What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-22 compared with 2022-02-14 · 587 added, 692 removed, 336 unchanged (79% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

Current Assets

Accounts receivable, net

of allowances of $ 306,975 and $ 138,580 , respectively

Due from Crestmark Bank

Accounts receivable related

party - Stingray Group, Inc.

Inventories, net

Prepaid expenses and other

current assets

receivable, net of allowances of $ 260,787 and $ 122,550 , respectively

from Crestmark Bank

receivable related party - Stingray Group, Inc.

expenses and other current assets

financing costs

Current Assets

Property and equipment,

Deferred tax assets

Operating Leases - right

of use assets

and equipment, net

Leases - right of use assets

non-current assets

Liabilities and Shareholders’

Current Liabilities

Accounts payable

Accrued expenses

Due to related party -

Starlight Consumer Electronics Co., Ltd.

Due to related party -

Starlight R&D, Ltd.

Revolving lines of credit

Customer deposits

Refunds due to customers

Reserve for sales returns

Current portion of finance

Current portion of installment

Current portion of note

payable - Paycheck Protection Program

Current portion of operating

lease liabilities

related party debt - Starlight Marketing Development, Ltd.

and Shareholders’ Equity

line of credit - Iron Horse Credit

due to customers

for sales returns

portion of finance leases

portion of installment notes

portion of operating lease liabilities

note payable - Starlight Marketing Development, Ltd.

Current Liabilities

Finance leases, net of current

Installment notes, net of

current portion

Note payable - Payroll Protection

Program, net of current portion

leases, net of current portion

notes, net of current portion

lease liabilities, net of current portion

Commitments and Contingencies

Shareholders’ Equity

Preferred stock, $ 1.00

1,000,000 shares authorized;

no shares issued and outstanding

Common stock, Class A,

$ 0.01 par value;

and Contingencies

Shareholders’

stock, $ 1.00 par value;

1,000,000 shares authorized;

no shares issued and outstanding

Common stock, Class B,

$ 0.01 par value;

issued and outstanding

stock, $ 0.01 par value;

100,000,000 shares authorized;

and 1,221,209 shares issued and outstanding, respectively

Additional paid-in capital

paid-in capital

( 14,894,485 )

5 unchanged sentences

and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

the Three Months Ended

the Nine Months Ended

of Goods Sold

Operating Expenses

Selling expenses

General and administrative

and administrative expenses

Operating Expenses

Income From Operations

Other Income (Expenses)

Gain from Paycheck Protection

Plan loan forgiveness

Gain - related party

Gain from damaged goods

insurance claim

Gain from extinguishment

of accounts payable

Interest expense

(Loss) from Operations

(Expenses) Income

from Payroll Protection Plan loan forgiveness

- related party

Other (Expenses) Income , net

Income Before Income Tax

Tax Provision

Before Income Tax Benefit

$ ( 118,613 )

Net Income per Common Share

Weighted Average Common and Common Equivalent

Loss per Common Share

Average Common and Common Equivalent

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

the Nine Months Ended

Cash flows from operating

Adjustments to reconcile

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

Amortization of deferred

financing costs

Change in inventory reserve

Change in allowance for

Loss from disposal of property

and equipment

Stock based compensation

Change in net deferred

Gain from Paycheck Protection

Plan loan forgiveness

Gain - related party

Gain from extinguishment

of accounts payable

Changes in operating assets

and liabilities:

Accounts receivable

the Three Months Ended

flows from operating activities

$ ( 118,613 )

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

of deferred financing costs

in allowance for bad debts

based compensation

in net deferred tax assets

Protection Plan loan forgiveness

- related party

in operating assets and liabilities:

( 7,001,987 )

Due from banks

( 3,251,488 )

Accounts receivable - related

Insurance receivable

from Crestmark Bank

receivable - related parties

( 2,879,846 )

Prepaid expenses and other

current assets

Other non-current assets

Accounts payable

Accrued expenses

Due to related parties

Customer deposits

Refunds due to customers

Reserve for sales returns

expenses and other current assets

non-current assets

due to customers

for sales returns

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

1 unchanged sentence

( 4,149,304 )

Cash flows from investing

flows from investing activities

of property and equipment

cash used in investing activities

Cash flows from financing

Proceeds from Issuance

of stock - net of transaction expenses

Payment of redemption and

retirement of treasury stock

( 7,162,452 )

Net proceeds from revolving

lines of credit

Proceeds from note payable

- Paycheck Protection Program

Payment of deferred financing

Payments on installment

Proceeds from exercise

of stock options

Payment on subordinated

debt - related party

flows from financing activities

from Issuance of stock - net of transaction expenses

Proceeds from revolving lines of credit

of deferred financing charges

on installment notes

from exercise of stock options

from exercise of pre-funded warrants

from exercise of common stock warrants

on finance leases

cash provided by financing activities

Net change in cash

change in cash

at beginning of year

Cash at end of period

Supplemental disclosures

of cash flow information:

at end of period

disclosures of cash flow information:

paid for interest

purchased under capital lease

of common stock and warrants for stock issuance expenses

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

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended December 31, 2021 and 2020

Balance at September 30, 2021

$ ( 14,535,193 )

Issuance of stock

Issuance of stock , shares

Issuance of pre-funded warrants

Payment of stock issuance expenses

Issuance of stock for stock issuance expenses

Issuance of stock for stock issuance expenses, shares

Redemption and retirement of treasury shares

Redemption and retirement of treasury

shares , shares

Issuance of common stock - directors

Issuance of common stock - directors , shares

Issuance of common stock - non-employee

Issuance of common stock -

non-employee , shares

Employee compensation-stock option

Issuance of common stock - directors

Issuance of common stock - directors, shares

Exercise of stock options

at December 31, 2021

$ ( 13,109,298 )

Balance at September 30, 2020

$ ( 12,225,486 )

Employee compensation-stock option

Issuance of common stock - directors

Exercise of stock options

Balance at December

$ ( 11,058,191 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the nine months ended December 31, 2021 and 2020

Balance at March 31, 2021

$ ( 12,254,191 )

