What changed in this filing

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Item 1. Financial Statements

2023-11-20 compared with 2023-08-18 · 404 added, 710 removed, 152 unchanged (88% of the section changed)

1 unchanged sentence

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

June 30, 2023

March 31, 2023

September 30,

Current Assets

Accounts receivable, net of allowances of $ 243,412 and $ 165,986 , respectively

Accounts receivable related party - Stingray Group, Inc.

Accounts receivable related party - Ault Alliance, Inc.

Accounts receivable related party

Inventories, net

Due from banks

Accounts receivable related parties

Accounts receivable

Prepaid expenses and other current assets

Deferred financing costs

Total Current Assets

Property and equipment, net

Deferred financing costs, net of current portion

Operating leases - right of use assets

4 unchanged sentences

Accrued expenses

Refunds due to customers

Prepaids from customers

Reserve for sales returns

Current portion of finance leases

Current portion of installment notes

Other current liabilities

Current portion of operating lease liabilities

Total Current Liabilities

Finance leases, net of current portion

Installment notes, net of current portion

Other liabilities, net of current portion

Operating lease liabilities, net of current portion

4 unchanged sentences

1,000,000 shares authorized;

no shares issued

and outstanding

Common stock $ 0.01

no shares issued and outstanding

Common stock $ 0.01 par value;

100,000,000 shares authorized;

and 3,184,439 shares

issued, 4,220,259

and 3,167,489

shares outstanding, respectively

4,220,259 and 3,184,439 shares issued and

4,220,259 and 3,167,489 outstanding, respectively

Additional paid-in capital

4 unchanged sentences

Total Shareholders’ Equity

Total Liabilities and Shareholders’

Total Liabilities and Shareholders’ Equity

notes to the condensed consolidated financial statements

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

June 30, 2023

June 30, 2022

For the Six Months Ended

September 30,

Cost of Goods Sold

3 unchanged sentences

Total Operating Expenses

(Loss) Income from Operations

Income (Loss) from Operations

( 2,324,786 )

Other Expenses

Other (Expenses) Income

Gain on disposal of fixed assets

Interest expense

Finance costs

Total Other Expenses

Loss Before Income Tax Benefit

Total (Expenses) income, net

Income (Loss) Before Income Tax Benefit

( 2,362,146 )

Income Tax Benefit

Net Income (Loss)

$ ( 2,362,146 )

Net Loss per Common Share

Basic and Diluted

Net Income (Loss) per Common Share

Weighted Average Common and Common

Equivalent Shares:

Weighted Average Common and Common Equivalent Shares:

Basic and Diluted

notes to the condensed consolidated financial statements

1 unchanged sentence

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended September 30, 2023 and 2022

Additional Paid

Balance at June 30, 2023

$ 31,478,977 -

$ ( 21,976,625 )

Stock based compensation

Balance at September 30, 2023

$ 31,514,831 -

( 21,879,090 )

Additional Paid

Balance at June 30, 2022

$ 29,098,800 -

$ ( 14,894,485 )

Exercise of common stock warrants

Stock based compensation

Balance at September 30, 2022

$ 29,511,318 -

$ ( 14,598,018 )

notes to the condensed consolidated financial statements.

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the six months ended September 30, 2023 and 2022

Additional Paid

Subscriptions

Balance at March 31, 2023

$ ( 19,516,944 )

( 2,362,146 )

Issuance of common stock - at-the-market offering

Payment of stock offering costs

Stock based compensation

Collection of subscriptions receivable

Balance at September 30, 2023

$ ( 21,879,090 )

Balance at March 31, 2022

$ ( 14,878,482 )

Balance , value

$ ( 14,878,482 )

Net income (loss)

Issuance of common stock

Payment of stock issuance expenses

Exercise of pre-funded warrants

Exercise of common stock warrants

Stock based compensation

Rounding of common stock issued due to reverse split

Balance at September 30, 2022

$ ( 14,598,018 )

Balance , value

$ ( 14,598,018 )

notes to the condensed consolidated financial statements.

