What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-02-21 compared with 2022-11-14 · 633 added, 539 removed, 499 unchanged (70% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

receivable, net of allowances of $ 277,953 and $ 122,550 , respectively

from Crestmark Bank

receivable related party - Stingray Group, Inc.

expenses and other current assets

Current Assets

Accounts receivable, net

of allowances of $ 139,182 and $ 122,550 , respectively

Due from Crestmark Bank

Accounts receivable related

party - Stingray Group, Inc.

Inventories, net

Prepaid expenses and other

current assets

financing costs

Current Assets

and equipment, net

Leases - right of use assets

Property and equipment,

Deferred financing costs,

net of current portion

Deferred tax assets

Operating Leases - right

of use assets

non-current assets

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

Liabilities and

Shareholders’ Equity

Current Liabilities

Accounts payable

Accrued expenses

Revolving lines of credit

Refunds due to customers

Reserve for sales returns

Current portion of finance

Current portion of installment

Current portion of operating

lease liabilities

note payable - Starlight Marketing Development, Ltd.

Current Liabilities

leases, net of current portion

notes, net of current portion

Finance leases, net of current

Installment notes, net of

current portion

lease liabilities, net of current portion

and Contingencies

Shareholders’

stock, $ 1.00 par value;

Commitments and Contingencies

Shareholders’ Equity

Preferred stock, $ 1.00

1,000,000 shares authorized;

no shares issued and outstanding

stock $ 0.01 par value;

Common stock $ 0.01 par

100,000,000 shares authorized;

3,148,219 and 1,221,209 shares issued and outstanding, respectively

paid-in capital

Additional paid-in capital

( 16,531,384 )

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and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

the Three Months Ended

the Six Months Ended

the Nine Months Ended

of Goods Sold

and administrative expenses

Operating Expenses

from Operations

(Expenses) Income

- related party

from Payroll Protection Plan loan forgiveness

from settlement of accounts payable

Selling expenses

General and administrative

Operating Expenses

(Loss) Income from Operations

( 2,282,497 )

( 1,551,004 )

Other (Expenses) Income,

Gain - related party

Gain from Payroll Protection

Plan loan forgiveness

Gain from settlement of

accounts payable

Loss from extinguishment

Interest expense

Other (Expenses) Income, net

Before Income Tax Provision

Tax Provision

Income per Common Share

Average Common and Common

(Loss) Income Before Income

Tax Benefit (Provision)

( 2,502,709 )

( 2,124,969 )

Tax Benefit (Provision)

(loss) Income

$ ( 1,933,366 )

$ ( 1,652,902 )

Net (loss) Income per Common

Weighted Average Common and Common

Equivalent Shares:

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

the Six Months Ended

flows from operating activities

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

of deferred financing costs

in inventory reserve

in allowance for bad debts

from disposal of property and equipment

based compensation

in net deferred tax assets

Protection Plan loan forgiveness

- related party

from extinguishment of accounts payable

in operating assets and liabilities:

the Nine Months Ended

Cash flows from operating

$ ( 1,652,902 )

Adjustments to reconcile

net (loss) income to net cash used in 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

Loss on debt extinguishment

Paycheck Protection Plan

loan forgiveness

Gain - related party

Gain from extinguishment

of accounts payable

Changes in operating assets

and liabilities:

Accounts receivable

( 4,255,197 )

from Crestmark Bank

receivable - related parties

( 10,123,571 )

Due from Crestmark Bank

Accounts receivable - related

( 5,933,704 )

expenses and other current assets

non-current assets

due to customers

for sales returns

Prepaid expenses and other

current assets

Other non-current assets

Accounts payable

( 3,257,859 )

Accrued expenses

Customer deposits

Refunds due to customers

Reserve for sales returns

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

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( 2,263,688 )

flows from investing activities

( 3,113,334 )

Cash flows from investing

of property and equipment

cash used in investing activities

flows from financing activities

from Issuance of stock - net of transaction expenses

of redemption and retirement of treasury stock

Cash flows from financing

Proceeds from Issuance

of stock - net of transaction expenses

Payment of redemption and

retirement of treasury stock

( 7,162,452 )

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 warrants

on subordinated note payable

Net (payment) proceeds

from revolving lines of credit

Payment of subordinated

note payable - Starlight Marketing Development, Ltd.