Issuance of stock

Issuance of pre-funded warrants

Payment of stock issuance expenses

Issuance of stock for stock issuance expenses

Redemption and retirement of treasury shares

( 19,623,155 )

( 4,111,459 )

( 2,854,762 )

( 7,162,452 )

Issuance of common stock - directors

Issuance of common stock - non-employee

Employee compensation-stock option

Exercise of stock options

Balance at December

$ ( 13,109,298 )

Balance at March 31, 2020

the three months ended June 30, 2022 and 2021

at March 31, 2022

$ ( 14,878,482 )

Beginning balance

of common stock

of stock issuance expenses

of pre-funded warrants

of common stock warrants

of common stock - directors

compensation - stock option

of common stock issued due to reverse split

at June 30, 2022

$ ( 14,894,485 )

Employee compensation-stock option

Issuance of common stock directors

Exercise of stock options

Balance at December

at March 31, 2021

$ ( 12,254,191 )

Ending balance

compensation - stock option

of stock options

at June 30, 2021

$ ( 12,372,804 )

5 unchanged sentences

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

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

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

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

The products are sold by SMC to retailers and distributors

for resale to consumers.

2 – LIQUIDITY AND RECENT EQUITY EVENTS

Company for the nine months ended December 31, 2021 reported net income of approximately $ 2,000,000 and used cash in operating activities

of approximately $ 3,113,000 .

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

under the Paycheck Protection Program (“PPP”) established by the government to assist companies with financial relief due

The Company used the loan proceeds for loan forgiveness eligible purposes, including payroll, benefits, rent and utilities,

and maintained its existing payroll levels during the forgiveness eligible period.

In June 2021 the Company received notification from

the SBA that the loan had been forgiven in its entirety.

For the nine months ended December 31, 2021, a gain of approximately $ 448,000

(including principal and interest) from the forgiveness of the loan was included in other income and expenses in the accompanying condensed

consolidated statements of income.

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

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

(“Treasure Green”), pursuant to

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

The closing of the transactions

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

back to the Company and retired.

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

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

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

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

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

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

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

are hereinafter referred to as the “Warrant Shares”.

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

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

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

Approximately $ 7,162,000 of the funds received were used to execute the Redemption Agreement

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

The Redeemed Shares were retired and are available for

reissuance in the future.

believe that current working capital, cash expected to be generated from our operating forecast, along with the availability of cash

from our credit facilities (See Note 6 – BANK FINANCING) assuming that they are revised and or extended, will be adequate to meet

the Company’s liquidity requirements for at least twelve months from the filing of this report.

As both the Crestmark Bank (“Crestmark

Facility”) and the Iron Horse Credit (“IHC”) Facility (“IHC Facility”) are set to expire on June 15, 2022,

the Company expects to negotiate a revision or extension of these debt facilities upon their maturity, however, there can be no assurance

that such revision or extension will occur or at what terms.

3 - SUMMARY OF ACCOUNTING POLICIES

OF CONSOLIDATION AND BASIS OF PRESENTATION

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

All inter-company

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

The accompanying unaudited financial

statements for the three months and nine months ended December 31, 2021 and 2020 have been prepared in accordance with accounting principles

generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements

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

Accordingly, they do not include all of the

information and disclosures required by US GAAP for complete consolidated financial statements.

In the opinion of management, such condensed

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

of the condensed consolidated financial position and the condensed consolidated results of operations.

The condensed consolidated results

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

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

2 - RECENT DEVELOPMENTS

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, 52.8 % of the issued and outstanding

shares of common stock, par value $ 0.01 per share (the “Common Stock”) of the Company, through open market purchases.

to the Schedule 13D and subsequent amended Schedule 13D filings and Section 16 filings, Digital Power Lending beneficially owns and BitNile

Holdings and Ault may be deemed to beneficially own an aggregate of 1,683,000 shares of the Common Stock (the “Shares”),

or approximately 54.4 % of the outstanding shares of Common Stock as of this filing.

these purchases were made in the open market, control of the Company was not assumed from a particular person or group of persons.

Stock Split and Nasdaq Listing

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 .

common stock was approved for listing on the Nasdaq Capital Market under the symbol “MICS” and began trading on the Nasdaq

Capital Market on May 24, 2022.

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 pursuant

to which the Company sold to the Underwriter 1,000,000 shares of its common stock for gross proceeds of $ 4,000,000 prior to deducting

underwriting discounts and commissions and other estimated offering expenses of approximately $ 637,000 .

The price to the public in the

offering was $ 4.00 per Share, before underwriting discounts and commissions.

The offering closed on May 26, 2022.

The Company received

net proceeds of approximately $ 3,363,000 .

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 % of the Shares sold in the offering, excluding any shares sold through the over-allotment option.

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.

The Company estimated the fair value of these warrants to be approximately $ 244,000 using

the Black-Scholes Model based on the following input assumptions:

common stock price of $ 2.90 , expected life of the warrants of 3 years ;

stock price volatility of 176 %;

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

Redemption Agreement

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 owned approximately 51 %

of the Company and 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 who no longer have a stake in the Company.

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

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

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

The interim condensed consolidated financial

statements should be read in conjunction with that report.

3 – LIQUIDITY

Company reported a net loss of approximately $ 16,000 and used cash in operating activities of approximately $ 4,149,000 for the three

months ended June 30, 2022.

The current 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

Our credit facility with Iron Horse Credit was renewed as of June 11, 2022.

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 7 –FINANCING) will be adequate to meet the Company’s liquidity requirements for at least twelve months

from the date of this report.

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OF CONSOLIDATION AND BASIS OF PRESENTATION

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

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

The accompanying unaudited

financial statements for the three months ended June 30, 2022 and 2021 have been prepared in accordance with accounting principles generally

accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of

Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission.

Accordingly, they do not include all of the information

and disclosures required by US GAAP for complete consolidated financial statements.

In the opinion of management, such condensed consolidated

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

consolidated financial position and the condensed consolidated results of operations.

The condensed consolidated results of operations

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

The condensed consolidated

balance sheet information as of March 31, 2022 was derived from the audited consolidated financial statements included in the Company’s

Annual Report on Form 10-K for the year ended March 31, 2022.

