of operations consisted of

the following components for 2021 and 2020:

Income tax provision (benefit):

Total current Federal and State tax benefit

Total Deferred Federal and State

Total income tax (benefit) provision

United States and foreign components of income (loss) before income taxes are as follows:

OF INCOME LOSS BEFORE INCOME TAX

United States

$ ( 260,911 )

$ (3,498,814 )

actual tax provision differs from the “expected”

tax for the years ended March 31, 2021 and 2020 (computed by applying the

actual tax provision differs from the “expected” tax for the years ended March 31, 2022 and 2021 (computed by applying the

Federal Corporate tax rate of 21 percent to income before taxes) as follows:

Expected tax provision (benefit)

State income taxes, net of Federal income tax provision (benefit)

OF TAX PROVISION

Expected tax provision

State income taxes, net of Federal income tax provision

Permanent differences

1 unchanged sentence

Change in valuation allowance

Effect of IRC §382 on NOL

Tax rate differential on NOL carryback

Correction of state rate

Actual tax provision (benefit)

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED FINANCIAL STATEMENTS

31, 2021 and 2020

Tax provision

tax effects of temporary differences that give rise to significant portions of deferred tax assets and (liabilities) are as follows:

OF DEFERRED TAX ASSETS AND LIABILITIES

NOL Federal Carryforward

State NOL Carryforward

General business credit

Inventory differences

Stock option compensation expense

Section 163(j)

Allowance for doubtful accounts

Insurance contingency

Reserve for estimated returns

Accrued vacation

Business interest deduction

valuation allowance

Net deferred tax asset

Depreciable and amortizable assets

Prepaid expenses

Net deferred tax liabilities

Net deferred tax asset

Net deferred tax liability

Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative

5 unchanged sentences

of future taxable income.

At March 31, 2021, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP

and concluded that a $22,649 valuation allowance against deferred tax assets was necessary.

The recognition of the remaining net deferred

tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding, among other considerations, the Company’s

history of earnings and projected earnings for fiscal year 2022 and in the future.

At March 31, 2022, the Company evaluated the realizability of its deferred tax assets in accordance with accounting

principles generally accepted in the United States of America and concluded that a $ 78,024 valuation allowance against deferred tax assets

was necessary.

The recognition of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s

conclusions regarding, among other considerations, the Company’s history of earnings and projected earnings for fiscal year 2023

and in the future.

March 31, 2022, the Company has federal tax net operating loss carryforwards in the amount of approximately $ 1.1 million that begin to

4 unchanged sentences

of approximately $ 3.4 million that will begin to expire beginning in 2024.

These tax net operating loss carryforwards may be subject

to adjustment based on future changes in control (See Note 19 – Subsequent Events).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

12 - SEGMENT INFORMATION

1 unchanged sentence

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

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

FOR THE FISCAL YEARS ENDED

2 unchanged sentences

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.

4 unchanged sentences

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

Consolidated Statements of Operations.

consolidated statements of income.

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

14 - CONCENTRATIONS OF CREDIT RISK, CUSTOMERS, AND SUPPLIERS

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

The Company’s allowance for doubtful accounts is

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

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.

3 unchanged sentences

that individually owed over 10 % of total accounts receivable.

derived from three customers in 2021 and 2020 were 69% and 64% of total revenue, respectively.

Revenues from customers representing greater

than 10% of total net sales were derived from top four customers in Fiscal 2021 and top three customers in Fiscal 2020 as percentage

derived from our top three customers in 2022 and 2021 were 72 % and 69 % of total revenue, respectively.

Revenues from customers representing

greater than 10 % of total net sales were derived from top three customers in Fiscal 2022 and top four customers in Fiscal 2021 as percentage

of the net sales were 37 %, 18 %, 17 % and 12 %, and 36 %, 20 %, 13 % and 12 %, , respectively.

The loss of any of these customers could have an adverse

impact on the Company.

The loss of any of these customers could have

an adverse impact on the Company.

Macau Subsidiary recorded net sales of approximately $ 3.4 million and $ 4.4 million in fiscal 2022 and 2021, respectively.

Company is dependent upon foreign companies for the manufacture of all its electronic products.

The Company’s arrangements with

manufacturers are subject to the risk of doing business abroad, such as import duties, trade restrictions, work stoppages, foreign currency

5 unchanged sentences

in the short-term could adversely affect business until alternative supply arrangements are secured.

fiscal years 2021 and 2020, manufacturers in the People’s Republic of China accounted for 100% of the Company’s total product

purchases, including all of the Company’s hardware purchases.

fiscal years 2022 and 2021, manufacturers in the People’s Republic of China accounted for 100 % of the Company’s total product

purchases, including all of the Company’s hardware purchases.

In 2018 the U.S.

7 unchanged sentences

and results from operations.

COVID-19 pandemic has significantly affected U.S.

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

and world economy to deteriorate

in fiscal year 2022.

While many of the restrictions and measures initially implemented in response to the pandemic have since been softened

or lifted in varying degrees in different locations around the world, the uncertainty regarding existing and new potential variants of

COVID-19 and the success of any vaccines in respect thereof, may in the future cause a reduction in global economic activity or prompt,

the re-imposition of certain restrictions and measures.