Payment of deferred financing

Payment of early termination fees on revolving lines of credit

Payments on installment

Proceeds from exercise

of stock options

Proceeds from exercise

of pre-funded warrants

Proceeds from exercise

of common warrants

on finance leases

cash provided by financing activities

change in cash

Net change in cash

at beginning of year

at end of period

disclosures of cash flow information:

Cash at end of period

Supplemental disclosures

of cash flow information:

paid for interest

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

the three months ended December 31, 2022 and 2021

Balance at September 30, 2022

$ ( 14,598,018 )

at June 30, 2021

( 1,933,366 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 1,933,366 )

Exercise of common stock warrants

Issuance of common stock - officers

Issuance of common stock - officers, shares

Issuance of common stock - non-employee

Issuance of common stock - non-employee, shares

Employee compensation-stock

Balance at December

$ ( 16,531,384 )

Balance at September 30, 2021

$ ( 14,535,193 )

of common stock - directors

of common stock - non-employee

compensation-stock option

at September 30, 2021

Employee compensation-stock option

Exercise of stock options

Balance at December

$ ( 13,109,298 )

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the six months ended September 30, 2022 and 2021

at March 31, 2022

the nine months ended December 31, 2022 and 2021

Balance at March 31, 2022

$ ( 14,878,482 )

of common stock

of stock issuance expenses

of pre-funded warrants

of common stock warrants

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 September 30, 2022

( 1,652,902 )

at March 31, 2021

( 1,652,902 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

Issuance of common stock

Payment of stock issuance expenses

Exercise of pre-funded warrants

Exercise of common stock warrants

Issuance of common stock - directors

Issuance of common stock - officers

Issuance of Common stock - non-employee

Employee compensation-stock option

Rounding of common stock

issued due to reverse split

Balance at December

$ ( 16,531,384 )

Balance at March 31, 2021

$ ( 12,254,191 )

Net income (loss)

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

( 4,301,149 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of stock options

at September 30, 2021

( 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 )

notes to the condensed consolidated financial statements.

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and sale of consumer karaoke audio equipment, accessories and musical recordings.

The products are sold directly to distributors and

Our products are sold directly to distributors and

retail customers.

2 – RECENT DEVELOPMENTS

June 13, 2022, BitNile Holdings, Inc.

(“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.

June 13, 2022, Ault Alliance, Inc.

(“Ault Alliance”), formerly BitNile Holdings, Inc., a Delaware corporation, Ault Lending,

LLC (“Ault Lending”), a California limited liability company and subsidiary of Ault Alliance, and Milton C.

Ault, III (“Ault”),

Founder and Executive Chairman of Ault Alliance (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.

disclosed in the Schedule 13D, as amended and Section 16 filings, Ault Lending beneficially owns and Ault Alliance and Ault may be deemed

to beneficially own an aggregate of 1,806,200 shares of the Common Stock (the “Shares”), or approximately 57.3 % 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.

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The reverse stock split was

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

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

All information in these consolidated financial statements

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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.

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 .

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

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3 – LIQUIDITY

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.

Company reported a net loss of approximately $ 1,653,000 and used cash in operating activities of approximately $ 2,264,000 for the nine

months ended December 31, 2022 .

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, 2022 .

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.

of December 31, 2022 the Company was in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio

covenant primarily due to the decrease in revenue for the three months ended December 31, 2022 and increased general and administrative

To date, Fifth Third has not taken action to accelerate the Company’s obligations under the Credit Agreement and the

Company is currently in negotiations with Fifth Third to obtain a waiver and renegotiate the fixed charge coverage ratio covenant.

can be no assurance that the negotiations will be successful and that Fifth Third will grant the Company a waiver or renegotiate the

Company expects cash flows from operations as well as other financing resources to be adequate to satisfy working capital requirements

for at least the next twelve months from the date the accompanying condensed consolidated financial statements are issued.

plans to supplement cash flows from operations from several activities and resources including the following:

to negotiate remediation of the existing default on the Revolving Credit Facility with Fifth Third.

additional cash through equity offering.