The interim condensed consolidated financial statements should be read

in conjunction with that report.

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

6 unchanged sentences

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

financial condition.

financial statements.

However, circumstances could change which may alter future expectations.

4 unchanged sentences

to respond to normal business conditions.

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

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

collection experience.

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

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

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

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

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

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

Should business conditions deteriorate

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

a negative impact on operations.

CURRENCY TRANSLATION

3 unchanged sentences

and expenses.

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

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

Any such amounts were not material during

the periods presented.

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.

Concentration

3 unchanged sentences

The amounts at foreign financial institutions at

December 31, 2021 and March 31, 2021 are approximately $ 125,000 and $ 225,000 , respectively.

June 30, 2022 and March 31, 2022 are approximately $ 158,000 and $ 172,000 , respectively.

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

2 unchanged sentences

future inventory returns due to warranty and allowance programs.

As of December 31, 2021 and March 31, 2021 the estimated amounts for

these future inventory returns were approximately $ 1,978,000 and $ 528,000 , respectively.

The Company reduces inventory on hand to its

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

its original cost.

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

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

As of December 31, 2021

and March 31, 2021 the Company had inventory reserves of approximately $ 934,000 and $ 636,000 , respectively for estimated excess and obsolete

FINANCING COSTS

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

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

on these credit facilities to offset the deferred financing costs.

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

financing costs associated with the one-year renewal of the IHC Facility which are being amortized over twelve months and were classified

as current assets on the accompanying condensed consolidated balance sheets.

As of June 30, 2022 and March 31, 2022 the estimated amounts for these

future inventory returns were approximately $ 586,000 and $ 638,000 , respectively.

The Company reduces inventory on hand to its net realizable

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

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

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

As of both June 30, 2022 and March 31, 2022,

the Company had inventory reserves of approximately $ 364,000 for estimated excess and obsolete inventory.

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

1 unchanged sentence

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

amount, the carrying amounts are reduced to fair value and an impairment

loss is recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” No impairment

was recorded as of December 31, 2021 and 2020.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2021 and 2020

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

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

of Long-Lived Assets.” No impairment was recorded as of June 30, 2022 and 2021.

Company follows FASB ASC 842, “Leases”.

29 unchanged sentences

or liquidation.

carrying amounts of the Company’s short-term financial instruments, including accounts receivable, due from related parties, accounts

payable, accrued expenses, customer deposits, refunds due to customers, and due to related parties approximates fair value due to the

relatively short period to maturity for these instruments.

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

notes approximate fair value either due to the relatively short period to maturity or the related interest is accrued at a rate similar

to market rates.

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

and related interest accrued at market rates.

carrying amounts of the Company’s short-term financial instruments, including accounts receivable, due from related parties,

accounts payable, accrued expenses, customer deposits, refunds due to customers, and due to related parties approximates fair value

due to the relatively short period to maturity for these instruments.

The carrying amounts on the notes payable, finance leases and

installment notes approximate fair value either due to the relatively short period to maturity or the related interest is

accrued at a rate similar to market rates.

The carrying amounts on the revolving line of credit approximates fair value due the

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

RECOGNITION AND RESERVE FOR SALES RETURNS

2 unchanged sentences

from contracts with customers.

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

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

to be entitled in exchange for those goods.

The Company recognizes revenue when the control of the goods sold is transferred to the customer, in an

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

for those goods.

The Company determines revenue recognition utilizing the following five steps:

(1) identification

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

distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5)

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

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

The Company’s

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

once control of goods is transferred to the customer.

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

for the sale of these goods.

(1) identification of the contract with

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

3 unchanged sentences

are recorded as a reduction to net sales.

For the three months ended December 31, 2021 and 2020 co-op promotion incentives were approximately

$ 796,000 and $ 858,000 , respectively.

For the nine months ended December 31, 2021 and 2020 co-op promotion incentives were approximately

For the three months ended June 30, 2022 and 2021, co-op promotion incentives were approximately

$ 296,000 and $ 272,000 , respectively.

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

The Company’s

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

once control of goods is transferred to the customer.

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

for the sale of these goods.

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

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

are included in selling expenses in the accompanying condensed consolidated statements of income as our underlying customer agreements

are included in selling expenses in the accompanying condensed consolidated statements of operations 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 as of June 30, 2022 and March 31,2022 were approximately $ 882,000 and $ 990,000 , respectively.

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

hardware and the Company has no other material business segments (See Note 11 – Geographical Information).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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 our customers 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 $ 2,922,000 and $ 960,000 as of December 31, 2021 and March 31, 2021, respectively.

is derived from five different major product lines.

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

December 31, 2021 and 2020 consisted of the following:

OF DISAGGREGATION OF REVENUE

by Product Line

Classic Karaoke Machines

Licensed Product

SMC Kids Toys

Microphones and Accessories

Music Subscriptions

hardware and the Company has no other material business segments (See NOTE 13 – SEGMENT INFORMATION).

is derived from four different major product lines.

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

2022 and 2021 consisted of the following:

SCHEDULE OF DISAGGREGATION OF REVENUE

March 31, 2022

March 31, 2021

Karaoke Machines

and Accessories

AND HANDLING COSTS

1 unchanged sentence

fulfill the Company’s promise to transfer the goods.

For the three months ended December 31, 2021 and 2020 shipping and handling

expenses were approximately $ 369,000 and $ 512,000 , respectively.

For the nine months ended December 31, 2021 and 2020 shipping and handling

expenses were approximately $ 654,000 and $ 900,000 , respectively.

These expenses are classified as a component of selling expenses in

the accompanying condensed consolidated statements of income.

For the three months ended June 30, 2022 and 2021 shipping and handling expenses

were approximately $ 46,000 and $ 151,000 , respectively.

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

condensed consolidated statements of operations.

BASED COMPENSATION

4 unchanged sentences

option valuation model to value stock options.

Employee stock option compensation expense for the three and nine months ended December

31, 2021 and 2020 includes the estimated fair value of options granted, amortized on a straight-line basis over the requisite service

period for the entire portion of the award.