Singing Machine Company, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

June 30, 2023

June 30, 2022

For the Six Months Ended

September 30,

Cash flows from operating activities

Net (loss) income

$ ( 2,362,146 )

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

Amortization of deferred financing costs

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

Change in inventory reserve

Change in allowance for bad debts

Gain from disposal of property and equipment

Stock based compensation

Change in net deferred tax assets

Amortization of right of use assets

Deferred taxes

Changes in operating assets and liabilities:

1 unchanged sentence

( 8,904,041 )

( 8,011,050 )

Due from banks

1 unchanged sentence

( 3,535,021 )

( 2,326,800 )

Prepaid expenses and other current assets

4 unchanged sentences

Reserve for sales returns

Operating lease liabilities, net of operating leases - right

of use assets

Operating lease liabilities

Net cash used in operating activities

3 unchanged sentences

Purchase of property and equipment

Disposal of property and equipment

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of stock - net of transaction expenses

Proceeds from issuance of stock, net of offering costs

Collection of subscriptions receivable

5 unchanged sentences

Net change in cash

( 1,004,560 )

Cash at beginning of period

Cash at beginning of year

Cash at end of period

1 unchanged sentence

Cash paid for interest

Right of use assets exchanged for lease liabilities

notes to the condensed consolidated financial statements

SINGING MACHINE COMPANY, INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the three months ended June 30, 2023 and 2022

Additional Paid in

Subscriptions

Balance at March 31, 2023

$ ( 19,516,944 )

( 2,459,681 )

Issuance of common stock - at-the-market offering

Payment of stock issuance expenses

Employee compensation-stock option

Collection of subscriptions receivable

Balance at June 30, 2023

$ ( 21,976,625 )

Additional Paid in

Subscriptions

Balance at March 31, 2022

$ ( 14,878,482 )

Issuance of common stock

Payment of stock issuance expenses

Issuance of pre-funded warrants

Exercise of common stock warrants

Issuance of common stock – directors

Employee compensation-stock option

Rounding of common stock issued due to reverse split

Balance at June 30, 2022

$ ( 14,894,485 )

notes to the condensed consolidated financial statements

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

1 – BASIS OF PRESENTATION

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

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

Singing Machine Company, Inc., a Delaware corporation (the “Company” or “The Singing Machine”) is a consumer

electronics manufacturer of retail karaoke products.

Based in Fort Lauderdale, Florida, and founded over forty years ago, the Company

is primarily engaged in the development, marketing, and sale of a wide assortment of at-home and in-car consumer karaoke audio equipment,

accessories, musical recordings and products.

The Company’s portfolio is marketed under both proprietary brands and licenses, including

Carpool Karaoke and Sesame Street.

The Company’s products are sold in locations worldwide, primarily through mass merchandisers

and warehouse clubs, on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms,

music and record stores, and specialty stores.

Singing Machine’s operations include its wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”),

SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality

Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability

company (“MICS Hospitality Management”) and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”).

2 - RECENT DEVELOPMENTS

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.

Private Placement

On November 20, 2023, the Company the

Company entered into an agreement to sell $ 2,000,000 in common stock through a private placement of common stock (the “Private

The Private Placement was completed with two Affiliates, (Stingray Group, Inc.

Foreman), both of which were existing shareholders with Board representation.

The Private Placement was completed at $ 0.91 per share

of common stock, with a total of approximately 2,199,000 shares issued.

Net proceeds from the transaction were approximately

$ 1,900,000 , net of transaction fees of approximately $ 100,000 .

During the six-month period after the closing date, the purchasers

may make a written request for registration under the Securities Act of all or any portion of the shares purchased.

August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi,

LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space

and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24 th Street, New

York, New York (the “Premises”).

MICS NY intends to use the Premises as a new karaoke venue, offering immersive karaoke technology

and audio-visual capabilities, with restaurant and bar offerings.

(See Note 7 - Operating Leases)

term of the Lease Agreement is for fifteen ( 15 ) years, or on such earlier date upon which the term shall expire, be canceled or terminated

pursuant to any of the conditions or covenants of the Lease Agreement.

Pursuant to the Lease Agreement, MICS NY is obligated to pay an

initial base rent in the amount of $ 30,000 beginning August 1, 2024, with scheduled increases over the term, as set forth in the Lease

February 15, 2023, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis

Capital Corp, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through

the Agent (the “ATM Offering”), up to approximately $ 1.8 million in shares of the Company’s common stock.

received net proceeds of approximately $ 1,690,000 after payment of brokerage commissions and administrative fees to the agent of approximately

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 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

dividend yield of 0 %;

and the risk-free interest rate of 2.63 %.