“dynamic discount” programs offered by several of the Company’s major customers which allow for accelerated payment

of invoices in exchange for an early pay discount.

Company believes that our cash on hand, working capital (net of cash), cash expected to be generated from our operating forecast, cash

expected to be raised through an equity offering 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.

While the Company is optimistic that it will be successful in these efforts to achieve our plan, there can be no assurances

that we will be successful in doing so.

As such, the Company has a continued support letter from its parent company, Ault Alliance, through

March 31, 2024.

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 unchanged sentences

The accompanying unaudited

financial statements for the three and six months ended September 30, 2022 and 2021 have been prepared in accordance with accounting

financial statements for the three and nine months ended December 31, 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

8 unchanged sentences

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.

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

8 unchanged sentences

However, circumstances could change which may alter future expectations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

COLLECTABILITY

OF ACCOUNTS RECEIVABLE

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

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

to respond to normal business conditions.

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

collection experience.

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.

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

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

sufficient to respond to normal business conditions.

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

based upon historical collection experience.

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

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

functional currency of the Macau Subsidiary is the Hong Kong dollar.

The financial statements of the subsidiary are translated to U.S.

dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs,

and expenses.

Net gains and losses resulting from foreign exchange transactions are recorded in the 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.

functional currency of the Macau and Hong Kong Subsidiaries is the Hong Kong dollar.

The financial statements of our subsidiaries are

translated to U.S.

dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period

for revenues, costs, and expenses.

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

operations 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

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

December 31, 2022 and March 31, 2022 are approximately $ 268,000 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 September 30, 2022 and March 31, 2022 the estimated amounts for

As of December 31, 2022 and March 31, 2022 the estimated amounts for

these future inventory returns were approximately $ 1,935,000 and $ 683,000 , respectively.

4 unchanged sentences

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

As of September 30, 2022

As of December 31, 2022

and March 31, 2022 the Company had inventory reserves of approximately $ 761,000 and $ 364,000 , respectively for estimated excess and obsolete

4 unchanged sentences

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

of Long-Lived Assets.” No

was recorded as of September 30, 2022 and 2021.

of Long-Lived Assets.” No impairment was recorded as of December 31, 2022 and 2021.

Company follows FASB ASC 842, “Leases”.

18 unchanged sentences

The Company utilizes the financing interest rate for its finance leases.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

AND EQUIPMENT

9 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, 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.

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

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

short period to maturity for these instruments.

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

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

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

interest accrued at market rates.

RECOGNITION AND RESERVE FOR SALES RETURNS

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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 September 30, 2022 and 2021 co-op promotion incentives were approximately

For the three months ended December 31, 2022 and 2021 co-op promotion incentives were approximately

$ 1,138,000 and $ 796,000 , respectively.

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

For the nine months ended December 31, 2022 and 2021 co-op promotion incentives were approximately

$ 2,158,000 and $ 1,805,000 , respectively.

7 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 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.

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 September 30, 2022 and March 31, 2022, were approximately $ 1,691,000 and $ 990,000 respectively.

Company’s reserve for sales returns as of December 31, 2022 and March 31, 2022, were approximately $ 2,935,000 and $ 990,000 respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

1 unchanged sentence

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

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.

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

December 31, 2022 and 2021 consisted of the following:

OF DISAGGREGATION OF REVENUE

Classic Karaoke Machines

Licensed Product

SMC Kids Toys

Microphones and Accessories

AND HANDLING COSTS

1 unchanged sentence

fulfill the Company’s promise to transfer the goods.

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

For the three months ended December 31, 2022 and 2021 shipping and handling

expenses were approximately $ 177,000 and $ 369,000 , respectively.

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

For the nine months ended December 31, 2022 and 2021 shipping and handling

expenses were approximately $ 338,000 and $ 654,000 , respectively.

4 unchanged sentences

ASC 718-20 requires all share-based payments to employees including grants of employee stock options, be measured at fair value and expensed

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

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

The Company uses the Black-Scholes

option valuation model to value stock options.

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

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

31, 2022and 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

For the three months ended December 31, 2022 and 2021, the stock option expense was approximately

$ 77,000 and $ 3,000 , respectively.

