UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission file number 001-41405 THE SINGING MACHINE COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 95-3795478 ...

The Singing Machine Company, Inc. (NASDAQ:MICS) Q3 2023 Earnings Conference Call February 21, 2023 10:00 AM ET Company Participants Brendan Hopkins - IR Gary Atkinson - CEO & Chairman Lionel Marquis - CFO Conference Call Participants Operator Good day, everyone, and welcome to today's Singing Machine’s Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question-and-answer session. [Operator Instructions] Pl ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ______. Commission File Number -001-41405 THE SINGING MACHINE COMPANY, INC. (Exact Name of Registrant as Specified in its Charter) (State or other jurisdiction of ...

Singing Machine Company, Inc. (NASDAQ:MICS) Q2 2023 Earnings Conference Call November 14, 2022 5:00 PM ET Company Participants Bernardo Melo - Chief Revenue Officer & Director Lionel Marquis - CFO Gary Atkinson - CEO & Chairman Brendan Hopkins - IR Contact Conference Call Participants Operator Good day, everyone, and welcome to today's Singing Machine's Second Quarter Earnings Call. [Operator Instructions]. It is now my pleasure to turn the conference over to Brendan Hopkins. Please go ahead. Brendan Hopkin ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 2022 (954) 596-1000 (Registrant's telephone number, including area code) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ______. Commission File Number -001-41405 THE SINGING MACHINE COMPANY, INC. (Exact Name of Reg ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended June 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ______. Commission File Number –001-41405 6301 NW 5th Way, Suite 2900, Fort Lauderdale FL 33309 (Address of principal executive offices) (954) 596-1000 (Registrant's ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the transition period from _________ to ___________ Commission file number 001-41405 THE SINGING MACHINE COMPANY, INC. (Exact name of registrant as specified in its charter) Washington, D.C. 20549 Form 10-K (Mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 95-3795478 ...

PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the periods presented [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of income, cash flows, and shareholders' equity, along with detailed notes explaining the accounting policies and significant financial events for the periods ended December 31, 2021, and 2020 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (Selected Items) | Metric | Dec 31, 2021 (Unaudited) (in USD) | Mar 31, 2021 (in USD) | | :--- | :--- | :--- | | Cash | $7,375,305 | $396,579 | | Accounts receivable, net | $12,254,098 | $2,210,881 | | Inventories, net | $11,126,298 | $5,490,255 | | Total Current Assets | $31,216,220 | $12,979,306 | | Total Assets | $34,060,676 | $16,761,911 | | Total Current Liabilities | $21,405,271 | $7,034,199 | | Total Liabilities | $22,260,979 | $8,852,373 | | Total Shareholders' Equity | $11,799,697 | $7,909,538 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This table details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Income (Selected Items) | Metric | 3 Months Ended Dec 31, 2021 (in USD) | 3 Months Ended Dec 31, 2020 (in USD) | 9 Months Ended Dec 31, 2021 (in USD) | 9 Months Ended Dec 31, 2020 (in USD) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $21,244,306 | $16,972,603 | $44,678,929 | $42,309,825 | | Cost of Goods Sold | $15,934,842 | $11,998,640 | $34,464,291 | $30,550,406 | | Gross Profit | $5,309,464 | $4,973,963 | $10,214,638 | $11,759,419 | | Income From Operations | $1,693,729 | $1,492,705 | $1,954,007 | $3,160,306 | | Net Income | $1,425,895 | $1,167,295 | $1,999,655 | $3,368,365 | | Basic Net Income per Common Share | $0.03 | $0.03 | $0.04 | $0.09 | | Diluted Net Income per Common Share | $0.03 | $0.03 | $0.04 | $0.09 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table outlines the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Selected Items) | Metric | 9 Months Ended Dec 31, 2021 (in USD) | 9 Months Ended Dec 31, 2020 (in USD) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(3,113,334) | $165,496 | | Net Cash Used in Investing Activities | $(77,599) | $(88,843) | | Net Cash Provided by Financing Activities | $10,169,659 | $401,520 | | Net Change in Cash | $6,978,726 | $478,173 | | Cash at End of Period | $7,375,305 | $823,373 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This table tracks changes in the company's equity from common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Shareholders' Equity (Selected Items) | Metric | Dec 31, 2021 | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Common Stock Shares | 36,636,264 | 36,576,264 | 39,040,748 | 38,557,643 | | Common Stock Amount (in USD) | $366,362 | $365,762 | $390,407 | $385,576 | | Additional Paid-in Capital (in USD) | $24,542,633 | $24,530,384 | $19,768,217 | $19,729,043 | | Accumulated Deficit (in USD) | $(13,109,298) | $(14,535,193) | $(11,058,191) | $(12,225,486) | | Total Shareholders' Equity (in USD) | $11,799,697 | $10,360,953 | $9,100,433 | $7,889,133 | - For the nine months ended December 31, 2021, the Company issued **16,500,001** shares of common stock and **16,833,333** pre-funded warrants, and redeemed **19,623,155** shares of common stock[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the Company's accounting policies, liquidity, recent equity events, and specific financial statement line items, offering context and further breakdown of the consolidated financial statements [NOTE 1 – BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This note describes the fundamental principles and scope used in preparing the financial statements - The Company primarily develops, markets, and sells consumer karaoke audio systems, accessories, musical instruments, and musical recordings through its wholly-owned subsidiaries[23](index=23&type=chunk) [NOTE 2 – LIQUIDITY AND RECENT EQUITY EVENTS](index=10&type=section&id=NOTE%202%20%E2%80%93%20LIQUIDITY%20AND%20RECENT%20EQUITY%20EVENTS) This note discusses the company's cash position, debt obligations, and significant equity transactions - A Paycheck Protection Program (PPP) loan of approximately **$444 thousand** was forgiven in its entirety in June 2021, resulting in a gain of approximately **$448 thousand**[24](index=24&type=chunk) - In August 2021, the Company redeemed **19,623,155** shares of common stock from its majority shareholders for approximately **$7.16 million**[25](index=25&type=chunk)[26](index=26&type=chunk) - Concurrently, a private placement raised approximately **$9.83 million** through the issuance of common stock and pre-funded warrants to institutional and strategic investors[26](index=26&type=chunk) - The Company expects to negotiate revisions or extensions for its Crestmark Bank and Iron Horse Credit facilities, which are set