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

Company reported a net loss of approximately $ 2,362,000 and used cash in operating activities of approximately $ 1,174,000 for the

six months ended September 30, 2023.

The Company had cash on hand of approximately $ 3,213,000 as of September 30, 2023.

to this liquidity, the Company also a had positive working capital position (excluding cash) of approximately $ 5,500,000 as of

September 30, 2023, and no material long or short-term indebtedness other than unsecured accounts payable and accrued

Company believes that its cash on hand, cash received from the Private Placement, working capital (excluding cash), and cash

expected to be generated from its operating forecast 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 its plan, there can be no assurance that the Company will be successful in doing so.

SINGING MACHINE COMPANY, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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

OF CONSOLIDATION AND BASIS OF PRESENTATION

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

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

The accompanying unaudited

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.

of Presentation

accompanying unaudited financial statements for the six months ended September 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)

2 unchanged sentences

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

reserves, inventory reserves and reserves for promotional incentives that affect the reported amounts of assets and liabilities and of

contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses

during the reporting period.

Future events and their effects cannot be determined with absolute certainty;

therefore, the determination

of estimates requires the exercise of judgment.

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

financial statements.

However, circumstances could change which may alter future expectations.

COLLECTABILITY

OF ACCOUNTS RECEIVABLE

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

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

sufficient to respond to normal business conditions.

Management sets 100 %

reserves for customers in bankruptcy and other allowances based upon 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 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 amounts.

The Company also maintains cash balances in foreign financial institutions.

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

value, as determined using the first in, first out method.

Inventories also include an estimate for the net realizable value of expected

future inventory returns due to warranty and allowance programs.

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

carrying amounts may not be recoverable.

If the undiscounted future cash flows attributable to the related assets are less than the carrying

amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance with Financial Accounting Standards

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

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

The ASC requires lessees to recognize leases on the balance sheet and disclose key

information about leasing arrangements.

The standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU

asset and lease liability on the balance sheet for all leases with a term longer than twelve months.

Leases are classified as finance

or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

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

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.

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

and equipment are stated at cost, less accumulated depreciation.

Expenditures for repairs and maintenance are charged to expense as incurred.

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using accelerated

and straight-line methods.

VALUE OF FINANCIAL INSTRUMENTS

follow FASB ASC 825, “Financial Instruments”, which requires disclosures of information about the fair value of certain financial

instruments for which it is practicable to estimate that value.

For purposes of this disclosure, the fair value of a financial instrument

is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale

or liquidation.

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

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

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

The carrying amounts on the 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

Company recognizes revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”.

All revenue is generated

from contracts with customers.

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

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

for those goods.

The Company determines revenue recognition utilizing the following five steps:

(1) identification of the contract with

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

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

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

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

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

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

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

are recorded as a reduction to net sales.

For the 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).

The Company’s

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

once control of goods is transferred to the customer.

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

for the sale of these goods.

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

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

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

are less than one year.

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

contingent upon the occurrence of uncertain future events.

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

amount depending on the type of consideration.

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

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

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

hardware and the Company has no other material business segments (See NOTE 10 – SEGMENT INFORMATION).

The condensed consolidated financial statements information as of September 30, 2023 and the nine months ended September

30, 2023 is unaudited whereas the condensed consolidated balance sheet as of March 31, 2023 is derived from the audited consolidated

balance sheet as of that date.

The condensed consolidated financial statements and notes hereto should be read in conjunction with the

consolidated financial statements and notes thereto included in the Company’s annual report on Form 10K for the fiscal year ended

March 31, 2023.

There have been no changes to our significant accounting policies as disclosed on the Company’s annual report on

Form 10K for the fiscal year ended March 31, 2023.

Company disaggregates revenues by product line as most of its revenue is generated by the sales of karaoke hardware and the Company has

no other material business segments.

is derived from five different major product lines.

