What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-07-14 compared with 2022-07-14 · 252 added, 312 removed, 95 unchanged (86% of the section changed)

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objective of this Management’s Discussion and Analysis of Financial Condition and Results of Operation is to allow investors to

view the Company from management’s perspective, considering items that would have a material impact on future operations.

view our company from management’s perspective, considering items that would have a material impact on future operations.

following discussion summarizes the significant factors affecting our results of operations and financial condition as of and during

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in or implied by these forward-looking statements as a result of several factors, including those discussed in the section captioned

“Risk Factors” included under Part I, Item 1A and elsewhere in this report.

“Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report.

See also the section captioned “Disclosure

on Forward-Looking Statements” in this report.

primary objectives for the fiscal year ended March 31, 2022 (“Fiscal 2022”) were to:

our revenues by expanding our product lines and customer base;

the general and administrative costs while increasing revenue;

ending inventory on hand;

profitability;

increased by approximately $1.7 million or approximately 3.7% primarily due to an increase in our two largest customers of approximately

$4.2 million who increased the number of products offered offset by decreases in two of our top-five customers who experienced a decrease

of approximately $2.5 million in sales of Carpool Karaoke (“CPK”) product.

Gross profit margins decreased by approximately

4.0 margin points to 22.8% primarily due a decrease of approximately $3.1 million in sales of high margin yield CPK product which accounted

for approximately 3.0 margin points of the decrease offset by reduction in co-op promotion incentives of approximately $0.2 million or

approximately 0.7 points as several major customers did not offer their usual holiday campaigns due to supply issues caused by global

logistics issues.

The remaining decrease of approximately 1.7 points of gross margin was primarily due to unit cost increases to products

from increases in raw materials and a significant increase in freight costs due to global logistics issues that were only partially passed

on to customers.

Operating expenses decreased approximately $0.1 million primarily due a decrease in royalties paid on CPK licensed product

of approximately $0.3 million offset by an increase in general and administrative expenses of approximately $0.2 million primarily due

to an increase consultation and professional services associated with guidance in investor relations and planning of contemplated one-time

capital transactions.

Inventory on hand increased by approximately $8.7 million of which approximately $5.4 million was for late delivery

of seasonal product due to global logistics difficulties during peak season.

The remaining increase in inventory was primarily due to

new products purchased by one major customer that partially shipped during the first quarter ended June 30, 2022 with the remaining scheduled

to ship during the second quarter ending September 30 2022.

Net income decreased by approximately $1.9 million primarily due to an approximately

$1.5 million reduction in gross profit margin with the remaining decrease primarily due to reduced net one-time gains.

OF OPERATIONS

following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of the Company’s

total revenues:

For the Fiscal Years Ended

March 31, 2022

March 31, 2021

are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories and musical recordings.

We believe we are a leading global karaoke and music entertainment company that specializes in the design and production of quality karaoke

and music enabled consumer products for adults and children.

Our products are among the most widely available karaoke products in the

Our mission is to “create joy through music.” In order to deliver on this mission, we are focused on the following

multi-prong approach:

the short-term, improve profitability by optimizing operations and continue to expand gross margins;

the mid-to-long-term, continue to grow our global distribution and expand into new product categories that take advantage of our

vast distribution relationships and sourcing abilities.

of Operations for the Fiscal Year Ended March 31, 2023 Compared With Fiscal Year Ended March 31, 2022

following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of our total revenues:

the Fiscal Years Ended

Cost of Sales

Operating Expenses

Operating Income

Operating (Loss) Income

Other Income, Net

Income Before Income Tax (Provision) Benefit

Income Tax (Provision) Benefit

YEAR ENDED MARCH 31, 2022 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 2021

(Loss) Income Before Income Tax Provision

Income Tax Provision

Net (Loss) Income

sales for the year ended March 31, 2023 (“Fiscal 2023”) were approximately $39.3 million.

This represents an increase of

approximately $1.7 million as compared to approximately $45.8 million in the fiscal year ended March 31, 2021 (“Fiscal 2021”).

This increase was primarily due an increase in sales to our two largest customers of approximately $4.2 million who increased the number

of products offered to its customers and offset by decreases in two of our top-five customers that experienced a decrease of approximately

$2.5 million in sales of CPK product.

profit for Fiscal 2022 was approximately $10.8 million or 22.8% of total revenues compared to approximately $12.3 million or 26.8% of

sales for Fiscal 2021, a decrease of approximately $1.5 million as compared to the same period in the prior year.

