What changed in this filing

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Item 1. Financial Statements

2023-08-18 compared with 2023-02-21 · 540 added, 810 removed, 322 unchanged (81% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2023

March 31, 2023

Current Assets

Accounts receivable, net

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

Due from Crestmark Bank

Accounts receivable related

party - Stingray Group, Inc.

Accounts receivable, net of allowances of $ 146,315 and $ 165,986 , respectively

Accounts receivable related party - Stingray Group, Inc.

Accounts receivable related party - Ault Alliance, Inc.

Accounts receivable related party

Inventories, net

Prepaid expenses and other

current assets

financing costs

Current Assets

Property and equipment,

Prepaid expenses and other current assets

Deferred financing costs

net of current portion

Deferred tax assets

Operating Leases - right

of use assets

non-current assets

Liabilities and

Shareholders’ Equity

Total Current Assets

Property and equipment, net

Deferred financing costs, net of current portion

Operating leases - right of use assets

Other non-current assets

Liabilities and Shareholders’ Equity

Current Liabilities

1 unchanged sentence

Accrued expenses

Revolving lines of credit

Refunds due to customers

Reserve for sales returns

Current portion of finance

Current portion of installment

Current portion of operating

lease liabilities

note payable - Starlight Marketing Development, Ltd.

Current Liabilities

Finance leases, net of current

Installment notes, net of

current portion

lease liabilities, net of current portion

Current portion of finance leases

Current portion of installment notes

Current portion of operating lease liabilities

Total Current Liabilities

Finance leases, net of current portion

Installment notes, net of current portion

Operating lease liabilities, net of current portion

Total Liabilities

Commitments and Contingencies

Shareholders’ Equity

Preferred stock, $ 1.00

Preferred stock, $ 1.00 par value;

1,000,000 shares authorized;

no shares issued and outstanding

Common stock $ 0.01 par

no shares issued

and outstanding

Common stock $ 0.01

shares authorized;

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

and 3,184,439 shares

issued, 4,220,259

and 3,167,489

shares outstanding, respectively

Additional paid-in capital

Subscriptions receivable

Accumulated deficit

( 21,976,625 )

( 19,516,944 )

Shareholders’ Equity

Liabilities and Shareholders’ Equity

Total Shareholders’ Equity

Total Liabilities and Shareholders’

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

the Three Months Ended

the Nine Months Ended

of Goods Sold

For the Three Months Ended

June 30, 2023

June 30, 2022

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative

Operating Expenses

General and administrative expenses

Total Operating Expenses

(Loss) Income from Operations

( 2,430,736 )

( 1,551,004 )

Other (Expenses) Income,

Gain - related party

Gain from Payroll Protection

Plan loan forgiveness

Gain from settlement of

accounts payable

Loss from extinguishment

Other Expenses

Interest expense

Other (Expenses) Income, net

(Loss) Income Before Income

Tax Benefit (Provision)

( 2,502,709 )

( 2,124,969 )

Tax Benefit (Provision)

(loss) Income

Finance costs

Total Other Expenses

Loss Before Income Tax Benefit

( 2,459,681 )

Income Tax Benefit

$ ( 2,459,681 )

Net (loss) Income per Common

Weighted Average Common and Common

Equivalent Shares:

Net Loss per Common Share

Basic and Diluted

Weighted Average Common and Common Equivalent Shares:

Basic and Diluted

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

the Nine Months Ended

Cash flows from operating

For the Three Months Ended

June 30, 2023

June 30, 2022

Cash flows from operating activities

$ ( 2,459,681 )

Adjustments to reconcile

net (loss) income to net cash used in operating activities:

Amortization of deferred

financing costs

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of deferred financing costs

Change in inventory reserve

Change in allowance for

Loss from disposal of property

and equipment

Change in allowance for bad debts

Stock based compensation

Change in net deferred

Loss on debt extinguishment

Paycheck Protection Plan

loan forgiveness

Gain - related party

Gain from extinguishment

of accounts payable

Changes in operating assets

and liabilities:

Change in net deferred tax assets

Changes in operating assets and liabilities:

Accounts receivable

( 7,001,987 )

( 10,123,571 )

Due from Crestmark Bank

Accounts receivable - related

Due from banks

Accounts receivable - related parties

( 1,100,004 )

Prepaid expenses and other

current assets

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

( 3,257,859 )

Accrued expenses

Customer deposits

Refunds due to customers

Reserve for sales returns

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

cash used in operating activities

( 2,263,688 )

Operating lease liabilities, net of operating leases - right

of use assets

Net cash used in operating activities

( 2,547,872 )

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

Payment of redemption and

retirement of treasury stock

( 4,149,304 )

Net (payment) proceeds

from revolving lines of credit

Payment of subordinated

note payable - Starlight Marketing Development, Ltd.

