What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-11-20 · 360 added, 388 removed, 168 unchanged (82% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

March 31, 2024

December 31, 2023

Current Assets

Accounts receivable, net of allowances of $ 275,000 and $ 174,000 , respectively

Due from banks

Accounts receivable related parties

Accounts receivable

Returns asset

Prepaid expenses and other current assets

7 unchanged sentences

Accrued expenses

Prepaids from customers

Refund due to customer

Customer prepayments

Reserve for sales returns

12 unchanged sentences

100,000,000 shares authorized;

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

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

6,418,061 issued and

outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

Subscriptions receivable

Accumulated deficit

3 unchanged sentences

Total Liabilities and Shareholders’ Equity

notes to the condensed consolidated financial statements

See notes to the condensed consolidated financial statements

Singing Machine Company, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

For the Six Months Ended

September 30,

March 31, 2024

March 31, 2023

Three Months Ended

March 31, 2024

March 31, 2023

Cost of Goods Sold

3 unchanged sentences

Total Operating Expenses

Income (Loss) from Operations

Loss from Operations

( 2,287,000 )

( 2,146,000 )

Other (Expenses) Income

Gain on disposal of fixed assets

Gain from Employee Retention Credit Program refund

Other Expense

Interest expense

Total (Expenses) income, net

Income (Loss) Before Income Tax Benefit

Total Other (Expenses) Income, net

Loss Before Income Tax Provision

( 2,315,000 )

Income Tax Benefit

Net Income (Loss)

( 1,483,000 )

Net Income (Loss) per Common Share

Weighted Average Common and Common

Equivalent Shares:

Income Tax Provision

( 1,502,000 )

$ ( 2,367,000 )

$ ( 2,985,000 )

Loss per Common Share

Basic and Diluted

Weighted Average Common and Common Equivalent Shares:

notes to the condensed consolidated financial statements

Basic and Diluted

See notes to the condensed consolidated financial statements

Singing Machine Company, Inc.

1 unchanged sentence

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 -

the Three Months Ended March 31, 2024 and 2023

Paid in Capital

Balance at December 31, 2023

$ ( 25,915,000 )

Exercise of common stock warrants

Stock based compensation

Balance at September 30, 2022

( 2,367,000 )

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

Employee compensation-stock option

Balance at March 31, 2024

$ ( 28,282,000 )

( 2,362,146 )

Balance at December 31, 2022

$ ( 16,532,000 )

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

$ ( 16,532,000 )

Balance at March 31, 2022

( 2,985,000 )

Balance , value

( 2,985,000 )

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

Exercise of pre-funded common stock warrants

Employee compensation-stock option

Balance at March 31, 2023

$ ( 19,517,000 )

Balance , value

$ ( 19,517,000 )

notes to the condensed consolidated financial statements.

Singing Machine Company, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

September 30,

See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

March 31, 2024

March 31, 2023

Cash flows from operating activities

Net (loss) income

$ ( 2,367,000 )

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

$ ( 2,985,000 )

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

Provision for estimated cost of returns

Provision for inventory obsolescence

Credit losses

Loss from disposal of property and equipment

Stock based compensation

Amortization of right of use assets

Deferred taxes

Change in net deferred tax assets

Changes in operating assets and liabilities:

Accounts receivable

( 8,904,041 )

( 8,011,050 )

Due from banks

Accounts receivable - related parties

( 3,535,021 )

( 2,326,800 )

Prepaid expenses and other current assets

1 unchanged sentence

Accounts payable

( 3,669,000 )

Accrued expenses

Refunds due to customers

Refunds due to customer

Prepaids from customers

Reserve for sales returns

Operating lease liabilities

Net cash used in operating activities

( 2,035,000 )

Operating lease liabilities

Net cash (used in) provided by operating activities

( 2,557,000 )

1 unchanged sentence

Purchase of property and equipment

Disposal of property and equipment

Net cash used in investing activities

1 unchanged sentence

Proceeds from issuance of stock, net of offering costs

Collection of subscriptions receivable

Subscriptions receivable

Net payment on revolving lines of credit

( 1,761,000 )

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 cash used in financing activities

( 1,739,000 )

Net change in cash

( 2,578,000 )

Cash at beginning of year

2 unchanged sentences

Cash paid for interest

Right of use assets exchanged for lease liabilities

Non-Cash investing and financing cash flow information:

Equipment purchased under capital lease

notes to the condensed consolidated financial statements

Singing Machine Company, Inc.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

1 – BASIS OF PRESENTATION

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

1 – NATURE OF BUSINESS

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

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

consumer products for adults and children.

