What changed in this filing

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Item 9A. Controls and Procedures

2023-07-14 compared with 2022-07-14 · 1155 added, 1076 removed, 1019 unchanged (69% of the section changed)

CONTROLS AND PROCEDURES

Management’s Report on Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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controls and procedures.

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

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

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

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

Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive

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

Management’s Annual Report on Internal Control over Financial Reporting

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

of Prior Year Material Weakness in Internal Control over Financial Reporting

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

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

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

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

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

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

to returned goods received.

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

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

In addition, due to significant personnel

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

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

in properly observing inventory cutoff.

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

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

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

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

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

manual calculation and accounting system calculation are deemed immaterial.

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

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

Changes in Internal Controls

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

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

internal control over financial reporting.

were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2023, that materially

affected, or were reasonably likely to materially affect the Company’s internal control over financial reporting.

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

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

date of this filing.

Executive Officer, Director

Revenue Officer

Revenue Officer, Director

Financial Officer

Counsel, Director

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

Ault, III, was appointed to the Board of Directors as Executive Chairman in April 2023.

Ault has served as Executive Chairman

of the Board of Directors of Ault Alliance since January 2021.

Ault previously served as Chief Executive Officer of Ault Alliance

from December 2017 to January 2021 and as Executive Chairman from March to December 2017.

Ault is a seasoned business professional

and entrepreneur who has spent decades identifying value in various financial markets including equities, fixed income, commodities,

and real estate.

Ault has served as the Chairman of the Board of Ault Disruptive Technologies Corporation (“ADTC”), an

NYSE listed Special Purpose Acquisition Company, since its incorporation in February 2021.

On February 25, 2016, Mr.

Ault founded Alzamend

(“Alzamend”), a biotechnology firm dedicated to finding the treatment, prevention and cure for Alzheimer’s

Disease and served as its Chairman until its initial public offering, when he became Alzamend’s Chairman Emeritus and a consultant.

Ault has served as Chairman and Chief Executive Officer of Ault & Company, Inc., a Delaware holding company, since December 2015,

and as Chairman of Avalanche International Corp.

(“Avalanche”), a publicly traded Nevada company, which as such is not required

to file periodic reports, since September 2014.

Since January 2011, Mr.

Ault has been the Vice President of Business Development for

MCKEA Holdings, LLC, a family office.

Throughout his career, Mr.

Ault has consulted for publicly traded and privately held companies,

providing each of them the benefit of his diversified experience, that range from development stage to seasoned businesses.

Board has concluded that Mr.

Ault is qualified to serve on the Board and as Executive Chairman because of his significant business background.

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

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

Since taking over as Chief Executive Officer, Mr.

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

Atkinson was appointed as a Director of the Company on August 11, 2022.

Atkinson is a licensed attorney in Florida and Georgia.

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

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

from Case Western Reserve University School of Law and Weatherhead

School of Management.

Effective August 11, 2021, Mr.

Atkinson was appointed to the Board of Directors.

He graduated from the University of Rochester with a Bachelor’s Degree in Economics and has been awarded a dual-degree J.D./M.B.A.

from Case Western Reserve University School of Law and Weatherhead School of Management.

Company believes that Mr.

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

During his tenure at the Singing Machine,

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

Before taking

over the responsibility of VP of Sales, Mr.

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

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

Melo was appointed as a Director of the

Company on July 27, 2022.

During his tenure at the Company, Mr.

Melo has overseen the sales and operations of the music division as well

as managed the customer service department.

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

Melo held dual roles with the Company

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

market as well as key U.S.

accounts such as Walmart.

Prior to joining the Company, Mr.

Melo held a consulting role for Rewards Network formerly Idine.

Melo’s assignment during

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

Melo also worked

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

reps across North America focusing on franchise sales.

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

Melo held a consulting role for Rewards Network

formerly Idine.

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

and lowering operating cost.

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

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

Melo has over 16

years of sales, marketing and management experience.

Company believes that Mr.

Melo is qualified to serve on the Board of Directors because of his 16+ years in senior positions sales and

marketing experience as well as his karaoke industry and management experience.

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

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Public Accountant in the state of Florida.

Nisser was appointed as director of the Company On April 5, 2023.

Nisser has served as President of Ault Alliance, Inc.

(“AAI)” since January 2021, as a member of the Board of Directors of Ault Alliance since September 2020 and as General Counsel

of Ault Alliance since May 2019.

Nisser previously served as Executive Vice President of Ault Alliance from May 2019 to January 2021.

Nisser has served as the President, General Counsel and on the Board of Directors of BitNile Metaverse, Inc., a Nasdaq listed company

that operates the BitNile.com metaverse platform, since March 2023.

Nisser is the Executive Vice President and General Counsel of

Nisser has served as the President, General Counsel and on the board of directors of ADTC since its incorporation in February

Nisser has served on the board of directors of Alzamend since September 1, 2020 and has served as its Executive Vice President

and General Counsel since May 1, 2019.

From October 31, 2011 through April 26, 2019, Mr.

Nisser was an associate and subsequently a partner

with Sichenzia Ross Ference LLP (“SRF”), a law firm based in New York City.

While with SRF, his practice was concentrated

in national and international corporate law, with a particular focus on U.S.

securities compliance, public as well as private M&A,

equity and debt financings and corporate governance.

Nisser drafted and negotiated a variety of agreements related to reorganizations,

share and asset purchases, indentures, public and private offerings, tender offers and going private transactions.

Nisser also represented

clients’ special committees established to evaluate M&A transactions and advised such committees’ members with respect

to their fiduciary duties.

Nisser is fluent in French and Swedish as well as conversant in Italian.

Nisser received his B.A.

from Connecticut College in 1992, where he majored in International Relations and Economics.

He received his LLB from the University

of Buckingham School of Law in 1999.

Board has concluded that Mr.

Nisser is qualified to serve on the board of directors because of his extensive legal experience involving

complex transactions and comprehensive knowledge of securities laws and corporate governance requirements applicable to listed companies.

Cragun was appointed as a director of the Company on July 27, 2022.

Cragun has served as the Chief Financial Officer AAI since

August 2020, and from October 2018 until August 2020, served as the Chief Accounting Officer of AAI.

Since June 2021, Mr.

Cragun has served on a part-time basis as the Senior Vice President of Financial of Alzamend, and between December 2018 and June 2021,

he served as Chief Financial Officer.

He served as a CFO Partner at Hardesty, LLC, a national executive services firm since October 2016.

His assignments at Hardesty included serving as CFO of CorVel Corporation, a $1.1 billion market cap publicly traded company (NASDAQ:

CRVL) and a nationwide leader in technology driven, healthcare-related, risk management programs and of RISA Tech, Inc.

a private structural

design and optimization software company.

Cragun was also CFO of two NASDAQ-listed companies, Local Corporation, from April 2009

to September 2016, which operated Local.com, a U.S.

top 100 website, and Modtech Holdings, Inc., from June 2006 to March 2009, a supplier

of modular buildings.

Prior thereto, he had financial leadership roles with increasing responsibilities at MIVA, Inc., ImproveNet, Inc.,

NetCharge Inc., C-Cube Microsystems, Inc, and 3-Com Corporation.

Cragun has served on the board of directors and is the chairman

of the audit committee of Verb Technology Company, Inc., a Nasdaq listed software-as-a-service applications platform developer, since

September 2018.

Cragun began his professional career at Deloitte.

Cragun holds a Bachelor of Science degree in accounting from

Colorado State University-Pueblo.

Cragun’s industry experience is vast, with extensive experience in fast-growth environments

and building teams in more than 20 countries.

Cragun has led multiple financing transactions, including IPOs, PIPEs, convertible

debt, term loans and lines of credit.

Board has concluded that Mr.

Cragun is qualified to serve on the Board of Directors because of his experience with multiple financing

transactions including IPO’s, PIPEs, convertible debt and lines of credit.

Turner was appointed as a director of the Company on July 27, 2022 and as General Counsel, on a part-time basis, in April 2023.

Turner has served as the Deputy General Counsel and VP of Legal Affairs at Ault Alliance, Alzamend and Avalanche since April 2021.

Prior to joining AAI, Mr.

Turner spent approximately 19 years, including the last 10 as a partner, at SRF.

Turner has significant

practice involving corporate and securities law, including public and private equity and debt offerings, mergers and acquisitions, corporate

governance and securities law compliance.

Turner received B.A.

degrees from Elmira College in political science and international

relations, and his J.D.

degree from American University, Washington College of Law, where he was a member of the American University

International Law Review.

Board has concluded that Mr.

Turner is qualified to serve on the board of directors because of his extensive legal experience involving

complex transactions and comprehensive knowledge of securities laws and corporate governance requirements applicable to listed companies.

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

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Peloquin was appointed Senior Vice-President, Marketing

and Communications at Stingray Group, Inc.

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

and investor relations.

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

and Communications at Stingray in 2013 and oversees marketing, communication strategies, content and investor relations.

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

Prior to joining Stingray, Mr.

Peloquin was Vice President of Marketing at Transcontinental Media Inc.

and Vice President of Transcontinental

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

He also held several executive positions at Reader’s Digest

Magazines Canada Limited and co-founded Equinox Marketing Services.

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

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

was Vice President of Marketing at Transcontinental Media Inc.

and Vice President of Transcontinental Media Inc.’s Digital Marketing

Solutions Group from 2010 to 2013.

He also held several executive positions at Reader’s Digest Magazines Canada Limited and co-founded

Equinox Marketing Services.

Peloquin is a CPA, CMA and holds a Bachelor of Commerce from the School of Management of the Université

du Québec à Montréal.

Company believes that Mr.

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

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

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

In evaluating

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

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

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

of the Board of Directors

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auditing matters.

The Audit Committee charter can be found online at https://singingmachine.com/pages/governance.

members of our Compensation Committee are Messrs.

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Say on Pay Votes.

The Compensation Committee charter can be found online at https://singingmachine.com/pages/governance.

and Corporate Governance Committee

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

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

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

or approximately 52.0% of our outstanding shares.

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

Executive Chairman of BitNile Holdings.

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

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

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

governance rules, including:

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

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

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

BitNile has indicated it intends to appoint two

directors to the Board of Directors.

Upon the appointment of the BitNile

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

as defined under Nasdaq Marketplace Rules.

The Nominating

and Corporate Governance Committee charter can be found online at https://singingmachine.com/pages/governance.

Family Relationships

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

Board does not have a formal policy regarding board diversity for our board of directors as a whole nor for each individual member, the

nominating and corporate governance committee does consider such factors as gender, race, ethnicity, experience and area of expertise,

as well as other individual attributes that contribute to the total diversity of viewpoints and experience represented on the board of

required by the Nasdaq Rules that were approved by the SEC in August 2021, the Company is providing information about the gender and

demographic diversity of its directors in the format required by Nasdaq Rules.

The information in the matrix below is based solely on

information provided by our directors about their gender and demographic self-identification.

Directors who did not answer or indicated

that they preferred not to answer a question are shown under “did not disclose demographic background” or “did not

disclose gender” below.

Diversity Matrix (as of July 6, 2023)

Number of Directors

Gender Identity

Demographic Background

American or Black

Native or Native American

Hawaiian or Pacific Islander

or More Races or Ethnicities

Not Disclose Demographic Background

in Certain Legal Proceedings

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

any bankruptcy petition

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

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

any conviction in a criminal

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

being subject to any order,

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

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

with any person practicing in banking or securities activities;

being found by a court

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

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

being subject of, or a

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

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

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

with any business entity;

being subject of or party

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

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

as set forth below, our directors and executive officers have not been involved in any of the following events during the past ten years:

bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer

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

conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor

subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,

permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking

activities or to be associated with any person practicing in banking or securities activities;

found by a court of competent jurisdiction in a civil action, the SEC or the CFTC to have violated a Federal or state securities

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

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

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

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

fraud in connection with any business entity;

subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated,

of any self-regulatory organization, any registered entity or any equivalent exchange, association,

entity or organization that has disciplinary authority over its members or persons associated

with a member.