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

2023 and 2022 consisted of the following:

OF DISAGGREGATION OF REVENUE

T hree Months Ended

June 30, 2023

June 30, 2022

Karaoke Machines

Microphones and Accessories

SMC Kids Toys

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

September 30, 2023 and 2022 consisted of the following:

OF DISAGGREGATED REVENUE

Three Months Ended

Six Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Classic Karaoke Machines

Licensed Products

Music Subscriptions

SMC Kids Toys

Microphones and Accessories

Streaming Karaoke Machines *

Total Net Sales

AND HANDLING COSTS

and handling activities are performed before the customer obtains control of the goods sold to them and are considered activities to

fulfill the Company’s promise to transfer the goods.

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 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).

The Company uses the Black-Scholes

option valuation model to value stock options.

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

and development costs are charged to results of operations as incurred.

These expenses are shown as a component of general and administrative

expenses in the condensed consolidated statements of operations.

For the three months ended June 30, 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

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

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

Deferred tax assets and

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

differences are expected to be recovered or settled.

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

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

If it is more likely than not that some portion of

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

As of 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.

An uncertain tax position is defined as a position in a previously filed

tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is

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.

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

* Streaming Karaoke

Machines -The Streaming Karaoke Machines product line is defined as a karaoke hardware unit that contains built-in technology that gives

the user the ability to stream karaoke content directly via WiFi to the karaoke machine without requiring any third-party devices.

SINGING MACHINE COMPANY, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

OF EARNINGS PER SHARE

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

For the three

Basic weighted average common shares outstanding

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.

net income (loss) per share reflects the potential dilution assuming shares of common stock were issued upon the exercise of outstanding

in-the-money options and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market

price during the period using the treasury stock method.

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

June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses” (Topic 326) .

This ASU represents

a significant change in the current accounting model by requiring immediate recognition of management’s estimates of current expected

credit losses.

Under the prior model, losses were recognized only as they were incurred, which delayed recognition of expected losses

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

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

Inventory Reserve

Total Inventories

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

by geographic region for the periods presented are as follows:

OF REVENUE BY GEOGRAPHICAL REGION

September 30,

FOR THE THREE MONTHS

FOR THE SIX MONTHS

September 30,

North America

Total Net Sales

Company selectively participates in a retailer’s co-op promotion incentives by providing marketing fund allowances to its customers.

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

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

as a reduction to net sales.

For the three months ended September 30, 2023 and 2022, co-op promotion incentives were approximately $ 1,637,000

and $ 724,000 , respectively.

For the six months ended September 30, 2023 and 2022, co-op promotion incentives were approximately $ 1,728,000

and $ 1,020,000 , respectively.

Company estimates variable consideration under its return allowance programs for goods returned from the customer whereby a revenue return

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

The Company’s reserve

for sales returns as of September 30, 2023 and March 31, 2023 was approximately $ 2,289,000

and $ 900,000 ,

6 – PROPERTY AND EQUIPMENT

summary of property and equipment is as follows:

SUMMARY OF PROPERTY AND EQUIPMENT

Computer and office equipment

Furniture and fixtures

Warehouse equipment

Molds and tooling

Property and equipment, gross

Accumulated depreciation

Property and equipment,

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

respectively.

In conjunction with the recording of the revenue sales return reserve, the Company estimates the cost of products that

are expected to be returned under its return allowance program whereby the estimated cost of product returns is recorded as an asset

and is included in inventory on the condensed consolidated balance sheets.

The Company’s estimated cost of returns as of September

30, 2023 and March 31, 2023 was approximately $ 840,000

and $ 555,000 ,

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.

return program for defective goods is negotiated with each of the Company’s wholesale customers on a year-to-year basis.

are allowed to return defective goods within a specified period of time after shipment (between six and nine months).

The Company does

make occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific

exceptions as identified and management estimates.

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

The liability

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

6 – FINANCING

and Security Agreement with Fifth Third Bank, National Association:

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

with Crestmark and IHC that were terminated by the Company on October 13, 2022.

The Credit Agreement provides for a three-year secured

revolving credit facility in an aggregate principal amount of up to $ 15,000,000 decreased to $ 7,500,000 during the period of January

1 through July 31 of each year.

The Credit Agreement matures on October 14, 2025 .

Costs associated with closing of the Credit Agreement

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

During the 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 %),

depending on the type of loan requested by the Company.

“Term SOFR” means the forward-looking SOFR rate administered by

CME Group, Inc.