Payment of deferred financing

Payment of early termination fees on revolving lines of credit

Payments on installment

Proceeds from exercise

of stock options

Proceeds from exercise

of pre-funded warrants

Proceeds from exercise

of common warrants

on finance leases

cash provided by financing activities

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

Collection of subscriptions receivable

Payments on installment notes

Proceeds from exercise of common stock warrants

Proceeds from exercise of pre-funded warrants

Payments on finance leases

Net cash provided by financing activities

Net change in cash

at beginning of year

( 1,004,560 )

Cash at beginning of period

Cash at end of period

Supplemental disclosures

of cash flow information:

paid for interest

purchased under capital lease

of common stock and warrants for stock issuance expenses

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

Supplemental disclosures of cash flow information:

Cash paid for interest

notes to the condensed consolidated financial statements

2 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended December 31, 2022 and 2021

Balance at September 30, 2022

$ ( 14,598,018 )

the three months ended June 30, 2023 and 2022

Additional Paid in

Subscriptions

Balance at March 31, 2023

$ ( 19,516,944 )

Exercise of common stock warrants

Issuance of common stock - officers

Issuance of common stock - officers, shares

Issuance of common stock - non-employee

Issuance of common stock - non-employee, shares

Employee compensation-stock

Balance at December

( 2,459,681 )

Balance at September 30, 2021

( 2,459,681 )

Issuance of common stock - at-the-market offering

Payment of stock issuance expenses

Employee compensation-stock option

Exercise of stock options

Balance at December

Collection of subscriptions receivable

Balance at June 30, 2023

$ ( 21,976,625 )

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the nine months ended December 31, 2022 and 2021

Balance at March 31, 2022

$ ( 21,976,625 )

Additional Paid in

Subscriptions

Balance at March 31, 2022

$ ( 14,878,482 )

2 unchanged sentences

Payment of stock issuance expenses

Exercise of pre-funded warrants

Issuance of pre-funded warrants

Exercise of common stock warrants

Issuance of common stock – directors

Issuance of common stock - officers

Issuance of Common stock - non-employee

Employee compensation-stock option

Rounding of common stock

issued due to reverse split

Balance at December

$ ( 16,531,384 )

Balance at March 31, 2021

$ ( 12,254,191 )

Net income (loss)

Issuance of stock

Issuance of pre-funded warrants

Payment of stock issuance expenses

Issuance of stock for stock issuance expenses

Redemption and retirement of treasury shares

( 4,301,149 )

( 2,854,762 )

Rounding of common stock issued due to reverse split

Balance at June 30, 2022

$ ( 14,894,485 )

Issuance of common stock - directors

Issuance of common stock - non-employee

Employee compensation-stock option

Exercise of stock options

Balance at December

$ ( 14,894,485 )

5 unchanged sentences

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

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

and SMC-Music, Inc.(“SMCM”) and SMC (HK) Limited (“SMH”), are primarily engaged in the development, marketing,

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

Our products are sold directly to distributors and

retail customers.

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

SMC-Music, Inc.

(“SMCM”) and SMC (HK) Limited (“SMH”), are primarily engaged in the development, marketing, and

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

Our products are sold directly to distributors and retail

2 - RECENT DEVELOPMENTS

June 13, 2022, Ault Alliance, Inc.

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

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

Ault, III (“Ault”),

Founder and Executive Chairman of Ault Alliance (collectively the “Reporting Persons”) filed a joint Schedule 13D filing

(the “Schedule 13D”) reporting that the Reporting Persons acquired, in the aggregate, 52.8 % of the issued and outstanding

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

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

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

shares of Common Stock as of this filing.

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

Stock Split and Nasdaq Listing

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

The reverse stock split was

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

All information in these consolidated financial statements

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

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

on May 24, 2022.

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

who acted as the sole underwriter (the “Underwriter”), in a firm commitment underwritten public offering pursuant to which

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

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

The price to the public in the offering was

$ 4.00 per share, before underwriting discounts and commissions.

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 our common stock.

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

Through May 12, 2023, we sold 1,067,000 shares of common stock through the ATM offering at an average price of approximately

$ 1.64 per share for gross proceeds of approximately $ 1,745,000 .

We received net cash proceeds of approximately $ 1,690,000 after

payment of brokerage commissions and administrative fees to the agent.

The ATM Offering closed on May 12, 2023.

On June 13, 2022,

Ault Alliance, Inc.

(“Ault Alliance”) formerly known as Bitnile Holdings, Inc., Ault Lending, LLC (“Ault

Lending”) formerly known as Digital Power Lending, LLC and a subsidiary of Ault Alliance and Milton C.

(“Ault”), Founder and Executive Chairman of Ault Alliance (collectively the “Reporting Persons”) filed a

joint Schedule 13D filing (the “Schedule 13D”) reporting that the Reporting Persons acquired, in the aggregate, 52.8 % of

the issued and outstanding shares of common stock at the date of the filing of the Schedule 13D, par value $ 0.01 per share (the

“Common Stock”) of the Company, through open market purchases.

Reporting Persons may be deemed to beneficially own an aggregate of 1,808,000

shares of the Common Stock or approximately 42.8 %

of the outstanding shares of common stock as of the date of this report.

As these purchases were made in the open market, control of

the Company was not assumed from a particular person or group of persons.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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

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

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

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

The price to the public in the

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

The offering closed on May 26, 2022.

The Company received net proceeds

of approximately $ 3,363,000 .

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

of common stock representing 10 % of the Shares sold in the offering, excluding any shares sold through the over-allotment option.

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

expire five years from the date of issuance.

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

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

The Company received

net proceeds of approximately $ 3,363,000 .

to the terms of the Underwriting Agreement, the Company issued to the Underwriter warrants to purchase up to 100,000 shares of common

stock representing 10 % of the shares sold in the offering, excluding any shares sold through the over-allotment option.