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

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

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

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

June 23, 2015, Local Corporation, a Delaware corporation, filed a voluntary petition for reorganization under Chapter 11 of the US Bankruptcy

Cragun, a Director of the Company, was chief financial officer of Local Corporation at the time of filing.

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

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

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

WITH SECTION 16(A) OF THE EXCHANGE ACT

16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of our equity

securities to file reports of securities ownership and changes in such ownership with the SEC.

Officers, directors, and greater-than-ten-percent

stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file.

16(a) of the Exchange Act requires our officers and directors, and persons who beneficially own more than 10% of the outstanding shares

of our common stock, to file reports of ownership and changes in ownership concerning their shares of our common stock with the SEC and

to furnish us with copies of all Section 16(a) forms they file.

We are required to disclose delinquent filings of reports by such persons.

solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe that

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Section 16(a) Reports

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

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

Gary Atkinson filed a late Form 4 on June 23, 2022 with respect to one transaction;

Bernardo Melo filed a late Form 4 on June 23, 2022 with respect to one transaction;

Lionel Marquis filed a late Form 4 on June 23, 2022 with respect to one transaction;

Foreman filed a late Form 4 on June 30, 2022 with respect to one transaction.

EXECUTIVE COMPENSATION

COMPENSATION PHILOSPOPHY

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

and retain well-qualified executives.

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

executives to create shareholder value.

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

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

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

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

measurement should be established to reward the performance.

We will also evaluate our executive compensation package by comparison to

similar companies to ensure the competitiveness of our compensation.

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

base salary, annual cash incentives

and long-term performance-based incentives.

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

the skill sets of the individual.

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

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

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

performance of our Company.

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

fund raising and the stock price appreciation.

Term Compensation - Stock Option Grants

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

We believe that stock options

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

to building stockholder value.

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

employees to remain employed with the Company.

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

of our common stock on the date of grant.

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

stock price appreciates.

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

However, if an individual has made significant

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

has not been strong.

Compensation Table

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years ended March 31, 2023 and 2022.

Name and Principal Position

Option Awards

Non-Equity Incentive Plan Comp

Non-Qualified Deferred Compensation Earnings

and Principal Position

Incentive Plan Comp

Non-Qualified

Deferred Compensation Earnings

Gary Atkinson

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Chief Revenue Officer

Disclosure to Summary Compensation Table

Atkinson earned an

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

Marquis earned an annual

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

Melo earned an annual

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

Atkinson earned an annual salary of $215,000 for the fiscal year ended 2023 and $156,075

for the fiscal year ended March 31, 2022.

Marquis earned an annual salary of $210,000 for the fiscal year ended 2023 and $154,514 for

the fiscal year ended March 31, 2022.

Melo earned an annual salary of $215,000 for the fiscal year ended 2023 and $163,004 for

the fiscal year ended March 31, 2022.

compensation consisted of our 401(k) match benefit.

Option and Stock Awards at Fiscal Year-End

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awards issued with Board of Directors approval to the named executive officers as of the fiscal year ended March 31, 2023:

Name and Principal Position

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive Plan Awards:

and Principal Position

of Securities Underlying Unexercised Options (#) Exercisable

of Securities Underlying Unexercised Options (#) Unexercisable

Incentive Plan Awards:

Number of Securities Underlying Unexercised Unearned Options (#)

Option Exercise Price ($)

Option Expiration Date

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

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

Equity Incentive Plan Awards:

Exercise Price ($)

Expiration Date

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

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

Incentive Plan Awards:

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

Equity Incentive Plan Awards:

Incentive Plan Awards:

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

Gary Atkinson, CEO - Other stock option awards

Gary Atkinson, CEO - Other stock

option awards

- Other stock option awards

Lionel Marquis, CFO - Other stock option awards

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- Other stock option awards

Bernardo Melo, VP Sales - Other stock option awards

- Other stock option awards

Bernardo Melo, VP Sales - Other stock option

- Other stock option awards

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

Officer (the “Employment Agreements”).

- Other stock option awards

April 22, 2022, we entered into employment agreements with each of our Chief Executive Officer and Chief Revenue Officer (the “Employment

Agreements”).

Effective December 28, 2022 we entered into an employment agreement with our Chief Financial Officer.

employment agreements for Messrs.

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

Marquis’s Employment Agreement provides for a term of eighteen

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

Marquis’s employment agreement terminates on the close

of business on December 31, 2023.

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

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executives’ base salaries are as follows:

Gary Atkinson:

$215,000, with an automatic increase to $225,000 on the first anniversary of the Employment Agreement;

provided the Company remains profitable.

Lionel Marquis:

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

Bernardo Melo:

provided the Company

remains profitable.

$210,000, terminating on December 31, 2023.

$215,000 with an automatic increase to $225,000 on the first anniversary of the Employment Agreement;

provided the Company remains profitable.

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

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

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

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

in the Employment Agreement).

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

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

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

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

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

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

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

provided the Company

remains profitable.

addition to the payment of accrued amounts due to the executives, the Employment Agreements for Messrs.

Atkinson and Melo each provide

for the payment of severance to the Executives in a lump sum payment equal to two times the sum of the executive’s base salary

and annual bonus for the year in which the termination occurs, in the event of the termination of the Agreement by the Company without

Cause (as defined in the Employment Agreement), or upon the Company’s election not to renew the Employment Agreement or by the

executive for Good Reason (as defined in the Employment Agreement).

The Employment Agreements provide for payments to the executive of

certain amounts in the event of the executive’s death or disability (as defined in the Employment Agreement).

the event Messrs.

Atkinson’s or Melo’s employment is terminated by the executive for Good Reason (as defined in the Employment

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

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

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

of severance under the Employment Agreement is conditioned upon Messrs.

Atkinson’s and Melo’s execution of a release in favor

of the Company.

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

its three executive officers.

to the change of control agreement (“CIC Agreement”) entered into by the Company in January 2014 and subsequent to the change

in control of the Company that occurred in August 2022, Mr.

Marquis’ employment agreement included acknowledgement by the Company

that he was entitled to receive bonus cash compensation of $400,000.

This bonus is to be paid in accordance with the section in his Employment

Agreement pertaining to the Change in Control Compensation even if terminated by the Company for any reason.

Payments are to be made

$200,000 on December 31, 2022;

$100,000 on April 30, 2023;

$100,000 on December 31, 2023.

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

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

in Fiscal 2022.

Fees Earned or Paid in Cash

Stock Awards (1)

Option Awards (2)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred

All Other Compensation

Peter Hon (3)

during the year ended March 31, 2023.

Earned or Paid in Cash

Incentive Plan Compensation ($)

Deferred Comepnsation Earnings

Other Compensation

Harvey Judkowitz

Phillip Lau (3)

Yat Tung Lau (3)

Mathieu Peloquin

Kenneth Cragun

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

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As of March 31, 2023 the aggregate number of stock awards held by Messrs.

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

The aggregate

stock awards held by Messrs.

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

Judkowitz, Kling and Foreman is 12,295 and 1,140, respectively.

The aggregate stock awards held by both Messrs.

Foreman and Peloquin is 617.

As of March 31, 2023 the aggregate number of Company stock options held by Messrs.

Judkowitz and Kling is 4,667 and 3,334, respectively

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

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

Judkowitz, Kling and Foreman is 5,669, 4,335, and

1,667, respectively and Messrs.

Peloquin, Turner and Cragun is 1,667, 667 and 667, respectively.

our fiscal year ended March 31, 2023, our compensation package for our non-employee directors consisted of grants of stock options, cash

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

The payment will be made on

or before March 31.

annual stock grant of stock equivalent in value to $5,000 for each completed full year of service or prorated for a partial year.

The stock price at grant will be determined at the closing price on the day of the annual stockholder meeting.

The actual grant will

be made on or before March 31.

annual grant of 667 stock options with an exercise price determined as the closing price on the day of the annual stockholder meeting.

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

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

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

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

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

The shares of common stock subject to stock awards

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

for issuance under the 2022 Plan.

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

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

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

with an award.

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

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

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

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

Effective April 1, 2023, there were 33,334

additional shares that were allotted to the 2022 Plan based on the annual plan increase.

As of the date of filing of this Annual Report,

the total shares available for issuance under the 2022 Plan are 158,915.

shares of common stock subject to stock awards granted under the 2022 Plan that lapse, terminate, expire prior to exercise, are canceled

or are forfeited, shall again become available for issuance under the 2022 Plan.

Shares subject to a stock award under the 2022 Plan

shall not again be made available for issuance or delivery under the 2022 Plan if such shares are (i) shares tendered by a participant

or retained by the Company as full or partial payment to the Company for the exercise or purchase price of an award or (ii) shares used

to satisfy tax withholding obligations in connection with an award.

Notwithstanding

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

the date the shareholders approved the 2022 Plan.

the date the stockholders approved the 2022 Plan.

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

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

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

otherwise noted below, for the following:

following table sets forth certain information regarding the beneficial ownership of our common stock as of July12, 2023, unless otherwise

noted below, for the following:

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

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

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

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

or exercisable within 60 days of July 12, 2023 are counted as outstanding, but these shares are not counted as outstanding for computing

the percentage ownership of any other person.

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

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

Name of Beneficial Owner

Stock Beneficially

Percentage of

Directors and Officers:

of Beneficial Owner

Stock Benefically Owned

of Common Stock

and Officers:

Gary Atkinson (1)

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Mathieu Peloquin (1)

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

Beneficial owners of more than 5%:

BitNile Holdings.

Armistice Capital Master Fund Ltd.

Jay Foreman (1)

Kenneth Cragun (1)

James Turner (1)

All Executive Officers and Directors as a Group

owners of more than 5%:

Ault Alliance, Inc.

Stingray Group Inc.

Represents less than 1%

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

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

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

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

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

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

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

(“BitNile Holdings”), a

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

subsidiary of BitNile Holdings, and Milton C.

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

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

BitNile Holdings and Ault.

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

(3) Based solely upon Schedule 13G filed with

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

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

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

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

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

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

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

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

securities of the Issuer held by the Master Fund.

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

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

The Master Fund specifically disclaims beneficial ownership of the securities

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

Agreement with Armistice Capital.

The address of Armistice Capital Master Fund Ltd.

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

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

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

(“Stingray”), a corporation incorporated

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

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

Boyko indirectly

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

As a result, Mr.

Boyko may be deemed

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

Does not include 222,223 shares of common

stock issuable upon exercise of common warrants.

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

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

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

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

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

under 2022 Plan and other stock option awards, which will be vested and exercisable within 60 days of the record date:

25,001 options

held by Gary Atkinson, 31,833 options held by Bernardo Melo, 16,500 options held by Lionel Marquis, 5,669 options held by Harvey

Judkowitz, 4,335 options held by Joseph Kling, 1,667 options held by both Mathieu Peloquin and Jay Foreman, and 667 options held

by both Kenneth Cragun and James Turner.

shares of common stock owned by Ault Lending.

Ault Lending is a wholly-owned subsidiary of Ault Alliance.

Ault, the Executive

Chairman of Ault Alliance, is deemed to have voting and investment power with respect to the securities held of record by Ault Lending.

upon the Form 4 filed with the Securities and Exchange Commission on May 25, 2023 by Mr.

Ault, which reflects that the shares are

owned by Ault Lending, which is a wholly owned subsidiary of Ault Alliance.