There was a decrease

in our gross profit margin of approximately 4.0 margin points which accounted for approximately $2.2 million gross profit margin.

decrease was offset by the gross profit contribution of approximately $0.5 million due to the increase in net sales as explained above

and a decrease in co-op promotions of approximately $0.2 million.

profit margin for Fiscal 2022 was 22.8% compared to 26.8% for Fiscal 2021, a decrease of 4.0 margin points.

The decrease in CPK sales

as discussed above contributed approximately 3.0 margin points of the decrease.

There was a gross profit margin increase of approximately

0.7 margin points due to a decrease in promotion incentives of approximately $0.2 million.

The remaining 1.7 gross margin point decrease

was primarily due to product cost increases in raw materials and a significant increase in freight costs due to global logistics issues

that were only partially passed on to customers.

the fiscal year ended March 31, 2022, our operating expenses decreased from approximately $10.9 million to approximately $10.8 million,

a decrease of approximately $0.2 million compared to the same period last year.

Selling expenses decreased by approximately $0.4 primarily

due to decreased royalty expense of approximately $0.3 million commensurate with the decrease in CPK product sales as explained above.

There was an increase in discretionary marketing expense of approximately $0.4 million which included approximately $0.1 million to upgrade

our website and develop direct-to consumer business.

This increase was offset $0.4 million due to a decrease of approximately $0.3 million

in outbound freight as we were able to move one major customer from shipping terms from freight prepaid to freight collect.

in selling expenses of $0.4 million was offset by an increase in general and administrative expenses of approximately $0.2 million primarily

due to an increase consultation and professional services associated with guidance in investor relations and planning of contemplated

one-time capital transactions.

This represents a decrease of approximately

$8.2 million from the approximately $47.5 million in the fiscal year ended March 31, 2022 (“Fiscal 2022”).

We experienced

a decrease in net sales to four of our five major customers in Fiscal 2023 compared to Fiscal 2022.

The decrease in net sales was largely

due to two main factors:

(1) our major customers began the holiday season with excess inventory that was held over from the previous

year due to late delivery of shipments caused by significant supply chain issues experienced globally during the calendar year 2022;

and (2) the news of economic recession, inflation, and interest rate hikes dampened customers’ expectations for the holiday season,

which resulted in our customers taking a very risk-adverse approach to buying and carrying inventory for the 2022 holiday season.

of our major customers either did not take some of the inventory they had committed to earlier in the year or required significant co-op

promotion incentives on goods sold to assist in holiday inventory sell-through.

Co-op promotion incentives for the fiscal year ended

March 31, 2023 increased to approximately $2.3 million, or 6.0% of net sales, as compared to approximately $1.7 million, or 3.6% of net

sales, for the fiscal year ended March 31, 2022.

profit for Fiscal 2023 was approximately $9.2 million, or 23.4% of total revenues, compared to approximately $10.8 million, or 22.8%

of sales for Fiscal 2022, a decrease of approximately $1.6 million.

The decrease in net sales accounted for approximately $1.9 million

of the decrease, offset by an increase in gross profit margin of approximately $0.3 million.

profit margin for Fiscal 2023 was 23.4%, compared to 22.8% for Fiscal 2022, an increase of 0.6%.

There were increases in gross margin

of approximately $1.7 million, or 5.1%, primarily due to increased pricing and lower landed product costs from significantly decreased

costs of shipping containers compared to the previous year.

These increases in gross profit margin were offset by co-op promotion incentives

that accounted for approximately $0.6 million, or 2.3%, of the gross margin decrease and an increase in inventory reserves contributing

to approximately $0.8 million, or 2.2% of the gross margin decrease.

the fiscal year ended March 31, 2023, total operating expenses increased to approximately $12.9 million compared to approximately $10.7

million during the fiscal year ended March 31, 2022.

This represents an increase in total operating expenses of approximately $2.2 million.

There was a decrease in selling expenses of approximately $0.1 million primarily due to the decrease in sales, offset by an increase

of approximately $2.3 million in general and administrative expenses.

and administrative expenses increased to approximately $9.2 million during the fiscal year ended March 31, 2023, compared to approximately

$6.9 million during the fiscal year ended March 31, 2022, an increase of approximately $2.3 million.

There was an increase in legal,

professional, investor relations and stock transfer costs of approximately $0.9 million primarily related to the Nasdaq up-listing, change

in control issues, regulatory filings, Delaware franchise fees and arbitration settlement.

in the amount of $30,000.

There was an increase

in compensation of approximately $0.5 million, primarily due to compensation for new members of the board of directors, and officers’

and employees’ incentive compensation, new hires as well as merit increases.

There was compensation expense of $0.4 million related

to a change of control and employment continuation agreement with the Chief Financial Officer.

There was an increase in travel expenses

of approximately $0.3 million, which includes participation in trade shows which we had not attended since the beginning of COVID-19.

