What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-14 compared with 2022-08-22 · 453 added, 338 removed, 585 unchanged (57% of the section changed)

28 unchanged sentences

1,000,000 shares authorized;

issued and outstanding

no shares issued and outstanding

stock $ 0.01 par value;

9 unchanged sentences

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

the Three Months Ended

the Six Months Ended

of Goods Sold

1 unchanged sentence

Operating Expenses

(Loss) from Operations

from Operations

(Expenses) Income

from Payroll Protection Plan loan forgiveness

- related party

from Payroll Protection Plan loan forgiveness

from settlement of accounts payable

Other (Expenses) Income, net

Before Income Tax Benefit

$ ( 118,613 )

Loss per Common Share

Average Common and Common Equivalent

Before Income Tax Provision

Tax Provision

Income per Common Share

Average Common and Common

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

the Three Months Ended

the Six Months Ended

flows from operating activities

$ ( 118,613 )

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

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

of deferred financing costs

in inventory reserve

in allowance for bad debts

from disposal of property and equipment

based compensation

2 unchanged sentences

- related party

from extinguishment of accounts payable

in operating assets and liabilities:

4 unchanged sentences

( 1,767,353 )

( 13,721,821 )

expenses and other current assets

3 unchanged sentences

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

cash (used in) provided by operating activities

cash used in operating activities

( 3,580,205 )

4 unchanged sentences

from Issuance of stock - net of transaction expenses

of redemption and retirement of treasury stock

( 7,162,452 )

proceeds from revolving lines of credit

3 unchanged sentences

from exercise of pre-funded warrants

from exercise of common stock warrants

from exercise of common warrants

on subordinated note payable

on finance leases

5 unchanged sentences

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 June 30, 2022 and 2021

the three months ended September 30, 2022 and 2021

at June 30, 2022

$ ( 14,894,485 )

of common stock warrants

of common stock - officers

of common stock - non-employee

compensation-stock option

at September 30, 2022

$ ( 14,598,018 )

at June 30, 2021

$ ( 12,372,804 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 4,301,149 )

( 2,854,762 )

( 7,162,452 )

of common stock - directors

of common stock - non-employee

compensation-stock option

at September 30, 2021

$ ( 14,535,193 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the six months ended September 30, 2022 and 2021

at March 31, 2022

5 unchanged sentences

of common stock - directors

of common stock - officers

of Common stock - non-employee

compensation-stock option

of common stock issued due to reverse split

at June 30, 2022

at September 30, 2022

$ ( 14,598,018 )

1 unchanged sentence

$ ( 12,254,191 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 4,301,149 )

( 2,854,762 )

( 7,162,452 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of stock options

at June 30, 2021

at September 30, 2021

$ ( 14,535,193 )

6 unchanged sentences

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

and 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 customers.

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.

(“BitNile Holdings”), a Delaware corporation, Ault Lending, LLC (“Ault 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, Ault Lending beneficially owns and BitNile Holdings

and Ault may be deemed to beneficially own an aggregate of 1,787,200 shares of the Common Stock (the “Shares”), or approximately

57.4 % 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.

2 unchanged sentences

The reverse stock split was

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

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

All information in these consolidated financial statements

35 unchanged sentences

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.

Company reported net income of approximately $ 280,000 and used cash in operating activities of approximately $ 3,580,000 for the six months

ended September 30, 2022.

On October 14, 2022 the Company entered into a Credit and Security Agreement

(the “Credit Agreement”) with Fifth Third Bank, National Association, as Lender (“Fifth Third”) replacing the

Company’s credit facilities with Crestmark Bank and Iron Horse Credit that were terminated by the Company on October 13,

The Credit Agreement provides for a three-year secured revolving credit facility in an aggregate

principal amount of up to $ 15,000,000 decreased to $ 7,500,000 during the period of January 1 through July 31 of each year.

Agreement matures on October 14, 2025.