Ault, the Executive Chairman of Ault Alliance, is

deemed to have voting and dispositive power with respect to the securities held by Ault Lending.

The address of Ault Alliance is

11411 Southern Highlands Parkway, Suite 240, Las Vegas, NV 89141.

of March 31, 2023, Eric Boyko indirectly controlled approximately 57.5% of the combined voting power of Stingray’s outstanding

As a result, Eric Boyko may be deemed to share beneficial ownership of the shares of common stock and the Stingray Warrants

held by Stingray.

The address of Stingray Group Inc.

is 730 Wellington Street, Montréal,

Québec H3C 1T4.

is 730 Wellington Street, Montréal, Québec H3C 1T4.

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

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

exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such securities which have

not been so exercised.

Authorized For Issuance Under Equity Compensation Plans

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

2022 Equity Incentive Plan, or the 2022 Plan.

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

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

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

April 12, 2022, our Board of Directors approved the 2022 Plan.

The 2022 Plan provides for the issuance of equity incentive awards, such

as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards and other stock or cash-based

awards collectively, the “Awards.” Awards may be granted under the 2022 Plan to the Company’s employees, officers,

directors, consultants, agents, advisors and independent contractors.

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

5 unchanged sentences

for issuance under the 2022 Plan.

Effective April 1, 2023, there were 33,334 additional shares that were allotted to the 2022 Plan based

on the annual plan increase.

As of the date of filing of this Annual Report, the total shares available for issuance under the 2022 Plan

following table summarizes our equity compensation plan information as of March 31, 2023:

Plan Category

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

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

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

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

of Securities to be issued upon exercise of outstanding options,

–average exercise price of outstanding option,

warrants and rights

of securities remaining available for future issuance under equity compensation Plans

Equity compensation plans approved

by security holders

Equity compensation plans not approved by security

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

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

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

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

transactions since the end of that two-year period:

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

The Company engaged in the following related persons transactions since the beginning of the Company’s last fiscal year

or any currently proposed transaction:

To/From Related Parties

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

entities were:

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

(“SCE”), Cosmo Communications

Corporation of Canada, Inc.

(“Cosmo”), Winglight Pacific, Ltd.

(“Winglight”), and Starlight Electronics Company

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

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

Lau resigned as Chairman effective August 10, 2021.

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

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

August 2021 Private Placement).

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

due from Stingray for music subscription reimbursement.

Related Party Debt and Note Payable

connection with the Revolving Credit Facility with PNC Bank, the Company was required to subordinate related party debt to Starlight

our fiscal year ended March 31, 2023, the Company did business with Stingray who is part of a group of investors who participated in

the Private Placement and have acquired a minority interest in the Company (see Note 10 – August 2021 Private Placement).

31, 2023, the Company had approximately $0.2 million due from Stingray for music subscription reimbursement.

Debt and Note Payable

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

Marketing Development, Ltd.

(“Subordinated Debt”).

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

was scheduled to be paid in quarterly installments of $123,000 which included interest and commenced September 30, 2017 and ending on

the debt maturity date of June 30, 2019.

Quarterly installment payments of $123,000 due on the last day of each fiscal quarter were not

made since September 2017 however, a payment of $25,000 which included principal and interest, was made during Fiscal 2020.

2020 the remaining amount due on the Subordinated Debt of approximately $803,000, which was classified as a non-current liability on

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

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

Note Payable”) to Starlight Marketing Development, Ltd.

Both agreements allow for the repayment of the Subordinated Note Payable

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.

There is no set schedule with regards to payment of the note however,

during Fiscal 2021 the Company was able to make principal payments of $300,000 on the Subordinated Note Payable.

As of March 31, 2022

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

the accompanying consolidated balance sheets.

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

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

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

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

administrative services performed on our behalf in China.

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of income.

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

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

As part of the agreement, the companies

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

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

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

uncollectible.

(a former related party) of approximately $803,000.

On June 1, 2020 the remaining amount due on the subordinated

debt of approximately $803,000 was converted to a note payable (“subordinated note payable”) which bore interest at 6%.

part of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would be accrued at the

same 6% interest rate on the unpaid principal retroactively from the date that previously scheduled payments had been missed.

fiscal 2023, interest expense was approximately $17,000 on the subordinated note payable.

part of the new Credit Agreement with Fifth Third that the Company entered into on October 14, 2022, the subordinated note in the amount

of $352,659, was paid in full on October 26, 2022.

Company has a music subscription sharing agreement with Stingray.

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

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

These amounts were included as a component of

net sales in the accompanying consolidated statements of income.

For the fiscal year ended March 31, 2023, the Company received music

subscription revenue of approximately $0.7 million.

This amount was included as a component of net sales in the accompanying consolidated

statements of operations.

Approval or Ratification of Transactions with Related Persons

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from negotiating and voting on behalf of the Company in connection with related party transactions.

Determination of Independence

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

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

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

Board has determined that Messrs.

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

Listing Rules.

– Chairman of committee

– Member of committee

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to

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

for Fiscal 2022 and Fiscal 2021.

EisnerAmper LLP’s PCAOB firm ID is 274:

LLP served as our independent registered public accounting firm for the years ended March 31, 2023 and 2022.

LLP’s PCAOB firm ID is 274.

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

services rendered for Fiscal 2023 and Fiscal 2022:

All Other Fees

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

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

by EisnerAmper, LLP, respectively.

Other Fees - Consists of fees for products and services other than the services reported above including review of proxy statements and

services provided in connection with the audit of China Sinostar, our former parent company.

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

statements, review of the interim consolidated financial statements included in quarterly reports, reviews of registration statements,

and services that were provided by EisnerAmper, LLP, respectively.

Other Fees - Consists of fees for products and services other than the services reported above including component auditor services provided

in connection with the audit of Ault Alliance, our parent company.

on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

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Balance Sheets— March 31, 2023 and 2022.

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

Statements of Operations —Years ended March 31, 2023 and 2022.

Statements of Cash Flows—Years ended March 31, 2023 and 2022.

Statements of Shareholders’ Equity—Years ended March 31, 2023 and 2022.

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

are omitted because of the absence of conditions under which they are required or because the information is included in the financial

statements or notes thereto.

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

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

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

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

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

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

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

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

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

Description of Registrant’s Securities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

and Treasure Green Holdings, Ltd.

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

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

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

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

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

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

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

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

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

List of subsidiaries of The Singing Machine Company Inc.

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

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

Certification of Lionel Marquis, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

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

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

Agreement, dated May 23, 2022, by and between the Singing Machine and Aegis Capital Corp.

(incorporated by reference to the Singing

Machine’s Current Report on Form 8-K filed with the SEC on May 27, 2022)

At-The-Market

Issuance Sales Agreement, dated February 15, 2023, by and between Singing Machine and Aegis Capital Corp.

(incorporated by reference

to the Singing Machine’s Current Report on Form 8-K filed with the SEC on February 17, 2023).

of Incorporation of the Singing Machine filed with the Delaware Secretary of State on February 15, 1994 and amendments through April

15, 1999 (incorporated by reference to Exhibit 3.1 in the Singing Machine’s registration statement on Form SB-2 filed with

the SEC on March 7, 2000).

of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on September 29, 2000 (incorporated by reference

to Exhibit 3.1 in the Singing Machine’s Quarterly Report on Form 10-QSB for the period ended September 30, 1999 filed with

the SEC on November 14, 2000).

Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on March 27, 2001 (incorporated

by reference to Exhibit 3.13 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on April 11, 2001).

Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on April 4, 2001 (incorporated

by referenced to Exhibit 3.12 in the Singing Machine’s registration statement on Form SB-2 filed with the SEC on April 11,

of Correction to Corrected Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on

April 20, 2001 (incorporated by reference to the Singing Machine’s Annual Report on Form 10-K filed with the SEC on July 14,

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

reference to the Singing Machine’s Annual Report on Form 10-K filed with the SEC on July 14, 2022).

for Renewal and Revival of Charter filed with Delaware Secretary of State on September 25, 2012 (incorporated by reference to the

Singing Machine’s Annual Report on Form 10-K filed with the SEC on July 14, 2022).

of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on May 19, 2022 (incorporated by reference

to the Singing Machine’s Current Report on Form 8-K filed with the SEC on May 25, 2022).

By-Laws of the Singing Machine (incorporated by reference to Exhibit 3.14 in the Singing Machine’s Annual Report on Form 10-KSB

for the year ended March 31, 2001 filed with the SEC on June 29, 2001).

of Registrant’s Securities (incorporated by reference to the Singing Machine’s Annual Report on Form 10-K filed with

the SEC on July 14, 2022).

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

and Lakeside IV, LLC (incorporated

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

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

and Majestic-CCCIV Partners (incorporated

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

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

and Gary Atkinson, Bernardo Melo,

and Lionel Marquis ((incorporated by reference to the Singing Machine’s Current Report on Form 10-K filed with the SEC on June

Amendment to Standard Industrial Lease dated June 15, 2020 (incorporated by reference to the Singing Machine’s Annual Report

on Form 10-K filed with the SEC on August 13, 2020).

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

Treasure Green Holdings, Ltd.

(incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the

SEC on August 12, 2021).

of Securities Purchase Agreement (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with

the SEC on August 12, 2021).

of Common Stock Purchase Warrant (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with

the SEC on August 12, 2021).

of Pre-Funded Common Stock Purchase Warrant (incorporated by reference to the Singing Machine’s Current Report on Form 8-K

filed with the SEC on August 12, 2021).

Singing Machine 2022 Equity Incentive Plan (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed

with the SEC on April 18, 2022)

Agreement by and between The Singing Machine Company, Inc.

and Gary Atkinson (incorporated by reference to the Singing Machine’s

Current Report on Form 8-K filed with the SEC on April 22, 2022).

Agreement by and between The Singing Machine Company, Inc.

and Lionel Marquis (incorporated by reference to the Singing Machine’s

Current Report on Form 8-K filed with the SEC on April 22, 2022).

Agreement by and between The Singing Machine Company, Inc.

and Bernardo Melo (incorporated by reference to the Singing Machine’s

Current Report on Form 8-K filed with the SEC on April 22, 2022).

of Indemnification Agreement to be entered into with the Registrant and each of its officers and directors (incorporated by reference

to the Singing Machine’s Current Report on Form 8-K filed with the SEC on May 27, 2022).

and Security Agreement by and among The Singing Machine Company, Inc., SMC Logistics, Inc.

and Fifth Third Bank, dated October 14,

2022 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the SEC on October 20, 2022).

Agreement by and between The Singing Machine Company, Inc.

and Lionel Marquis (incorporated by reference to the Singing Machine’s

Current Report on Form 8-K filed with the SEC on January 6, 2023).

and First Amendment to Credit and Security Agreement by and among The Singing Machine Company, Inc., SMC Logistics, Inc.

Third Bank, dated May 19, 2023 (incorporated by reference to the Singing Machine’s Current Report on Form 8-K filed with the

SEC on May 25, 2023).

of subsidiaries of The Singing Machine Company Inc.

(incorporated by reference to The Singing Machine’s Registration Statement

on Form S-1 filed with the SEC on April 13, 2022)

Consent of EisnerAmper LLP

Certification

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

Certification

of Lionel Marquis, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

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

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

XBRL Instance Document.

The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within

the Inline XBRL document.

XBRL Taxonomy Extension Schema Document.

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Executive Officer

Executive Officer)

July 14, 2023

Lionel Marquis

Financial Officer

Financial and Accounting Officer)

accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on

1 unchanged sentence

and in the capacities and on the dates indicated.