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

years from the date of issuance.

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

Model based on the following input assumptions:

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

stock price volatility of 176 %;

stock price volatility

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

Redemption Agreement

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

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

(“Treasure Green”) (entities that owned approximately 51 %

of the Company and are principally owned by the Company’s former Chairman, Philip Lau) pursuant to which the Company redeemed 654,105

shares of common stock of the Company (the “Redeemed Shares”).

The closing of the transaction set forth in the Redemption

Agreement took place on August 10, 2021, at which time the Redeemed Shares were assigned and transferred back to the Company in consideration

of a payment by the Company of approximately $ 7,162,000 to koncepts and Treasure Green, who no longer have a stake in the Company.

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

3 – LIQUIDITY

Company reported a net loss of approximately $ 2,460,000 and used cash in operating activities of approximately $ 2,548,000 for the three

months ended June 30, 2023.

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

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

As of the date of the filing of this report, there was approximately $ 1.9 million available to borrow on the revolving Credit

Facility based on eligible collateral.

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

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

and agreed to new financial covenants.

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

on hand) of $ 2.5

million between February and July and $ 4.0

million between June and September.

We must also maintain pre-defined minimum operating cash flows between February and August 2023, until we

achieve a fixed charge ratio of 1.15 :

1.0 beginning in September 2023 and throughout the remaining term of the Credit Agreement.

of the date of this report, we are in compliance with the amended covenants and there is an outstanding balance on the Credit

Facility of approximately $ 1.4

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2023 and 2022

3 – LIQUIDITY

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

months ended December 31, 2022 .

October 14, 2022 the Company entered into a Credit and Security Agreement (the “Credit Agreement”) with Fifth Third Bank,

National Association, as Lender (“Fifth Third”) replacing the Company’s credit facilities with

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

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

to $ 7,500,000 during the period of January 1 through July 31 of each year.

The Credit Agreement matures on October 14, 2025.

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

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

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

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

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

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

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

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

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

additional cash through equity offering.

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

of invoices in exchange for an early pay discount.

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

expected to be raised through an equity offering along with the availability of cash from our Credit Agreement with Fifth Third (See

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

of this report.

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

that we will be successful in doing so.

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

March 31, 2024.

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

along with the availability of cash from our credit facilities (See Note 7 –FINANCING) will be adequate to meet the

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

While the Company is optimistic that

it will be successful in these efforts to achieve our plan, there can be no assurance that we will be successful in doing so.

such, the Company has a continued support letter from its largest stockholder, Ault Alliance, through August 31, 2024.

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 unchanged sentences

The accompanying unaudited

financial statements for the three and nine months ended December 31, 2022 and 2021 have been prepared in accordance with accounting

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

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

Accordingly, they do not include

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

In the opinion of management,

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

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

The condensed

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

The condensed consolidated balance sheet information as of March 31, 2022 was derived from the audited consolidated financial statements

included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022.

The interim condensed consolidated financial

statements should be read in conjunction with that report.

financial statements for the three months ended June 30, 2023 and 2022 have been prepared in accordance with accounting principles generally

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

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

Accordingly, they do not include all of the information

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

the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals)

necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations.

The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected

for the full year.

The condensed consolidated balance sheet information as of March 31, 2023 was derived from the audited consolidated

financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

condensed consolidated financial statements should be read in conjunction with that report.

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

6 unchanged sentences

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

financial condition.

financial statements.

However, circumstances could change which may alter future expectations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

COLLECTABILITY

3 unchanged sentences

sufficient to respond to normal business conditions.

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

based upon historical collection experience.

The Company is subject to chargebacks from customers for co-op program incentives,

defective returns, return freight and handling charges that are deducted from open invoices and reduce collectability of open

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

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

Management sets 100 %

reserves for customers in bankruptcy and other allowances based upon forecasted collections and historical collection experience.

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

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

Should business conditions deteriorate or

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

have a negative impact on operations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

CURRENCY TRANSLATION

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

The financial statements of our subsidiaries are

translated to U.S.

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

for revenues, costs, and expenses.

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

operations and translations would be recorded in a separate component of shareholders’ equity.

Any such amounts were not material

during the periods presented.

functional currency of SMH 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.

and losses resulting from foreign exchange transactions are recorded in the statements of operations and translations would be recorded in

a separate component of shareholders’ equity.

Any such amounts were not material during the periods presented.

sells to distributors and retailers in the Canadian market, and is paid in Canadian dollars.

We receive payment in the form of the

Canadian dollar, simultaneously presenting these payments for deposit and requesting an immediate spot conversion by the financial

institution that currently holds our operating accounts.

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.

such amounts were not material during the periods presented.

Concentration

of Credit Risk

times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation insured

times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation

insured amounts.

The Company also maintains cash balances in foreign financial institutions.

The amounts at foreign financial institutions at

December 31, 2022 and March 31, 2022 are approximately $ 268,000 and $ 172,000 , respectively.

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

The amounts at foreign financial

institutions as of June 30, 2023 and March 31, 2023 were approximately $ 23,000 and

respectively.

The Company regularly monitors the financial stability of these financial institutions and believes that it is

not exposed to any significant credit risk in cash and cash equivalents.