The Company believes that our cash on hand, cash expected to be generated from our operations,

along with the availability of cash from our Credit Agreement with Fifth Third (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

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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.

financial statements for the three and six months ended September 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

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 fiscal 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 statements.

financial condition.

However, circumstances could change which may alter future expectations.

24 unchanged sentences

The amounts at foreign financial institutions at

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

September 30, 2022 and March 31, 2022 are approximately $ 595,000 and $ 172,000 , respectively.

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

6 unchanged sentences

future inventory returns due to warranty and allowance programs.

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.

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

these future inventory returns were approximately $ 1,112,000 and $ 683,000 , respectively.

The Company reduces inventory on hand to its

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

its original cost.

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

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

As of September 30, 2022

and March 31, 2022 the Company had inventory reserves of approximately $ 271,000 and $ 364,000 , respectively for estimated excess and obsolete

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

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

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

of Long-Lived Assets.” No

was recorded as of September 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, and refunds due to customers approximates fair value due to the relatively short period

to maturity for these instruments.

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

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

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

at market rates.

RECOGNITION AND RESERVE FOR SALES RETURNS

2 unchanged sentences

from contracts with customers.

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

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

for those goods.

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

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

to be entitled in exchange for those goods.

The Company determines revenue recognition utilizing the following five steps:

(1) identification of the contract with

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

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

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

(1) identification

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

6 unchanged sentences

are recorded as a reduction to net sales.

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

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

$ 724,000 and $ 738,000 , respectively.

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

$ 1,020,000 and $ 1,010,000 , respectively.

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

6 unchanged sentences

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 operations as our underlying customer agreements

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

are less than one year.

7 unchanged sentences

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’s reserve for sales returns as of September 30, 2022 and March 31, 2022, were approximately $ 1,691,000 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 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:

is derived from five different major product lines.

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

September 30, 2022 and 2021 consisted of the following:

SCHEDULE OF DISAGGREGATION OF REVENUE

March 31, 2022

March 31, 2021

Karaoke Machines

and Accessories

* Streaming—The

streaming karaoke product line is defined by the ability to stream karaoke content directly via WiFi to our karaoke machine without requiring

any 3rd party devices.

AND HANDLING COSTS

1 unchanged sentence

fulfill the Company’s promise to transfer the goods.

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.

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

expenses were approximately $ 115,000 and $ 134,000 , respectively.

For the six months ended September 30, 2022 and 2021 shipping and handling

expenses were approximately $ 161,000 and $ 285,000 , 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 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.

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

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 September 30, 2022 and 2021, the stock option expense was approximately

$ 70,000 and $ 8,000 , respectively.

For the six months ended September 30, 2022 and 2021, the stock option expense was approximately $ 86,000

and $ 13,000 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

AND DEVELOPMENT COSTS

1 unchanged sentence

These expenses are shown as a component of general and administrative

expenses in the condensed consolidated statements of operations.

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

expenses in the condensed consolidated statements of income.

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

approximately $ 41,000 and $ 19,000 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

For the six months ended September 30, 2022 and 2021, these amounts totaled $ 58,000

and $ 50,000 respectively.

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

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a valuation allowance is recognized.

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

As of both September 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.

six months ended September 30, 2022 and 2021 we estimated our effective U.S federal tax rate to be approximately 21 % and 20 %,

respectively.

As of September 30, 2022 and March 31, 2022 the Singing Machine had net deferred tax assets of approximately $ 812,000

and $ 893,000 , respectively.

The Company recorded an income tax provision of approximately $ 102,000 and $ 174,000 for the three months

ended September 30, 2022 and 2021, respectively.

The Company recorded an income tax provision of approximately $ 97,000 and $ 146,000

for the six months ended September 30, 2022 and 2021, respectively.

Company recognizes a liability for uncertain tax positions.

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

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.

As of September 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 months ended June 30, 2022 and 2021 are as follows:

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

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

weighted average common shares outstanding

of dilutive stock options

of dilutive stock options and warrants

weighted average common shares outstanding

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.