Board Chairman

GARY ATKINSON

4 unchanged sentences

Financial Officer)

BERNARDO MELO

Revenue Officer and Director

Revenue Officer)

Mathieu Peloquin

HARVEY JUDKOWITZ

KENNETH CRAGUN

SINGING MACHINE COMPANY, INC.

1 unchanged sentence

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders’ Equity

Notes to Consolidated Financial Statements

of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

Statements of Operations

Statements of Cash Flows

Statements of Shareholders’ Equity

to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Shareholders of

the Board of Directors and Stockholders of

Singing Machine Company, Inc.

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

Eisner Amper LLP

have served as the Company’s auditor since 2016.

EisnerAmper LLP

have served as the Company’s auditor since 2016.

Singing Machine Company, Inc.

1 unchanged sentence

BALANCE SHEETS

March 31, 2022

March 31, 2021

Current Assets

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

Accounts receivable, net

of allowances of $ 165,986 and $ 122,550 , respectively

Due from Crestmark Bank

Accounts receivable related party - Stingray Group, Inc.

Accounts receivable related

party - Stingray Group, Inc.

Accounts receivable related

party - Ault Alliance, Inc.

Inventories, net

Prepaid expenses and other current assets

Deferred financing costs

Prepaid expenses and other

current assets

financing costs

Total Current Assets

Property and equipment, net

Deferred financing costs, net of current

Deferred tax assets

Operating Leases - right of use assets

Other non-current assets

Liabilities and Shareholders’ Equity

Other non-current

Liabilities and Shareholders’

Current Liabilities

1 unchanged sentence

Accrued expenses

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

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

Revolving line of credit - Iron Horse Credit

Customer deposits

Due to related party -

Starlight Consumer Electronics Co., Ltd.

Due to related party -

Starlight R&D, Ltd.

Revolving lines of credit

Refunds due to customers

Reserve for sales returns

Current portion of finance leases

Current portion of installment notes

Current portion of note payable - Paycheck Protection Program

Current portion of operating lease liabilities

Current portion of related party subordinated note payable - Starlight Marketing Development, Ltd.

Current portion of finance

Current portion of installment

Current portion of operating

lease liabilities

Subordinated note payable - Starlight Marketing Development, Ltd.

Total Current Liabilities

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Installment notes, net of current portion

Note payable - Payroll Protection Program, net of current portion

Operating lease liabilities, net of current portion

Total Liabilities

Operating lease liabilities,

net of current portion

Commitments and Contingencies

Shareholders’ Equity

Preferred stock, $ 1.00 par value;

Preferred stock, $ 1.00

1,000,000 shares authorized;

no shares issued and outstanding

Common stock, $ 0.01 par value;

Common stock $ 0.01 par

100,000,000 shares authorized;

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

outstanding, respectively

3,184,439 shares issued, 3,167,489 shares outstanding and 1,221,209 shares issued and outstanding,

Additional paid-in capital

Accumulated deficit

Subscriptions receivable

( 19,516,944 )

( 14,878,482 )

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

See notes to the consolidated financial statements

Shareholders’ Equity

Liabilities and Shareholders’ Equity

notes to the consolidated financial statements

Singing Machine Company, Inc.

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STATEMENTS OF OPERATIONS

March 31, 2022

March 31, 2021

For the Twelve Months Ended

March 31, 2022

March 31, 2021

Cost of Goods Sold

the Twelve Months Ended

of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Total Operating Expenses

Income from Operations

General and administrative

Operating Expenses

(Loss) Income from Operations

( 3,698,284 )

Other Income (Expense),

Gain from Paycheck Protection Plan loan forgiveness

Gain from Paycheck Protection

Plan loan forgiveness

Gain - related party

Gain from damaged goods insurance claim

Gain from settlement of accounts payable

Gain from Employee Retension

Credit Program refund

Gain from settlement of

accounts payable

Loss from extinguishment

Interest expense

Finance costs

Total Other Income (Expense), net

Income Before Income Tax Provision

Income Tax Provision

Net Income per Common Share

Weighted Average Common and Common

Equivalent Shares:

See notes to the consolidated financial statements

Other Income (Expense), net

(Loss) Income Before Income

Tax (Provision)

( 3,607,988 )

Tax (Provision)

( 1,030,474 )

(Loss) Income

$ ( 4,638,462 )

Net (Loss) Income per Common

Weighted Average Common

and Common Equivalent Shares:

notes to the consolidated financial statements

Singing Machine Company, Inc.

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STATEMENTS OF CASH FLOWS

March 31, 2022

March 31, 2021

For the Twelve Months Ended

March 31, 2022

March 31, 2021

Cash flows from operating activities

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

Amortization of deferred financing costs

the Twelve Months Ended

Cash flows from operating

$ ( 4,638,462 )

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 bad debts

Loss from disposal of property and equipment

Change in allowance for

Loss from disposal of property

and equipment

Stock based compensation

Change in net deferred tax assets

Paycheck Protection Plan loan forgiveness

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:

Gain from extinguishment

of accounts payable

Changes in operating assets

and liabilities:

Accounts receivable

Due from banks

( 2,168,682 )

Accounts receivable - related parties

Insurance receivable

Accounts receivable - related

( 8,399,489 )

Prepaid expenses and other current assets

Prepaid expenses and other

current assets

Other non-current assets

6 unchanged sentences

Reserve for sales returns

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

Net cash (used in) provided by operating activities

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

cash used in operating activities

( 2,011,930 )

Cash flows from investing activities

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities

Proceeds from Issuance of stock - net of transaction expenses

Payment of redemption and retirement of treasury stock

Cash flows from investing

of property and equipment

cash used in investing activities

Cash flows from financing

Proceeds from Issuance

of stock - net of transaction expenses

Proceeds from Issuance

of stock - at the market offering

Payment of redemption and

retirement of treasury stock

( 7,162,451 )

Net Proceeds from revolving lines of credit

Proceeds from note payable - Payroll Protection Program

Payment of deferred financing charges

Payments on installment notes

Proceeds from exercise of stock options

Payment on subordinated note payable - related party

Payments on finance leases

Net cash provided by financing activities

Net (payment) proceeds

from revolving lines of credit

( 2,500,000 )

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

Payment on subordinated

on finance leases

cash provided by financing activities

Net change in cash

Cash at beginning of year

Cash at end of year

Supplemental disclosures of cash flow information:

Cash paid for interest

Equipment purchased under capital lease

Issuance of common stock and warrants for stock issuance expenses

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

See notes to the consolidated financial statements

at beginning of year

at end of period

Supplemental disclosures

of cash flow information:

paid for interest

paid for income taxes - SMC (Comercial Offshore de Macau) Limitada

purchased under capital lease

of common stock and warrants for stock issuance expenses

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

notes to the consolidated financial statements

Singing Machine Company, Inc.

2 unchanged sentences

the twelve months ended March 31, 2023 and 2022

at March 31, 2020

Subscriptions

Balance at March

$ ( 12,254,191 )

compensation-stock option

of stock options

of common stock - directors

at March 31, 2021

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

( 4,301,147 )

of pre-funded warrants

of stock issuance expenses

of stock for stock issuance expenses

and retirement of treasury shares

( 2,854,762 )

( 7,162,451 )

Issuance of common stock - directors

Issuance of common stock - non-employee

Employee compensation-stock option

Exercise of stock options

Balance at March 31, 2022

( 14,878,482 )

of common stock - directors

of common stock - non-employee

compensation-stock option

of subscription receivable

of stock options

( 4,638,462 )

Net income (Loss)

( 4,638,462 )

Issuance of common stock

Payment of stock issuance expenses

Issuance of common stock - at the market offering

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

at March 31, 2023

$ ( 19,516,944 )

notes to the consolidated financial statements.

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EQUITY EVENTS

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

The reverse stock split was

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

All information in these consolidated financial statements

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

August 5, 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with koncepts International

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

(“Treasure Green”) (entities that are principally owned

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

(the “Redeemed Shares”).

The closing of the transaction set forth in the Redemption Agreement took place on August 10, 2021,

at which time the Redeemed Shares were assigned and transferred back to the Company in consideration of a payment by the Company of approximately

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

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

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

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

The Company was also partly held by Treasure

Green who owned approximately 2 % of our common stock.

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

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

koncepts and Treasure Green are owned by Fairy

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

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

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

and SLE are no longer related parties.

to August 10, 2021 we did business with a number of entities that are principally owned by the Company’s former Chairman, Philip

Lau , including Starlight R&D Ltd (“SLRD”), Starlight Consumer Electronics USA, Inc., (“SCE”), Cosmo Communications

Corporation of Canada, Inc.

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

Ltd (“SLE”), among others.

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

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

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

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

other estimated offering expenses of approximately $ 0.7 million.

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

discounts and commissions.

The offering closed on May 26, 2022.

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

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

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

and expire five years from the date of issuance.

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

Market on May 24, 2022.

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

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

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

February 15, 2023, The Singing Machine Company, Inc.

(the “Company”), entered into an At-The-Market Issuance Sales Agreement

(the “Sales Agreement”) with Aegis Capital Corp, as sales agent (the “Agent”), pursuant to which the Company

may offer and sell, from time to time, through the Agent (the “Offering”), up to approximately $ 1.8 million in shares of

its common stock.

Any shares offered and sold in the Offering were issued pursuant to the Company’s Registration Statement on Form

S-3 (File No.

333-269183) filed with the Securities and Exchange Commission (the “SEC”) on January 11, 2023 (the “Registration

Statement”) and declared effective by the SEC on January 20, 2023, and the prospectus supplement relating to the Offering filed

with the SEC on February 15, 2023.

the terms of the Sales Agreement, the Agent was entitled to a commission at a rate of 3.0 % of the gross proceeds from each sale of shares

under the Sales Agreement.

The Company also reimbursed the Agent for certain expenses incurred in connection with the Sales Agreement

and has agreed to provide indemnification and contribution to the Agent with respect to certain liabilities, including liabilities under

the Securities Act and the Securities Exchange Act of 1934, as amended.

February 15, 2023, the Company launched an At-The-Market (“ATM”) offering pursuant to the Sales Agreement.

During the fiscal

year ended March 31, 2023, the Company received total net proceeds from the ATM of approximately $ 36,000 on sales of 14,230 shares of

common stock at an average price of $ 2.56 per share.

Subsequent to March 31, 2023, the Company received total net proceeds from the ATM

of approximately $ 1.7 million on sales of 1,052,770 shares of common stock at an average price of $ 1.64 per share.

The offering closed

on May 12, 2023.

2 – LIQUIDITY

Company reported a net loss of approximately $ 4.6 million and used cash in operating activities of approximately $ 0.3 million for the

fiscal year ended March 31, 2023.

On October 14, 2022 the Company entered into the Credit Facility with Fifth Third Bank, as Lender replacing

the existing credit facilities with Crestmark Bank (“Crestmark”) and Iron Horse Credit (“IHC”) that were terminated

by the Company on October 13, 2022.

The Credit Facility 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 Facility

matures on October 14, 2025.

of March 31, 2023 the Company was in default under the Credit Facility due to non-compliance with the fixed charge coverage ratio covenant

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

and new covenants that are required.

The Company 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.

The Company must also maintain pre-defined

minimum operating cash flows between February and August, 2023 until the Company achieves a fixed charge ratio of 1.15 :

1.0 beginning

in September 2023 and throughout the remaining term of the agreement.

As of this filing, the Company is in compliance with the amended

February 15, 2023 the Company launched an At-The-Market (“ATM”) offering pursuant to the Sales Agreement with Aegis Captial

During the fiscal year ended March 31, 2023, the Company received total net proceeds from the ATM of approximately $ 36,000 on sales

of 14,230 shares of common stock at an average price of $ 2.56 per share.