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

For the nine months ended December 31, 2022 and 2021, the stock option expense was approximately $ 163,000

and $ 16,000 , 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 income.

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

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

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

740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial

statement carrying amounts of existing assets and liabilities and their respective tax base.

Deferred tax assets and liabilities are

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to

be recovered or settled.

Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income

in the period that includes the enactment date.

If it is more likely than not that some portion of a deferred tax asset will not be realized,

a valuation allowance is recognized.

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

expenses in the condensed consolidated statements of operations.

For the three months ended December 31, 2022 and 2021, these amounts

totaled approximately $ 49,000 and $ 11,000 , respectively.

For the nine months ended December 31, 2022 and 2021, these amounts totaled

$ 107,000 and $ 61,000 , 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 follows the provisions of FASB ASC 740 “Accounting for Income Taxes.” Under the asset and liability method of

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

financial statement carrying amounts of existing assets and liabilities and their respective tax base.

Deferred tax assets and

liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

differences are expected to be recovered or settled.

Under ASC 740, the effect on deferred tax assets and liabilities of a change in

tax rates is recognized in income in the period that includes the enactment date.

If it is more likely than not that some portion of

a deferred tax asset will not be realized, a valuation allowance is recognized.

As of both December 31, 2022 and March 31, 2022 the

Company recorded a valuation allowance of approximately $ 78,000 .

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, 2022 and 2021 we estimated our U.S.

Federal effective tax rate to be approximately 24 % and 11 %, respectively.

December 31, 2022 and March 31, 2022 the Singing Machine had net deferred tax assets of approximately $ 1,399,000 and $ 893,000 , respectively.

The Company recorded an income tax benefit of approximately $ 569,000 and an income tax provision $ 103,000 for the three months ended

December 31, 2022 and 2021, respectively.

The Company recorded an income tax benefit of approximately $ 472,000 and an income tax provision

$ 249,000 for the nine months ended December 31, 2022 and 2021, respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

Company recognizes a liability for uncertain tax positions.

2 unchanged sentences

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

The Company may recognize

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

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

The Company measures the tax benefits recognized based on the

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

As of 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.

The Company may

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

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

The Company measures the tax benefits

recognized based on the largest benefit that has a greater

than 50% likelihood of being realized

upon ultimate resolution.

As of December 31, 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 six months ended September 30, 2022 and 2021 are as follows:

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

weighted average common shares outstanding

of dilutive stock options and warrants

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.

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

of dilutive shares for the three and nine months ended December 31, 2022 and 2021 are as follows:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

the three months ended December 31, 2022

the three months ended December 31, 2021

the nine months ended December 31, 2022

the nine months ended December 31, 2021

Basic weighted average common shares outstanding

Effect of dilutive stock

options and warrants

Diluted weighted average common shares

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 and nine months ended December

31, 2022 , options to purchase 53,675 shares of common stock and 907,151 common stock warrants were

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

the three and nine months ended December 31, 2021, options to purchase approximately 9,000 and 12,000 shares of common stock, respectively,

have been included in the calculation of diluted net income (loss) per share.

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

options and warrants to purchase 1,181,000 shares of common stock were excluded in the calculation of diluted net income (loss) 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

12 unchanged sentences

are comprised of the following components:

SCHEDULE OF INVENTORY

Amount of Future Returns

Finished Goods

Inventory in Transit

Estimated Amount of

Future Returns

Less:Inventory

Inventories, net

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

6 – PROPERTY AND EQUIPMENT

1 unchanged sentence

SUMMARY OF PROPERTY AND EQUIPMENT

and office equipment

Computer and office equipment

Furniture and fixtures

Warehouse equipment

Molds and tooling

Accumulated depreciation

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.

expense for the three months ended December 31, 2022 and 2021 was approximately $ 53,000 and $ 55,000 , respectively.

expense for the nine months ended December 31, 2022 and 2021 was approximately $ 173,000 and $ 190,000 , respectively.

7 – FINANCING

and Security Agreement with Fifth Third Bank, National Association:

October 14, 2022 the Company entered into the Credit Agreement with Fifth Third, as Lender replacing the Company’s credit facilities

with Crestmark Bank (“Crestmark”), a division

of MetaBank National Association (“MetaBank”) and Iron Horse Credit, LLC (“IHC”) 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 .