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

Diluted net income

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

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

using the treasury stock method.

For the three and six months ended September 30, 2022, options to purchase 49,781 shares of common stock

were excluded in the calculation of diluted net income per share as the result would have been anti-dilutive.

For the three and six months

ended September 30, 2021 options and warrants to purchase 1,181,889 were excluded in the calculation of diluted net income per share

as the result would have been anti-dilutive.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

ACCOUNTING PRONOUNCEMENTS

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condensed consolidated financial statements and related disclosures.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

5 - INVENTORIES, NET

6 unchanged sentences

SUMMARY OF PROPERTY AND EQUIPMENT

Computer and office equipment

Furniture and fixtures

Warehouse equipment

Molds and tooling

and office equipment

Accumulated depreciation

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

expense for the three months ended September 30, 2022 and 2021 was approximately $ 62,000 and $ 67,000 , respectively.

expense for the six months ended September 30, 2022 and 2021 was approximately $ 120,000 and $ 135,000 , respectively.

7 – FINANCING

9 unchanged sentences

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:

3 unchanged sentences

Intercreditor Revolving Credit Facility.

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

and inventory.

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

Notwithstanding the foregoing, Crestmark subordinated its first security interest in inventory to IHC as agreed between

The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus 5.50 % with a floor of 8.75 %.

1 unchanged sentence

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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

Crestmark Facility of approximately $ 79,000 and $ 51,000 , respectively.

For the six months ended September 30, 2022 and 2021 the Company

recorded interest expense under the Crestmark Facility of approximately $ 132,000 and $ 96,000 , respectively.

As of September 30, 2022

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

The Crestmark Facility was terminated on October

13, 2022 and was replaced with the new Credit Agreement with Fifth Third effective October 14, 2022 as outlined below.

the IHC Facility:

8 unchanged sentences

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.

As of September 30, 2022, the Company

was in compliance with this covenant.

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

The IHC Facility bears interest at 1.292 %

2 unchanged sentences

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

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 .

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

and 2021 was approximately $ 100,000 and $ 48,000 , respectively.

Interest expense under the IHC Facility for the six months ended September

30, 2022 and 2021 was approximately $ 198,000 and $ 86,000 , respectively.

As of both September 30, 2022 and March 31, 2022, there was an

outstanding balance of $ 2,500,000 .

The IHC Facility was terminated on October 13, 2022 and was replaced with the new Credit Agreement

with Fifth Third effective October 14, 2022 as outlined below.

Simultaneously

1 unchanged sentence

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.

and Security Agreement with Fifth Third Bank, National Association:

October 14, 2022 the Company entered into the Credit Agreement with Fifth Third, as Lender (the “Credit Agreement”) replacing

the Company’s credit facilities with Crestmark Bank and

Iron Horse Credit that were terminated by the Company on October 13, 2022 .

The Credit Agreement

provides for a three-year secured revolving credit facility in an aggregate principal amount of up to $ 15,000,000 decreased to $ 7,500,000

during the period of January 1 through July 31 of each year.

The Credit Agreement matures on October 14, 2025 .

revolving credit facility bears interest of (a) the Prime Rate plus 0.50 % or (b) the 30-day Term SOFR rate plus 3.00% (subject in each

case to a floor of 0.50 %), depending on the type of loan requested by the Company.

“Term SOFR” means the forward-looking

SOFR rate administered by CME Group, Inc.

(or other administrator selected by Fifth Third) and published on the applicable Bloomberg

LP screen page (or such other commercially available source providing such quotations as may be selected by Fifth Third), fixed by the

administrator thereof two business days prior to the commencement of the applicable Interest Period (provided, however, that if Term

SOFR is not published for such Business Day, then Term SOFR shall be determined by reference to the immediately preceding Business Day

on which such rate is published), rounded upwards, if necessary, to the next 1/8th of 1% and adjusted for reserves if Fifth Third is

required to maintain reserves with respect to the relevant Loans, all as determined by Lender in accordance with the Credit Agreement

and Fifth Third’s loan systems and procedures periodically in effect.