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

3 unchanged sentences

2 - RECENT DEVELOPMENTS

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

in Fiscal Year

2023, our Board of Directors approved a change in our fiscal year end from March 31 to December 31.

Our results of operations, cash flows,

and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of March 31, 2024 are for

the three-month period ended March 31, 2024 and March 31, 2023.

November 20, 2023, the Company entered into an agreement to sell $ 2,000,000 in common stock through a private placement of common stock

(the “Private Placement”).

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.

and Jay 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 2,198,000 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,

2 unchanged sentences

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

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

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

1 unchanged sentence

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

March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement.

Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early

in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

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.

3 – LIQUIDITY

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

the Agent (the “ATM Offering”), up to approximately $ 1,800,000 in shares of the Company’s common stock.

For the three

months ended March 31, 2024 and 2023, the Company received net proceeds of approximately $ 0 and $ 36,000 , respectively, after payment

of brokerage commissions and administrative fees to the agent.

As of May 12, 2023, the Company terminated the Sales Agreement.

3 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

of March 31, 2024, the Company had cash on hand of approximately $ 4,125,000 which is not sufficient to fund the Company’s planned

operations through one year after the date the consolidated financial statements are issued.

The Company has a recent history of recurring

operating losses and decreases in working capital.

These factors create substantial doubt about the Company’s ability to continue

as a going concern for at least one year after the date that the Company’s audited consolidated financial statements are issued.

condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue

as a going concern.

Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company

will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in

the ordinary course of business.

intends to finance operations with future debt or equity financings, however, if and when such financings may occur are uncertain.

making this assessment management performed a comprehensive analysis of the Company’s current circumstances including:

its financial

position, cash flow and cash usage forecasts, and obligations and debts.

Although management has a recent history of successful capital

raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s

direct control that management expects to be available within the next 12 months.

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

accompanying unaudited financial statements for the six months ended September 30, 2023 and 2022 have been prepared in accordance with

accompanying unaudited financial statements for the three months ended March 31, 2024 and 2023 have been prepared in accordance with

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

6 unchanged sentences

for the full year.

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 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

SMC Kids Toys

Microphones and Accessories

Streaming Karaoke Machines *

Total Net Sales

* 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.

The condensed consolidated balance sheet as of March 31, 2024 and condensed financial statements information for the

three months ended March 31, 2024 and 2023 are unaudited whereas the condensed consolidated balance sheet as of December 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 10-KT for the transition period ended December 31, 2023.

There have been no changes to our significant accounting policies as

disclosed on the Company’s annual report on Form 10-KT for the transition period ended December 31, 2023.

Singing Machine Company, Inc.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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 ,

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.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

ACCOUNTING PRONOUNCEMENTS

December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

ASU 2023-09 is intended

to enhance the usefulness of income tax disclosures by requiring entities to disclose specific rate reconciliations, amount of income

taxes separate by federal and individual tax jurisdictions, and the amount of income or loss from continuing operations before income

tax expense or benefit disaggregated between federal, state and foreign.

ASU 2023-09 is effective for the Company for its fiscal year

beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the impact of adopting this standard on

our consolidated financial statements and related disclosures.

5 – FINANCING

Revolving Credit Facility

Credit Facility

March 28, 2024, the Company entered into a Loan and Security Agreement with Oxford Business Credit (the “Credit Agreement”),

The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $ 2,000,000

revolving credit facility (“Credit Facility”).

Availability under the Credit Facility is determined monthly by a borrowing

base comprised of a percentage of eligible accounts receivable 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).

As of March 31, 2024, there was no availability under the Credit Facility as there were no eligible accounts

under the Credit Facility take the form of base rate loans at interest rates of the Wall Street Journal Prime Rate plus 2.5 %, but in

any event no less than 10 %.

The Credit Agreement includes certain covenants which include, but are not limited to restrictions on debt,

asset liens, capital expenditures, formation of new entities and financial covenants.

For the three months ended March 31, 2024, the

Company incurred interest expense of approximately $ 25,000 associated with financing costs from the Credit Agreement.

Credit Agreement is for a two -year term that expires on November 28, 2026 , and automatically renews for an additional one-year term on

each anniversary of date of the agreement unless the Company notifies Oxford within 60 days before the anniversary date of its intention

to pay off the Credit Facility and terminate the Credit Agreement.

Company is subject to a two percent ( 2 %) Exit Fee if the Company terminates the Credit Agreement and repays the obligations under Credit

Facility prior to the anniversary date of the Credit Agreement.