(or other administrator selected by Fifth Third) and published on the applicable Bloomberg LP screen page (or such

other commercially available source providing such quotations as may be selected by Fifth Third), fixed by the administrator thereof

two business days prior to the commencement of the applicable Interest Period (provided, however, that if Term SOFR is not published

for such Business Day, then Term SOFR shall be determined by reference to the immediately preceding Business Day on which such rate

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

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

Third’s loan systems and procedures periodically in effect.

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

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

Revolving Credit Facility

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

as Lender, replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company on October 13,

The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $ 15 million revolving

credit facility (“Credit Facility”).

The Credit Facility was terminated on November 17, 2023 .

Availability under the Credit

Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory

of the Borrowers.

The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property

of each Loan Party, subject to certain excluded collateral (as defined in the Credit Agreement).

SINGING MACHINE COMPANY, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

the Credit Agreement:

Receivable advance rate up to an 85% against eligible Accounts Receivable assuming dilution is under 5% of sales, plus

advance of up to 85% of the Net Orderly Liquidation Value of eligible inventory as determined by an appraiser satisfactory to Fifth

Third, with a sublimit to be determined based on Fifth Third’ s continuing due diligence.

The inventory advance rate will increase

to 95% of the Net Orderly Liquidation Value of eligible inventory from April through June (or another 3-month time frame to be determined

based on Fifth Third’s continuing due diligence) each year to support seasonal working capital needs.

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

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

first Fixed Charge Coverage test will be 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.

associated with closing of the Credit Agreement of approximately $ 254,000 were deferred and are being amortized over life of the loan.

During the three months ended September 30, 2023 and 2022, the Company incurred amortization expense of approximately $ 21,000 and $ 0 ,

respectively associated with the amortization of deferred financing costs from the Credit Agreement.

During the six months ended September

30, 2023 and 2022, the Company incurred amortization expense of approximately $ 42,000 and $ 8,000 , respectively, associated with the amortization

of deferred financing costs from the Credit Agreement.

under the Credit Facility took the form of base rate loans at interest rates of the greater of either (a) the Prime Rate plus 0.50%

or (b) the Secured Overnight Financing Rate (“SOFR”) 30-day term rate plus 3%, subject to a minimum of 0.050% in either

For the three months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $ 22,000 and $ 0 ,

respectively.

For the six months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $ 42,000

and 8,000 , respectively.

Credit agreement included certain covenants which included, but were not limited to restrictions on debt, asset liens, capital

expenditures, formation of new entities and financial covenants.

of March 31, 2023, the Company was in default under the Credit Facility due to non-compliance with a 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.

August 30, 2023, the Company entered into a Waiver and Second Amendment (the “Revolving Loan Amendment”) to the Credit Agreement.

The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Credit Agreement

as of the date of the Revolving Loan Amendment and (ii) the amendment of the definition of “Borrowing Base” to reduce from

$ 5,000,000 to $ 2,000,000 .

November 17, 2023, the Company voluntarily terminated the Credit Agreement as the Company could not comply with the debt

coverage financial covenant effective September 30, 2023.

There was no balance outstanding on the credit agreement as of the termination date.

Intercreditor

4 unchanged sentences

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 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 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

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 adjustments.

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

On June 15, 2020

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

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 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.

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

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

As of 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

the three and six months ended September 30, 2022, the Company incurred approximately $ 0 and $ 8,000 , respectively, in amortization costs

for deferred financing charges associated with the credit and security agreements with Crestmark and IHC.

The Company also incurred interest

expense of approximately $ 79,000 and $ 132,000 for the three and six months ended September 30, 2022, respectively, associated with the

credit and security agreements with Crestmark and IHC.

7 – OPERATING LEASES

the time of this filing, the Company has operating lease agreements for offices in Florida and Hong Kong and

a retail location in New York expiring in various years through 2038.

Company entered into an operating lease on August 23, 2023 for approximately 10,000 square feet of ground floor retail space and a portion

of the basement underneath the ground floor retail space.

The lease expires August 22, 2038, and the monthly base rent is $ 30,000 , subject

to annual increases.

The lease includes a 11-month free rent period between August 1, 2023 and June 30, 2024 and also includes a $ 700,000

reimbursement for tenant improvements upon completion of construction milestones as defined in the lease.