However, in March and April 2023, certain U.S.

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

Financial instruments, which potentially subject

the Company to concentrations of credit risk, consist of accounts receivable.

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

2 unchanged sentences

future inventory returns due to warranty and allowance programs.

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

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

The Company reduces inventory on hand to its

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

its original cost.

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

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

As of December 31, 2022

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

As of June 30, 2023 and March 31, 2023, the estimated amounts for these

future inventory returns were approximately $ 116,000 and $ 555,000 , respectively.

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

As of June 30, 2023 and March 31, 2023, the Company had inventory reserves of approximately $ 710,000 and $ 900,000 , 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

3 unchanged sentences

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

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

of Long-Lived Assets.” No impairment was recorded as of June 30, 2023 and 2022.

the first quarter ended June 30, 2023, we decided not to renew our lease on our California warehouse facility and have opted to

transfer our logistics operations to a third-party logistics company and all assets located at this facility will be sold or

otherwise disposed of by the end of August 2023.

We recognized accelerated depreciation expense on certain assets to be sold in the

amount of approximately $ 122,000

to reflect their adjusted fair market value as of June 30, 2023.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

Company follows FASB ASC 842, “Leases”.

6 unchanged sentences

Company determines if an arrangement contains a lease at the inception of a contract.

Right-of-use assets represent the Company’s

right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments

arising from the lease.

Right-of-use assets and lease liabilities are recognized at the commencement date.

The liability is equal to

the present value of the remaining minimum lease payments.

ROU assets represent the Company’s right

to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising

from the lease.

ROU assets and lease liabilities are recognized at the commencement date.

The liability is equal to the present value

of the remaining minimum lease payments.

The asset is based on the liability, subject to certain adjustments.

leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result

in a front-loaded expense pattern (similar to capital leases under the prior accounting standard).

As the interest rate implicit in the

Company’s operating leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

Operating leases result

in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded

expense pattern (similar to capital leases under the prior accounting standard).

As the interest rate implicit in the Company’s

operating leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments.

Company utilizes the financing interest rate for its finance leases.

AND EQUIPMENT

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or liquidation.

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

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

short period to maturity for these instruments.

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

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

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

interest accrued at market rates.

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

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

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

The carrying amounts on the finance leases and

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

a rate similar to market rates.

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

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

RECOGNITION AND RESERVE FOR SALES RETURNS

2 unchanged sentences

from contracts with customers.

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

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

to be entitled in exchange for those goods.

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

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

for those goods.

The Company determines revenue recognition utilizing the following five steps:

(1) identification

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

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

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

(1) identification of the contract with

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

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

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

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

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are recorded as a reduction to net sales.

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

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

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

For the three months ended June 30, 2023 and 2022, co-op promotion incentives were approximately

$ 91,000 and $ 296,000 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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

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a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company’s reserve for sales returns as of June 30, 2023 and March 31, 2023 were approximately $ 332,000

and $ 900,000 ,

respectively.

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

1 unchanged sentence

is derived from five different major product lines.

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

December 31, 2022 and 2021 consisted of the following:

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

2023 and 2022 consisted of the following:

OF DISAGGREGATION OF REVENUE

Classic Karaoke Machines

Licensed Product

SMC Kids Toys

T hree Months Ended

June 30, 2023

June 30, 2022

Karaoke Machines

Microphones and Accessories

SMC Kids Toys

Licensed Products

Music Subscriptions

Total Net Sales

AND HANDLING COSTS

1 unchanged sentence

fulfill the Company’s promise to transfer the goods.

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

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

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

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

These expenses are classified as a component of selling expenses in

the accompanying condensed consolidated statements of operations.

For the three months ended June 30, 2023 and 2022, shipping and handling expenses

were approximately $ 60,000 and $ 46,000 , respectively.

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

condensed consolidated statements of operations.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

BASED COMPENSATION

Company follows the provisions of the 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

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

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

1 unchanged sentence

option valuation model to value stock options.

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

31, 2022and 2021 includes the estimated fair value of options granted, amortized on a straight-line basis over the requisite service

period for the entire portion of the award.

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

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

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

and $ 16,000 , respectively.

Employee stock option compensation expense for the three months ended June 30, 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 three months ended June 30, 2023 and 2022, the stock option expense was approximately $ 63,000 and

$ 16,000 , respectively.

AND DEVELOPMENT COSTS

2 unchanged sentences

expenses in the condensed consolidated statements of operations.

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

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

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

$ 107,000 and $ 61,000 , respectively.

For the three months ended June 30, 2023 and 2022, these amounts totaled

approximately $ 42,000 and $ 17,000 , respectively.

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

8 unchanged sentences

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

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

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

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

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

For the nine months

ended December 31, 2022 and 2021 we estimated our U.S.

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

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

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

December 31, 2022 and 2021, respectively.

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

As of June 30, 2023, and March 31, 2023, the Company

had recognized a valuation allowance of the entire net deferred tax asset as management has determined it was more likely than not

that the deferred tax asset would be realized.

Company recognizes a liability for uncertain tax positions.

2 unchanged sentences

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

The Company may

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

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

The Company measures the tax benefits

recognized based on the largest benefit that has a greater

than 50% likelihood of being realized

upon ultimate resolution.