There were inflationary expenses increases of approximately $0.1 million in our California warehouse operations with the remaining increase

due to other expenses that have increased due to inflation.

Income (Expenses)

income (expenses), net decreased by approximately $1.0 million to approximately $0.2 in other income, net for the fiscal year ended March

31, 2022 compared to approximately $1.2 million in other income, net for the same period ended March 31, 2021.

For the fiscal year ended

March 31, 2022 there were one-time gains of approximately $0.4 million for the forgiveness of the Paycheck Protection Program loan and

a gain of approximately $0.4 million primarily from a vendor settling accounts payable related to a damaged goods incident that occurred

in the fiscal year ended March 31, 2020.

This compares to the fiscal year ended March 31, 2021 when there were one-time gains associated

with the recovery of approximately $1.1 million in out-of-pocket expenses relating to a prior year damaged goods insurance claim and

a vendor settling accounts payable of $0.4 million from the factory that caused the damage.

There was an additional one-time gain of

approximately $0.2 million from Cosmo, a related party, related to payment in fiscal 2021 of prior year sales which were reversed and

the related receivable was initially deemed uncollectible and written off in the prior fiscal year.

and amortization expense associated with the financing terms of the Crestmark Bank financing facility and Ironhorse financing facility

increased to approximately $0.6 million for the fiscal year ended March 31, 2022 from approximately $0.5 million for the year ended March

31, 2021, an increase of approximately $0.1 million.

BEFORE INCOME TAX PROVISION

had income before income tax provision of approximately $0.3 million in Fiscal 2022 compared to income before income tax provision of

approximately $2.6 million in Fiscal 2021 for a total decrease in income before income tax provision of approximately $2.3 million.

income from operations contributed approximately $1.4 million of the decrease due primarily to the decrease in gross profit as explained

The decrease in other income and expenses, net of $1.2 million as explained above accounted for the remaining decrease in income

before income tax provision.

income, net decreased by approximately $0.1 million, to approximately $0.1 million for the fiscal year ended March 31, 2023, compared

to approximately $0.2 million for the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2023, there was a refund

of approximately $0.7 million, net of expenses, from the Employee Retention Credit Program.

This increase in other income was offset

by fees of approximately $0.2 million for exiting the intercreditor revolving credit facility with Crestmark Bank (“Crestmark”)

and Iron Horse Credit (“IHC”) (See Note 6 – Financing) that was recorded as a loss from extinguishment of debt and

interest expense of approximately $0.4 million.

During the fiscal year ended March 31, 2022, there was a one-time gain from the forgiveness

of the Payroll Protection Plan loan of approximately $0.4 million and a gain from the settlement of accounts payable with one of our

factories of $0.3 million for a previous year’s damaged goods incident.

These increases in other income were offset by interest

expense of approximately $0.5 million during the fiscal year ended March 31, 2022.

Income Before Income Tax (Provision)

had a net loss before income tax provision of approximately $3.6 million in Fiscal 2023, compared to income before income tax provision

of approximately $0.3 million in Fiscal 2022.

The increase was primarily due to the increase in operating expenses of approximately $2.2

million and a decrease in gross profit of approximately $1.6 million, as discussed above.

Tax Provision

management judgment is required in developing our provisions for income taxes, including the determination of foreign tax liabilities,

deferred tax assets and liabilities and any valuation allowances that might be required against deferred tax assets.

management judgment is required in developing our provision for income taxes, including the determination of foreign tax

liabilities, deferred tax assets and liabilities and valuation allowances that are against deferred tax assets.

Management evaluates

its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it believes that it is not

likely to be realized.

On both March 31, 2022 and 2021, we had net deferred tax assets of approximately $0.9 million.

The deferred tax

assets on March 31, 2022 and 2021 were net of a valuation allowance of approximately $78,000 and approximately $23,000, respectively

due to management’s belief that certain tax assets will more than likely expire prior to the Company’s these assets being

its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it believes that it is

not likely to be realized.

As of March 31, 2023, management determined that a full valuation allowance was required.

2023 and 2022, we had net deferred tax assets of approximately $0.0 million and $0.9 million, respectively.

The deferred tax assets

on March 31, 2023 and 2022 were net of a valuation allowance of approximately $2.0 million and approximately $0.1 million,

respectively.

Fiscal 2023, we recognized an income tax provision of approximately $1.0 million, compared to an income tax provision of approximately

$0.1 million in Fiscal 2022.

The Company’s effective tax rate for the fiscal year ended March 31, 2022 was approximately 20.0%

as compared to 17.4% for Fiscal 2021.

Our effective tax rate for the fiscal year ended March 31, 2023 was approximately 28.6% as compared to

19.9% for Fiscal 2022.

operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions.