An Unused Line Fee of 0.35 % per annum of the excess of the

Revolving Credit Facility over the average monthly balance of outstanding revolving loans, payable monthly.

The obligations under the

Credit Agreement are secured by all of the assets of the Company and SMC, presently owned or later acquired, and all cash and non-cash

proceeds thereof (including, without limitation, insurance proceeds).

the Credit Agreement:

Receivable advance rate up to an 85% against eligible Accounts Receivable assuming dilution

is under 5% of sales, plus

advance of up to 85% of the Net Orderly Liquidation Value of eligible inventory as determined

by an appraiser satisfactory to Fifth Third, with a sublimit to be determined based on Fifth

Third’ s continuing due diligence.

The inventory advance rate will increase to 95%

of the Net Orderly Liquidation Value of eligible inventory from April through June (or another

3-month time frame to be determined based on Fifth Third’s continuing due diligence)

each year to support seasonal working capital needs.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

Company must maintain a Minimum Fixed Charge Coverage of 1.05 to 1.

may also include reasonable limitations on dividends, distributions, and management fees.

first Fixed Charge Coverage test will be the period from close to September 30, 2022, building

to a trailing twelve months.

September 30, 2022, the Company incurred $ 70,000 of costs in connection with obtaining this financing, which are currently reflected

in other non-current assets and were reclassified to deferred financing costs upon the close of the Credit Agreement.

As of date of this

filing there was approximately $ 4,000,000 available borrowings under this Credit Agreement.

Payable Payroll Protection Plan

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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.

six months ended September 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 income.

Notes Payable

6 unchanged sentences

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 ,

As of September 30, 2022 and March 31, 2022 there was an outstanding balance on the installment notes of approximately $ 177,000 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 ,

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

$ 5,000 , respectively.

Debt/Note Payable

conjunction with the Crestmark Facility and IHC Facility, the parties entered into a subordination agreement on debt due

For the six months ended September 30, 2022 and 2021 the Company incurred interest expense of approximately $ 8,000

and $ 11,000 , respectively.

Debt/Note Payable to Related Party

conjunction with the Crestmark Facility and IHC Facility, the parties entered into a subordination agreement on related party debt due

to Starlight Marketing Development, Ltd.

5 unchanged sentences

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.

months ended September 30, 2022 and 2021 interest expense was approximately $ 3,000 and $ 5,000 , respectively on the subordinated note

payable and the related party subordinated debt.

During the six months ended September 30, 2022 and 2021 interest expense was approximately

$ 6,000 and $ 14,000 , respectively on the subordinated note payable and the related party subordinated debt.

connection with the Intercreditor Agreement, the Company was required to subordinate the note payable.

3 unchanged sentences

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.

of both September 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 September 30, 2022 and March 31, 2022 on the

condensed consolidated balance sheets.

As part of the new Credit Agreement with Fifth Third that the Company entered into on October

14, 2022, the subordinated note was paid in full on October 26, 2022.

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

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

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

The WHO declared COVID-19 a global

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

response have been subsequently reduced or lifted.

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

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

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

of herd immunity among the general population.

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

economy for the foreseeable future.

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

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

Although we regularly monitor the financial health

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

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

obtain raw materials or components required to manufacture our products.

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

COVID-19 pandemic has significantly affected U.S.

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

and world economy to deteriorate

in fiscal year 2022.

While many of the restrictions and measures initially implemented in response to the pandemic have since been softened

or lifted in varying degrees in different locations around the world, the uncertainty regarding existing and new potential variants of

COVID-19 and the success of any vaccines in respect thereof, may in the future cause a reduction in global economic activity or prompt,

the re-imposition of certain restrictions and measures.

The Company is dependent upon foreign companies for the manufacture of all its

electronic products.