After March 31, 2023, the Company received total net proceeds

from the ATM of approximately $ 1.7 million on sales of 1,052,770 shares of common stock at an average price of $ 1.64 per share.

closed on May 12, 2023.

Company believes that our cash on hand, proceeds received from the ATM subsequent to March 31, 2023, working capital (net of cash), cash

expected to be generated from our operating forecast, along with the availability of cash from our credit facilities (See Note 6 –

BANK FINANCING) will be adequate to meet the Company’s liquidity requirements for at least twelve months from the filing of this

As of the date of this filing, the Company has cash on hand of $ 1.6 million and availability under the Credit Facility of approximately

$ 1.8 million.

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.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2023 and 2022

2 – LIQUIDITY

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

fiscal year ended March 31, 2022.

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

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

the annual renewal date of June 11.

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

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

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

The Company believes that our cash on hand, working capital

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

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

the filing of this report.

3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OF CONSOLIDATION

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

All inter-company

accounts and transactions have been eliminated in consolidation for all periods presented.

accompanying consolidated financial statements include the accounts of the Company, its Macau and Hong Kong subsidiaries, SMCL, and SMCM.

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

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

21 unchanged sentences

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 the subsidiary are translated

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

Concentration

4 unchanged sentences

31, 2023 and 2022 were approximately $ 0.2 million and $ 0.1 million, respectively.

The Company regularly monitors the financial stability

of this financial institution and believes that it is not exposed to any significant credit risk in cash and cash equivalents.

in March and April 2023, certain U.S.

government banking regulators took steps to intervene in the operations of certain financial institutions

due to liquidity concerns, which caused general heightened uncertainties in financial markets.

While these events have not had a material

direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and

financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing

arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.

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

3 unchanged sentences

future inventory returns due to warranty and allowance programs.

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

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

The Company reduces inventory on hand to its net realizable

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

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

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

As of March 31, 2022 and 2021 the Company

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

As of both March 31, 2023 and 2022 the estimated amounts for these future

inventory returns were approximately $ 0.6 million.

The Company reduces inventory on hand to its net realizable value on an item-by-item

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

A charge to cost of

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

Management regularly reviews the

Company’s investment in inventories for such declines in value.

As of March 31, 2023 and 2022 the Company had inventory reserves

of approximately and $ 0.9 million and $ 0.4 million, respectively for estimated excess and obsolete inventory.

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

4 unchanged sentences

of Long-Lived Assets.”

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

AND EQUIPMENT

43 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 consolidated statements of income as our underlying customer agreements are less

than one year.

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

less than one year.

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

6 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 were approximately $ 1.0 million as of both March 31, 2022 and 2021.

Company’s reserve for sales returns were approximately $ 0.9 million and $ 1.0 million as of March 31, 2023 and 2022, respectively.

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

6 unchanged sentences

lines consisted of the following:

SCHEDULE OF DISAGGREGATION OF REVENUE

March 31, 2022

March 31, 2021

OF DISAGGREGATION OF REVENUE

Revenue by Product Line

Fiscal Years Ended

March 31, 2022

March 31, 2021

Karaoke Machines

3 unchanged sentences

Music Subscriptions

Total Net Sales

AND HANDLING COSTS

4 unchanged sentences

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

statements of income.

statements of operations.

Company follows the provisions of FASB ASC 718-20, “Compensation – Stock Compensation Awards Classified as Equity”.

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

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

The Company uses the Black-Scholes option

valuation model to value stock options.

Employee stock option compensation expense in fiscal years ended March 31, 2022 and 2021 includes

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

of the award.

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

in the 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 in fiscal years ended March 31, 2023 and 2022

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 fiscal years ended March 31, 2023 and 2022, the stock option expense was approximately $ 237,000 and $ 22,000 ,

respectively.

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

6 unchanged sentences

the year ended March 31, 2022:

expected dividend yield of 0 % , risk-free interest rate of .18% , volatility of 254.1 % and expected

term of three years .

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

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

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

4 unchanged sentences

These expenses are shown as a component of general and

administrative expenses in the consolidated statements of income.

administrative expenses in the consolidated statements of operations.

For both years ended March 31, 2023 and 2022, these amounts totaled

10 unchanged sentences

a valuation allowance is recognized.

Fiscal 2023, the Company was eligible to receive payroll tax refunds from the Employee Retention Credit program (“ECR”).

The ECR program was established under the Consolidated Appropriations (CARES) Act in 2021 to assist employers who suffered financial

losses during the COVID pandemic but kept employees on their payrolls during 2020 and 2021.

The Company received approximately $ 0.7 million

in payroll tax refunds (net of approximately $ 0.1 million in processing fees) from the ECR program in Fiscal 2023 that were recorded

as other income in the accompanying consolidated financial statements.

As these were considered tax refunds and not credits, the Company

recorded an income tax payable of approximately $ 91,000 due to amendments to the 2020 and 2021 returns to account for refunds of payroll

taxes received in Fiscal 2023 from the ERC program for those periods.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

Company recognizes a liability for uncertain tax positions.

6 unchanged sentences

The Company measures the tax benefits recognized based on the

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

largest benefit that has a greater than 50% likelihood of

realized upon ultimate resolution.

As of March 31, 2022 and 2021 there were no uncertain tax positions that resulted in any adjustment

to the Company’s provision for income taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits

in its provision for income taxes.

The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain

tax provisions.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

of March 31, 2023 and 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.

Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions.

OF EARNINGS (LOSS) PER SHARE

of dilutive shares for fiscal years ended March 31, 2023 and 2022 are as follows:

OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

Fiscal year ended March 31, 2022

Fiscal year ended March 31, 2021

Basic weighted average common shares outstanding

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

Basic weighted average common shares

Effect of dilutive stock

Diluted weighted average

of common shares outstanding

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

Pre-funded warrants

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

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

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

and 12,000 shares of common stock, respectively, have been included in the calculation of diluted net income per share For the fiscal

years ended March 31, 2022 and 2021 options and warrants to purchase approximately 56,000 and 25,000 shares of common stock respectively,

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

For the fiscal year ended March 31, 2023, options to purchase 53,675 shares of common stock

and 902,113 common stock warrants were excluded in the calculation of diluted net income (loss) per share as the result would have been

anti-dilutive.

the fiscal year ended March 31, 2022, pre-funded warrants to purchase 561,111 shares of common stock were included in basic weighted

average shares outstanding as deemed outstanding.

Options to purchase 8,891 shares of common stock were included in the calculation

of diluted net income per share.

For the fiscal year ended March 31, 2022, options and warrants to purchase approximately 56,000

shares of common stock were excluded in the calculation of diluted net income (loss) per share as the result would have been

anti-dilutive.

ACCOUNTING PRONOUNCEMENTS :

5 unchanged sentences

that might not yet have met the threshold of being probable.

The amendments in ASU 2016-03 for smaller reporting companies are effective

for the Company beginning April 1, 2023, including interim periods within that fiscal year.

Early adoption is permitted.

We are currently

evaluating the potential effects of this updated guidance on our consolidated financial statements and related disclosures.

amendments in ASU 2016-03 for smaller reporting companies are effective for the Company beginning April 1, 2023, including interim periods

within that fiscal year.

The Company adopted ASU 2016-13 on April 1, 2023.

The adoption of ASU 2016-13 did not result in any material

effects to the consolidated financial statements or related disclosures.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

4 – INVENTORIES, NET

are comprised of the following components:

SCHEDULE OF INVENTORY

Finished Goods

Inventory in Transit

Estimated Amount of Future Returns

Estimated Amount of

Future Returns

Inventory Reserve

Total Inventories

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

5 - PROPERTY AND EQUIPMENT

6 unchanged sentences

Accumulated depreciation

expense for fiscal years ended 2022 and 2021 was approximately $ 0.2 million and $ 0.2 million, respectively.

expense for both fiscal years ended 2023 and 2022 was approximately $ 0.2 million.

6 – FINANCING

Intercreditor

Revolving Credit Facility Crestmark Bank and Iron Horse Credit

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

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

The Company signed a two-year

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

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

of $ 5.0 million between January 1 and July 31 with the ability to exceed when required.

Costs associated with closing of the Intercreditor

Revolving Credit Facility of approximately $ 74,000 were deferred and were amortized over one year.

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 and 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 the fiscal years ended March 31, 2023

31, 2022 and 2021 the Company incurred amortization expense of approximately $ 45,000 and $ 62,000 , respectively associated with the amortization

of deferred financing costs from the Intercreditor Revolving Credit Facility.

the Crestmark Facility:

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

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

Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in Accounts Receivable

and Inventory.

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

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 fiscal years ended March 31, 2022 and 2021 the Company recorded interest expense under the Crestmark

Facility of approximately $ 0.3 million and $ 0.4 million, respectively.

The Crestmark Facility is under an evergreen arrangement that

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

annual renewal date of June 11.

As of March 31, 2022 and 2021 the Company had no outstanding balance on the Crestmark Facility.

the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for up to $ 2.5 million

in inventory financing.

the IHC Facility:

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

by an independent third-party appraiser engaged by IHC.

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

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

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

This financial covenant

was waived for the first six months of the IHC Facility.

As of March 31, 2022, the Company was in compliance with this covenant.

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

The IHC Facility bears interest at 1.292 %

per month or 15.51 % annually.

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

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

Interest expense under the IHC Facility for the fiscal years ended March 31, 2022and

2021 was approximately $ 0.2 million and $ 0.1 million, respectively.

The IHC Facility was to expire on June 11, 2022, however, absent

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

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

As of March 31, 2022 and

2021, there was an outstanding balance of approximately $ 2.5 million and $ 0.1 million, respectively.

As of March 31, 2022 there was approximately

$ 2.0 million of available borrowings under these facilities.

and 2022, the Company incurred amortization expense of approximately $ 39,000 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 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).

During the fiscal years ended March 31, 2023 and 2022, the Company

incurred interest expense of approximately $ 33,000 and $ 0 , respectfully.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2023 and 2022

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 March 31, 2023, the Company was in default under the Credit Facility due to non-compliance with the fixed charge coverage ratio covenant

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

and new covenants that are required.

The Company 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.

The Company must also maintain pre-defined

minimum operating cash flows between February and August, 2023 until the Company achieves a fixed charge ratio of 1.15 :

1.0 beginning

in September 2023 and throughout the remaining term of the agreement.

of this filing the Company was in compliance with the amended covenants and there was approximately $ 0.7 million borrowed against the

Credit Agreement with an additional availability of $ 1.8 million.

Intercreditor

Revolving Credit Facility Crestmark Bank and Iron Horse Credit:

June 16, 2020, the Company entered into a two-year Credit and Security Agreement for a $ 2.5 million financing facility, with IHC 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 on eligible accounts receivable.

On October 14, 2022, the Company entered into the Credit Agreement

with Fifth Third, as Lender replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company

on October 13, 2022.

the fiscal years ended March 31, 2023 and 2022 the Company incurred approximately $ 8,000 and $ 45,000 respectively in amortization costs

for deferred financing charges associated with the closing of the Credit and Security agreements with Crestmark and IHC.

also incurred interest expense of approximately $ 0.4 million and $ 0.5 million for the fiscal years ended March 31, 2023 and 2022, respectively.

total cost to exit the Intercreditor Revolving Credit Facility with Crestmark and IHC was approximately $ 0.2 million and was recorded

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

of operations.

Payable Payroll Protection Plan

1 unchanged sentence

Program (the “PPP”).

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

Act”), which provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of

the qualifying business.

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

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

The amount of loan forgiveness may be reduced

if the borrower terminates employees or reduces salaries during the eligible period.