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In management’s opinion, adequate provisions for income taxes have been made.

a result of the foregoing, we had net income of approximately $0.2 million and $2.2 million for Fiscal 2022 and Fiscal 2021, respectively.

(Loss) Income

a result of the foregoing, we had a net loss of approximately $4.6 million and net income of approximately $0.2 million for Fiscal 2023

and Fiscal 2022, respectively.

And Capital Resources

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The increase of cash on hand of approximately $0.6 million was primarily due to approximately $1.2 million provided by financing

activities and offset by approximately $2.0 million in net cash used in operating activities.

As of March 31, 2022, our working capital

was approximately $7.8 million.

activities and offset by approximately $0.6 million in net cash used in operating and investing activities.

As of March 31, 2023, our

working capital was approximately $9.1 million.

the next twelve-month period, we plan on financing our working capital needs primarily from:

Vendor financing – All our key vendors in China have agreed to manufacture on behalf of the Company without advanced payments and

have extended payment terms to the Company.

The terms with the factories are sufficient to cover the factory direct import sales which

are expected to account for approximately 60% of the total revenues in the fiscal year ending March 31, 2023.

Credit Facility - We currently have an Intercreditor Revolving Credit Facility with Crestmark Bank for a $10.0 million facility (decreasing

to $5.0 million in off-peak season) on eligible accounts receivable 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.

We also have a $2.5 million facility on eligible inventory with Iron Horse Credit that was to expire on June 11, 2022.

However, absent

any termination notice given by the Company to IHC, the current financing arrangement automatically renewed for another twelve-month

term and is subject to a termination fee if terminated by the Company prior to the twelve-month renewal date.

Approximately $4.0 million

of borrowings are available under all our credit facilities as of the date of this filing .

Equity Raise – On May 23, 2022, we entered into an underwriting agreement (the “Underwriting

Agreement”) with Aegis Capital Corp., who acted as the sole underwriter (the “Underwriter”), in a firm commitment underwritten

public offering (the “Offering”) pursuant to which the Company sold to the Underwriter 1,000,000 shares (the “Shares”)

of common stock, par value $0.01 per share (the “Common Stock”) for gross proceeds of $4.0 million prior to deducting underwriting

discounts and commissions and other estimated offering expenses.

After underwriter discounts, commissions and other estimated offering

expenses of approximately $0.7 million we received approximately $3.3 million to be used as working capital.

The offering closed on May

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

with the availability of cash from its credit facilities, will be adequate to meet the Company’s liquidity requirements for at

least twelve months from the filing of this annual report .

Vendor financing – All our key vendors in China have agreed to manufacture on our behalf without advanced payments and have extended

payment terms to us.

The terms with the factories are sufficient to cover the factory direct import sales which are expected to account

for approximately 50% of the total revenues in the fiscal year ending March 31, 2024;

Credit Facility - We currently have a three-year revolving Credit Facility with Fifth Third Bank for a $15.0 million facility

(decreasing to $7.5 million in off-peak season) on eligible accounts receivable and inventory which terminates on October 14, 2025.

As of the date of the filing of this Annual Report, there was approximately $1.8 million available to borrow on the revolving Credit

of March 31, 2023, we were in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio covenant

On May 19, 2023, we executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and

new covenants that are required.

We must comply monthly with minimum liquidity (defined as excess loan availability plus cash on hand)

of $2.5 million between February and July and $4.0 million between September and June.

We must also maintain pre-defined minimum operating

cash flows between February and August 2023, until we achieve a fixed charge ratio of 1.15 :

1.0 beginning in September 2023 and throughout

the remaining term of the Credit Agreement.

As of the date of filing this Annual Report, we are in compliance with the amended covenants

and there is no outstanding balance on the Credit Facility.

believe that our cash on hand (including proceeds from the ATM Offering), working capital (net of cash), cash expected to be generated

from our operating forecast, along with the availability of cash from our Credit Facility, will be adequate to meet our liquidity requirements

for at least twelve months from the filing of this Annual 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 July 14, 2024.

used in operating activities in Fiscal 2023 was approximately $0.3 million.

There was a decrease in inventory of approximately $4.0 million,

of which approximately $3.3 million was due to the sale of new products purchased for one major customer that were in-transit at the

end of last fiscal year.

This was offset by a decrease in accounts payable of approximately $3.5 million due to a decrease in product

purchases as we were able to sell prior year excess inventory from later than usual shipments due to global logistics issues.

used in operating activities in Fiscal 2022 was approximately $2.0 million.