The Company’s arrangements with manufacturers are subject to the risk of doing business abroad, such as import

duties, trade restrictions, work stoppages, foreign currency fluctuations, political instability, and other factors, which could have

an adverse impact on its business.

The Company believes that the loss of any one or more of their suppliers would not have a long-term

material adverse effect because other manufacturers with whom the Company does business would be able to increase production to fulfill

their requirements.

However, the loss of certain suppliers in the short-term could adversely affect business

until alternative supply arrangements are secured.

Additionally, in late calendar 2021, the increased demand for consumer electronics

products and current economic recovery continued to increase worldwide demand for products using semiconductor “chip” components

in the production of most consumer electronics which has resulted in an international shortage of chips available to fulfill demand.

As a result, the Company has experienced longer delivery lead times and some unavailability of these components which have delayed delivery

of some of our products.

The Company has also experienced delays in delivery schedules due to new outbreaks of COVID-19 in Southern China

that have forced temporary closures of some key shipping ports.

The port closures have also led to a temporary shortage of shipping containers

which have resulted in significant price increases due to increased demand.

While we have seen the easing of COVID-19 restrictions and

the impact on our business, we cannot predict the impact of the resurgence of variants of COVID-19 and other factors affecting local

and global economies, specifically China.

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

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.

a former temporary employee not employed by the Company.

Management 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.

and does not believe the lawsuit will have a material adverse effect on the Company’s financial results.

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,

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

The lease expires on March 31, 2024 .

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

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

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

10 unchanged sentences

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

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

As of September 30, 2022 and March 31, 2022, the remaining

amounts due on this capital leasing arrangement was approximately $ 15,000 and $ 18,000 , respectively.

For the three months ended September

30, 2022 and 2021 the Company incurred interest expense of $ 389 and $ 0 , respectively.

For the six months ended September 30, 2022 and

2021 the Company incurred interest expense of $ 828 and $ 376 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2022 and 2021

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

balance sheet information related to leases as of September 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 $ 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:

lease - right-of-use assets

leases as a component of Property and equipment, net of accumulated depreciation of $ 4,859

portion of operating leases

portion of finance leases

lease liabilities, net of current portion

leases, net of current portion

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

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Three Months Ended

June 30, 2022

Operating lease expense as a component of general and administrative expenses

Finance lease cost

Depreciation of leased assets as a component of depreciation

Interest on lease liabilities as a component of interest expense

Supplemental cash flow information related to leases for the nine months ended June 30, 2022 is as follows:

lease expense as a component of general and administrative expenses

of leased assets as a component of depreciation

on lease liabilities as a component of interest expense

cash flow information related to leases for the six months ended September 30, 2022 is as follows:

OF SUPPLEMENTAL CASH FLOW INFORMATION

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:

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 September 30, 2022 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

for the remaining 3 months

Total Minimum Future Payments

Minimum Future Payments

Imputed Interest

Present Value of Lease Liabilities

Value of Lease Liabilities

9 - STOCK OPTIONS AND WARRANTS

12 unchanged sentences

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.

of September 30, 2022 we had issued 137,426 common stock options and granted common stock of 15,803 under the 2022 Plan leaving 80,104

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

six months ended September 30, 2022 the Company issued 667 , 4,000 and 1,334 stock options, respectively, from the 2022 Plan at an exercise

price of $ 2.35 , $ 8.11 and $ 7.40 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

1 unchanged sentence

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.

the six months ended September 30, 2022 the Company issued 33,334 and 3,667 stock options from the 2022 Plan at an exercise price of

$ 4.00 per share and $ 8.65 per share, respectively, to the Company’s officers as incentive compensation for the successful up-listing

of the Company’s common stock on the Nasdaq Capital Market and compensation related to their Fiscal 2022 annual incentive plan.

June 28, 2022 and August 16, 2022 the Company issued 61,750 and 3,000 stock options respectively 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 and $ 8.65 per share, respectively.