to expire on June 15, 2022[27](index=27&type=chunk) [NOTE 3 - SUMMARY OF ACCOUNTING POLICIES](index=10&type=section&id=NOTE%203%20-%20SUMMARY%20OF%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and methods applied in the financial reporting [Principles of Consolidation and Basis of Presentation](index=10&type=section&id=Principles%20of%20Consolidation%20and%20Basis%20of%20Presentation) This section details how the financial statements of the company and its subsidiaries are combined - The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, eliminating all inter-company transactions, and are prepared in accordance with US GAAP for interim financial information[28](index=28&type=chunk) [Use of Estimates](index=12&type=section&id=Use%20of%20Estimates) This section explains the management's reliance on estimates for various financial statement items - Management makes estimates and assumptions for sales returns, warranty reserves, inventory reserves, and promotional incentives, which have not historically had a material impact on the Company's financial condition[32](index=32&type=chunk) [Collectability of Accounts Receivable](index=12&type=section&id=Collectability%20of%20Accounts%20Receivable) This section describes the company's policy for assessing and reserving for uncollectible accounts receivable - The allowance for doubtful accounts is based on management's estimates of customer creditworthiness, economic conditions, and historical information, with **100%** reserves for customers in bankruptcy[33](index=33&type=chunk) [Foreign Currency Translation](index=12&type=section&id=Foreign%20Currency%20Translation) This section explains the methods used to convert foreign subsidiary financial statements into U.S. dollars - The Macau Subsidiary's financial statements are translated from Hong Kong dollars to U.S. dollars using period-end rates for assets/liabilities and average rates for revenues/expenses, with net gains/losses in income and translations in shareholders' equity[35](index=35&type=chunk) [Concentration of Credit Risk](index=12&type=section&id=Concentration%20of%20Credit%20Risk) This section identifies significant exposures to credit risk from cash holdings and accounts receivable - The Company maintains cash in U.S. bank accounts exceeding FDIC insured amounts and in foreign financial institutions, with accounts receivable posing a concentration of credit risk[36](index=36&type=chunk)[37](index=37&type=chunk) [Inventory](index=12&type=section&id=Inventory) This section details the valuation methods and reserves for the company's inventory - Inventories are stated at the lower of cost (FIFO method) or net realizable value, including estimates for future inventory returns and reserves for estimated excess and obsolete inventory[38](index=38&type=chunk) Inventory Reserves | Metric | Dec 31, 2021 (in USD) | Mar 31, 2021 (in USD) | | :--- | :--- | :--- | | Estimated Amount of Future Returns | ~$1,978,000 | ~$528,000 | | Inventory Reserves (Excess and Obsolete) | ~$934,000 | ~$636,000 | [Deferred Financing Costs](index=12&type=section&id=Deferred%20Financing%20Costs) This section explains the accounting treatment for costs incurred in obtaining financing - Deferred financing costs for revolving credit facilities are classified as assets and amortized over their term, such as the approximately **$38 thousand** incurred for the IHC Facility renewal in June 2021[39](index=39&type=chunk) [Long-Lived Assets](index=13&type=section&id=Long-Lived%20Assets) This section describes the company's policy for evaluating and recording impairment of long-lived assets - Long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable; no impairment was recorded as of December 31, 2021, and 2020[40](index=40&type=chunk) [Leases](index=14&type=section&id=Leases) This section outlines the accounting for lease agreements, including right-of-use assets and lease liabilities - The Company follows FASB ASC 842, recognizing right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months, classifying them as finance or operating leases[42](index=42&type=chunk)[43](index=43&type=chunk) [Property and Equipment](index=14&type=section&id=Property%20and%20Equipment) This section details the valuation and depreciation policies for the company's property and equipment - Property and equipment are stated at cost, less accumulated depreciation, with depreciation provided using accelerated and straight-line methods over estimated useful lives[44](index=44&type=chunk) [Fair Value of Financial Instruments](index=14&type=section&id=Fair%20Value%20of%20Financial%20Instruments) This section explains how the fair value of various financial instruments is determined - The carrying amounts of the Company's short-term financial instruments, notes payable, finance leases, installment notes, and revolving lines of credit approximate fair value due to their short maturity periods or market-similar interest rates[46](index=46&type=chunk) [Revenue Recognition and Reserve for Sales Returns](index=14&type=section&id=Revenue%20Recognition%20and%20Reserve%20for%20Sales%20Returns) This section describes the criteria for recognizing revenue and establishing reserves for product returns - Revenue is recognized when goods are delivered and control is transferred to the customer, with co-op promotion incentives recorded as a reduction to net sales[47](index=47&type=chunk)[49](index=49&type=chunk) Co-op Promotion Incentives | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$796,000 | ~$858,000 | | Nine Months Ended Dec 31 | ~$1,805,000 | ~$2,032,000 | Revenue by Product Line (3 Months Ended Dec 31) | Product Line | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Classic Karaoke Machines | $17,732,000 | $11,998,000 | | Licensed Product | $645,000 | $1,644,000 | | SMC Kids Toys | $1,051,000 | $662,000 | | Microphones and Accessories | $1,657,000 | $2,481,000 | | Music Subscriptions | $159,000 | $188,000 | | **Total Net Sales** | **$21,244,000** | **$16,973,000** | Revenue by Product Line (9 Months Ended Dec 31) | Product Line | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Classic Karaoke Machines | $37,216,000 | $32,337,000 | | Licensed Product | $1,510,000 | $4,332,000 | | SMC Kids Toys | $2,145,000 | $1,229,000 | | Microphones and Accessories | $3,424,000 | $4,122,000 | | Music Subscriptions | $384,000 | $290,000 | | **Total Net Sales** | **$44,679,000** | **$42,310,000** | [Shipping and Handling Costs](index=16&type=section&id=Shipping%20and%20Handling%20Costs) This section clarifies the classification of shipping and handling expenses within the financial statements - Shipping and handling expenses are classified as a component of selling expenses, totaling approximately **$369 thousand** for the three months ended December 31, 2021 (down from approximately **$512 thousand** in 2020) and approximately **$654 thousand** for the nine months ended December 31, 2021 (down from approximately **$900 thousand** in 2020)[56](index=56&type=chunk) [Stock Based Compensation](index=16&type=section&id=Stock%20Based%20Compensation) This section details the accounting for share-based payments to employees - Share-based payments to employees are measured at fair value using the Black-Scholes option valuation model and expensed over the service period[57](index=57&type=chunk) Stock Option Expense | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$3,000 | ~$5,000 | | Nine Months Ended Dec 31 | ~$16,000 | ~$5,000 | [Research and Development Costs](index=16&type=section&id=Research%20and%20Development%20Costs) This section explains the treatment of research and development expenditures - Research and development costs are charged to operations as incurred and are included in general and administrative expenses[58](index=58&type=chunk) Research and Development Costs | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$11,000 | ~$33,000 | | Nine Months Ended Dec 31 | ~$61,000 | ~$48,000 | [Income Taxes](index=16&type=section&id=Income%20Taxes) This section outlines the accounting for income taxes, including deferred tax assets and liabilities - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences, with a valuation allowance if realization is not more likely than not[59](index=59&type=chunk)[60](index=60&type=chunk) Income Tax Provision & Effective Tax Rate | Metric | Dec 31, 2021 (in USD) | Dec 31, 2020 (in USD) | | :--- | :--- | :--- | | **Three Months Ended:** | | | | Income Tax Provision | ~$103,000 | ~$264,000 | | **Nine Months Ended:** | | | | Income Tax Provision | ~$249,000 | ~$1,006,000 | | Estimated Effective Tax Rate | ~11% | ~23% | Net Deferred Tax Assets | Date | Amount (in USD) | | :--- | :--- | | Dec 31, 2021 | ~$638,000 | | Mar 31, 2021 | ~$887,000 | [Computation of Earnings Per Share](index=18&type=section&id=Computation%20of%20Earnings%20Per%20Share) This section describes the calculation of basic and diluted earnings per common share - Basic net income per share is based on the weighted average number of common shares outstanding, while diluted net income per share reflects potential dilution from in-the-money options and pre-funded warrants[65](index=65&type=chunk) Weighted Average Common and Common Equivalent Shares | Metric | 3 Months Ended Dec 31, 2021 | 3 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2021 | 9 Months Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Basic | 53,410,249 | 38,885,185 | 46,787,545 | 38,667,221 | | Diluted | 53,635,368 | 39,156,481 | 47,109,854 | 39,041,074 | [Recent Accounting Pronouncements](index=18&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses the impact of newly issued accounting standards on the company's financial reporting - The Company is evaluating ASU 2016-13, "Financial Instruments—Credit Losses" (Topic 326), which requires immediate recognition of expected credit losses and is effective for the Company beginning April 1, 2023[66](index=66&type=chunk) [NOTE 4 - INVENTORIES, NET](index=18&type=section&id=NOTE%204%20-%20INVENTORIES%2C%20NET) This note provides a detailed breakdown of the company's inventory components and related reserves Inventories, Net | Component | Dec 31, 2021 (in USD) | Mar 31, 2021 (in USD) | | :--- | :--- | :--- | | Finished Goods | $8,427,000 | $5,348,000 | | Inventory in Transit | $1,655,000 | $250,000 | | Estimated Amount of Future Returns | $1,978,000 | $528,000 | | Subtotal | $12,060,000 | $6,126,000 | | Less: Inventory Reserve | $934,000 | $636,000 | | **Inventories, net** | **$11,126,000** | **$5,490,000** | [NOTE 5 – PROPERTY AND EQUIPMENT](index=20&type=section&id=NOTE%205%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT) This note details the cost, accumulated depreciation, and net book value of the company's property and equipment Property and Equipment, Net | Category | Dec 31, 2021 (in USD) | Mar 31, 2021 (in USD) | | :--- | :--- | :--- | | Computer and office equipment | $440,000 | $445,000 | | Furniture and fixtures | $98,000 | $98,000 | | Warehouse equipment | $210,000 | $199,000 | | Molds and tooling | $1,946,000 | $1,878,000 | | **Total Cost** | **$2,694,000** | **$2,620,000** | | Less: Accumulated depreciation (in USD) | $2,113,000 | $1,946,000 | | **Net Property and Equipment** | **$581,000** | **$674,000** | Depreciation Expense | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$55,000 | ~$65,000 | | Nine Months Ended Dec 31 | ~$190,000 | ~$204,000 | [NOTE 6 – BANK FINANCING](index=20&type=section&id=NOTE%206%20%E2%80%93%20BANK%20FINANCING) This note describes the company's various bank loans, credit facilities, and related terms [Intercreditor Revolving Credit Facility (Crestmark Bank and Iron Horse Credit)](index=20&type=section&id=Intercreditor%20Revolving%20Credit%20Facility%20Crestmark%20Bank%20and%20Iron%20Horse%20Credit) This section details the terms and outstanding balances of the company's revolving credit facilities - The Company has a **$10.0 million** Crestmark Facility (secured by accounts receivable and inventory) and a **$2.5 million** Iron Horse Credit (IHC) Facility (secured by inventory), both expiring on June 15, 2022[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus **5.50%** (minimum **8.75%**), while the IHC Facility bears interest at **1.292%** per month (**15.51%** annually)[72](index=72&type=chunk)[78](index=78&type=chunk) Outstanding Balances (Revolving Lines of Credit) | Facility | Dec 31, 2021 (in USD) | Mar 31, 2021 (in USD) | | :--- | :--- | :--- | | Crestmark Facility | ~$6,637,000 | N/A | | IHC Facility | ~$1,990,000 | ~$65,000 | - The Company was not in compliance with the fixed charge coverage ratio covenant for October and November 2021 but obtained waivers; it was in compliance as of December 31, 2021[76](index=76&type=chunk) [Note Payable Payroll Protection Plan](index=22&type=section&id=Note%20Payable%20Payroll%20Protection%20Plan) This section describes the Paycheck Protection Program loan and its forgiveness - A **$444 thousand** Paycheck Protection Program (PPP) loan received in May 2020 was fully forgiven in June 2021, resulting in a gain of approximately **$448 thousand** (including principal and interest)[80](index=80&type=chunk) [Installment Notes Payable](index=22&type=section&id=Installment%20Notes%20Payable) This section outlines the company's installment debt obligations and their repayment schedules - The Company has installment notes totaling approximately **$365 thousand** for an ERP system, with **60**-month terms and interest rates ranging from **7.58%** to **9.25%**[81](index=81&type=chunk) Installment Notes Outstanding Balance | Date | Amount (in USD) | | :--- | :--- | | Dec 31, 2021 | ~$231,000 | | Mar 31, 2021 | ~$281,000 | [Subordinated Debt/Note Payable to Related Party](index=22&type=section&id=Subordinated%20Debt%2FNote%20Payable%20to%20Related%20Party) This section details the subordinated debt and its conversion to a related-party note payable - Subordinated debt of approximately **$803 thousand** to Starlight Marketing Development, Ltd. was converted to a **6%** note payable in June 2020[82](index=82&type=chunk) - The Company has made cumulative principal payments totaling **$450 thousand** and intends to pay off the remaining balance of approximately **$353 thousand** as of December 31, 2021[83](index=83&type=chunk)[84](index=84&type=chunk) [NOTE 7 - COMMITMENTS AND CONTINGENCIES](index=24&type=section&id=NOTE%207%20-%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's contractual obligations, potential liabilities, and the impact of COVID-19 [COVID-19](index=24&type=section&id=COVID-19) This section discusses the ongoing impact of the COVID-19 pandemic on manufacturing costs and supply chains - The COVID-19 pandemic continues to cause manufacturing cost pressures due to raw material and electronic component shortages, as well as inflationary price increases[86](index=86&type=chunk) [Legal Matters](index=24&type=section&id=Legal%20Matters) This section addresses any significant legal proceedings or claims against the company - Management is not aware of any legal proceedings other than matters that arise in the ordinary course of business[87](index=87&type=chunk) [Leases](index=24&type=section&id=Leases_7) This section provides details on the company's operating and finance lease agreements and liabilities - The Company has operating lease agreements for offices and a warehouse facility in Florida, California, and Macau, with various expiration dates through 2024[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk) - A long-term capital lease for a used forklift was entered into on July 1, 2021, for approximately **$24 thousand** over **36** months at a **9.9%** effective interest rate[92](index=92&type=chunk) Lease Liabilities (Dec 31, 2021) | Type | Current Portion (in USD) | Noncurrent Portion (in USD) | Total Present Value (in USD) | | :--- | :--- | :--- | :--- | | Operating Leases | $860,528 | $685,304 | $1,545,832 | | Finance Leases | $7,421 | $12,592 | $20,013 | Weighted Average Lease Terms and Discount Rates (Dec 31, 2021) | Type | Remaining Lease Term (months) | Discount Rate | | :--- | :--- | :--- | | Operating Leases | 21.1 | 6.25% | | Finance Leases | 31.0 | 9.86% | [NOTE 8 - STOCK OPTIONS AND WARRANTS](index=25&type=section&id=NOTE%208%20-%20STOCK%20OPTIONS%20AND%20WARRANTS) This note details the company's outstanding stock options and warrants, including activity and terms - During the nine months ended December 31, 2021, the Company granted **110,000** stock options and **80,000** options were exercised[101](index=101&type=chunk) Stock Option Activity (9 Months Ended Dec 31, 2021) | Metric | Number of Options | Weighted Average Exercise Price | | :--- | :--- | :--- | | Balance at beginning of period | 1,680,000 | $0.32 | | Granted | 110,000 | $0.25 | | Exercised | (80,000) | $0.18 | | **Balance at end of period** | **1,710,000** | **$0.33** | | Options exercisable at end of period | 1,600,000 | $0.33 | - As of December 31, 2021, **51,500,000** warrants were outstanding, including **34,666,667** common warrants (exercise price **$0.35**, expiring 9/15/2026) and **16,833,333** pre-funded warrants (exercise price **$0.01**, expire upon exercise)[103](index=103&type=chunk) [NOTE 9 – AUGUST 2021 STOCK REDEMPTION](index=27&type=section&id=NOTE%209%20%E2%80%93%20AUGUST%202021%20STOCK%20REDEMPTION) This note describes the company's redemption of common stock from its majority shareholders - On August 10, 2021, the Company redeemed and retired **19,623,155** shares of common stock from its majority shareholders, Koncepts International Limited and Treasure Green Holdings, Ltd., for approximately **$7.16 million**[106](index=106&type=chunk) [NOTE 10 – AUGUST 2021 PRIVATE PLACEMENT](index=29&type=section&id=NOTE%2010%20%E2%80%93%20AUGUST%202021%20PRIVATE%20PLACEMENT) This note details the private placement of equity securities and the use of its proceeds - In August 2021, the Company completed a private placement, issuing **16,500,001** shares of common stock and **16,833,333** pre-funded warrants, along with common warrants, raising approximately **$9.83 million**[108](index=108&type=chunk)[111](index=111&type=chunk) - Approximately **$7.16 million** of the private placement proceeds were used to fund the stock redemption agreement[111](index=111&type=chunk) - Stingray Group Inc., a long-standing business partner, participated in the private placement, acquiring a minority interest and becoming a related party[112](index=112&type=chunk) - An application for NASDAQ listing has been submitted and is pending approval, with shareholders approving a reverse stock split simultaneous with up-listing[110](index=110&type=chunk) [NOTE 11 - GEOGRAPHICAL INFORMATION](index=30&type=section&id=NOTE%2011%20-%20GEOGRAPHICAL%20INFORMATION) This note provides a breakdown of the company's sales by different geographic regions Sales by Geographic Region (3 Months Ended Dec 31) | Region | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | North America | $20,997,000 | $16,623,000 | | Europe | $219,000 | $31,000 | | Australia | $28,000 | $319,000 | | **Total** | **$21,244,000** | **$16,973,000** | Sales by Geographic Region (9 Months Ended Dec 31) | Region | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | North America | $43,691,000 | $41,014,000 | | Europe | $375,000 | $924,000 | | Australia | $613,000 | $372,000 | | **Total** | **$44,679,000** | **$42,310,000** | [NOTE 12 –RELATED PARTY TRANSACTIONS](index=30&type=section&id=NOTE%2012%20%E2%80%93RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions and balances with entities considered related parties - Amounts due to related parties (Cosmo Communications, Inc. and Starlight Electronics Co., Ltd.) were approximately **$63 thousand** as of December 31, 2021, for services and licensing fees[118](index=118&type=chunk) - Amounts due from Stingray Group Inc. for shared music subscription revenue were approximately **$159 thousand** as of December 31, 2021, up from approximately **$88 thousand** as of March 31, 2021[119](index=119&type=chunk) Music Subscription Revenue from Stingray | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$160,000 | ~$188,000 | | Nine Months Ended Dec 31 | ~$384,000 | ~$290,000 | Service Expenses from SLE | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$91,000 | ~$91,000 | | Nine Months Ended Dec 31 | ~$272,000 | ~$272,000 | [NOTE 13 – RESERVE FOR SALES RETURNS](index=30&type=section&id=NOTE%2013%20%E2%80%93%20RESERVE%20FOR%20SALES%20RETURNS) This note details the accounting for estimated sales returns and changes in the reserve - A sales return reserve is recorded at the time of sale for estimated defective goods returns, based on historical data, specific exceptions, and management estimates[123](index=123&type=chunk)[124](index=124&type=chunk) Changes in Reserve for Sales Returns (9 Months Ended Dec 