The unforgiven portion of the PPP loan was payable

over two years at an interest rate of 1%, with a deferral of payments until a forgiveness application was accepted and reviewed by the

Small Business Administration (“SBA”), and the SBA provided Crestmark with the loan forgiveness amount.

In June 2021, the

Company received notification from the SBA that the loan had been forgiven in its entirety and we were notified by Crestmark that the

debt was discharged.

For the fiscal year ended March 31, 2022, a gain of approximately $ 448,000 (including principal and interest) from

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

The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act, which provided

for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

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

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

The amount of loan forgiveness may be reduced if the borrower terminates

employees or reduces salaries during the eligible period.

The unforgiven portion of the PPP loan was payable over two years at an interest

rate of 1%, with a deferral of payments until a forgiveness application was accepted and reviewed by the Small Business Administration

(“SBA”), and the SBA provided Crestmark with the loan forgiveness amount.

In June 2021 the Company received notification

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

years ended March 31, 2023 and 2022, 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 consolidated statements of operations.

Notes Payable

1 unchanged sentence

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

As of March 31, 2021, the Company executed three installment

As of March 31, 2023, the Company had executed three installment

notes totaling approximately $0.4 million for payments issued to the project vendor.

7 unchanged sentences

$ 15,000 and $ 21,000 , respectively.

Debt/Note Payable to Related Party

conjunction with the Crestmark Facility and IHC Facility there is a subordination agreement on related party debt due to Starlight Marketing

Development, Ltd.

On June 1, 2020, the remaining amount due on the subordinated debt of approximately $ 0.8 million was converted to a

note payable (“Subordinated Note Payable”) which bears interest at 6 %.

As part of the agreement to convert the subordinated

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

from the date that previously scheduled payments had been missed.

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

was approximately $ 20,000 and $ 47,000 , respectively, on the Subordinated Note Payable and the related party subordinated debt.

the Crestmark Facility and IHC Facility agreements allow for the repayment of the Subordinated Note Payable provided any amounts borrowed

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

1 debt coverage ratio and exhibits sufficient cash liquidity

to support on-going operations.

As of March 31, 2022, the Company met repayment requirements of the Intercreditor Revolving Credit Facility

and has made cumulative principal payments totaling approximately $ 0.4 million.

During the next twelve months the Company intends on

making additional payments and pay off of the remaining balance outstanding provided the Company meets all repayment requirements of

the financing facility in place.

of March 31, 2022 and 2021 the remaining amount due on the Subordinated Note Payable was approximately $ 0.3 million and $ 0.5 million,

respectively.

The remaining amount due on the Subordinated Note Payable was classified as a current liability as of March 31, 2022 and

2021 on the consolidated balance sheets.

7 - COMMITMENTS AND CONTINGENCIES

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

Superior Court of San Bernadino County.

The complaint alleges an employee of the Company committed employment practice violations against

a former temporary employee not employed by us.

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

defend the lawsuit.

The case is still in discovery and no trial date has been set.

Management does not believe the claims have merit

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

April 29, 2022, a complaint was filed by Tunnel IP LLC against the Company in the U.S District Court for the Southern District of Florida.

The Complaint alleges that one of the Company’s products, SDL2093, infringes on U.S.

On June 24, 2022, Tunnel

IP agreed to dismiss all claims against the Company with prejudice.

than as disclosed above, we are not a party to, and our property is not the subject of, any material legal proceedings.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2023 and 2022

Debt/Note Payable

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

to Starlight Marketing Development, Ltd.

(former related party) of approximately $ 803,000 .

On June 1, 2020, the remaining amount due

on the subordinated debt of approximately $ 803,000 was converted to a note payable (“subordinated note payable”) which bears

interest at 6 % .

As part of the agreement to convert the subordinated debt to a note payable it was agreed that interest expense would

be accrued at the same 6 % interest rate on the unpaid principal retroactively from the date that previously scheduled payments had been

During both fiscal years ended March 31, 2023 and 2022, interest expense was approximately $ 17,000 on the subordinated note payable

and the related party subordinated debt.

of March 31, 2023 and March 31, 2022, the remaining amount due on the note payable was approximately $ 0 and $ 353,000 , respectively.

remaining amount due on the subordinated note payable was classified as a current liability as of March 31, 2022 on the consolidated

balance sheets.

As part of the new Credit Agreement with Fifth Third that the Company entered into on October 14, 2022, the subordinated

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

7 - COMMITMENTS AND CONTINGENCIES

are not a party to, and our property is not the subject of, any material legal proceedings.

Company determines if an arrangement contains a lease at the inception of a contract.

11 unchanged sentences

The Company utilizes the implicit rate for its finance leases.

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

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

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

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

where we lease approximately 6,500 square feet of office space.

The lease expires on March 31, 2024 .

The base rent payment is approximately $ 9,400 per month, subject to annual adjustments.

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

The base rent payment is approximately

$ 9,950 per month, subject to annual adjustments.

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

our logistics operations.

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

The renewal base rent payment is $ 65,300

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

entered into an operating lease agreement, effective May 1, 2018, for office space in Macau.

The rent is fixed at approximately $ 1,600

per month for the duration of the lease which expired on April 30, 2021 .

In May 2021 we executed a one-year lease extension which expired

on April 30, 2022 .

The lease provides for a renewal option to extend the lease.

Rent expense on the new lease was fixed at approximately

$ 1,700 per month for the duration of the lease term.

We elected not renew our lease of our office space in Macau and all administrative

duties previously performed in this office are now performed by our administrative team in Hong Kong.

Our administrative team in Hong

Kong are subcontractors who work in office space provided and owned by Starlight Electronics Limited (“SEL”).

approximately $ 30,000 per month for our subcontracted Hong Kong staff which includes the use of office space.

does not intend to renew the lease agreement and has signed a service agreement with a third-party logistics company to provide domestic

and Canadian warehousing services effective September 1, 2023.

The base rent payment is approximately $ 69,300 per month for the remaining

term of the lease.

entered into an operating lease agreement, effective October 15, 2022, for our administrative office located in Hong Kong where we lease

approximately 1,890 square feet of office space.

The lease expires on October 14, 2025 .

The base rent payment is approximately $ 4,900

per month for the entire term of the lease.

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

February 2023, we entered into a financing leasing arrangement with Wells Fargo Equipment Finance to finance the leasing of two used

forklifts in the amount of approximately $ 55,000 .

The lease requires monthly payments in the amount of approximately $ 1,075 per month

over a total lease term of 60 months which commenced on February 1, 2023.

The agreement has an effective interest rate of 6.5 % and the

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

As of March 31, 2023 and March 31, 2022,

the remaining amounts due on this financing leasing arrangement was approximately $ 53,000 and $ 0 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

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

6 unchanged sentences

amounts due on this capital leasing arrangement was approximately $ 11,000 and $ 18,000 , respectively.

For the fiscal years ended March

31, 2022 and 2021 the Company incurred interest expense of $ 1,160 and $ 0 , respectively.

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

the fiscal years ended March 31, 2023 and 2022, the Company incurred interest expense of $ 2,055 and $ 1,160 , respectively, on these finance

balance sheet information related to leases as of March 31, 2023 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

Operating lease - right-of-use assets

Finance leases as a component of property and equipment, net of accumulated depreciation of $ 2,776

Current portion of operating leases

Current portion of finance leases

Operating lease liabilities, net of current portion

Finance leases, net of current portion

Supplemental statement of operations information related to leases for the fiscal year ended March 31, 2022 is

Operating lease - right-of-use

Finance leases as a component of property and

equipment, net of accumulated depreciation of $ 8,798

Current portion of operating

Current portion of finance

Operating lease liabilities,

net of current portion

Finance leases, net of

current portion

statement of operations information related to leases for the fiscal year ended March 31, 2023 is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Fiscal Year Ended

March 31, 2022

Operating lease expense as a component of general and administrative expenses

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 finance lease liabilities as a component of interest expense

Supplemental cash flow information related to leases for the nine months ended March

31, 2022 is as follows:

OF SUPPLEMENTAL CASH FLOW INFORMATION

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

Operating cash flow paid for operating leases

Financing cash flow paid for finance leases

Lease term and Discount Rate

Weighted average remaining lease term (months)

Depreciation of leased

assets as a component of depreciation

Interest on finance lease

liabilities as a component of interest expense

cash flow information related to leases for the fiscal year ended March 31, 2023 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

3 unchanged sentences

Finance leases

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

maturities of operating and finance lease liabilities outstanding as of March 31, 2023 are as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

Operating Leases

Finance Leases

2027 and beyond

Total Minimum Future Payments

Imputed Interest

Present Value of Lease Liabilities

8 – SHAREHOLDERS’ EQUITY

STOCK ISSUANCES

the years ended March 31, 2022 and 2021 the Company issued the following common stock shares:

May 17, 2021 the Company issued 667 shares of its common stock to a former member of the Board of Directors who exercised stock options

at an average exercise price of $ 7.20 per share.

August 20, 2021 the Company issued 575 shares of its common stock to our Board of Directors at $ 8.70 per share, pursuant to our annual

director compensation plan for the fiscal year ending March 31, 2022.

December 31, 2021 the Company issued 2,000 shares of its common stock to a member of the Board of Directors who exercised stock options

at an average exercise price of $ 4.50 per share.

October 30, 2020 the Company issued 14,667 shares of its common stock to three executive officers who exercised stock options at an average

exercise price of $ 1.80 per share.

November 6, 2020, the Company issued 1,437 shares of its common stock to our Board of Directors at $ 8.70 per share, pursuant to our annual

director compensation plan for the fiscal year ending March 31, 2021.

the years ended March 31, 2022 and 2021 the Company issued the following stock options:

August 23, 2021, the Company issued 1,334 stock options to two members of our Board of Directors at an exercise price of $ 8.70 per share

pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 1, 2021, the Company issued 667 stock options to a new member of our Board of Directors at an exercise price of $ 8.10 per share

pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 22, 2021 the Company issued 1,667 stock options to our Chief Revenue Officer at an exercise price of $ 8.10 per share pursuant

to his compensation plan for the fiscal year ended March 31, 2021.

the year ended March 31, 2022:

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

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

November 4, 2020, the Company issued 3,334 stock options to five members of our Board of Directors at an exercise price of $ 8.70 per

share pursuant to our annual director compensation plan for the fiscal year ended March 31, 2021.

the year ended March 31, 2021:

expected dividend yield of 0 %, risk-free interest rate of .18 %, volatility of 254.1 % and expected

term of three years .

Present Value of Lease

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

31, 2023 and 2022

summary of stock option activity for each of the years presented is summarized below.

OF STOCK OPTION ACTIVITY

Number of Options

Weighted Average Exercise Price

Number of Options

Weighted Average Exercise Price

Stock Options:

Balance at beginning of year

Balance at end of year *

Options exercisable at end of year

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

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Range of Exercise Price

Outstanding at March 31, 2022

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable at March 31, 2022

Weighted Average Exercise Price

$ 14.10 - $ 16.50

Total number of options outstanding as of March 31, 2022 includes 20,000 options issued to three current and four former directors as

compensation and 36,333 options issued to key employees as compensation.

of March 31, 2022, there was unrecognized expense of approximately $ 12,000 remaining on options currently vesting over time with approximately

six months remaining until these options are fully vested.

vested options as of March 31, 2022 had no intrinsic value .

per the execution of the August 2021 private placement as disclosed in Note 2 and Note 10, common warrants and pre-funded warrants issued

and outstanding as of March 31, 2022 are as follows:

OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Number of Shares

Warrants outstanding at March 31, 2021

Common warrants issued

Pre-funded warrants issued

Warrants outstanding at March 31, 2022

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

OF WARRANTS EXPIRATION

CommonWarrants

Number of Pre-funded Warrants

Exercise Price

Expiration Date

Effective with the opening of trading on the Nasdaq Stock Market on May 24, 2022, the exercise price of certain warrants issued by the

Company pursuant to the terms of that certain Securities Purchase Agreement dated August 5, 2021, was adjusted so that the exercise price

The warrants are not subject to further adjustment except for customary adjustments for stock dividends and splits, subsequent

rights offerings, prorata distributions and fundamental transactions, as set forth in the warrants.