As of December 31, 2022, there were no uncertain tax positions that resulted in any adjustment to the

Company’s provision for income taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits in

its provision for income taxes.

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

uncertain tax provisions.

The Company may recognize

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

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

The Company measures the tax benefits recognized based on the

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

of June 30, 2023 and March 31, 2023, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

OF EARNINGS PER SHARE

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

of dilutive shares for the three months ended June 30, 2023 and 2022 are as follows:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNING PER SHARE

the three months ended December 31, 2022

the three months ended December 31, 2021

the nine months ended December 31, 2022

the nine months ended December 31, 2021

For the three

Basic weighted average common shares outstanding

Effect of dilutive stock

options and warrants

Diluted weighted average common shares

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

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

2 unchanged sentences

price during the period using the treasury stock method.

For the three and nine months ended December

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

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

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

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

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

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

as the result would have been anti-dilutive.

the three months ended June 30, 2023, options to purchase 108,343 shares of common stock and 902,113 common stock warrants were excluded from the calculation

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

the three months ended June 30, 2022, options to purchase 50,007 shares of common stock and 924,334 common stock warrants were excluded

from 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.

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

condensed consolidated financial statements and related disclosures.

The Company adopted ASU 2016-03 on April 1,

2023 and the adoption did not have any material effect on our condensed consolidated financial statements and related disclosures.

5 - INVENTORIES, NET

are comprised of the following components:

June 30, 2023

March 31, 2023

Finished Goods

Inventory in Transit

Estimated Amount of

Future Returns

Less:Inventory

Inventories, net

Estimated Amount of Future Returns

Inventory Reserve

Total Inventories

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

8 unchanged sentences

Molds and tooling

Property and equipment, gross

Accumulated depreciation

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

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

Property and equipment,

expense for the three months ended June 30, 2023 and 2022 was approximately $ 183,000

and $ 58,000 ,

respectively.

During the first quarter ended June 30, 2023, we decided not to renew our lease on our California warehouse facility

and have opted to transfer our logistics operations to a third-party logistics company and all assets located at this facility will

be sold or otherwise disposed of by the end of August 2023.

As a result of these operational decisions, we recognized accelerated

depreciation expense on certain assets to be sold in the amount of approximately $ 122,000

to reflect their adjusted fair market value as of June 30, 2023.

This acceleration accounted for the majority of the increase in

depreciation expense in the three months ended June 30, 2023.

7 – FINANCING

1 unchanged sentence

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

with Crestmark Bank (“Crestmark”), a division

of MetaBank National Association (“MetaBank”) and Iron Horse Credit, LLC (“IHC”) that were terminated by the

Company on October 13, 2022 .

The Credit Agreement provides for a three-year secured revolving credit

facility in an aggregate principal amount of up to $ 15,000,000 decreased to $ 7,500,000 during the period of January 1 through July 31

of each year.

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

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

deferred financing costs from the Credit Agreement.

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 three months ended June 30, 2023

and 2022, the Company incurred amortization expense of approximately $ 21,000 and $ 8,000 , 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 %),

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.

3 unchanged sentences

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.

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.

The SOFR rate was 5.09 % as of June 30, 2023.

An Unused Line Fee of 0.35 %

per annum of the excess of the Revolving Credit Facility over the average monthly balance of outstanding revolving loans, payable

The obligations under the Credit Agreement are secured by all of the assets of the Company and SMC, presently owned or

later acquired, and all cash and non-cash proceeds thereof (including, without limitation, insurance proceeds).

During the three and

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

$ 0 , respectfully.

As of December 31, 2022 and

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

$ 0 , respectively.

obligations under the Credit Agreement are secured by all of the assets of the Company and SMC, presently owned or later acquired, and

all cash and non-cash proceeds thereof (including, without limitation, insurance proceeds).

During the three months ended June 30, 2023

and 2022, the Company incurred interest expense associated with the Fifth Third credit facility of approximately $ 4,000 and $ 0 , respectfully.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

the Credit Agreement:

7 unchanged sentences

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

first Fixed Charge Coverage test will be the period from close to September 30, 2022, building to a trailing twelve months.

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

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

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

first Fixed Charge Coverage test will be based on 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 financial covenants.

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 June and September.

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 the date of this report, the Company was in compliance with the amended covenants and there was approximately $ 1.5

million borrowed against the Credit Agreement with an additional availability of $ 1.9

million based on eligible collateral.

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 (the “IHC Facility”)

on eligible accounts receivable and inventory.

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

for a $ 10.0 million financing facility with Crestmark (the “Crestmark Facility”)

on eligible accounts receivable.

the Crestmark Facility:

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

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

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

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

and inventory.

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

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

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

balance of $ 2.0 million.

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

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

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

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

As of December 31, 2022 and March

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

The Crestmark Facility was terminated on October 13, 2022

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

the IHC Facility:

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

by an independent third-party appraiser engaged by IHC.

Company was required to maintain a fixed charge coverage ratio test of 1:1 times measured on a rolling 12-month basis, defined as

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

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

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

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

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

The IHC Facility bears interest at 1.292 %

per month or 15.51 % annually.

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

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

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

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

Interest expense under the

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

and $ 120,000 , respectively.

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

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

14, 2022 as outlined above.