Costs associated with closing of the Credit Agreement of approximately

$ 254,000 were deferred and are being amortized over a three-year period.

During both the three and nine-months ended December 31, 2022

and 2021, the Company incurred amortization expense of approximately $ 18,000 and $ 0 , respectively associated with the amortization of

deferred financing costs from the Credit Agreement.

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

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).

During the three and

nine-month periods ended December 31, 2022 and 2021 the Company incurred interest expense of approximately $ 19,000 and

$ 0 , respectfully.

As of December 31, 2022 and

March 31, 2022, there was an outstanding balance of approximately $ 1,761,000 and

$ 0 , respectively.

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.

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.

of December 31, 2022 the Company was in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio

covenant primarily due to the decrease in revenue for the three months ended December 31, 2022 and increased general and administrative

To date, Fifth Third has not taken action to accelerate the Company’s obligations under the Credit Agreement and the

Company is currently in negotiations with Fifth Third to obtain a waiver and renegotiate the fixed charge coverage ratio covenant.

can be no assurance that the negotiations will be successful and that Fifth Third will grant the Company a waiver or renegotiate the

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

of this filing there was no outstanding balance on the Credit Agreement.

Intercreditor

1 unchanged sentence

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.

and Security Agreement for a $ 2.5 million financing facility, with IHC (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 (the “Crestmark Facility”)

on eligible accounts receivable.

the Crestmark Facility:

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 (“IHC”)

Intercreditor Revolving Credit Facility.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

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

implemented an availability block of 20% of amounts due on the IHC Facility.

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

2 unchanged sentences

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

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 $ 2.0 million.

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.

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

balance of $ 2.0 million.

For the three months ended December 31, 2022 and 2021, the Company recorded interest expense under the Crestmark

Facility of approximately $ 19,000 and $ 106,000 , respectively.

For the nine months ended December 31, 2022 and 2021 the Company recorded

interest expense under the Crestmark Facility of approximately $ 151,000 and $ 202,000 , respectively.

As of December 31, 2022 and March

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

The Crestmark Facility was terminated on October 13, 2022

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

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

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.

As of September 30, 2022, the Company

was in compliance with this covenant.

rate could 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 was required to 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.

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

however, a waiver from default was obtained from IHC for this month.

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

1 unchanged sentence

per month or 15.51 % annually.

Interest shall be calculated on the higher of the actual average monthly loan balance from the prior month

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

Interest expense under the IHC Facility for the 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

Interest was calculated on the higher of the actual average monthly loan balance from the prior month or

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

Interest expense under the IHC Facility for the three months ended December

31, 2022 and 2021 was approximately $ 19,000 and $ 34,000 , 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

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.

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.

Interest expense under the

IHC Facility for the nine months ended December 31, 2022 and 2021 was approximately $ 213,000

and $ 120,000 , respectively.

As of December 31, 2022 and March 31, 2022, there was an outstanding balance of $ 0 and $ 2,500,000 , respectively.

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 above.

total cost to exit the Intercreditor Revolving Credit Facility with Crestmark and IHC was approximately $ 183,000 and was recorded as

a loss from extinguishment of debt as a component of Other (Expenses) Income, net in the accompanying condensed consolidated statements

of operations.

Payable Payroll Protection Plan

12 unchanged sentences

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

six months ended September 30, 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.

nine months ended December 31, 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

Notes Payable

6 unchanged sentences

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

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 ,

As of December 31, 2022 and March 31, 2022 there was an outstanding balance on the installment notes of approximately $ 158,000 and $ 213,000 ,

respectively.

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

For the three months ended December 31, 2022 and 2021 the Company incurred interest expense of approximately $ 4,000 and

$ 5,000 , respectively.

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

For the nine months ended December 31, 2022 and 2021 the Company incurred interest expense of approximately $ 12,000

and $ 16,000 , respectively.

8 unchanged sentences

During the three

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

months ended December 31, 2022 and 2021 interest expense was approximately $ 11,000 and $ 3,000 , 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

During the nine months ended December 31, 2022 and 2021 interest expense was approximately

$ 17,000 and $ 17,000 , 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.