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

4 unchanged sentences

inputs were used to value each option grant:

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

the six months ended September 30, 2022:

expected dividend yield of 0 %, risk-free interest

rate between 2.63 % and 3.21 %, respectively with volatility between 166.1 % and 176.3 % respectively

with an expected term of three years .

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

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

OF STOCK OPTION ACTIVITY

June 30, 2022

Weighted Average

Exercise Price

Stock Options:

Balance at beginning of period

Balance at end of period

Options exercisable at end of period

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

at beginning of period

at end of period

exercisable at end of period

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

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Exercise Price

Outstanding at

June 30, 2022

Number Outstanding at

September 30, 2022

Contractural Life

Weighted Average

Exercise Price

Exercisable at

June 30, 2022

September 30, 2022

Weighted Average

Exercise Price

$ 2.35 - $ 7.20

1 unchanged sentence

$ 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 .

* Total number of

options outstanding as of September 30, 2022 includes 23,343 options issued to six current and three former directors as compensation,

and 73,334 options issued to Company officers as compensation and 64,750 issued to employees as part of an Employee Stock Incentive Plan.

of September 30, 2022, there was unrecognized expense of approximately $ 531,000 remaining on options currently vesting over time with

an approximate average of twenty-eight months remaining until these options are fully vested.

intrinsic value of vested options as of September 30, 2022 was approximately $ 1,000 .

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

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

outstanding as of September 30, 2022 are as follows:

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 COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

of Common Warrants

Average Exercise Price

of Pre-Funded Warrants

Average Exercise Price

outstanding at April 1, 2022

outstanding at September 30, 2022

exercisable at September 30, 2022

of September 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

7 unchanged sentences

11 – AUGUST 2021 PRIVATE PLACEMENT

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

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

20 unchanged sentences

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

(“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).

(“Stingray”), a leading music, media and technology company 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 14 - Related

Party Transactions).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

15 unchanged sentences

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,

10 unchanged sentences

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.

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.

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

11 unchanged sentences

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.

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

FOR THE THREE MONTHS

North America

September 30,

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

14 – RELATED PARTY TRANSACTIONS

2 unchanged sentences

TO/FROM RELATED PARTIES

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

September 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 the Company’s customers from Stingray’s library of produced and licensed

karaoke content.

Company has a music subscription sharing agreement with Stingray.

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

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

These amounts were included as a component of net sales

in the accompanying condensed consolidated statements of operations.

For the three months ended September 30, 2022 and 2021 the Company

received music subscription revenue of approximately $ 123,000 and $ 110,000 , respectively.

For the six months ended September 30, 2022

and 2021 the Company received music subscription revenue of approximately $ 255,000 and $ 224,000 , respectively.

These amounts were included

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

15 – RESERVE FOR SALES RETURNS

10 unchanged sentences

SCHEDULE OF RESERVE FOR SALES RETURNS

Three Months Ended

Reserve for sales returns at beginning of the year

Provision for estimated sales returns

Sales returns received

Reserve for sales returns at end of the period

for sales returns at beginning of the year

for estimated sales returns

returns received

( 1,263,000 )

( 1,206,000 )

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 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.

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

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

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

costs during both of the six months ended September 30, 2022 and 2021 totaled approximately $ 35,000 .

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.

17 - CONCENTRATIONS OF CREDIT AND SALES RISK

3 unchanged sentences

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.

At September 30, 2022, approximately 81 % 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

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

For the three months

ended 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.

For the three

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

Revenue derived from these customers as a percentage of net sales were 43 %, 29 % and 10 %, respectively.

For the three months ended September

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

Revenue derived from

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

the six months ended September 30, 2022, there were two customers who individually accounted for 10% or more of the Company’s net

Revenue derived from these customers as a percentage of net sales were 46 % and 32 %, respectively.

For the six months ended September

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

Revenue derived from

these customers as a percentage of net sales were 48 %, 16 %, 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