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

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

of operations.

Payable Payroll Protection Plan

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

Program (the “PPP”).

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.

nine months ended December 31, 2022 and 2021, a gain of approximately $ 0 and $ 448,000 (including principal and interest), respectively

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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 three months ended June 30, 2023 and 2022 the Company incurred approximately $ 0 and $ 8,000 , respectively in amortization costs for

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

The Company also

incurred interest expense of approximately $ 0 and $ 53,000 for the three months ended June 30, 2023 and 2022, respectively.

Notes Payable

June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC (“Dimension”) to finance an entire

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

The Company executed three installment notes totaling

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

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

8.55 % and 9.25 %, respectively.

June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC to finance an entire ERP System project over

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

The Company executed three installment notes totaling approximately $ 365,000

for payments issued to the project vendor.

The installment notes have 60-month terms with interest rates of 7.58 %, 8.55 % and 9.25 %, respectively.

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

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

respectively.

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

$ 5,000 , respectively.

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

and $ 16,000 , respectively.

Debt/Note Payable to Related Party

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

to Starlight Marketing Development, Ltd.

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 %.

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

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

During the three

months ended December 31, 2022 and 2021 interest expense was approximately $ 11,000 and $ 3,000 , respectively on the subordinated note

payable and the related party subordinated debt.

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

$ 17,000 and $ 17,000 , respectively on the subordinated note payable and the related party subordinated debt.

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

The remaining amount due on the subordinated note payable was classified as a current liability as of March 31, 2022 on the condensed

consolidated balance sheets.

As part of the new Credit Agreement with Fifth Third that the Company entered into on October 14, 2022,

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

8 - COMMITMENTS AND CONTINGENCIES

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

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

The WHO declared COVID-19 a global

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

response have been subsequently reduced or lifted.

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

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

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

immunity among the general population.

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

economy have somewhat subsided, COVID-19

may continue to have negative effects in the future.

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

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

China, as well as inflationary price increases.

Although we regularly monitor the financial health and operations of companies in our

supply chain, and use alternative suppliers when necessary and available, any financial hardship or government restrictions on our suppliers

or sub-suppliers caused by any future COVID-19 outbreaks or significant changes in economic conditions such as inflation, including product

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

Likewise, logistical supply chain issues could cause delays in the delivery of finished goods.

Any of these conditions could adversely

affect our operations.

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

Superior Court of San Bernardino County.

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

former temporary employee not employed by us.

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

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

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

case dismissed on December 13, 2022.

than as disclosed above, we are not a party to, and our property is not the subject of, any material legal proceedings.

As of June 30, 2023 and March

31, 2023, there was an outstanding balance on the installment notes of approximately $ 119,000 and $ 139,000 , respectively.

For the three

months ended June 30, 2023 and 2022 the Company incurred interest expense of approximately $ 2,800 and $ 4,000 , respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2023 and 2022

8 – COMMITMENTS AND CONTINGENCIES

are not a party to, and our property is not the subject of, any material legal proceedings.

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

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

The lease will expire

on October 14, 2025 .

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

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

We entered into a operating lease agreement, effective October 15, 2022, for our administrative office located in Hong Kong.

office is approximately 1,900 square feet and oversees our regional contract manufacturing, logistics, and select marketing functions.

The lease expires October 14, 2025 , and the monthly base rent is approximately $ 4,900 for the entire term of the lease.

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

The lease expires on March 31, 2024 .

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

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

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

1 unchanged sentence

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

The renewal base rent payment is approximately $ 69,277

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

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

We have elected not to renew this lease and are in the process of

migrating our North American logistics operations to an outsourced business partner specializing in these matters.

Lease expense for

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

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

forklift in the amount of approximately $ 24,000 .

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

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

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

1 unchanged sentence

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

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

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

For the three months ended

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

For the nine months ended December

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

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

As of June 30, 2023 and March 31, 2023, the remaining

amounts due on this capital leasing arrangement was approximately $ 8,600 and $ 11,000 , respectively.

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 June 30, 2023 and March 31, 2023,

the remaining amounts due on this financing leasing arrangement was approximately $ 51,300 and $ 53,300 respectively.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

balance sheet information related to leases as of June 30, 2023 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

Operating lease - right-of-use

Finance leases as a component of Property and

equipment, net of accumulated depreciation of $ 4,859

Current portion of operating

Current portion of finance

Operating lease liabilities,

net of current portion

Finance leases, net of

current portion

Supplemental statement of operations

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

Operating lease – right-of-use assets

Finance leases as a component of property and equipment

Current portion of operating leases

Current portion of finance leases

Operating lease liabilities, net of current portion

Finance leases, net of current portion

statement of operations information related to leases for the three months ended June 30, 2023 is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

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 lease liabilities

as a component of interest expense

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

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 three months ended June 30, 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

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

maturities of operating and finance lease liabilities outstanding as of June 30, 2023 are as follows:

Lease term and Discount Rate

Weighted average remaining lease term (months)

4 unchanged sentences

Finance leases

maturities of operating and finance lease liabilities outstanding as of December 31, 2022 are as follows:

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

following table summarizes information regarding lease maturities and balance due as follows:

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

Operating Leases

Finance Leases

2023 (remaining six months)

2027 and beyond

Total Minimum Future Payments

1 unchanged sentence

Present Value of Lease Liabilities

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

9 – STOCK OPTIONS AND WARRANTS

1 unchanged sentence

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

2022 Equity Incentive Plan, or the (the “2022

The 2022 Plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock

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

Awards may be granted under the 2022 Plan to the Company’s employees, officers, directors, consultants, agents, advisors, and independent

2022 Equity Incentive Plan, (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

2 unchanged sentences

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.