The Company is dependent upon foreign companies for the manufacture of all its

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

The Company’s arrangements with manufacturers are subject to the risk of doing business abroad, such as import duties, trade restrictions,

work stoppages, foreign currency fluctuations, political instability, and other factors, which could have an adverse impact on its business.

The Company believes that the loss of any one or more of their suppliers would not have a long-term material adverse effect because other

manufacturers with whom the Company does business would be able to increase production to fulfill their requirements.

However, the loss

of certain suppliers in the short-term could adversely affect business until alternative supply arrangements are secured.

Additionally,

in late calendar 2021, the increased demand for consumer electronics products and current economic recovery continued to increase worldwide

demand for products using semiconductor “chip” components in the production of most consumer electronics which has resulted

in an international shortage of chips available to fulfill demand.

As a result, the Company has experienced longer delivery lead times

and some unavailability of these components which have delayed delivery of some of our products.

The Company has also experienced delays

in delivery schedules due to new outbreaks of COVID-19 in Southern China that have forced temporary closures of some key shipping ports.

The port closures have also led to a temporary shortage of shipping containers which have resulted in significant price increases due

to increased demand.

While we have seen the easing of COVID-19 restrictions and the impact on our business, we cannot predict the impact

of the resurgence of variants of COVID-19 and other factors affecting local and global economies, specifically China.

15 – RELATED PARTY TRANSACTIONS

TO/FROM RELATED PARTIES

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

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

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

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

both March 31, 2022 and 2021 the Company had approximately $ 0.1 million due to related parties SLRD, SCE and SLE for services provided

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

our fiscal year ended March 31, 2022 and 2021, the Company did business with entities owned by our former Chairman, Philip Lau.

entities were:

Starlight R&D Ltd (“SLRD”), Starlight Consumer Electronics USA, Inc.

(“SCE”), Cosmo Communications

Corporation of Canada, Inc.

(“Cosmo”), Winglight Pacific, Ltd.

(“Winglight”), and Starlight Electronics Company

On March 31, 2022 and 2021 the Company had approximately $ 0.1 million due to related parties SLRD, SCE and

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

Lau resigned as Chairman effective August 10, 2021.

our fiscal year ended March 31, 2022 and 2021, the Company did business with Stingray Group Inc (“Stingray”) who is part

of a 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 ).

On March 31, 2022 and 2021, the Company had approximately $ 0.2 million and $ 0.1 million, respectively

due from Stingray for music subscription reimbursement.

both Fiscal 2022 and 2021 the Company paid approximately $ 0.4 million to SLE as reimbursement for engineering, quality control and other

1 unchanged sentence

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of operations.

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

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

These amounts were

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

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

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

on our 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

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

As part of the agreement, the companies

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

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

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

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

During Fiscal 2022 and 2021 there was a gain of approximately $ 0.0 million $ 0.2 million, respectively from Cosmo related to payments

received in Fiscal 2021 on prior year sales and the related receivable previously reversed and written off as they were initially deemed

uncollectible.

Company has a music subscription sharing agreement with Stingray.

For the fiscal years ended March 31, 2022 and 2021 the Company received

music subscription revenue of approximately $ 0.5 million and $ 0.4 million, respectively.

These amounts were included as a component of

net sales in the accompanying consolidated statements of income.

16 – RESERVE FOR SALES RETURNS

1 unchanged sentence

Customers are either allowed

to return defective goods within a specified period of time after shipment (between 6 and 9 months) or granted a “defective allowance”

consisting of a fixed percentage (between 1% and 5%) off of invoice price in lieu of returning defective products.

2 unchanged sentences

exceptions as identified and management estimates.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

1 unchanged sentence

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

SCHEDULE OF RESERVE FOR SALES RETURNS

Fiscal Year Ended

2 unchanged sentences

Sales returns received

( 3,613,000 )

( 4,145,000 )

Reserve for sales returns at end of the year

DAMAGED GOODS INCIDENT

August 2019, we received notification from a major customer that several containers of goods from multiple vessels purchased direct import

by the customer had arrived severely water damaged.

Upon inspection of the damaged goods by insurance surveyors it was their opinion

that the source of the damage was due to moisture in the pallets provided by the factory which caused significant condensation and consequently

water damage to the merchandise.

Actual damage to the goods occurred while the goods were in transit.

We filed insurance claims on our

cargo insurance policy which provided for recovery of the sales value plus additional expenses associated with the damaged goods.

the fiscal year ended March 31, 2020, the customer charged us back a total of approximately $1.7 million for damaged goods consisting

of sales value of approximately $1.6 million which was recorded as a reduction in net sales and approximately $0.1 million in freight

charges which were expensed as a component of sales and marketing expense on the accompanying consolidated statements of operations.

For the fiscal year ended March 31, 2020, we incurred additional related expenses of approximately $0.3 million that were included as

a component of general and administrative expenses on the accompanying consolidated statements of operations.