For the three months ended December 31, 2021 and 2020, the stock option expense was approximately

$ 3,000 and $ 5,000 , respectively.

For the nine months ended December 31, 2021 and 2020, the stock option expense was approximately $ 16,000

and $ 5,000 , respectively.

Employee stock option compensation expense for the three months ended June 30, 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 three months ended June 30, 2022 and 2021 the stock option expense was approximately $ 16,000 and

$ 5,000 , respectively.

AND DEVELOPMENT COSTS

1 unchanged sentence

These expenses are shown as a component of general and administrative

expenses in the condensed consolidated statements of income.

For the three months ended December 31, 2021 and 2020, these amounts totaled

expenses in the condensed consolidated statements of operations.

For the three months ended June 30, 2022 and 2021, these amounts totaled

approximately $ 17,000 and $ 31,000 , respectively.

For the nine months ended December 31, 2021 and 2020, these amounts totaled $ 61,000

and $ 48,000 respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

8 unchanged sentences

a valuation allowance is recognized.

As of both June 30, 2022 and March 31, 2022 the Company recorded a valuation allowance of approximately

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

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

For the nine months

ended December 31, 2021 and 2020 we estimated our effective tax rate to be approximately 11 % and 23 %, respectively.

As of December 31,

For the three months

ended June 30, 2022 and 2021, we estimated our effective tax rate to be approximately 24 % and 19 %, respectively.

As of June 30, 2022

and March 31, 2022 the Singing Machine had net deferred tax assets of approximately $ 898,000 and $ 893,000 , respectively.

recorded an income tax provision of approximately $ 103,000 and $ 264,000 for the three months ended December 31, 2021 and 2020, respectively.

The Company recorded an income tax provision of approximately $ 249,000 and $ 1,006,000 for the nine months ended December 31, 2021 and

2020, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

recorded an income tax benefit of approximately $ 5,000 and $ 28,000 , respectively for the three months ended June 30, 2022 and 2021.

Company recognizes a liability for uncertain tax positions.

7 unchanged sentences

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

As of December 31, 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.

As of June 30, 2022, there were no

uncertain tax positions that resulted in any adjustment to the Company’s provision for income taxes.

The Company recognizes interest

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

The Company currently has no liabilities recorded

for accrued interest or penalties related to uncertain tax provisions.

OF EARNINGS PER SHARE

of dilutive shares for the three and nine months ended December 31, 2021 and 2020 are as follows:

of dilutive shares for the three months ended June 30, 2022 and 2021 are as follows:

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

ended December 31, 2020

ended December 31, 2021

ended December 31, 2020

June 30, 2022

June 30, 2021

weighted average common shares outstanding

1 unchanged sentence

weighted average common shares outstanding

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

Pre-funded warrants

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

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

options and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market price during

the period using the treasury stock method.

For the three and nine months ended December 31, 2021, options to purchase approximately

225,000 and 322,000 shares of common stock, respectively, have been included in the calculation of diluted net income per share as compared

to approximately 271,000 and 374,000 shares of common stock, respectively, that were included in the calculation of diluted net income

per share for the three and nine months ended December 31, 2020.

For the three and nine months ended December 31, 2021, options and warrants

to purchase approximately 35,416,667 shares of common stock, have been excluded in the calculation of diluted net income per share as

compared to approximately 730,000 shares that were excluded in the calculation of diluted net income per share for the three and nine

months ended December 31, 2020 as the result would have been anti-dilutive.

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

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

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

price during the period using the treasury stock method.

For the three months ended June 30, 2022 options to purchase 50,007 shares of

common stock and 924,334 common stock warrants were excluded in the calculation of diluted net income (loss) per as the result would

have been anti-dilutive.

the three months ended June 30, 2021 options to purchase 33,667 were excluded in the calculation of diluted net income (loss) per as

the result would have been anti-dilutive.

ACCOUNTING PRONOUNCEMENTS

10 unchanged sentences

condensed consolidated financial statements and related disclosures.

4 - INVENTORIES, NET

are comprised of the following components:

Finished Goods

Inventory in Transit

Estimated Amount of

Future Returns

Less:Inventory

Inventories, net

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

5 - INVENTORIES, NET

are comprised of the following components:

SCHEDULE OF INVENTORY

Amount of Future Returns

Less:Inventory

6 – PROPERTY AND EQUIPMENT

6 unchanged sentences

Accumulated depreciation

expense for the three months ended December 31, 2021 and 2020 was approximately $ 55,000 and $ 65,000 , respectively.

Depreciation expense

for the nine months ended December 31, 2021 and 2020 was approximately $ 190,000 and $ 204,000 , respectively.

6 – BANK FINANCING

expense for the three months ended June 30, 2022 and 2021 was approximately $ 58,000 and $ 68,000 , respectively.

7 – FINANCING

Intercreditor

Revolving Credit Facility Crestmark Bank and Iron Horse Credit:

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

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

The Company signed a two-year

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

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

of $ 5.0 million between January 1 and July 31 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 three months ended December

31, 2021 and 2020 the Company incurred amortization expense of approximately $ 10,000 and $ 19,000 , respectively associated with the amortization

of deferred financing costs from the Intercreditor Revolving Credit Facility.

During the nine months ended December 31, 2021 and 2020

the Company incurred amortization expense of approximately $ 36,000 and $ 40,000 , respectively associated with the amortization of deferred

financing costs from the Intercreditor Revolving Credit Facility.

June 16, 2020, the Company entered into a two-year Credit

and Security Agreement for a $ 2.5 million financing facility, with IronHorse Credit LLC (the “IHC

Facility”) on eligible accounts receivable and inventory.

Also, on June 16, 2020, the Company entered into a two-year Loan and

Security Agreement for a $ 10.0 million financing facility with Crestmark , a division of MetaBanK, National Association (the “Crestmark

Facility”) on eligible accounts receivable.

the terms of the Crestmark Facility, the outstanding loan balance cannot exceed $ 10.0 million during peak selling season between July

1 and December 31 and is reduced to a maximum of $ 5.0 million between January 1 and July 31 with the ability to exceed when required.