Due to uncertainties as to

whether these milestones will be met timely, the Company has not recorded any amounts related to the tenant improvement allowance in

our condensed consolidated financial statements for the three and nine months ended September 30, 2023.

The Company recorded a right of use asset of approximately $ 3,875,000 at lease inception in the balance sheet of our condensed consolidated

financial statements.

August 31, 2023 our Ontario, California operating lease agreement for our primary warehouse expired.

The Company did not renew the lease

and instead transferred all of its warehousing and logistics operations to a third-party logistics facility.

SINGING MACHINE COMPANY, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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

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

Supplemental balance sheet information related to leases as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

September 30,

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:

Supplemental statement of operations information related to operating leases is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Operating lease expense as a component of general and administrative expenses

Finance lease cost

Depreciation of leased assets as a component of depreciation

Interest on finance lease liabilities as a component of interest expense

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

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)

Operating leases

Finance leases

Weighted average discount rate

Operating leases

Finance leases

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

Operating lease

expense as a component of general and administrative expenses

cash flow information related to operating leases is as follows:

Cash paid for amounts included

in the measurement of lease liabilities:

cash flow paid for operating leases

term and Discount Rate

average remaining lease term (years)

average discount rate

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

SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS FOR OPERATING AND FINANCE LEASES

OF OPERATING LEASE MATURITIES

Operating Leases

Finance Leases

2023 (remaining six months)

2027 and beyond

2023 (remaining three months)

Total minimum future payments

Imputed Interest

Present Value of Lease Liabilities

9 – STOCK OPTIONS AND WARRANTS

Total operating lease liabilities

current portion of lease liabilities

Operating lease liabilities, net of current portion

8 – STOCK COMPENSATION EXPENSE

Incentive Plan

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

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

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

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

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

April 12, 2022, the Company’s Board of Directors approved The Singing Machine Company, Inc.

2022 Equity Incentive Plan, (the”2022

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

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

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

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

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

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

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

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

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

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 September 30, 2023, the Company had granted 24,446 shares

of common stock and 107,752 common stock options under the 2022 Plan of which 54,252 stock options were vested leaving 134,469 shares

available for issue.

SINGING MACHINE COMPANY, INC.

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:

Stock Options

the three and six months ended September 30, 2023, the Company did not issue any stock options.

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

OF STOCK OPTION ACTIVITY

June 30, 2023

Number of Options

5 unchanged sentences

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 June 30, 2023

Average Exercise Price

$ 8.10 - $ 9.60

$ 11.40 – 16.50

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

Warrants issued

Warrants exercised

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 September 30, 2023, there was unrecognized expense of approximately $ 142,000 remaining on options currently vesting over time with

an approximate average of 21 months remaining until these options are fully vested.

The vested options as of September 30, 2023 had

no intrinsic value.

the three months ended September 30, 2023 and 2022, the stock compensation expense was approximately $ 36,000 and $ 70,000 , respectively.

the six months ended September 30, 2023 and 2022, the stock compensation expense was approximately $ 99,000 and $ 231,000 , respectively.

of both September 30, and March 31, 2023, there were 902,113 warrants outstanding at an average exercise price of $ 3.04 .

no changes in warrants outstanding during the period.

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

OF WARRANTS EXPIRATION

3 unchanged sentences

September 15, 2026

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

9 – COMPUTATION OF EARNINGS PER SHARE

of basic and dilutive earnings (loss) per share was as follows:

OF BASIC AND DILUTIVE EARNINGS (LOSS) PER SHARE

For the three months ended September 30, 2023

For the three months ended September 30, 2022

For the six months ended September 30, 2023

For the six months ended September 30, 2022

Net income (loss)

$ ( 2,362,146 )

Weighted-average common shares outstanding

Weighted-average diluted shares outstanding

Basic net income (loss) per share

Diluted net income (loss) per share

earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted-average number

of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts

to issue common stock were exercised or converted into common stock using the treasury stock method.

Potentially dilutive securities

(including warrants and stock options) are excluded from the diluted EPS in loss periods when the applicable exercise price is greater

than the market price on their period end date as their effect would be anti-dilutive.

SINGING MACHINE COMPANY, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

10 – SEGMENT INFORMATION

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.

the three and six months ended September 30, 2023, options to purchase 91,261 shares of common stock and 902,113 common stock warrants

were excluded from the calculation of diluted EPS per share as the result would have been anti-dilutive.