There was an increase in inventory of approximately $8.4

million of which approximately $3.7 million was additional inventory due to product that was delivered too late for seasonal shipments

as a result of global logistics difficulties, approximately $3.3 million was new product purchased for one major customer that was in-transit

with the remaining increase primarily due to CPK inventory to be re-launched during the upcoming fiscal year.

There was an increase in

accounts receivable of approximately $0.6 million due to later than usual shipments due to global logistics issues.

These decreases in

cash used in operations were offset by an increase in amounts due from banks of approximately $4.5 million due to cash required to pay

vendors for the additional inventory and an increase in accounts payable of approximately $2.5 million primarily due to new seasonal

million, of which approximately $3.7 million was additional inventory due to products that were delivered too late for seasonal shipments

as a result of global logistics difficulties, approximately $3.3 million was new products purchased for one major customer that were

in-transit with the remaining increase primarily due to CPK inventory to be re-launched during the upcoming fiscal year.

increase in accounts receivable of approximately $0.6 million due to later than usual shipments due to global logistics issues.

decreases in cash used in operations were offset by an increase in amounts due from banks of approximately $4.5 million due to cash required

to pay vendors for the additional inventory and an increase in accounts payable of approximately $3.2 million primarily due to new seasonal

goods in-transit.

provided by operating activities in Fiscal 2021 was approximately $0.2 million.

There was net income of approximately $2.1 million.

was a decrease in inventory of approximately $2.1 million primarily due to increased demand for our CPK product through social media

awareness and increased demand for our home-based entertainment products during the COVID pandemic which allowed us to sell through most

of the excess inventory from the prior fiscal year.

There was a decrease in insurance receivable of approximately $1.3 million associated

with the recovery of a pending insurance claim associated with water damaged goods in the prior fiscal year.

These increases in cash

provided by operations were offset by a reduction in accounts payable of approximately $3.2 million primarily due to the payment of significant

amounts held back from the factory that caused the damaged goods issue in the prior fiscal year upon receipt of the related insurance

claim proceeds.

There was an increase in amounts due from banks of approximately $2.2 million due to excess cash collected over amounts

due on the lines of credit associated with the operating cash generated from the reduction in inventory.

There was a decrease in refunds

due to customers of approximately $0.7 million associated with the settlement of the unpaid portion of chargebacks for damaged goods

due to one customer from the prior fiscal year.

used in investing activities for Fiscal 2023 and Fiscal 2022 was approximately $0.2 million and $0.1 million, respectively, primarily

for the purchase of molds and tooling for new karaoke models.

cash provided by financing activities for Fiscal 2023 was approximately $1.2 million, compared to cash provided by financing activities

of approximately $4.0 million for Fiscal 2022.

In May 2022, we received net proceeds of approximately $3.4 million from the public offering

we executed in conjunction with our up-listing to Nasdaq.

In addition, during Fiscal 2023, we received proceeds of approximately $1.2

million from the exercise of pre-funded and common stock warrants.

All proceeds were used for working capital.

In October 2022, we exited

our financing facility with Crestmark and IHC and entered into a new financing arrangement with Fifth Third Bank.

We incurred an exit

fee of approximately $0.2 million for early termination of the financing facility with Crestmark and IHC.

We used net proceeds of approximately

$3.1 million from the new financing agreement to pay the subordinated debt to a former related party of approximately $0.3 million, closing

costs of approximately $0.3 million, with the remaining $2.5 million used to settle amounts due on the prior financing with IHC.

cash provided by financing activities for Fiscal 2022 was approximately $4.0 million.

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of credit of approximately $2.4 million.

In August 2021, the Company received net proceeds of approximately $1.8 million from the execution

of private placement and stock redemption agreements as summarized in the next two paragraphs.

These financing activities were offset

by a payment of $150,000 on the subordinated related party debt, with the remaining offset primarily due to payments made on scheduled

In August 2021, we received net proceeds of approximately $1.8 million from the execution of

the securities purchase agreement and Redemption Agreement as discussed below.

These financing activities were offset by a payment of

approximately $0.2 million on the subordinated related party debt, with the remaining offset primarily due to payments made on scheduled

installments on installment notes and finance leases.

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

investors and a strategic investor for private placement of (i) 550,000 shares of its common stock (the “Shares”) together

with common warrants to purchase up to 550,000 shares of common stock for an exercise price of $10.50 per share, and (ii) 561,111 pre-funded

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

of $0.01 per share, together with Common Warrants to purchase up to 561,111 shares of common stock at an exercise price of $10.50 per

share (the “Private Placement”).

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

Warrants, and Pre-Funded Warrants were delivered to the purchasers and funds, in the amount of approximately $9,800,000, were received

by the Company.