Costs associated with closing of the IHC and Crestmark facilities of approximately $ 74,000 were deferred and were amortized over one

During the three months ended June 30, 2022 and 2021 the Company incurred amortization expense of approximately $ 8,000 and $ 17,000 ,

respectively associated with the amortization of deferred financing costs from the IHC and Crestmark facilities.

the Crestmark Facility:

rate shall not exceed 70% of Eligible Accounts Receivable aged less than 90 days from invoice date.

rate shall not exceed 70% of Eligible Accounts Receivable aged less than 90 days from invoice

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 Intercreditor Revolving Credit Facility.

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

Intercreditor Revolving Credit Facility.

Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in accounts receivable

3 unchanged sentences

Maintenance Fees shall be calculated on the higher of the actual average monthly loan balance from the prior month or a minimum average

loan balance of $ 2,000,000 .

For the three months ended December 31, 2021 and 2020 the Company recorded interest expense of approximately

$ 106,000 and $ 100,000 , respectively.

For the nine months ended December 31, 2021 and 2020 the Company recorded interest expense of approximately

$ 202,000 and $ 151,000 , respectively.

The Crestmark Facility expires on June 15, 2022 .

As of December 31, 2021, the Company had an outstanding

balance of approximately $ 6,637,000 on the Crestmark Facility.

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

the IHC Facility:

rate shall not exceed the lower of (a) 70% of the inventory cost or (b) 85% of Net Orderly Liquidation Value (NOLV) as determined

by an independent third-party appraiser engaged by IHC.

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

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

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

The Company was not in

compliance with this covenant as of October 31, 2021 and November 30, 2021;

however, waivers from default were obtained from IHC

for these months.

As of December 31, 2021, the Company was in compliance with this covenant.

loan balance of $ 2.0 million.

For the three months ended June 30, 2022 and 2021 the Company recorded interest expense under the Crestmark

Facility of approximately $ 53,000 and $ 45,000 , respectively.

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 June 30, 2022 and March 31, 2022, the Company had no outstanding balance on the Crestmark Facility.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

the IHC Facility:

rate shall not exceed the lower of (a) 70% of the inventory cost or (b) 85% of Net Orderly

Liquidation Value (NOLV) as determined by an independent third-party appraiser engaged by

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.

The Company was not in compliance with this covenant as of May 31, 2022;

however, a waiver

from default was obtained from IHC for this month.

of June 30, 2022, the Company was in compliance with this covenant.

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

3 unchanged sentences

or a minimum average loan balance of $ 1,000,000 .

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

deferred and are being amortized over one year.

Interest expense for the three months ended December 31, 2021 and 2020 were approximately

$ 34,000 and $ 41,000 , respectively.

Interest expense for the nine months ended December 31, 2021 and 2020 were approximately $ 120,000

and $ 103,000 , respectively.

The IHC Facility expires on June 15, 2022 .

As of December 31, 2021 and March 31, 2021, there was an outstanding

balance of approximately $ 1,990,000 and $ 65,000 , respectively.

of December 31, 2021 there was approximately $ 510,000 of available borrowings under these facilities.

both the Crestmark Facility and the IHC Facility are set to expire on June 15, 2022, the Company expects to negotiate a revision or extension

of these debt facilities upon their maturity however, there can be no assurance that such revision or extension will occur or at what

Interest expense under the IHC Facility for the three months ended June 30, 2022 and

2021 was approximately $ 98,000 and $ 39,000 , respectively.

The IHC Facility was to expire on June 11, 2022.

However, absent a termination

notice given to IHC by the Company, the IHC Facility 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 both June 30, 2022 and March 31, 2022, there was an outstanding

balance $ 2,500,000 .

Simultaneously

with the Company’s entry into the IHC Facility and the Crestmark Facility, the Company entered into an Intercreditor Agreement

with IronHorse and Crestmark which sets forth the respective rights of each of IronHorse and Crestmark as secured parties.

of this filing there was approximately $ 3,000,000 of available borrowings under the Crestmark and IHC facilities.

Payable Payroll Protection Plan

1 unchanged sentence

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 nine months ended December 31, 2021, a gain of approximately $ 448,000 (including principal and interest)

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

The PPP was established as part of the Coronavirus Aid, Relief and Economic Security 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.

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.

three months ended June 30, 2022 and 2021, a gain of approximately $ 0 and $ 448,000 (including principal and interest), respectively from

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

Notes Payable

1 unchanged sentence

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

As of December 31, 2021, the Company had executed three

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

The installment notes have 60-month terms

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

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

include principal and interest.

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

of approximately $ 231,000 and $ 281,000 , respectively.

For the three months ended December 31, 2021 and 2020 the Company incurred interest

expense of approximately $ 5,000 and $ 6,000 , respectively.

For the nine months ended December 31, 2021 and 2020 the Company incurred interest

expense of approximately $ 16,000 and $ 20,000 , 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.

The Company executed three installment notes totaling

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

The installment notes have 60-month terms with interest rates of 7.58 %,

8.55 % and 9.25 %, respectively.

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

As of June 30, 2022 and March 31, 2022 there was an outstanding balance on the installment notes of approximately $ 195,000 and $ 213,000 ,

respectively.

For the three months ended June 30, 2022 and 2021 the Company incurred interest expense of approximately $ 4,000 and $ 6,000 ,

respectively.

Debt/Note Payable

conjunction with the Crestmark Facility and IHC Facility, the parties entered into a subordination agreement on 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 %.

As part of the agreement to convert

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

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

During the three months ended December 31,

2021 and 2020 interest expense was approximately $ 3,000 and $ 12,000 , respectively on the subordinated note payable and the related party

subordinated debt.

During the nine months ended December 31, 2021 and 2020 interest expense was approximately $ 17,000 and $ 36,000 , respectively

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

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

Both the Crestmark

Facility and IHC Facility agreements allow for the repayment of the subordinated note payable provided any amounts borrowed against these

credit facilities are paid in full, the Company maintains a 1 :

1 debt coverage ratio and exhibits sufficient cash liquidity to support

on-going operations.