8 – SHAREHOLDERS’ EQUITY

INCENTIVE PLAN

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

5 unchanged sentences

for issuance under the 2022 Plan.

to a stock award under the 2022 Plan shall not again be made available for issuance or delivery under the 2022 Plan if such shares are

Shares subject to a stock award under the 2022 Plan shall not again be made available for issuance or delivery under the 2022 Plan if such shares are

(i) shares tendered by a participant or retained by the Company as full or partial payment to the Company for the exercise or purchase

18 unchanged sentences

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

the date the shareholders approved the 2022 Plan.

the date the stockholders approved the 2022 Plan.

STOCK OPTIONS

the years ended March 31, 2023 and 2022 the Company issued the following stock options:

the fiscal year ended March 31, 2023, 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 fiscal year ended March 31, 2023 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.

June 28, 2022 and August 16, 2022, the Company issued 61,750 and 3,000 stock options, respectively, from the 2022 Plan to all employees

(excluding Company officers) who had one year or more of service to the Company under an Employee Incentive Plan at an exercise price

of $ 8.11 and $ 8.65 per share, respectively.

August 23, 2021, the Company issued 1,334 Board approved stock options to two members of our Board of Directors at an exercise price

of $ 8.70 per share pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 1, 2021, the Company issued 667 Board approved stock options to a new member of our Board of Directors at an exercise price

of $ 8.10 per share pursuant to our annual director compensation plan for the fiscal year ended March 31, 2022.

December 22, 2021 the Company issued 1,667 Board approved stock options to our Chief Revenue Officer at an exercise price of $ 8.10 per

share pursuant to his compensation plan for the fiscal year ended March 31, 2021.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

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

outlined below.

The expected volatility is based upon historical volatility of our stock and other contributing factors.

term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.

The following

inputs were used to value each option grant:

the fiscal year ended March 31, 2023:

expected dividend yield of 0 %, risk-free interest rate between 2.63 % and 3.21 %, respectively

with volatility between 166.1 % and 196.3 % respectively with an expected term of three years .

the fiscal year ended March 31, 2022:

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

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

summary of stock option activity for each of the years presented is summarized below.

SUMMARY OF STOCK OPTION ACTIVITY

Average Exercise Price

Average Contractual Life

Average Exercise Price

Average Contractual Life

Stock Options:

Balance at beginning

at end of year *

exercisable at end of year

following table summarizes information about employee stock options outstanding at March 31, 2023:

OF EMPLOYEE STOCK OPTIONS OUTSTANDING

of Exercise Price

Outstanding at

Average Remaining

Exercisable at

* Total number of

options outstanding as of March 31, 2023 includes 23,343 options issued to six current and three former directors as compensation, 73,334

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

of March 31, 2023, there was unrecognized expense of approximately $ 380,000 remaining on options currently vesting over time with approximately

25 months remaining until these options are fully vested.

vested options as of March 31, 2023 had no intrinsic value.

As of March 31, 2023, there were 125,581 shares under the 2022 Plan available

to be issued.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

per private placement and public offering as disclosed in Note 10 and Note 11, common warrants and pre-funded warrants issued and outstanding

as of March 31, 2023 are as follows:

SCHEDULE OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

of Common Warrants

Average Exercise Price

of Pre-Funded Warrants

Average Exercise Price

Warrants outstanding at April 1,

Warrants issued

Warrants exercised

Warrants outstanding

at March 31, 2023

Warrants exercisable

at March 31, 2023

of March 31, 2023, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

of CommonWarrants

September 15, 2026

with the opening of trading on the Nasdaq Stock Market on May 24, 2022, the exercise price of certain warrants issued by the Company

pursuant to the terms of that certain Securities Purchase Agreement dated August 5, 2021, was adjusted so that the exercise price is

The warrants are not subject to further adjustment except for customary adjustments for stock dividends and splits, subsequent

rights offerings, pro-rata distributions and fundamental transactions, as set forth in the warrants.

STOCK ISSUANCES

the years ended March 31, 2023 and 2022 the Company issued the following common stock shares:

June 28, 2022 the Company issued 2,468 shares of its common stock to four members of our Board of Directors at $ 8.11 per share, pursuant

to our annual director compensation plan for the fiscal year ending March 31, 2023.

August 19, 2022 the Company issued 10,000 shares of its common stock to investor relations firms at $ 9.37 per share pursuant to a vendor

agreement for investor relation services performed.

August 19, 2022 the Company issued 3,335 shares of its common stock to the Company’s officers at $ 9.37 per share to pursuant an

incentive bonus compensation agreement relating to the Company’s Fiscal 2022 performance.

May 17, 2021 the Company issued 667 shares of its common stock to a former member of the Board of Directors who exercised stock options

at an average exercise price of $ 7.20 per share.

August 20, 2021 the Company issued 575 shares of its common stock to our Board of Directors at $ 8.70 per share, pursuant to our annual

director compensation plan for the fiscal year ending March 31, 2022.

December 31, 2021 the Company issued 2,000 shares of its common stock to a member of the Board of Directors who exercised stock options

at an average exercise price of $ 4.50 per share.

9 – AUGUST 2021 STOCK REDEMPTION

3 unchanged sentences

10, 2021, at which time the Redeemed Shares were assigned and transferred back to the Company in consideration of a payment by the Company

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

of approximately $ 7.2 million to koncepts and Treasure Green.

The Redeemed Shares were retired and returned to the unissued authorized

capital of the Company.

to the Redemption Agreement, neither koncepts nor Treasure Green remained shareholders of the Company.

to the Redemption Agreement, neither koncepts nor Treasure Green remained stockholders of the Company.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

10 – AUGUST 2021 PRIVATE PLACEMENT

22 unchanged sentences

and began trading on the Nasdaq Capital Market on May 24, 2022.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

in the amount of approximately $ 9,832,000 , were received by the Company.

Approximately $ 7,162,000 of the funds was used to execute the

Redemption Agreement (See Note 9 – August 2021 Stock Redemption).

in the amount of approximately $ 9.8 million, were received by the Company.

Approximately $ 7.2 million of the funds was used to execute

the Redemption Agreement (See Note 9 – August 2021 Stock Redemption).

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

8 unchanged sentences

Pursuant to the Placement Agency Agreement, upon closing of the Private Placement, the Company paid AGP placement

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

fees of $ 0.6 million (representing 7% of the gross proceeds raised in the Private Placement excluding proceeds raised from the strategic

investor, plus 3.5% of the aggregate gross proceeds raised from the strategic investor), and issued AGP warrants to purchase 44,445 shares

4 unchanged sentences

The Company estimated the fair value of the Advisor

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

common stock price of $ 9.90 ,

expected life of the warrants of 2.5 years;

Warrants to be approximately $ 0.4 million using the Black-Scholes Model based on the following input assumptions:

common stock price

of $ 9.90 , expected life of the warrants of 2.5 years;

stock price volatility of 168 %;

dividend yield of 0 %;

and the risk-free interest rate of

and the risk-free interest

rate of 2.65 %.

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

accounting and filing fees related to the Private Placement of approximately $ 390,000 , of which one consultant was issued 1,905 shares

of restricted common stock with an aggregate fair value of approximately $ 189,000 and a cash payment of $ 100,000 .

Total offering costs

related to the Private Placement amounted approximately $ 831,000 of which was payment of stock issuance expenses, which is recorded as

an offset to additional paid in capital in the accompanying consolidated statements of stockholders’ equity.

accounting and filing fees related to the Private Placement of approximately $ 0.4 million, of which one consultant was issued 1,905

shares of restricted common stock with an aggregate fair value of approximately $ 0.2 million and a cash payment of $ 0.1 million.

offering costs related to the Private Placement amounted approximately $ 0.8 million of which was payment of stock issuance expenses,

which is recorded as an offset to additional paid in capital in the accompanying consolidated statements of shareholders’ equity.

11 – PUBLIC OFFERING AND NASDAQ UPLISTING

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

commitment underwritten public offering pursuant to which the Company sold to the Underwriter 1,000,000 shares of common stock, par value

$ 0.01 per share for gross proceeds of $ 4.0 million prior to deducting underwriting discounts and commissions and other estimated offering

expenses of approximately $ 0.6 million.

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

The offering closed on May 26, 2022.

The Company received net proceeds of approximately $ 3.4 million which was used for

working capital.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

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

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

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

and expire five years from the date of issuance.

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

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

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

stock price volatility of 176 %;

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

May 24, 2022, the Company’s common stock was approved to list on the Nasdaq Capital Market under the symbol “MICS”

and began trading on the Nasdaq Capital Market on May 24, 2022.

12 – AT-THE MARKET PUBLIC OFFERING

February 15, 2023, we entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis Capital Corp,

as sales agent (the “Agent”), pursuant to which we could offer and sell, from time to time, through the Agent (the “ATM

Offering”), up to approximately $ 1.8 million in shares of its common stock.

Shares offered and sold in the ATM Offering were issued

pursuant to the registration statement on Form S-3 (File No.

333-269183) filed with the Securities and Exchange Commission (the “SEC”)

on January 11, 2023 and declared effective by the SEC on January 20, 2023, and the prospectus supplement relating to the ATM Offering

filed with the SEC on February 15, 2023.

During the fiscal year ended March 31, 2023, we received total net proceeds from the ATM Offering

of approximately $ 36,000 on sales of 14,230 shares of common stock at an average price of $ 2.56 per share.

Through May 12, 2023, we received

total net proceeds from the ATM Offering of approximately $ 1.7 million on sales of 1,052,770 shares of common stock at an average price

of $ 1.64 per share.

The Sales Agreement has been terminated.

13 - INCOME TAXES

1 unchanged sentence

The Macau Subsidiary has received approval from the Macau government

to operate its business as a Macau Offshore Company (MOC), and is exempt from the Macau income tax.

For the fiscal years ended March

31, 2022 and 2021, the Macau Subsidiary recorded no tax provision.

to operate its business as a Macau Offshore Company (MOC), and was exempt from the Macau income tax for the fiscal year ended March 31,

For the fiscal years ended March 31, 2023 and 2022, the Macau Subsidiary recorded a tax provision of approximately $ 34,000 and

$ 0 , respectively.

Federal net operating loss carryforward is subject to an IRS Section 382 limitation.

As of both March 31, 2022 and 2021, the Company

had net deferred tax assets of approximately $ 0.9 million.

For the fiscal year ended March 31, 2022 we determined our effective tax rate

to be approximately 20.0 % and we recorded a tax provision of approximately $ 0.1 million which was net of a valuation reserve of approximately

$ 78,000 for deferred tax assets that will most likely expire prior to being realized.

For the fiscal year ended March 31, 2021 we determined

our effective tax rate to be approximately 17.4 % and we recorded a tax provision of approximately $ 0.5 million which was net of a valuation

reserve of approximately $ 23,000 for deferred tax assets that will most likely expire prior to being realized.

The Company also recorded

an income tax receivable of approximately $ 13,000 due to the availability of net operating loss carrybacks and alternative minimum tax

credits that were realized for the year ended March 31, 2022.

The income tax receivable was included as a component of prepaid expenses

and other current assets on the accompanying consolidated balance sheet as of March 31, 2022.

income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of income consisted of the

following components for 2022 and 2021:

As of March 31, 2023 and 2022, the Company

had net deferred assets of $ 0.0 million and $ 0.9 million, respectively.