Approximately $7,200,000 of the funds received were used to repurchase shares of the Company pursuant to that certain

Redemption Agreement discussed below.

The Company received an increase in working capital of approximately $1,800,000 of working capital

after settlement of expenses associated with closing of these transactions.

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

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

(“Treasure Green”), pursuant to which

the Company agreed to redeem 654,105 shares of common stock of the Company (the “Redeemed Shares”).

The closing of the

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

and transferred back to the Company in consideration of a payment of approximately $7,200,000 to koncepts and Treasure Green.

Redeemed Shares were retired and returned to the unissued authorized capital of the Company Net cash provided by financing

activities for Fiscal 2021 was approximately $0.1 million.

We received loan proceeds from Crestmark in the amount of approximately

$0.4 million under the Paycheck Protection Program.

We received additional proceeds from our inventory line of credit of

approximately $0.1 million.

These proceeds were offset by principal payments made on subordinated related party debt of $0.3 million

and payments on financed leases and installment notes of approximately $0.1 million.

We currently have an Intercreditor Revolving Credit

Facility with Crestmark Bank for a $10.0 million facility (decreasing to $5.0 million in off-peak season) on eligible accounts receivable

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.

We also have a $2.5 million facility on eligible inventory with Iron

Horse Credit that was to expire on June 11, 2022.

However, absent any termination notice given by the Company to IHC, the current financing

arrangement automatically renewed for another twelve-month term and is subject to a termination fee if terminated by the Company prior

to the twelve-month renewal date.

of this filing, we have borrowed approximately $2.5 million on the IHC Facility, which is the maximum loan amount allowed on eligible

inventory and approximately $0.0 million on our Crestmark Facility which will make available up to $10.0 million of eligible accounts

receivable as the next twelve months progress as long as the loan is in place.

As of this filing the Company has approximately $1.0 million

currently available from these two credit facilities based on eligible inventory with IHC and eligible accounts receivable with Crestmark.

May 5, 2020, the Company received loan proceeds from Crestmark in the amount of approximately $444,000 under the Paycheck Protection

Program (“PPP”).

The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”),

which provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying

The loans and accrued interest may be forgivable to the extent the Company uses the loan proceeds for eligible purposes, including

payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of loan forgiveness may be reduced if the borrower

terminates employees or reduces salaries during the eligible period.

The unforgiven portion of the PPP loan is payable over two years

at an interest rate of 1%, with a deferral of payments until a forgiveness application has been accepted and reviewed by the Small Business

Administration (“SBA”).

For the year ended March 31, 2021 the Company incurred interest expense of approximately $4,000.

In June 2021 the Company received notification from the SBA that the loan had been forgiven in its entirety.

For the fiscal year ended

March 31, 2022, a gain of approximately $448,000 (including principal and interest) from the forgiveness of the loan was included in

other income (expenses), net in the accompanying consolidated statements of income.

August 2019, a major customer received goods that were significantly water damaged due to excess moisture absorbed in pallets shipped

by the factory.

As a result, we incurred a loss in cash flow of approximately $1.6 million in lost revenue and approximately $0.8 million

in additional out of pocket expenses to retrieve, inspect, warehouse and properly destroy the goods in the prior fiscal year.

filing we have we recovered approximately $2.3 million from our cargo insurance coverage which settled approximately $1.3 million in

insurance claim receivable with the remaining proceeds reflected in other income and (expenses) as a gain from damaged goods insurance

claim in the consolidated statement of income for the fiscal year ended March 31, 2021.

For the fiscal year ended March 31, 2022 we secured

vendor invoice credits of approximately $0.2 million from the manufacturer’s representative of the factory that caused the damage.

For the fiscal year ended March 31, 2021 there was a gain from damaged goods insurance claim of approximately $1.1 and we secured vendor

invoice credits of approximately $0.4 million from the factory that caused the damage which is reflected as gain from extinguishment

of accounts payable in the consolidated statements of income.

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

and a strategic investor for private placement of (i) 550,000 shares of our common stock together with common warrants to purchase up

to 550,000 shares of common stock for an exercise price of $10.50 per share, and (ii) 561,111 pre-funded warrants (“Pre-Funded

Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock at an exercise price of $0.01 per share, together

with Common Warrants to purchase up to 561,111 shares of common stock at an exercise price of $10.50 per share (the “Private Placement”).

At the closing of the Private Placement, we received approximately $9.8 million, of which approximately $7.2 million was used to repurchase

shares of our common stock pursuant to that certain Redemption Agreement discussed below.

We received an increase in working capital

of approximately $1.8 million after settlement of expenses associated with closing of these transactions.