As of December 31, 2021 the Company met repayment requirements of the Intercreditor Revolving Credit Facility and

has made cumulative principal payments totaling $ 450,000 .

During the next twelve months the Company intends on making additional payments

and pay off the remaining balance outstanding provided the Company meets all repayment requirements of the Crestmark Facility and IHC

Facility agreements.

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

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

2021 on the condensed consolidated balance sheets.

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.

During the three

months ended June 30, 2022 and 2021 interest expense was approximately $ 3,000 and $ 9,000 , respectively on the subordinated note payable.

connection with the Intercreditor Agreement, the Company was required to subordinate the 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 June 30, 2022 the Company met repayment requirements of the Intercreditor Revolving Credit Facility has made cumulative principal

payments totaling $ 450,000 .

During the next twelve months the Company intends on making additional payments and pay off the remaining

balance outstanding provided the Company meets all repayment requirements of the Crestmark Facility and IHC Facility agreements.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

of both June 30, 2022 and March 31, 2022, the remaining amount due on the note payable was approximately $ 353,000 .

The remaining amount

due on the subordinated note payable was classified as a current liability as of June 30, 2022 and March 31, 2022 on the condensed consolidated

balance sheets.

8 - COMMITMENTS AND CONTINGENCIES

15 unchanged sentences

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

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

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

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.

obtain raw materials or components required to manufacture our products.

Likewise, logistical supply chain issues may continue to cause

delays in the delivery of finished goods.

Any of these conditions could adversely affect our operations.

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

Superior Court of San Bernardino 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.

have operating lease agreements for offices and a warehouse facility in Florida, California expiring in various years through 2024.

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

The lease expires on March 31, 2024 .

The base rent payment is approximately

$ 9,700 per month, subject to annual adjustments.

entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California for

our logistics operations.

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

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

May 2021 we executed a one-year lease for 424 square feet of office space in Macau which will expire on April 30, 2022 .

The lease provides

for a renewal option to extend the lease.

Rent expense on the new lease is fixed at approximately $ 1,700 per month for the duration of

the lease term.

The base rent payment is approximately $ 9,700 per month, subject to annual

entered into an operating lease agreement, effective June 1, 2013 in Ontario, California for our logistics operations.

On June 15, 2020

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

The renewal base rent payment is approximately $ 67,300

with a 3% increase every 12 months for the remaining term of the extension .

expense for our operating leases is recognized on a straight-line basis over the lease terms.

1 unchanged sentence

in the amount of approximately $ 24,000 .

The lease require monthly payments in the amount of approximately $ 755 per month over a total

The lease requires monthly payments in the amount of approximately $ 755 per month over a total

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

1 unchanged sentence

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

As of December 30, 2021 and March 31, 2021, the remaining

amounts due on this capital leasing arrangement was approximately $ 20,000 and $ 0 , respectively.

For the three and nine months ended December

As of June 30, 2022 and March 31, 2022, the remaining amounts

due on this capital leasing arrangement was approximately $ 16,000 and $ 18,000 , respectively.

For the three months ended June 30, 2022

and 2021 the Company incurred interest expense of $ 439 and $ 0 , respectively.

2 unchanged sentences

30, 2022 and 2021

balance sheet information related to leases as of December 31, 2021 is as follows:

Supplemental balance sheet information related to leases as of June 30, 2022 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

Operating lease

- right-of-use assets

Finance leases as a component

of Property and equipment, net of accumulated depreciation of $ 1,735

portion of operating leases

portion of finance leases

lease liabilities, net of current portion

leases, net of current portion

Supplemental statement

of operations information related to leases for the three and nine months ended December 31, 2021 is as follows:

Operating lease - right-of-use assets

Finance leases as a component of Property and equipment, net of accumulated depreciation of $ 3,817

Current portion of operating leases

Current portion of finance leases

Operating lease liabilities, net of current portion

Finance leases, net of current portion

statement of operations information related to leases for the three months ended June 30, 2022 is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Operating lease

expense as a component of general and administrative expenses

Three Months Ended

June 30, 2022

Operating lease expense as a component of general and administrative expenses

Finance lease cost

of leased assets as a component of depreciation

on lease liabilities as a component of interest expense

cash flow information related to leases for the nine months ended December 31, 2021 is as follows:

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 June 30, 2022 is as follows:

OF SUPPLEMENTAL CASH FLOW INFORMATION

paid for amounts included in the measurement of lease liabilities:

cash flow paid for operating leases

cash flow paid for finance leases

term and Discount Rate

average remaining lease term (months)

average discount rate

maturities of operating and finance lease liabilities outstanding as of December 31, 2021 are as follows:

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

Operating cash flow paid for operating leases

Financing cash flow paid for finance leases

Lease term and Discount Rate

Weighted average remaining lease term (months)

Operating leases

Finance leases

Weighted average discount rate

Operating leases

Finance leases

maturities of operating and finance lease liabilities outstanding as of June 30, 2022 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

2022 - for the remaining 9 months

Total Minimum Future Payments

Imputed Interest

Value of Lease Liabilities

Present Value of Lease Liabilities

9 - STOCK OPTIONS AND WARRANTS

the nine months ended December 31, 2021 the Company issued 40,000 and 20,000 stock options, respectively, at an exercise price of $ .29

and $ .27 , respectively to directors as compensation for their service.

the three and nine months ended December 31, 2021 the Company issued 50,000 stock options at an exercise price of $ .22 to the Vice President

of Sales and Marketing as compensation due under his fiscal 2021 incentive bonus plan.

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

as compensation for their service.

INCENTIVE PLAN

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

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 233,333 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 .

2022 Plan authorized an aggregate of 233,333 shares of the Company’s common stock available to the Company’s employees, officers,

directors, consultants, agents, advisors and independent contractors.

As of June 30, 2022 we had granted 99,751 under the 2022 Plan,

none of which were vested leaving 133,582 shares available for issue.