For the fiscal ended March 31, 2023 we determined our effective

tax rate to be approximately ( 28.6 %) and we recorded a tax provision of approximately $ 1.0 million which included a full valuation allowance

of approximately $ 2.1 million for deferred tax assets that will more likely than not, expire prior to being realized.

the fiscal year ended March 31, 2022, the Company determined its effective tax rate to be approximately 20.0 % and the Company recorded

a tax provision of approximately $ 0.1 million, which was net of a valuation reserve of approximately $ 78,000 for deferred tax assets

that will most likely expire prior to being realized.

The Company also recorded an income tax receivable of approximately $ 13,000 due

to the availability of net operating loss carrybacks and alternative minimum tax credits that were realized for the year ended March

The income tax receivable was included as a component of prepaid expenses and other current assets on the accompanying consolidated

balance sheet as of March 31, 2022.

income tax provision (benefit) for federal, foreign, and state income taxes in the consolidated statements of operations consisted of

the following components for 2023 and 2022:

OF PROVISION FOR INCOME TAXES

Income tax provision:

Total current Federal and State tax provision

Total Deferred Federal and State

Income tax (benefit) provision:

Total current Federal

and State tax

Total Deferred Federal

Total income tax provision

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO FINANCIAL STATEMENTS

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

3 unchanged sentences

$ ( 3,526,258 )

$ ( 260,911 )

$ ( 3,607,988 )

actual tax provision differs from the “expected” tax for the years ended March 31, 2023 and 2022 (computed by applying the

1 unchanged sentence

OF TAX PROVISION

Expected tax provision

State income taxes, net of Federal income tax provision

Expected tax (benefit) provision

$ ( 757,640 )

State income taxes, net of Federal income tax

Permanent differences

Permanent difference in ERC income

Tax rate differential on foreign earnings

5 unchanged sentences

State NOL Carryforward

Inventory differences

Inventory differences to Inventory valuation

Stock option compensation expense

Section 163(j)

Right of use liabilty

Business interest limitation

Allowance for doubtful accounts

2 unchanged sentences

valuation allowance

( 2,104,157 )

Net deferred tax asset

Depreciable and amortizable assets

Right of use asset

Prepaid expenses

7 unchanged sentences

of future taxable income.

At March 31, 2022, the Company evaluated the realizability of its deferred tax assets in accordance with accounting

principles generally accepted in the United States of America and concluded that a $ 78,024 valuation allowance against deferred tax assets

was necessary.

The recognition of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s

conclusions regarding, among other considerations, the Company’s history of earnings and projected earnings for fiscal year 2023

and in the future.

On March 31, 2023, the Company evaluated the realizability of its deferred tax assets in accordance with accounting

principles generally accepted in the United States of America and concluded that a valuation allowance of approximately $ 2.1 million

against deferred tax assets was necessary.

The recognition of the remaining net deferred tax asset and corresponding tax benefit is based

upon the Company’s conclusions regarding, among other considerations, the Company’s history of earnings, cumulative net loss

during the past three years and projected earnings for fiscal year 2024 and in the future.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

March 31, 2022, the Company has federal tax net operating loss carryforwards in the amount of approximately $ 1.1 million that begin to

5 unchanged sentences

These tax net operating loss carryforwards may be subject

to adjustment based on future changes in control (See Note 19 – Subsequent Events).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

to adjustment based on future changes in ownership.

14 - SEGMENT INFORMATION

2 unchanged sentences

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

FOR THE FISCAL YEARS ENDED

THE FISCAL YEARS ENDED

North America

United Kingdom

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

7 unchanged sentences

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

consolidated statements of income.

consolidated statements of operations.

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

4 unchanged sentences

several large customers.

At March 31, 2022, 53 % of accounts receivable were due from four customers in North America that individually

At March 31, 2023, 79 % of accounts receivable were due from three customers in North America that individually

owed over 10 % of total accounts receivable.

3 unchanged sentences

Revenues from customers representing

greater than 10 % of total net sales were derived from top three customers in Fiscal 2022 and top four customers in Fiscal 2021 as percentage

greater than 10 % of total net sales were derived from top two customers in Fiscal 2023 and top three customers in Fiscal 2022 as percentage

of the net sales were 48 % and 21 % and 37 %, 18 %, and 17 %, respectively.

The loss of any of these customers could have

an adverse impact on the Company.

Macau Subsidiary recorded net sales of approximately $ 3.4 million and $ 4.4 million in fiscal 2022 and 2021, respectively.

The loss of any of these customers could have an adverse impact

on the Company.

Macau and Hong Kong subsidiaries recorded net sales of approximately $ 1.0 million and $ 3.4 million in fiscal 2023 and 2022, respectively.

Company is dependent upon foreign companies for the manufacture of all its electronic products.

7 unchanged sentences

in the short-term could adversely affect business until alternative supply arrangements are secured.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

fiscal years 2023 and 2022, manufacturers in the People’s Republic of China accounted for 100 % of the Company’s total product

9 unchanged sentences

and results from operations.

COVID-19 pandemic has significantly affected U.S.

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

and world economy to deteriorate

in fiscal year 2022.

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

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

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

the re-imposition of certain restrictions and measures.

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

work stoppages, foreign currency fluctuations, political instability, and other factors, which could have an adverse impact on its business.

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

manufacturers with whom the Company does business would be able to increase production to fulfill their requirements.

However, the loss

of certain suppliers in the short-term could adversely affect business until alternative supply arrangements are secured.

Additionally,

in late calendar 2021, the increased demand for consumer electronics products and current economic recovery continued to increase worldwide

demand for products using semiconductor “chip” components in the production of most consumer electronics which has resulted

in an international shortage of chips available to fulfill demand.

As a result, the Company has experienced longer delivery lead times

and some unavailability of these components which have delayed delivery of some of our products.

The Company has also experienced delays

in delivery schedules due to new outbreaks of COVID-19 in Southern China that have forced temporary closures of some key shipping ports.

The port closures have also led to a temporary shortage of shipping containers which have resulted in significant price increases due

to increased demand.

While we have seen the easing of COVID-19 restrictions and the impact on our business, we cannot predict the impact

of the resurgence of variants of COVID-19 and other factors affecting local and global economies, specifically China.

17 – RELATED PARTY TRANSACTIONS

TO/FROM RELATED PARTIES

both March 31, 2022 and 2021 the Company had approximately $ 0.1 million due to related parties SLRD, SCE and SLE for services provided

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

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

entities were:

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

(“SCE”), Cosmo Communications

Corporation of Canada, Inc.

(“Cosmo”), Winglight Pacific, Ltd.

(“Winglight”), and Starlight Electronics Company

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

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

Lau resigned as Chairman effective August 10, 2021.

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

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

August 2021 Private Placement ).

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

due from Stingray for music subscription reimbursement.

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

administrative services performed on our behalf in China.

These expense reimbursements were included in general and administrative expenses

on our consolidated statements of income.

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

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

As part of the agreement, the companies

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

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

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

uncollectible.

our fiscal year ended March 31, 2023 and 2022, the Company did business with Stingray who is part of a group of investors who participated

in the Private Placement and have acquired a minority interest in the Company (see Note 10 – August 2021 Private Placement).

both March 31, 2023 and 2022, the Company had approximately $ 0.2 million due from Stingray for music subscription reimbursement.

Company has a music subscription sharing agreement with Stingray.

2 unchanged sentences

These amounts were included as a component of

net sales in the accompanying consolidated statements of income.

net sales in the accompanying consolidated statements of operations.

18 – RESERVE FOR SALES RETURNS

4 unchanged sentences

The Company does make

occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific

exceptions as identified and management estimates.

exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific exceptions

as identified and management estimates.

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

1 unchanged sentence

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

SCHEDULE OF RESERVE FOR SALES RETURNS

Fiscal Year Ended

Reserve for sales returns at beginning of the fiscal year

Reserve for sales returns at beginning

of the fiscal year

Provision for estimated sales returns

2 unchanged sentences

( 3,613,000 )

Reserve for sales returns at end of the year

Reserve for sales returns

at end of the year

19 – DAMAGED GOODS INCIDENT RECOVERY

the fiscal year ended March 31, 2022 we recognized a one-time gain of approximately $ 0.3 million as other income on the accompanying

consolidated statements of income due settlement of accounts payable by a manufacturer’s representative of a factory that caused

a damaged goods incident in Fiscal 2020.

During Fiscal 2021, we recovered approximately $ 2.3 million in proceeds from the damaged goods

insurance claim which consisted of $ 1.6 million of lost sales, approximately $ 0.1 million in freight costs and approximately $ 0.6 million

in out-of-pocket expenses associated with the incident.

We recognized a one-time gain from the damaged goods claim settlement of approximately

$ 1.1 million (net of the insurance claim receivable) as other income for the fiscal year ended March 31, 2021 on the accompanying statements

In addition, we recognized an additional one-time gain of approximately $ 0.4 million as other income for the fiscal year ended

March 31, 2021 on the accompanying consolidated statements of income due settlement of accounts payable by the factory that caused the

the fiscal years ended March 31, 2023 and 2022 we recognized a gain of approximately $ 49,000 and $ 339,000 as other income on the accompanying

consolidated statements of operations due to settlement of accounts payable by a manufacturer’s representative of a factory that

caused a damaged goods incident in Fiscal 2020.

20 – RESERVES

1 unchanged sentence

SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

Balance at Beginning of Year

Charged to Costs and Expenses

Reduction to Allowance for Write off

Credited to Costs and Expenses

Balance at End of Year

Allowance for

Year ended March 31, 2023

Reserves deducted from assets to which they apply:

Allowance for doubtful accounts

Reserves deducted from assets to which they

Allowance for

doubtful accounts

$ ( 116,832 )

Inventory reserve

1 unchanged sentence

Year ended March 31, 2022

Reserves deducted from assets to which they apply:

Allowance for doubtful accounts

$ ( 227,184 )

Reserves deducted from assets to which they

Allowance for doubtful

Inventory reserve

$ ( 623,553 )

19 - Subsequent Events

of Pre-Funded Warrants

subsequent to the Company’s listing on Nasdaq, the Company received exercises notices on 561,311 pre-funded warrants.

These pre-funded

warrants were previously issued as part of a capital raise completed in August 2021.

As of the date of this filing, all pre-funded warrants

have been exercised and converted to common stock.

June 13, 2022, BitNile Holdings, Inc.

(“BitNile Holdings”), a Delaware corporation, Digital Power Lending, LLC

(“Digital Power Lending”), a California limited liability company and subsidiary of BitNile Holdings, and Milton C.

Ault, III (“Ault”), Founder and Executive Chairman of BitNile Holdings (collectively the “Reporting

Persons”) filed a joint Schedule 13D filing (the “Schedule 13D”) reporting that the Reporting Persons acquired, in

the aggregate, 52.0 %

of the issued and outstanding shares of common stock, par value $ 0.01

per share (the “Common Stock”) of The Singing Machine the Company, through open

market purchases.

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

may be deemed to beneficially own an aggregate of 1,568,849

shares of the Common Stock (the “Shares”),

or approximately 52.0 %

of the outstanding shares of Common Stock.

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

The Schedule 13D reported “Mr.

Ault expresses an interest in adding one or more shareholder representatives to the

Issuer’s board of directors.” Other than the foregoing, the Company is not aware of any arrangement or understanding

between or among BitNile Holdings, Digital Power Lending and Ault or any of their respective associates with respect to election

of directors of the Company or other matters.

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

What changed 10-K

Item 9A. Controls and Procedures