We recorded a refund due

to the customer of approximately $0.5 million which reflected approximately $1.7 million of chargebacks by the customer less approximately

$1.2 million the customer had deducted on payment remittances to the Company as of March 31, 2020.

We recognized an insurance claim receivable

of approximately $1.3 million (the approximate cost of the damaged goods destroyed) on the accompanying consolidated balance sheets for

March 31, 2020.

Fiscal 2021, we recovered approximately $2.3 million in proceeds from the damaged goods insurance claim which consisted of $1.6 million

of lost sales, approximately $0.1 million in freight costs and approximately $0.6 million in out-of-pocket expenses associated with the

We recognized a one-time gain from the damaged goods claim settlement of approximately $1.1 million (net of the insurance claim

receivable) as other income for the fiscal year ended March 31, 2021 on the accompanying statements of operations.

In addition, we recognized

an additional one-time gain of approximately $0.4 million as other income for the fiscal year ended March 31, 2021 on the accompanying

consolidated statements of operations due settlement of accounts payable by the factory that caused the damage.

REFUNDS DUE TO CUSTOMERS

of March 31, 2021 and 2020 the amount of refunds due to customers was approximately $0.1 million and $0.8 million, respectively.

refunds related to the damaged goods incident were settled with the customer from proceeds from the damaged goods insurance

settlement claim.

Refunds due to customers at March 31, 2021 were primarily due to amounts due to two major customers for

seasonal returns.

Refunds due to customers at March 31, 2020 were primarily due to one major customer which reflects approximately

$1.7 million of chargebacks primarily due to damaged goods received less approximately $1.2 million that the customer had deducted

on payment remittances to the Company as of March 31, 2020.

The remaining $0.3 million was primarily due to amounts due to two major

customers for overstock returns.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

17 – DAMAGED GOODS INCIDENT RECOVERY

the fiscal year ended March 31, 2022 we recognized a one-time gain of approximately $ 0.3 million as other income on the accompanying

consolidated statements of income due settlement of accounts payable by a manufacturer’s representative of a factory that caused

a damaged goods incident in Fiscal 2020.

During Fiscal 2021, we recovered approximately $ 2.3 million in proceeds from the damaged goods

insurance claim which consisted of $ 1.6 million of lost sales, approximately $ 0.1 million in freight costs and approximately $ 0.6 million

in out-of-pocket expenses associated with the incident.

We recognized a one-time gain from the damaged goods claim settlement of approximately

$ 1.1 million (net of the insurance claim receivable) as other income for the fiscal year ended March 31, 2021 on the accompanying statements

In addition, we recognized an additional one-time gain of approximately $ 0.4 million as other income for the fiscal year ended

March 31, 2021 on the accompanying consolidated statements of income due settlement of accounts payable by the factory that caused the

18 – RESERVES

reserves and allowances for years ended March 31, 2022 and 2021 are presented in the following table :

Allowance for

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

Balance at Beginning of Year

Charged to Costs and Expenses

Reduction to Allowance for Write off

Credited to Costs and Expenses

Balance at End of Year

Year ended March 31, 2021

2 unchanged sentences

Inventory reserve

$ ( 623,553 )

Year ended March 31, 2020

1 unchanged sentence

Allowance for doubtful accounts

$ ( 227,184 )

Inventory reserve

$ ( 485,861 )

19 - Subsequent Events

of Pre-Funded Warrants

subsequent to the Company’s listing on Nasdaq, the Company received exercises notices on 561,311 pre-funded warrants.

These pre-funded

warrants were previously issued as part of a capital raise completed in August 2021.

As of the date of this filing, all pre-funded warrants

have been exercised and converted to common stock.

June 13, 2022, BitNile Holdings, Inc.

(“BitNile Holdings”), a Delaware corporation, Digital Power Lending, LLC

(“Digital Power Lending”), a California limited liability company and subsidiary of BitNile Holdings, and Milton C.

Ault, III (“Ault”), Founder and Executive Chairman of BitNile Holdings (collectively the “Reporting

Persons”) filed a joint Schedule 13D filing (the “Schedule 13D”) reporting that the Reporting Persons acquired, in

the aggregate, 52.0 %

of the issued and outstanding shares of common stock, par value $ 0.01

per share (the “Common Stock”) of The Singing Machine the Company, through open

market purchases.

to the Schedule 13D and subsequent amended Schedule 13D filings, Digital Power Lending beneficially owns and BitNile Holdings and Ault

may be deemed to beneficially own an aggregate of 1,568,849

shares of the Common Stock (the “Shares”),

or approximately 52.0 %

of the outstanding shares of Common Stock.

these purchases were made in the open market, control of the Company was not assumed from a particular person or group of persons.

The Schedule 13D reported “Mr.

Ault expresses an interest in adding one or more shareholder representatives to the

Issuer’s board of directors.” Other than the foregoing, the Company is not aware of any arrangement or understanding

between or among BitNile Holdings, Digital Power Lending and Ault or any of their respective associates with respect to election

of directors of the Company or other matters.

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

What changed 10-K

Item 9A. Controls and Procedures