STOCK OPTIONS

the three months ended June 30, 2022 the Company issued 667 and 4,000 stock options, respectively, from the 2022 Plan at an exercise

price of $ 2.35 and $ 8.11 per share, respectively to directors as compensation for their service.

the three months ended June 30, 2022 the Company issued 33,334 stock options from the 2022 Plan at an exercise price of $ 4.00 per share

to the Company’s officers as incentive compensation for the successful up-listing of the Company’s common stock on the Nasdaq

Capital Market.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

June 28, 2022 the Company issued 61,750 stock options from the 2022 Plan to all employees (excluding Company officers) who had one year

or more of service to the Company under an Employee Incentive Plan at an exercise price of $ 8.11 per share.

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

4 unchanged sentences

inputs were used to value each option grant:

the nine months ended December 31, 2021:

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 nine months ended December 31, 2020:

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

an expected term of three years .

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

summary of stock option activity for the nine months ended December 31, 2021 is summarized below:

the three months ended June 30, 2022:

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

between 2.63 % and 3.21 %, respectively with volatility between 166.1 % and 176.27 % respectively

with an expected term of three years .

summary of stock option activity for the three months ended June 30, 2022 is summarized below:

OF STOCK OPTION ACTIVITY

June 30, 2022

Weighted Average

Exercise Price

Stock Options:

1 unchanged sentence

Balance at end of period

exercisable at end of period

following table summarizes information about employee stock options outstanding at December 31, 2021:

Options exercisable at end of period

following table summarizes information about employee stock options outstanding at June 30, 2022:

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

of Exercise Price

Outstanding at December 31, 2021

Average Remaining Contractural Life

Average Exercise Price

Exercisable at December 31, 2021

Average Exercise Price

* Total number of

options outstanding as of December 31, 2021 includes 650,000 options issued to three current and four former directors as compensation,

and 1,090,000 options issued to key employees.

of December 31, 2021, there was unrecognized expense of approximately $ 17,000 remaining on options currently vesting over time with approximately

nine months remaining until these options are fully vested.

intrinsic value of vested options as of December 31, 2021 was approximately $ 40,000 .

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 December 31, 2021 are as follows:

Exercise Price

Outstanding at

June 30, 2022

Contractural Life

Exercise Price

Exercisable at

June 30, 2022

$ 2.35 - $ 7.20

$ 8.10 - $ 9.60

$ 11.40 - $ 16.50

number of options outstanding as of June 30, 2022 includes 22,009 options issued to four current and three former directors as compensation,

and 69,667 options issued to Company officers as compensation and 61,750 issued to employees as part of an Employee Stock Incentive

of June 30, 2022, there was unrecognized expense of approximately $ 580,000 remaining on options currently vesting over time with an approximate

average of nineteen months remaining until these options are fully vested.

intrinsic value of vested options as of June 30, 2022 was approximately $ 36,000 .

connection with the August 2021 Private Placement disclosed in Note 2 and Note 11, common warrants and pre-funded warrants issued and

outstanding as of June 30, 2022 are as follows:

OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Warrants outstanding at March 31, 2021

Common warrants issued

Pre-funded warrants

Warrants outstanding at December 31, 2021

of December 31, 2021, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

of CommonWarrants

* Pre-funded warrants

expire on the dates they are exercised.

outstanding warrants are fully vested.

9 – AUGUST 2021 STOCK REDEMPTION

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

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

closing of the transaction set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed Shares were

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

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

Pursuant to the Redemption Agreement, neither Koncepts nor Treasure

Green remained shareholders of the Company.

June 30, 2022

Exercise Price

Warrants outstanding at April 1, 2022

Warrants issued

Warrants exercised

Warrants outstanding at June 30, 2022

Warrants exercisable at June 30, 2022

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

of June 30, 2022, the Company’s outstanding warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

CommonWarrants

Exercise Price

Expiration Date

September 15, 2026

10 – 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.

11 – AUGUST 2021 PRIVATE PLACEMENT

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

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

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

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

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

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

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.

August 5, 2021, the Company entered into a securities purchase agreement with large institutional investors and a strategic

investor for a private placement offering of (i) 550,000 shares of its common stock together with Common Warrants to purchase up to 550,000

shares of common stock with an exercise price of $ 2.80 per share, and (ii) 561,111 Pre-Funded Warrants with each Pre-Funded Warrant exercisable

for one share of common stock at an exercise price of $ 0.30 per share, together with Common Warrants to purchase up to 561,111 shares

of common stock at an exercise price of $ 2.80 per share.

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.

Shares issuable

upon exercise of the Warrants are hereinafter referred to as the “Warrant Shares”.

The exercise price and number of the Warrant

Shares are subject to anti-dilution and other adjustments for certain stock dividends, stock splits, subsequent rights offerings, pro

rata distributions or certain equity structure changes.

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

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

Additionally, under the terms of the Purchase Agreement, the Company is obligated to use its reasonable best efforts to submit

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

1 unchanged sentence

such application.

As of December 31, 2021 an application with NASDAQ has been submitted and is pending approval.

Should the NASDAQ application

be approved, the shareholders of the Company have approved a reverse stock split simultaneous with the up-listing.

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.

closing of the Private Placement took place on August 10, 2021, when the Shares and Warrants were delivered to the purchasers and funds,

2 unchanged sentences

Redemption Agreement (See Note 10 – August 2021 Stock Redemption).

(“Stingray” or the “strategic investor”), a leading music, media and technology is part of the group

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

Stingray is a long-standing

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

licensed karaoke content and is now a related party (see Note 12- Related Party Transactions).

(“Stingray”), a leading music, media and technology participated in the Private Placement and acquired a minority

interest in the Company.

Stingray is a long-standing business partner with the Company that provides our customers with music content

from their extensive library of expertly produced and licensed karaoke content and is now a related party (see Note 1- 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

3 unchanged sentences

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

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

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

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

The Advisor Warrants have the

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

The Company estimated the fair value of

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

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

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 ($ 2.80 ) 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 2.65 %.

and the risk-free interest rate of 2.65 %.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

2 unchanged sentences

Total offering costs

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

the accompanying condensed consolidated statements of stockholders’ equity.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

11 - GEOGRAPHICAL INFORMATION

to customers outside of the United States for the three and nine months ended December 31, 2021 and 2020 were primarily made by the Macau

Subsidiary in US dollars.