31) | Metric | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Reserve for sales returns at beginning of the year | $960,000 | $1,224,000 | | Provision for estimated sales returns | $4,020,000 | $4,187,000 | | Sales returns received | $(2,058,000) | $(2,445,000) | | **Reserve for sales returns at end of the period** | **$2,922,000** | **$2,966,000** | [NOTE 14 – REFUNDS DUE TO CUSTOMERS](index=32&type=section&id=NOTE%2014%20%E2%80%93%20REFUNDS%20DUE%20TO%20CUSTOMERS) This note provides information on amounts owed to customers for refunds Refunds Due to Customers | Date | Amount (in USD) | | :--- | :--- | | Dec 31, 2021 | ~$90,000 | | Mar 31, 2021 | ~$145,000 | [NOTE 15 - EMPLOYEE BENEFIT PLANS](index=32&type=section&id=NOTE%2015%20-%20EMPLOYEE%20BENEFIT%20PLANS) This note describes the company's employee benefit plans, including 401(k) contributions - The Company has a 401(k) plan for its employees, with contributions charged to general and administrative expense[128](index=128&type=chunk) 401(k) Contributions & Administrative Costs | Period | 2021 (in USD) | 2020 (in USD) | | :--- | :--- | :--- | | Three Months Ended Dec 31 | ~$20,000 | ~$20,000 | | Nine Months Ended Dec 31 | ~$55,000 | ~$54,000 | [NOTE 16 - CONCENTRATIONS OF CREDIT AND SALES RISK](index=32&type=section&id=NOTE%2016%20-%20CONCENTRATIONS%20OF%20CREDIT%20AND%20SALES%20RISK) This note identifies significant concentrations of credit risk from customers and sales - As of December 31, 2021, approximately **75%** of accounts receivable were due from four North American customers, each individually owing over **10%** of total accounts receivable[129](index=129&type=chunk) - For the three months ended December 31, 2021, five customers individually accounted for **10%** or more of the Company's net sales (**25%**, **24%**, **17%**, **17%**, and **10%**)[130](index=130&type=chunk) - For the nine months ended December 31, 2021, four customers individually accounted for **10%** or more of the Company's net sales (**37%**, **19%**, **16%**, and **11%**)[131](index=131&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, liquidity, and capital resources for the three and nine months ended December 31, 2021, discussing key factors influencing results, the impact of COVID-19, and future outlook [Forward-Looking Statements](index=33&type=section&id=Forward-Looking%20Statements) This section cautions readers about inherent risks and uncertainties in forward-looking information - The report contains forward-looking statements that involve known and unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied[134](index=134&type=chunk) - Important factors include changes in external factors, unanticipated working capital needs, shifts in business strategy, adverse economic conditions, vendor price increases, and competitive market factors[135](index=135&type=chunk) [Overview](index=33&type=section&id=Overview) This section provides a general description of the company's business, products, and market seasonality - The Company develops, markets, and sells consumer karaoke audio systems, accessories, musical instruments, and musical recordings, primarily through major mass merchandisers and online retailers in North America, Europe, and Australia[137](index=137&type=chunk)[138](index=138&type=chunk) - The business is highly seasonal, with approximately **85-86%** of net sales occurring during the second and third quarters (September through December) due to the holiday season[140](index=140&type=chunk) [COVID-19 Update](index=33&type=section&id=COVID-19%20Update) This section updates on the pandemic's impact on manufacturing, supply chain, and product demand - The COVID-19 pandemic continues to cause manufacturing cost pressures due to raw material and electronic component shortages, as well as inflationary price increases[142](index=142&type=chunk) - Supply chain challenges, including increased lead times, port closures, global container shortages, and inflated logistics and labor costs, are expected to persist throughout the fiscal year[143](index=143&type=chunk) - Demand for karaoke, microphone, and toy categories remained strong in Fiscal 2021 and the current fiscal year, driven by increased home entertainment demand and product availability shortages[144](index=144&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance over the reported periods [Quarter Ended December 31, 2021 Compared to the Quarter Ended December 31, 2020](index=36&type=section&id=QUARTER%20ENDED%20DECEMBER%2031%2C%202021%20COMPARED%20TO%20THE%20QUARTER%20ENDED%20DECEMBER%2031%2C%202020) This section compares the company's financial results for the three-month periods Key Financials (3 Months Ended Dec 31) | Metric | 2021 (in USD) | 2020 (in USD) | Change (in USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $21,244,000 | $16,973,000 | +$4,271,000 | +25.2% | | Gross Profit | $5,309,000 | $4,974,000 | +$335,000 | +6.7% | | Gross Profit Margin | 25.0% | 29.3% | -4.3 pp | -14.7% | | Income From Operations | $1,694,000 | $1,493,000 | +$201,000 | +13.5% | | Net Income | $1,426,000 | $1,167,000 | +$259,000 | +22.2% | - Gross profit margin decreased by **4.3** percentage points, primarily due to a approximately **$2.26 million** decrease in Carpool Karaoke (CPK) product sales and product cost increases from raw materials and freight[152](index=152&type=chunk) - Total operating expenses increased by approximately **$135 thousand**, driven by higher general and administrative expenses (pallet, warehouse, temporary labor, legal, accounting, consulting fees, bad debt reserve) offset by decreased payroll expenses[153](index=153&type=chunk) [Nine Months Ended December 31, 2021 Compared to the Nine Months Ended December 31, 2020](index=37&type=section&id=NINE%20MONTHS%20ENDED%20DECEMBER%2031%2C%202021%20COMPARED%20TO%20THE%20NINE%20MONTHS%20ENDED%20DECEMBER%2031%2C%202020) This section compares the company's financial results for the nine-month periods Key Financials (9 Months Ended Dec 31) | Metric | 2021 (in USD) | 2020 (in USD) | Change (in USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $44,679,000 | $42,310,000 | +$2,369,000 | +5.6% | | Gross Profit | $10,215,000 | $11,759,000 | -$1,544,000 | -13.1% | | Gross Profit Margin | 22.9% | 27.8% | -4.9 pp | -17.6% | | Income From Operations | $1,954,000 | $3,160,000 | -$1,206,000 | -38.2% | | Net Income | $2,000,000 | $3,368,000 | -$1,368,000 | -40.6% | - Gross profit margin decreased by **4.9** percentage points, primarily due to a approximately **$2.49 million** decrease in higher-margin CPK product sales and increased product and freight costs[161](index=161&type=chunk) - Total operating expenses decreased by approximately **$338 thousand**, mainly due to lower selling expenses (freight, royalty expense) offset by increased general and administrative expenses (legal, accounting, consulting, investor relations fees related to private placement)[162](index=162&type=chunk)[163](index=163&type=chunk) - Other