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.

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.

of December 31, 2022 and March 31, 2022, the remaining amount due on the note payable was approximately $ 0 and $ 353,000 , respectively.

The remaining amount due on the subordinated note payable was classified as a current liability as of 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,

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

8 - COMMITMENTS AND CONTINGENCIES

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

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, COVID-19 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.

Although the negative effects on the health of the U.S.

economy have somewhat subsided, COVID-19

may continue to have negative effects in the future.

We have, however, experienced various degrees of manufacturing cost pressures due

to raw material and electronic component shortages, unpredictable variability in both the cost and timing of shipments of materials from

China, 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 any future COVID-19 outbreaks or significant changes in economic conditions such as inflation, including product

and shipping costs, could cause a disruption in our ability to obtain raw materials or components required to manufacture our products.

Likewise, logistical supply chain issues could 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 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 the Company’s financial results.

The complaint alleges an employee of SMCL committed employment practice violations against a

former temporary employee not employed by us.

Management investigated the allegation and engaged an employment attorney to defend the

The complaint sought damages estimated to be no less than $ 500,000 in money judgement.

case was referred to arbitration and a settlement agreement was negotiated in favor of the plaintiff and settled for $ 30,000 and the

case dismissed on December 13, 2022.

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 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

entered into a three-year operating lease agreement, effective October 15, 2022 for our Hong Kong office operations.

The lease will expire

on October 14, 2025 .

The base rent payment is fixed at approximately $ 4,877 per month for the entire term of the lease.

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.

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.

2 unchanged sentences

The renewal base rent payment is approximately $ 69,277

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

per month 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.

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

in the amount of approximately $ 24,000 .

The lease 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.

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

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

As of September 30, 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

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

forklift in the amount of approximately $ 24,000 .

The lease 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.

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

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

As of December 31, 2022 and March 31, 2022, the

remaining amounts due on this capital leasing arrangement was approximately $ 13,000 and $ 18,000 , respectively.

For the three months ended

December 31, 2022 and 2021, the Company incurred interest expense of $ 342 and $ 696 , respectively.

For the nine months ended December

31, 2022 and 2021, the Company incurred interest expense of $ 1,170 and $ 696 , 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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

balance sheet information related to leases as of December 31, 2022 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

lease - right-of-use assets

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

Operating lease - right-of-use

Finance leases as a component of Property and

equipment, net of accumulated depreciation of $ 4,859

Current portion of operating

Current portion of finance

Operating lease liabilities,

net of current portion

Finance leases, net of

current portion

Supplemental statement of operations

information related to leases for the three and nine months ended December 31, 2022 is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

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

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:

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

cash flow information related to leases for the nine months ended December 31, 2022 is as follows:

SCHEDULE 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

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 December 31, 2022 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

for the remaining 3 months

Minimum Future Payments

Total Minimum Future Payments

Imputed Interest

Value of Lease Liabilities

Present Value of Lease Liabilities

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

9 - STOCK OPTIONS AND WARRANTS

1 unchanged sentence

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.

2022 Equity Incentive Plan, or the (the “2022

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

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

5 unchanged sentences

for issuance under the 2022 Plan.

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.

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 December 31, 2022 we had issued 107,752 common stock options

and granted common stock of 15,803 under the 2022 Plan leaving 109,778 shares available for issue.

STOCK OPTIONS

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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2022 and 2021

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

the nine months ended December 31, 2022, the Company issued 667 , 4,000 and 1,334 stock options, respectively, under 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 nine months ended December 31, 2022 the Company issued 33,334 and 3,667 stock options, respectively, from the 2022 Plan at an exercise

price of $ 4.00 per share and $ 8.65 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 and compensation related to their Fiscal 2022 annual incentive plan.

8 unchanged sentences

inputs were used to value each option grant:

the six months ended September 30, 2022:

the nine months ended December 31, 2022:

expected dividend yield of 0 %, risk-free interest

1 unchanged sentence

with an expected term of three years .