August 2021, we entered into the Redemption Agreement with koncepts and Treasure Green, pursuant to which we acquired the 654,105 Redeemed

The closing of the transactions set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed

Shares were assigned and transferred back to us in consideration of a payment of approximately $7.2 million to koncepts and Treasure

The Redeemed Shares were retired and returned as unissued authorized capital.

the fiscal year ended March 31, 2022, we secured additional vendor invoice credits of approximately $0.2 million from vendors relating

to the same damaged goods incident.

sell most of our products in U.S.

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season in Fiscal 2023 sales volume sold in Canadian dollars was not significant and the associated exchange rates did not have a material

impact on the Company’s financial results.

Operating expenses of the Macau office are paid in either Hong Kong dollars or Macau

Pataca (MOP).

The exchange rate of the Hong Kong dollar to the U.S.

impact on our financial results.

Operating expenses of the Macau office are paid in either Hong Kong dollars or Macau Pataca (MOP).

exchange rate of the Hong Kong dollar to the U.S.

dollar has been relatively stable at approximately HK $7.75 to U.S.

$1.00 since 1983 and, accordingly, has not represented a currency exchange risk to the U.S.

The exchange rate of the MOP to the

dollar is approximately MOP $8.00 to U.S.

While exchange rates have been stable for several years, we cannot assure you that

the exchange rate between the United States, Macau, Hong Kong and Canadian currencies will continue to be stable and exchange rate fluctuations

may have a material effect on our business, financial condition or results of operations.

$1.00 since 1983

and, accordingly, has not represented a currency exchange risk to the U.S.

The exchange rate of the MOP to the U.S.

approximately MOP $8.00 to U.S.

While exchange rates have been stable for several years, we cannot assure you that the exchange

rate between the United States, Macau, Hong Kong and Canadian currencies will continue to be stable and exchange rate fluctuations may

have a material effect on our business, financial condition or results of operations.

and Quarterly Results

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affect results of operations on a quarter-to-quarter basis.

2021 and continuing into 2022, the United States has experienced a rapid increase in inflation levels of over 8.6%, which is now at a

40-year historic high.

Such heightened inflationary levels may negatively impact consumer disposable income and discretionary spending

and, in turn, reduce consumer demand for our products and increase our costs and could significantly affect results of operations on

a quarter-to-quarter basis.

2022 and continuing into 2023, the United States has experienced a rapid increase in inflation levels of approximately 6.5% year-over

year in 2022 and approximately 4.0% year-over-year in 2023.

Such heightened inflationary levels may negatively impact consumer disposable

income and discretionary spending and, in turn, reduce consumer demand for our products and increase our costs and could significantly

affect results of operations on a quarter-to-quarter basis.

Accounting Policies and Estimates

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are the most critical to aid in fully understanding and evaluating our reported financial results included accounts receivable allowance

for doubtful accounts, reserves on inventory, revenue recognition and reserve for sales returns and income taxes.

for doubtful accounts, reserves on inventory, revenue recognition and reserve for sales returns and allowances and income taxes.

Receivable and Collectibility

Singing Machine’s accounts receivable consist of amounts due from customers in the ordinary course of business.

Accounts receivable

are carried at cost, net of allowances for uncollectible amounts.

Provisions for losses are charged to operations in amounts sufficient

to maintain an allowance for losses at a level considered adequate to cover probable losses inherent in the Company’s accounts

The 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 an amount

sufficient to respond to normal business conditions.

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

upon historical collection experience.

Should business conditions deteriorate or any major customer default on its obligations to the

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

The Company is subject

to chargebacks from customers for co-op promotion incentives, defective returns, return freight and handling charges that are deducted

from open invoices and reduce collectability of open invoices.

accounts receivable consist of amounts due from customers in the ordinary course of business.

Accounts receivable are carried at cost,

net of allowances for uncollectible amounts.

Provisions for losses are charged to operations in amounts sufficient to maintain an allowance

for losses at a level considered adequate to cover probable losses inherent in our accounts receivable.

Our allowance for doubtful accounts

is based on management’s estimates of the creditworthiness of our customers, current economic conditions and historical information,

and, in the opinion of management, is believed to be an amount sufficient to respond to normal business conditions.

Management sets 100%

reserves for customers in bankruptcy and other reserves based upon historical collection experience and future expectations.

Should business

conditions deteriorate or any major customer default on its obligations to us, this allowance may need to be significantly increased,

which would have a negative impact on operations.

We are subject to chargebacks from customers for co-op promotion incentives, defective

returns, return freight and handling charges that are deducted from open invoices, charged against revenue, and reduce collectability

of open invoices.

On Inventories

Singing Machine establishes a reserve on inventory based on the expected net realizable value of inventory 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.