income decreased by approximately **$920 thousand**, primarily because one-time gains in 2021 (PPP loan forgiveness, accounts payable extinguishment) were less than prior year's gains (damaged goods insurance claim, accounts payable forgiveness)[165](index=165&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to meet its short-term and long-term financial obligations Cash and Working Capital | Metric | Dec 31, 2021 (in USD) | Dec 31, 2020 (in USD) | | :--- | :--- | :--- | | Cash on Hand | ~$7,375,000 | ~$823,000 | | Working Capital (in USD) | ~$9,811,000 | N/A | - Net cash used in operating activities was approximately **$3.11 million** for the nine months ended December 31, 2021, primarily due to increases in accounts receivable and inventories, partially offset by increases in accounts payable and accrued expenses[168](index=168&type=chunk) - Net cash provided by financing activities was approximately **$6.98 million** for the nine months ended December 31, 2021, driven by borrowings from credit facilities and net proceeds from private placement/stock redemption[171](index=171&type=chunk) - The Company believes current working capital, cash from operating forecasts, and available credit facilities (assuming extension) will be adequate to meet liquidity requirements for at least twelve months[178](index=178&type=chunk) [Critical Accounting Policies](index=42&type=section&id=CRITICALACCOUNTING%20POLICIES) This section highlights accounting policies requiring significant judgment and estimates - The Company's interim financial statements involve subjective decisions and estimates, but critical accounting estimates and assumptions have not materially changed from those identified in the 2021 Annual Report[179](index=179&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required for smaller reporting companies - This item is not required for small reporting companies[180](index=180&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, identifying a material weakness related to the financial statement close process and outlining the remediation measures being implemented [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's controls for financial reporting - As of December 31, 2021, disclosure controls and procedures were deemed not effective due to a material weakness in the consolidated financial statement close process, specifically regarding inventory cutoff and valuation[181](index=181&type=chunk)[182](index=182&type=chunk) [Plan for Material Weakness in Internal Control over Financial Reporting](index=43&type=section&id=Plan%20for%20Material%20Weakness%20in%20Internal%20Control%20over%20Financial%20Reporting) This section outlines the company's strategy to address identified deficiencies in internal controls - Remediation plans include correcting ERP system processing errors related to inventory, strengthening ERP system training for finance and warehouse personnel, and assessing resource adequacy[183](index=183&type=chunk)[192](index=192&type=chunk) - The Company anticipates remediating this material weakness by March 31, 2022[184](index=184&type=chunk) [Changes in Internal Controls](index=43&type=section&id=Changes%20in%20Internal%20Controls) This section reports on any modifications to the company's internal controls during the period - No material changes in the Company's internal controls over financial reporting occurred during the quarter ended December 31, 2021[185](index=185&type=chunk) PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, and other required disclosures [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) Management is not aware of any legal proceedings other than matters that arise in the ordinary course of business - Management is not aware of any legal proceedings other than matters that arise in the ordinary course of business[187](index=187&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.Risk%20Factors) This item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[188](index=188&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities and use of proceeds[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company confirms that it is not currently in default upon any of its senior securities - The Company is not currently in default upon any of its senior securities[188](index=188&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report - No mine safety disclosures[189](index=189&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) There is no other information to report in this section - No other information[190](index=190&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (Rule 13a-14(a) and 18 U.S.C. Section 1350) and Inline XBRL documents[193](index=193&type=chunk)[195](index=195&type=chunk) SIGNATURES This section provides the official signatures of the company's executive officers, certifying the report's accuracy - The report is signed by Gary Atkinson (Chief Executive Officer) and Lionel Marquis (Chief Financial Officer) on February 14, 2022[199](index=199&type=chunk)

FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 2021 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to ______. Commission File Number 000-24968 THE SINGING MACHINE COMPANY, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 95-3795478 (State of In ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the unaudited condensed consolidated financial statements and related notes for the company and its subsidiaries [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and shareholders' equity, with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (June 30, 2021 vs. March 31, 2021) | Metric | June 30, 2021 ($) | March 31, 2021 ($) | | :------------------------------------------------ | :------------------------ | :------------- | | **Assets** | | | | Cash | $1,383,230 | $396,579 | | Accounts receivable, net | $5,562,834 | $2,298,922 | | Inventories, net | $8,370,101 | $5,490,255 | | Total Current Assets | $15,885,517 | $12,979,306 | | Total Assets | $19,450,067 | $16,761,911 | | **Liabilities** | | | | Accounts payable | $6,262,655 | $2,461,103 | | Total Current Liabilities | $10,329,959 | $7,034,199 | | Total Liabilities | $11,649,238 | $8,852,373 | | **Shareholders' Equity** | | | | Total Shareholders' Equity | $7,800,829 | $7,909,538 | | Total Liabilities and Shareholders' Equity | $19,450,067 | $16,761,911 | - Cash increased significantly from **$396,579** at March 31, 2021, to **$1,383,230** at June 30, 2021[10](index=10&type=chunk) - Total Current Assets increased by approximately **$2.9 million**, driven by increases in accounts receivable and inventories[10](index=10&type=chunk) - Total Current Liabilities increased by approximately **$3.3 million**, primarily due to a substantial rise in accounts payable[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss for the three-month periods ended June 30, 2021 and 2020 Condensed Consolidated Statements of Operations (Three Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 ($) | June 30, 2020 ($) | | :------------------------------------ | :------------ | :------------ | | Net Sales | $6,065,650 | $3,051,983 | | Cost of Goods Sold | $4,487,780 | $2,089,531 | | Gross Profit | $1,577,870 | $962,452 | | Total Operating Expenses | $2,067,605 | $1,733,390 | | Loss From Operations | $(489,735) | $(770,938) | | Gain from Payroll Protection Plan loan forgiveness | $448,242 | $- | | Total Other Income (Expenses), net | $343,027 | $485,297 | | Net Loss | $(118,613) | $(206,804) | | Net Loss per Common Share (Basic and Diluted) | $(0.00) | $(0.01) | - Net Sales increased by **98.7%** to **$6,065,650** for the three months ended June 30, 2021, compared to **$3,051,983** in the prior year[13](index=13&type=chunk) - Gross Profit increased by **64%** to **$1,577,870**, but the gross profit margin decreased to **26.0%** from **31.5%** year-over-year[13](index=13&type=chunk) - Net Loss improved to **$(118,613)** from **$(206,804)** in the prior year, significantly aided by a **$448,242** gain from PPP loan forgiveness[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities for the three-month periods Condensed Consolidated Statements of Cash Flows (Three Months Ended June 30, 2021 vs. 2020) | Cash Flow Activity | June 30, 2021 ($) | June 30, 2020 ($) | | :------------------------------------------ | :------------ | :------------ | | Net cash provided by (used in) operating activities | $793,982 | $(244,026) | | Net cash used in investing activities | $(55,534) | $(45,314) | | Net cash provided by financing activities | $248,203 | $1,748,733 | | Net change in cash | $986,651 | $1,459,393 | | Cash at end of period | $1,383,230 | $1,804,593 | - Operating activities generated **$793,982** in cash for the three months ended June 30, 2021, a significant improvement from **$244,026** cash used in the prior year[15](index=15&type=chunk) - Cash at the end of the period was **$1,383,230**, an increase from the beginning of the year but lower than the **$1,804,593** at June 30, 2020[15](index=15&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Outlines changes in the company's equity accounts, including net loss and stock-based transactions, for the three-month periods Condensed Consolidated Statements of Shareholders' Equity (Three Months Ended June 30, 2021 vs. 2020) | Metric | March 31, 2021 ($) | June 30, 2021 ($) | March 31, 2020 ($) | June 30, 2020 ($) | | :-------------------------- | :------------- | :------------ | :------------- | :------------ | | Total Shareholders' Equity (Beginning) | $7,909,538 | - | $5,688,063 | - | | Net loss | $(118,613) | $(118,613) | $(206,804) | $(206,804) | | Employee compensation-stock option | $5,104 | $5,104 | - | - | | Exercise of stock options | $4,800 | $4,800 | - | - | | **Total Shareholders' Equity (End)** | - | $7,800,829 | - | $5,481,259 | - Total Shareholders' Equity decreased slightly to **$7,800,829** at June 30, 2021, from **$7,909,538** at March 31, 2021, primarily due to the net loss[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides additional information and explanations for the figures presented in the condensed consolidated financial statements [NOTE 1 – BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) Describes the company's business activities and the entities included in the consolidated financial statements - The Singing Machine Company, Inc. and its wholly-owned subsidiaries are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings[19](index=19&type=chunk) - The Company conducts business with several entities principally owned by its former Chairman, Philip Lau, including Starlight R&D Ltd, Starlight Consumer Electronics USA, Inc., Cosmo Communications Corporation of Canada, Inc., Winglight Pacific, Ltd, and Starlight Electronics Company Ltd[20](index=20&type=chunk) [NOTE 2 – LIQUIDITY](index=8&type=section&id=NOTE%202%20%E2%80%93%20LIQUIDITY) Discusses the company's ability to meet its short-term obligations, including recent financial events and future outlook - The Company reported a net loss of approximately **$119,000** for the three months ended June 30, 2021, an improvement from a net loss of approximately **$207,000** for the same period in 2020[21](index=21&type=chunk) - In June 2021, the Company received notification that its Paycheck Protection Program (PPP) loan of approximately **$444,000** (including principal and interest) was forgiven in its entirety, resulting in a gain of approximately **$448,000**[21](index=21&type=chunk) - Subsequent to the quarter end, on August 10, 2021, the Company completed a stock redemption of **19,623,155 shares** for approximately **$7,162,000** and a private placement raising approximately **$9,800,000**, expecting an increase in working capital of approximately **$1,800,000** after expenses[22](index=22&type=chunk)[23](index=23&type=chunk) - Management believes current working capital, available cash from the Intercreditor Revolving Credit Facility, and cash from the private placement and operating forecast will be adequate for liquidity requirements for at least the next twelve months[24](index=24&type=chunk) [NOTE 3 - SUMMARY OF ACCOUNTING POLICIES](index=8&type=section&id=NOTE%203%20-%20SUMMARY%20OF%20ACCOUNTING%20POLICIES) Outlines the significant accounting principles and methods used in preparing the financial statements [PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION](index=8&type=section&id=PRINCIPLES%20OF%20CONSOLIDATION%20AND%20BASIS%20OF%20PRESENTATION) Explains the consolidation of subsidiaries and the preparation of interim financial statements in accordance with US GAAP - The condensed consolidated financial statements include the accounts of the Company and all its wholly-owned subsidiaries, with all inter-company accounts and transactions eliminated[25](index=25&type=chunk) - The unaudited interim financial statements are prepared in accordance with US GAAP and Form 10-Q requirements, and do not include all disclosures required for complete annual financial statements[25](index=25&type=chunk)[26](index=26&type=chunk) [USE OF ESTIMATES](index=10&type=section&id=USE%20OF%20ESTIMATES) Highlights the reliance on management's judgments and assumptions in preparing the financial statements - The Company makes estimates and assumptions for sales returns and allowances, warranty reserves, inventory reserves, and promotional incentives, which affect reported financial amounts[29](index=29&type=chunk) [COLLECTABILITY OF ACCOUNTS RECEIVABLE](index=10&type=section&id=COLLECTABILITY%20OF%20ACCOUNTS%20RECEIVABLE) Details the company's policies for estimating and reserving for uncollectible accounts receivable and customer chargebacks - The allowance for doubtful accounts is based on management's estimates of customer creditworthiness, economic conditions, and historical data, with **100%** reserves for customers in bankruptcy[30](index=30&type=chunk) - The