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

OF STOCK OPTION ACTIVITY

summary of stock option activity for the nine months ended December 31, 2022 is summarized below:

SUMMARY OF STOCK OPTION ACTIVITY

Weighted Average

Exercise Price

at beginning of period

at end of period

Stock Options:

Balance at beginning of period

Balance at end of period

exercisable at end of period

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

following table summarizes information about employee stock options outstanding at December 31, 2022:

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Exercise Price

Number Outstanding at

September 30, 2022

Contractural Life

Weighted Average

Exercise Price

Exercisable at

September 30, 2022

Weighted Average

Exercise Price

of Exercise Price

Outstanding at December 31, 2022

Average Remaining

Average Exercise Price

Exercisable at December 31, 2022

Average Exercise Price

$ 2.35 - $ 7.20

2 unchanged sentences

* Total number of

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

options outstanding as of December 31, 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 September 30, 2022 are as follows:

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2022 and 2021

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

of December 31, 2022, there was unrecognized expense of approximately $ 454,000 remaining

on options currently vesting over time with an approximate average of twenty-seven months remaining until these options are fully

There was no intrinsic

value to vested options as of December 31, 2022.

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 December 31, 2022 are as follows:

SCHEDULE OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Number of Common Warrants

Weighted Average Exercise

Number of Pre-Funded Warrants

Weighted Average Exercise

Warrants outstanding at April 1, 2022

Warrants issued

Warrants exercised

Warrants outstanding at December 31, 2022

Warrants exercisable at December 31, 2022

of December 31, 2022, the Company’s outstanding warrants by expiration date were as follows:

SCHEDULE OF WARRANTS EXPIRATION

of CommonWarrants

September 15, 2026

10 – AUGUST 2021 STOCK REDEMPTION

32 unchanged sentences

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

(“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

1 unchanged sentence

31, 2022 and 2021

(“Stingray”), a 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 library of produced and licensed karaoke content and is now a related party (see Note 14 - 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

47 unchanged sentences

13 - SEGMENT INFORMATION

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.

to customers outside of the United States for the three months ended December 31, 2022 and 2021 were primarily made by the Macau and

Hong Kong subsidiaries in US dollars.

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

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

September 30,

THE THREE MONTHS ENDED

THE NINE MONTHS ENDED

North America

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

3 unchanged sentences

14 – RELATED PARTY TRANSACTIONS

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 ).

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

Stingray has designated one Director who served on the Company’s Board of Directors (see Note 11 – August 2021 Private Placement

TO/FROM RELATED PARTIES

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.

December 31, 2022 and March 31, 2022, the Company had amounts due from Stingray of approximately $ 282,000 and $ 152,000 , respectively

for shared revenue from music content provided to our 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 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.

For the three months ended December 31, 2022 and 2021 the Company received

music subscription revenue of approximately $ 201,000 and $ 160,000 , respectively.

For the nine months ended December 31, 2022 and 2021

the Company received music subscription revenue of approximately $ 456,000 and $ 384,000 , respectively.

These amounts were included as

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

15 – RESERVE FOR SALES RETURNS

10 unchanged sentences

SCHEDULE OF RESERVE FOR SALES RETURNS

for sales returns at beginning of the year

for estimated sales returns

returns received

Reserve for sales returns at beginning

Provision for estimated sales returns

Sales returns received

( 2,034,000 )

( 2,058,000 )

for sales returns at end of the period

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 September 30, 2022 and 2021 totaled

to operations for contributions to this plan and administrative costs during the three months ended December 31, 2022 and 2021 totaled

approximately $ 23,000 and $ 20,000 , 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.

costs during the nine months ended December 31, 2022 and 2021 totaled approximately $ 58,000 and $ 55,000 , respectively.

The amounts are

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

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 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.

At December 31, 2022, approximately 77 % 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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

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

For the three

months ended September 30, 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

For the three months

ended December 31, 2022, there were three customers who individually accounted for 10% or more of the Company’s net sales.

derived from these customers as a percentage of net sales were 46 %, 32 % and 22 %, respectively.

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.

Revenue derived from these

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

the nine months ended December 31, 2022, 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 46 %, 22 %, 10 % and 10 %, 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.

For the nine months

ended December 31, 2021, 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 37 %, 19 %, 16 % and 11 %, 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