Management regularly reviews the Company’s

investment in inventories for such declines in value due to excess supply on-hand, slow-moving product and end-of-life product.

31, 2022 and 2021 the Company had inventory reserves of approximately $0.4 million and $0.6 million, respectively.

RECOGNITION AND RESERVE FOR SALES RETURNS

Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) 606, “Revenue from Contracts with Customers”.

establish a reserve on inventory based on the expected net realizable value of inventory 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.

Management regularly reviews our investment in inventories for

such declines in value due to excess supply on-hand, slow-moving product and end-of-life product.

On March 31, 2023 and 2022, we had

inventory reserves of approximately $0.9 million and $0.4 million, respectively.

Recognition And Reserve For Sales Returns and Allowances

recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606,

“Revenue from Contracts with Customers”.

All revenue is generated from contracts with customers.

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

price, that reflects the consideration to which the Company is expected to be entitled in exchange for those goods.

The Company determines

revenue recognition utilizing the following five steps:

(1) identification of the contract with a customer, (2) identification of the

performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4)

allocation of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers

control of the product or service for each performance obligation.

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

The Company’s

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

once control of goods is transferred to the customer.

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

for the sale of these goods.

We recognize revenue when

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 we are expected to be entitled in exchange for those goods.

We determine 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

and (5) recognition of revenue when, or as, we transfer control of the product or service for each performance obligation.

contracts with customers consist of one performance obligation (the sale of our products).

Our contracts have no financing elements,

payment terms are less than 120 days and have no further contract asset or liability obligations once control of goods is transferred

to the customer.

Revenue is recorded in the amount of consideration we expect to receive for the sale of these goods.

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

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

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

than one year.

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

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

As these co-op promotion incentives are not a distinct good or service and the Company cannot reasonably estimate the fair

value of the benefit it receives from these arrangements, the cost of these allowances at the time they are offered to the customers

are recorded as a reduction to net sales.

For the fiscal years ended March 31, 2022 and 2021, co-op promotion incentives were approximately

$1.7 million and $2.0 million, 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 12 – SEGMENT INFORMATION).

the Company generally does not contractually provide for overstock returns, the Company does provide for variable consideration contingent

upon the occurrence of uncertain future events.

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

depending on the type of consideration.

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

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

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

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

the fiscal years ended March 31, 2022 and 2021 the Company received sales returns of approximately $3.6 million and $4.1 million, respectively.

The return of products is due to a variety of reasons including defective units, customers’ overstock and buyer’s remorse.

The primary reason for the decrease of approximately $0.5 million in returns was primarily due a decrease in overstock returns from major

Company’s reserve for sales returns were approximately $1.0 million as of March 31, 2022 and 2021 (See Note 16 – RESERVE

FOR SALES RETURNS).

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

less than one year.

selectively participate in a retailer’s co-op promotion incentives to maximize sales of our products on the retail floor or to

assist in developing consumer awareness of new product launches, by providing marketing fund allowances to our customers.

As these co-op

promotion incentives are not a distinct good or service and we cannot reasonably estimate the fair value of the benefit we receive from

these arrangements, the cost of these allowances at the time they are offered to the customers are recorded as a reduction to net sales.

For the fiscal years ended March 31, 2023 and 2022, co-op promotion incentives were approximately $2.3 million and $1.7 million, respectively.

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

and we have no other material business segments (See NOTE 14 – SEGMENT INFORMATION).

we generally do not contractually provide for overstock returns, we do provide for variable consideration contingent upon the occurrence

of uncertain future events.

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

of consideration.

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

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

variable consideration under our return allowance programs for goods returned from the customer for various reasons, whereby a sales

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

the fiscal years ended March 31, 2023 and 2022, we received sales returns of approximately $5.0 million and $3.6 million, respectively.

The return of products is due to a variety of reasons including defective units, customers’ overstock and buyers’ remorse.

The primary reason for the increase of approximately $1.4 million in returns was an increase in overstock returns from one major customer.

reserves for sales returns were approximately $0.9 million and $1.0 million as of March 31, 2023 and 2022, respectively (See NOTE 18

– RESERVE FOR SALES RETURNS).

operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions.

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amendments in ASU 2016-03 are effective for our fiscal year beginning April 1, 2023 including interim periods within that fiscal year.

Early adoption is permitted.

We are currently evaluating the potential effects of this updated guidance on our consolidated financial

statements and related disclosures.

We adopted ASU 2016-03 on April 1, 2023, and the adoption did not have any material effect on our consolidated financial statements and

related disclosures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

under this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements required pursuant to this Item 8 are included in this Annual Report, as a separate section, commencing on page F-1

and are incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 7. Management’s Discussion and Analysis