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

directors, consultants, agents, advisors and independent contractors.

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

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

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

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

2022 Plan authorized an aggregate of 266,667 shares

of the Company’s common stock available to the Company’s employees, officers, directors, consultants, agents, advisors

and independent contractors.

As of June 30, 2023, we had granted 24,446 shares

of common stock and 107,752

common stock options under the 2022 Plan of which 54,668

stock options were vested leaving 134,469 shares available for issue.

STOCK OPTIONS

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

an exercise price of $ 2.35 , $ 8.11 and $ 7.40 per share, respectively, to directors as compensation for their service.

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

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

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

June 28, 2022 and August 16, 2022, the Company issued 61,750 and 3,000 stock options, respectively, from the 2022 Plan to all employees

(excluding Company officers) who had one year or more of service to the Company under an Employee Incentive Plan at an exercise price

of $ 8.11 and $ 8.65 per share, respectively.

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

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 nine months ended December 31, 2022:

expected dividend yield of 0 %, risk-free interest

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

with an expected term of three years .

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

SUMMARY OF STOCK OPTION ACTIVITY

Weighted Average

Exercise Price

the three months ended June 30, 2023, the Company did not issue any stock options.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

summary of stock option activity for the three months ended June 30, 2023 is summarized below:

OF STOCK OPTION ACTIVITY

June 30, 2023

Number of Options

Weighted Average Exercise Price

Weighted Average Contractual Life

Stock Options:

1 unchanged sentence

Balance at end of period

exercisable at end of period

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

SCHEDULE OF EMPLOYEE STOCK OPTIONS OUTSTANDING

of Exercise Price

Outstanding at December 31, 2022

Options exercisable at end of period

following table summarizes information about employee stock options outstanding at June 30, 2023:

OF EMPLOYEE STOCK OPTIONS OUTSTANDING

Range of Exercise Price

Outstanding at June 30, 2023

Average Remaining

Average Exercise Price

Exercisable at December 31, 2022

Exercisable at June 30, 2023

Average Exercise Price

1 unchanged sentence

$ 11.40 – 16.50

$ 11.40 - $ 16.50

* Total number of

options outstanding as of December 31, 2022 includes 23,343 options issued to six current and three former directors as compensation,

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

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

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

There was no intrinsic

value to vested options as of December 31, 2022.

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

outstanding as of December 31, 2022 are as follows:

SCHEDULE OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Number of Common Warrants

Weighted Average Exercise

Number of Pre-Funded Warrants

Weighted Average Exercise

number of options outstanding as of June 30, 2023 includes 23,343 options issued to six current and three former directors as compensation,

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

of June 30, 2023, there was unrecognized expense of approximately $ 259,000

remaining on options currently vesting over time

with an approximate average of 23.4 months remaining until these options are fully vested.

The vested options as of June 30, 2023 had

intrinsic value.

warrants issued and outstanding as of June 30, 2023 are as follows:

OF COMMON STOCK WARRANTS ISSUED AND OUTSTANDING

Common Warrants

Weighted Average

Exercise Price

Warrants outstanding at April 1, 2023

1 unchanged sentence

Warrants exercised

Warrants outstanding at December 31, 2022

Warrants exercisable at December 31, 2022

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

SCHEDULE OF WARRANTS EXPIRATION

of CommonWarrants

Warrants outstanding at June 30, 2023

Warrants exercisable at June 30, 2023

of June 30, 2023, the Company’s outstanding warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

CommonWarrants

Exercise Price

Expiration Date

September 15, 2026

10 – AUGUST 2021 STOCK REDEMPTION

August 5, 2021, the Company entered into the Redemption Agreement with Koncepts and Treasure Green, pursuant to which the Company redeemed

654,105 shares of common stock of the Company.

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

10, 2021, at which time the Redeemed Shares were assigned and transferred back to the Company in consideration of a payment by the Company

of approximately $ 7,162,000 to Koncepts and Treasure Green.

The Redeemed Shares were retired and returned to the unissued authorized

capital of the Company.

11 – AUGUST 2021 PRIVATE PLACEMENT

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

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

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

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

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

Warrants are exercisable at any time at the option of the holder, have a term of 5 years from the issuance date and provide for cashless

exercise under certain conditions.

The Company determined that the Warrants meet the conditions for equity classification.

Shares issuable

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

The exercise price and number of the Warrant

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

rata distributions or certain equity structure changes.

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

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

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

an application to have the Company’s common stock listed on a national exchange by December 31, 2021, and to use its reasonable

best efforts to have the Shares and Warrant Shares listed on such national exchange as soon as practicable following the submission of

such application.

As indicated, the Common Stock was approved to list on the Nasdaq Capital Market under the symbol “MICS”

and began trading on the Nasdaq Capital Market on May 24, 2022.

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

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 10 – August 2021 Stock Redemption).