The Exit Fee shall automatically renew on the two-year anniversary date

of the Loan Agreement for an additional one-year period unless the Company notifies Lender in writing within sixty (60) days before such

anniversary date of Borrower’s intention to pay off this Credit Facility and terminate the Credit Agreement and all obligations

of the Credit Facility are paid in full by such anniversary date.

There were no draws against the Credit Facility to date.

Third Bank Asset-backed 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

The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $ 15,000,000 revolving

credit facility (“Credit Facility”).

4 unchanged sentences

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

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

associated with closing of the Credit Agreement of approximately $ 254,000

were deferred and being amortized over life of the loan.

During the three months ended March 31, 2024, and 2023, the Company

recorded interest expense of approximately $ 0

and $ 21,000 ,

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.

Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

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 case.

the three months ended March 31, 2024, and 2023, the Company incurred interest expense of approximately $ 0 and $ 36,000 , respectively,

associated with interest and financing costs from the Credit Agreement.

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

new covenants.

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

2 unchanged sentences

$ 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.

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

Revolving Credit Facility Crestmark Bank and Iron Horse Credit:

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

accounts receivable and inventory.

Also, on June 16, 2020, the Company entered into a two-year Loan and Security Agreement for a $ 10.0

million financing facility with Crestmark on eligible accounts receivable.

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.

6 - COMMITMENTS AND CONTINGENCIES

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”).

It was the Company’s intention to use the Premises as a new karaoke venue, offering

immersive karaoke technology and audio-visual capabilities, with restaurant and bar offerings however due to lack of funding, the Company

initiated termination of the lease in March 2024 (See Note 8 - Operating Leases).

term of the Lease Agreement is for fifteen ( 15 ) years, or on such an 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 July 1, 2024, with scheduled increases over the term, as set forth in the Lease

March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement.

Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early

in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

December 21, 2023, Ault Lending, LLC, a wholly owned subsidiary of Ault Alliance, Inc.

(“Ault”), one of the Company’s

largest shareholders, filed a derivative shareholder action in Delaware Chancery Court against the Company, its Directors, and other

Company shareholders (The Stingray Group, Inc.

and Regalia Ventures) (“the Defendants”) for alleged breach of fiduciary duty

in approving a recent above-market private placement equity transaction.

The Complaint alleges the Company, and its Directors followed

an inadequate process in evaluating the private placement transaction which occurred back in November 2023 and entered into the transaction

with an intent to dilute Ault’s ownership stake in the Company.

The Defendants have retained Delaware counsel to represent them

in this matter and the Company has filed a motion to dismiss the suit.

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

The Singing Machine Company,

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

March 31, 2024 and 2023

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.

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 agreement, effective October 1, 2017, for our corporate headquarters located in Fort Lauderdale,

Florida where we lease approximately 6,500 square feet of office space.

The lease expired on March 31, 2024 .

The base rent payment is

approximately $ 9,950 per month, subject to annual adjustments.

On February 22, 2024, the Company executed a lease extension for 14 months

effective April 1, 2024, and expires on May 31, 2025.

The base rent on the extension is approximately $10,553 per month subject to a

3% annual adjustment.

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

2 unchanged sentences

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

The lease includes a 11-month free rent period between July 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.

1 unchanged sentence

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 September 30, 2023 is as follows:

Supplemental balance sheet information related to leases as follows:

our condensed consolidated financial statements at lease inception or the three months ended March 31, 2024.

balance sheet information related to leases as of March 31, 2024 and December 31, 2023 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

September 30,

March 31, 2024

December 31, 2023

Operating lease - right-of-use assets

1 unchanged sentence

Operating lease liabilities, net of current portion

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

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

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:

OF OPERATING LEASE MATURITIES

Operating Leases

2023 (remaining three months)

Three Months Ended

March 31, 2024

March 31, 2023

Operating lease expense as a component of general and administrative expenses

Supplemental cash flow information related to operating leases is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow paid for operating leases

Lease term and Discount Rate

Weighted average remaining lease term (years)

Weighted average discount rate

future payments under all operating leases as of March 31, 2024, are as follows:

OF OPERATING LEASE MINIMUM FUTURE PAYMENTS

Payments due by period

2024 (remaining 9 months)

Total Minimum Future Payments

2 unchanged sentences

Operating lease liabilities, net of current portion

The Singing Machine Company,

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

March 31, 2024 and 2023

8 – STOCK COMPENSATION EXPENSE

Incentive Plan

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 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.

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

2022 Equity Incentive Plan, or the 2022 Plan.

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

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

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

share base compensation awards issued under the 2022 Plan during the three months ended March 31, 2024 and 2023.