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.

12 – PUBLIC OFFERING AND NASDAQ UPLISTING

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

effected 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 .

May 23, 2022, the Company entered into the Underwriting Agreement with Aegis Capital Corp., who acted as the sole Underwriter,

in a firm commitment underwritten public offering pursuant to which the Company sold to the Underwriter 1,000,000 shares of common stock,

par value $0.01 per share for gross proceeds of $ 4,000,000 prior to deducting underwriting discounts and commissions and other estimated

offering expenses of approximately $ 637,000 .

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

and commissions.

The offering closed on May 26, 2022.

The Company received net proceeds of approximately $ 3,363,000 which was used for

working capital.

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.

The Company estimated the fair value of these warrants to be approximately $ 244,000

using the Black-Scholes Model based on the following input assumptions:

common stock price of $ 2.90 , expected life of the warrants of

stock price volatility of 176 %;

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

May 24, 2022, the Company’s 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.

13 - SEGMENT INFORMATION

to customers outside of the United States for the three months ended June 30, 2022 and 2021 were primarily made by the Macau Subsidiary

in US dollars.

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

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

THE THREE MONTHS ENDED

THE NINE MONTHS ENDED

FOR THE THREE MONTHS

North America

1 unchanged sentence

14 – RELATED PARTY TRANSACTIONS

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

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

Additionally, Stingray is part of the group

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

2021 Private Placement ).

is part of the group of investors who participated in the August 2021 Private Placement and have acquired a minority interest in the

Company and has one Director on the Company’s Board (see Note 11 – August 2021 Private Placement ).

TO/FROM RELATED PARTIES

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

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

December 31, 2021 and March 31, 2021, the Company had amounts due from Stingray of approximately $ 159,000 and $ 88,000 , respectively for

June 30, 2022 and March 31, 2022, the Company had amounts due from Stingray of approximately $ 242,000 and $ 152,000 , respectively for

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

Company has a music subscription sharing agreement with Stingray.

For the three months ended December 31, 2021 and 2020 the Company received

For the three months ended June 30, 2022 and 2021 the Company received

music subscription revenue of approximately $ 132,000 and $ 115,000 , respectively.

For the nine months ended December 31, 2021 and 2020

the Company received music subscription revenue of approximately $ 384,000 and $ 290,000 , respectively.

These amounts were included as

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

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

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

As part of the agreement, the companies

executed a Purchase and Sales agreement whereby the Company acquired all of Cosmo’s karaoke inventory for approximately $ 685,000 .

During the three and nine months ended December 31, 2021, there was a gain of approximately $ 11,000 from Cosmo related to payments received

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

Company incurred service expenses from SLE.

The services from SLE were approximately $ 91,000 for the three months ended December 31,

2021 and 2020.

The services from SLE for the nine months ended December 31, 2021 and 2020 were approximately $ 272,000 .

These amounts

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

These amounts were included as a component of net sales

in the accompanying condensed consolidated statements of operations.

15 – RESERVE FOR SALES RETURNS

8 unchanged sentences

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2021 and 2020

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

SCHEDULE OF RESERVE FOR SALES RETURNS

Reserve for sales returns at beginning

Three Months Ended

Reserve for sales returns at beginning of the year

Provision for estimated sales returns

Sales returns received

( 2,058,000 )

( 2,445,000 )

Reserve for sales returns

at end of the period

14 – REFUNDS DUE TO CUSTOMERS

of December 31, 2021 and March 31, 2021 the amount of refunds due to customers was approximately $ 90,000 and $ 145,000 , respectively,

primarily due to one customer for overstock returns.

Reserve for sales returns at end of the period

16 - EMPLOYEE BENEFIT PLANS

3 unchanged sentences

The amounts charged

to operations for contributions to this plan and administrative costs during the three months ended both December 31, 2021 and 2020 totaled

approximately $ 20,000 .

The amounts charged to operations for contributions to this plan and administrative costs during the nine months

ended December 31, 2021 and 2020 totaled approximately $ 55,000 and $ 54,000 , respectively.

The amounts are included as a component of

general and administrative expense in the accompanying condensed consolidated statements of income.

The Company does not provide any

post-employment benefits to retirees.

to operations for contributions to this plan and administrative costs during the three months ended June 30, 2022 and 2021 totaled approximately

$ 15,000 and $ 18,000 , respectively.

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

condensed consolidated statements of operations.

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

17 - CONCENTRATIONS OF CREDIT AND SALES RISK

2 unchanged sentences

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

with several large

At December 31, 2021, approximately 75 % of accounts receivable were due from four customers in North America that individually owed over

10% of total accounts receivable.

At March 31, 2021, 70 % of accounts receivable were due from three customers in North America that individually

owed over 10% of total accounts receivable.

with several large customers.

At June 30, 2022, approximately 83 % of accounts receivable were due from three customers in North America

that individually owed over 10% of total accounts receivable.

At March 31, 2022, 53 % of accounts receivable were due from four customers

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

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

1 unchanged sentence

For the three months

ended December 31, 2021, there were five customers who individually accounted for 10% or more of the Company’s net sales.

derived from these customers as a percentage of net sales were 25 %, 24 %, 17 %, 17 % and 10 % respectively.

For the three months ended December

31, 2020, there were five customers who individually accounted for 10% or more of the Company’s net sales.

Revenue derived from

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

the nine months ended December 31, 2021, there were four customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 37 %, 19 %, 16 % and 11 %, respectively.

For the nine months

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

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

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

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

for the nine months ended December 31, 2021.

ended June 30, 2022, there were two customers who individually accounted for 10% or more of the Company’s net sales.

Revenue derived

from these customers as a percentage of net sales were 50 % and 37 %, respectively.

For the three months ended June 30, 2021, there were

four customers who individually accounted for 10% or more of the Company’s net sales.

Revenue derived from these customers as a

percentage of net sales were 45 %, 18 %, 14 % and 14 %, respectively.

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

What changed 10-Q

Item 1. Financial Statements