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

1 unchanged sentence

30, 2023 and 2022

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

interest in the Company.

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

from their library of produced and licensed karaoke content and is now a related party (see Note 14 - Related Party Transactions).

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

Partners (“AGP”), which provided for AGP to serve as the exclusive placement agent, advisor or underwriter (the “placement

agent services”).

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

investor, plus 3.5% of the aggregate gross proceeds raised from the strategic investor ), and issued AGP warrants to purchase 44,445 shares

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

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

The Advisor Warrants have the same exercise

price ($ 2.80 ) and terms as the Common Warrants issued in the Private Placement.

The Company estimated the fair value of the Advisor Warrants

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

common stock price of $ 9.90 , expected

life of the warrants of 2.5 years;

stock price volatility of 168 %;

dividend yield of 0 %;

and the risk-free interest rate of 2.65 %.

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.

12 – PUBLIC OFFERING AND NASDAQ UPLISTING

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

The reverse stock split was

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

All information in these consolidated financial statements

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

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

commitment underwritten public offering pursuant to which the Company sold to the Underwriter 1,000,000 shares of common stock, par value

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

expenses of approximately $ 637,000 .

The price to the public in the offering was $ 4.00 per Share, before underwriting discounts and commissions.

The offering closed on May 26, 2022.

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

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

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

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

and expire five years from the date of issuance.

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

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

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

stock price volatility of 176 %;

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

May 24, 2022, the Company’s common stock was approved to list on the Nasdaq Capital Market under the symbol “MICS”

and began trading on the Nasdaq Capital Market on May 24, 2022.

10 – SEGMENT INFORMATION

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

Hong Kong subsidiaries in US dollars.

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

SCHEDULE OF REVENUE BY GEOGRAPHICAL REGION

THE THREE MONTHS ENDED

THE NINE MONTHS ENDED

North America

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

were no sales to customers outside of the North America for the three months ended June 30, 2023 and 2022.

The geographic

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

11 – RELATED PARTY TRANSACTIONS

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

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

TO/FROM RELATED PARTIES

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

for shared revenue from music content provided to our customers from Stingray’s library of produced and licensed karaoke content.

Company has a music subscription sharing agreement with Stingray.

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

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

For the nine months ended December 31, 2022 and 2021

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

These amounts were included as

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

Company has an ongoing music subscription sharing agreement with Stingray, who has a minority interest in the Company, which enables

subscribers to access a digital music library maintained by Stingray for the benefit of the Company and its retail customers.

the three months ended June 30, 2023 and 2022, the Company received music subscription revenue of approximately $ 176,000

and $ 132,000 ,

respectively.

These amounts were included as a component of net sales in the accompanying condensed consolidated statements of

On June 30, 2023 and March 31 2023, the Company

had approximately $ 175,000

and $ 218,000 ,

respectively, due from Stingray for music subscription reimbursement.

12 – RESERVE FOR SALES RETURNS

8 unchanged sentences

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

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

SCHEDULE OF RESERVE FOR SALES RETURNS

Reserve for sales returns at beginning

Changes in the Company’s

reserve for sales returns are presented in the following table:

OF RESERVE FOR SALES RETURNS

Three Months Ended

June 30, 2023

June 30, 2022

Reserve for sales returns at beginning of the fiscal year

Provision for estimated sales returns

Sales returns received

( 2,034,000 )

( 2,058,000 )

Reserve for sales returns

at end of the period

Reserve for sales returns at end of the period

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

13 – EMPLOYEE BENEFIT PLANS

3 unchanged sentences

The amounts charged

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

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

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

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

The amounts are

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

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

to operations for contributions to this plan and administrative costs during the three months ended June 30, 2023 and 2022 totaled approximately

$ 19,000 and $ 15,000 , respectively.

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

condensed consolidated statements of operations.

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

14 – CONCENTRATIONS OF CREDIT AND SALES RISK

Company derives a majority of its revenues from retailers of products in the United States.

The Company’s allowance for doubtful

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

with several large customers.

At December 31, 2022, approximately 77 % of accounts receivable were due from three customers in North America that individually owed

over 10% of total accounts receivable.

At March 31, 2022, 53 % of accounts receivable were due from four customers in North America that

individually owed over 10% of total accounts receivable.

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022 and 2021

The Company’s allowance for

doubtful accounts is based upon management’s estimates and historical experience and reflects the fact that accounts

receivable are concentrated with several large customers.

At June 30, 2023, approximately 79 %

of accounts receivable were due from four customers in North America that individually owed over 10 %

of total accounts receivable.

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.

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

1 unchanged sentence

For the three months

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

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

For the three months ended December 31,

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

Revenue derived from these

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

the nine months ended December 31, 2022, there were four customers who individually accounted for 10% or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 46 %, 22 %, 10 % and 10 %, respectively.

For the nine months

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

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

ended June 30, 2023, there was one customer who individually accounted for 10 % or more of the Company’s net sales.

Revenue derived

from this customer as a percentage of net sales was 86 %.

For the three months ended June 30, 2022, there were two customers who individually

accounted for 10 % or more of the Company’s net sales.

Revenue derived from these customers as a percentage of net sales were 50 %,

and 37 %, respectively.

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

What changed 10-Q

Item 1. Financial Statements