During the quarter

ended March 31, 2024 there were 1,250

shares forfeited during the three months ended March 31, 2024.

As of March 31, 2024 there were 166,719

shares available to be issued under the 2022 Plan.

of March 31, 2024, there was an unrecognized expense of approximately $ 98,000

remaining on options currently vesting over time with an approximate weighted average of fifteen

months until these options are fully vested.

The vested options as of March 31, 2024, had no

intrinsic value.

warrants issued and outstanding as of March 31, 2024 and December 31, 2023, were 902,113 .

There were no changes in the warrants outstanding

during the period.

Singing Machine Company, Inc.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30, 2023 and 2022

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

Number of Options

Weighted Average Exercise Price

Weighted Average Contractual Life

Stock Options:

Balance at beginning of period

Balance at end of period

Options exercisable at end of period

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:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

of March 31, 2024, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

CommonWarrants

Common Warrants

Exercise Price

1 unchanged sentence

September 15, 2026

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.

9 - COMPUTATION OF (LOSS) EARNINGS PER SHARE

of basic and dilutive loss per share for the three months ended March 31, 2024 and 2023 are as follows:

OF BASIC AND DILUTIVE LOSS PER SHARE

For the three months

ended March 31, 2024

For the three months

ended March 31, 2023

Weighted-average common and dilutive shares outstanding

Basic and diluted net loss per share

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

Diluted net 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 March 31, 2024 and 2023, options to purchase 90,844 and 53,675 shares of common stock, respectively and options

to purchase 902,113 common stock warrants for both March 31, 2024 and 2023 were excluded in the calculation of diluted net loss per share

as the result would have been anti-dilutive.

10 - INCOME TAXES

Company’s income tax provision for the three months ended March 31, 2024, was approximately $ 52,000 due to income taxes due on

amended federal tax returns filed for 2020 and 2021 which took into account the one-time refunds received from the Employee Retention

Credit program.

The Company’s income tax provision for the three months ended March 31, 2023, was approximately $ 1,502,000 as the

Company recognized a valuation reserve of all of its deferred tax assets based on the recent history of losses and forecasts that suggested

the Company would not be able to utilize the deferred tax assets in the future.

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 months ended March 31, 2024 and 2023.

Singing Machine Company, Inc.

1 unchanged sentence

31, 2024 and 2023

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 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

11 – REVENUE DISAGGREGATION

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:

by product line is as follows:

OF REVENUE BY PRODUCT LINE

March 31, 2024

March,31, 2023

Three Months Ended

March 31, 2024

March,31, 2023

Classic Karaoke Machines

Licensed Products

SMC Kids Toys

Microphones and Accessories

Streaming Karaoke Machines

Total Net Sales

sales for both of the three months ended March 31, 2024 and 2023 of $ 2,426,000 and $ 3,383,000 , respectively, were made to North American

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 March 31, 2024 and 2023, co-op promotion incentives were approximately $ 109,000

and $ 172,000 , 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.

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

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 March 31, 2024 and December 31, 2023, was approximately $ 2,419,000 and $ 3,390,000 , 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 March 31, 2024 and December 31, 2023, was

approximately $ 1,262,000 and $ 1,919,000 , respectively.

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.

Singing Machine Company, Inc.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2024 and 2023

respectively for their services to the board.

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

condensed consolidated statements of operations.

12 - 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 is concentrated

The Company’s allowance for credit

losses 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 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

At March 31, 2024, 69 % of accounts receivable were due from three customers in North America that individually

owed over 10% of total accounts receivable.

On December 31, 2023, 82 % of accounts receivable were due from four customers in North America

that individually owed over 10% of total accounts receivable.

derived from our top three customers for the three months ended March 31, 2024, and 2023, were 84 %

of total revenue, respectively.

Revenues from customers representing greater than 10% of total net sales derived from our top

two customers as a percentage of net sales for the three months ended March 31, 2024, were 60 %

The loss of any of these customers could have an adverse impact on the Company.

13 – RELATED PARTY TRANSACTIONS

To/From Related Parties

(“Stingray”) is an existing shareholder with board representation.

The Company has a music subscription sharing

agreement with Stingray.

For the three months ended March 31, 2024, and 2023, amounts earned from the subscription agreement were

approximately $ 240,000 and $ 218,000 , 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.

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

consolidated statements of operations.

On March 31, 2024 and December 31 2023, the Company had approximately $ 133,000 and $ 269,000 , respectively,

due from Stingray for music subscription reimbursement.

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