For the three and six months

ended September 30, 2022, options to purchase 49,781 shares of common stock were excluded in the calculation of diluted net income per

share as the result would have been anti-dilutive.

10 – RELATED PARTY TRANSACTIONS

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 ,

Company has an ongoing music subscription sharing agreement with Stingray Group, Inc.

(“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.

For the three months ended September 30, 2023 and 2022, the Company received music subscription revenue of approximately

$ 156,000 and $ 123,000 , respectively.

For the six months ended September 30, 2023 and 2022, the Company received music subscription revenue

of approximately $ 332,000 and $ 255,000 , respectively.

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

consolidated statements of operations.

On September 30, 2023 and March 31 2023, the Company had approximately $ 165,000 and $ 218,000 ,

respectively, due from Stingray for music subscription reimbursement.

12 – RESERVE FOR SALES RETURNS

return program for defective goods is negotiated with each of our wholesale customers on a year-to-year basis.

Customers are allowed

to return defective goods within a specified period of time after shipment (between 6 and 9 months).

The Company does make occasional

exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific exceptions

as identified and management estimates.

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

The liability

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

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

Reserve for sales returns at end of the period

SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

has one representative on the Company’s board of directors.

For the three months ended September 30, 2023 and 2022, the Company

compensated this board member approximately $ 16,000 and $ 0 , respectively for his services to the board.

For the six months ended September

30, 2023 and 2022, the Company compensated this board member approximately $ 16,000 and $ 24,000 , respectively for his services to the

Such board compensation is recorded within general and administrative expenses on the

condensed consolidated statements of operations.

of September 30, 2023 and March 31, 2023, the Company had approximately $ 0 and $ 21,000 due from the Company’s largest shareholder,

Ault Alliance, Inc.

(“AAI”) for trade show expenses incurred on behalf of AAI in January, 2023.

has three representatives on the Company’s board of directors who are compensated for their services to the board.

the three and six months ended September 30, 2023 and 2022, these board members received approximately $ 48,000

and $ 10,000 ,

13 – EMPLOYEE BENEFIT PLANS

Company has a 401(k) plan for its employees to which the Company makes contributions at rates dependent on the level of each employee’s

contributions.

Contributions made by the Company are limited to the maximum allowable for federal income tax purposes.

The amounts charged

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

respectively for their services to the board.

Such board compensation is recorded within general and administrative expenses on the

condensed consolidated statements of operations.

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

14 – CONCENTRATIONS OF CREDIT AND SALES RISK

11 – CONCENTRATIONS OF CREDIT RISK AND REVENUE

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 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.

The Company’s allowance for doubtful

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

with several large customers.

At September 30, 2023, there were two customers in North America that individually owed over 10 % of total

accounts receivable.

Amounts due from these customers were approximately 44 % and 28 %, respectively, of total accounts receivable as of

September 30, 2023.

At March 31, 2023, there were three customers in North America that individually owed over 10 % of total accounts

Amounts due from these customers were approximately 47 %, 18 % and 14 %, respectively, of total accounts receivable as of March

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

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

For the three months

ended June 30, 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.

For the three

months ended September 30, 2023, there were three customers who individually accounted for 10 % or more of the Company’s net sales.

Revenue derived from these customers as a percentage of net sales were 28 %, 22 % and 21 %, respectively.

For the three months ended September

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

Revenue derived from

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

the six months ended September 30, 2023, there were three customers who individually accounted for 10 % or more of the Company’s

Revenue derived from these customers as a percentage of net sales were 38 %, 20 % and 18 %, respectively.

For the six months

ended September 30, 2022, there were two 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 %, and 32 %, respectively.

12 – INCOME TAXES

the three and six months ended September 30, 2023, we did no t recognize any income tax provision or benefit as the Company is not forecasting

any taxable income for the current fiscal year.

The Company’s income tax provision for the three and six months ended September

30, 2022, approximately $ 102,000 and $ 97,000 , respectively.

The Company’s income tax expense differs from the expected tax benefit/expense

based on statutory rates primarily due to full valuation allowance for all of its subsidiaries for the three and six months ended September

30, 2023 and the utilization of certain deferred tax assets and credits for the three and six months ended September 30, 2022.

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