Company is subject to customer chargebacks for co-op program incentives, defective returns, and return freight/handling charges, which reduce collectability of open invoices[31](index=31&type=chunk) [FOREIGN CURRENCY TRANSLATION](index=10&type=section&id=FOREIGN%20CURRENCY%20TRANSLATION) Explains the methodology for translating financial statements of foreign subsidiaries into U.S. dollars - The Macau Subsidiary's functional currency is the Hong Kong dollar, with financial statements translated to U.S. dollars using period-end rates for assets/liabilities and average rates for revenues/expenses[32](index=32&type=chunk) [CONCENTRATION OF CREDIT RISK](index=10&type=section&id=CONCENTRATION%20OF%20CREDIT%20RISK) Addresses the company's exposure to credit risk from cash balances and accounts receivable - The Company maintains cash in U.S. bank accounts exceeding FDIC insured amounts and also holds cash balances in foreign financial institutions, which were approximately **$109,000** at June 30, 2021[33](index=33&type=chunk) - Financial instruments, particularly accounts receivable, subject the Company to concentrations of credit risk[34](index=34&type=chunk) [INVENTORY](index=10&type=section&id=INVENTORY) Describes the valuation method for inventories and the company's policy for inventory reserves - Inventories, primarily electronic karaoke equipment, microphones, and accessories, are stated at the lower of cost or net realizable value using the first-in, first-out method[35](index=35&type=chunk) - As of June 30, 2021, the Company had inventory reserves of approximately **$636,000** for estimated excess and obsolete inventory[35](index=35&type=chunk) [DEFERRED FINANCING COSTS](index=10&type=section&id=DEFERRED%20FINANCING%20COSTS) Explains the accounting treatment for costs incurred in obtaining revolving credit facilities - Deferred financing costs for revolving credit facilities are classified as assets and amortized over their term; approximately **$38,000** was incurred in June 2021 for the IHC Facility renewal[36](index=36&type=chunk) [LONG-LIVED ASSETS](index=12&type=section&id=LONG-LIVED%20ASSETS) Details the company's policy for reviewing and assessing impairment of long-lived assets - Long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable; no impairment was recorded as of June 30, 2021 and 2020[39](index=39&type=chunk) [LEASES](index=12&type=section&id=LEASES) Describes the company's accounting policy for recognizing right-of-use assets and lease liabilities under FASB ASC 842 - The Company follows FASB ASC 842, recognizing right-of-use (ROU) assets and lease liabilities on the balance sheet for leases longer than twelve months, classifying them as finance or operating[40](index=40&type=chunk)[41](index=41&type=chunk) [PROPERTY AND EQUIPMENT](index=12&type=section&id=PROPERTY%20AND%20EQUIPMENT) Explains the valuation and depreciation methods for property and equipment - Property and equipment are stated at cost less accumulated depreciation, with depreciation provided using accelerated and straight-line methods over estimated useful lives[42](index=42&type=chunk) [FAIR VALUE OF FINANCIAL INSTRUMENTS](index=12&type=section&id=FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Discusses how the fair value of the company's financial instruments is determined - The carrying amounts of the Company's short-term financial instruments (e.g., accounts receivable, accounts payable) and notes payable, finance leases, and installment notes approximate fair value due to their short maturity or market-similar interest rates[44](index=44&type=chunk) [REVENUE RECOGNITION AND RESERVE FOR SALES RETURNS](index=12&type=section&id=REVENUE%20RECOGNITION%20AND%20RESERVE%20FOR%20SALES%20RETURNS) Outlines the company's revenue recognition policy and its methodology for estimating sales returns - Revenue is recognized in accordance with FASB ASC 606 when control of goods is transferred to the customer, reflecting the expected consideration[45](index=45&type=chunk) - Co-op promotion incentives, not being distinct goods or services, are recorded as a reduction to net sales, totaling approximately **$272,000** for both three-month periods ended June 30, 2021 and 2020[48](index=48&type=chunk) - The Company maintains a reserve for sales returns based on historical return amounts and management estimates, which was approximately **$750,000** as of June 30, 2021[52](index=52&type=chunk)[53](index=53&type=chunk) Disaggregated Revenue by Product Line (Three Months Ended June 30, 2021 vs. 2020) | Product Line | June 30, 2021 ($) | June 30, 2020 ($) | | :---------------------- | :------------ | :------------ | | Classic Karaoke Machines | $4,448,000 | $2,341,000 | | Licensed Product | $771,000 | $- | | Music and Accessories | $778,000 | $588,000 | | SMC Kids Toys | $69,000 | $123,000 | | **Total Net Sales** | **$6,066,000** | **$3,052,000** | [SHIPPING AND HANDLING COSTS](index=14&type=section&id=SHIPPING%20AND%20HANDLING%20COSTS) Explains the classification and amounts of shipping and handling expenses - Shipping and handling expenses, classified as a component of selling expenses, were approximately **$151,000** for the three months ended June 30, 2021, up from **$83,000** in the prior year[54](index=54&type=chunk) [STOCK BASED COMPENSATION](index=14&type=section&id=STOCK%20BASED%20COMPENSATION) Details the accounting for stock-based compensation expense related to employee stock options - Stock-based compensation expense for employee stock options, valued using the Black-Scholes model, was approximately **$5,000** for the three months ended June 30, 2021, compared to **$0** in the prior year[55](index=55&type=chunk) [RESEARCH AND DEVELOPMENT COSTS](index=14&type=section&id=RESEARCH%20AND%20DEVELOPMENT%20COSTS) Describes the company's policy for expensing research and development costs - Research and development costs, charged to operations as incurred and included in selling, general and administrative expenses, totaled approximately **$31,000** for the three months ended June 30, 2021, up from **$13,000** in the prior year[56](index=56&type=chunk) [INCOME TAXES](index=14&type=section&id=INCOME%20TAXES) Explains the company's approach to recognizing deferred tax assets and liabilities and uncertain tax positions - The Company follows FASB ASC 740, recognizing deferred tax assets and liabilities for temporary differences and a valuation allowance if realization is not more likely than not[58](index=58&type=chunk) - No uncertain tax positions resulted in adjustments to the income tax provision as of June 30, 2021 and 2020[60](index=60&type=chunk) [COMPUTATION OF (LOSS) EARNINGS PER SHARE](index=16&type=section&id=COMPUTATION%20OF%20%28LOSS%29%20EARNINGS%20PER%20SHARE) Describes the calculation of basic and diluted net income (loss) per common share - Basic net income (loss) per share is based on the weighted average number of common shares outstanding, while diluted EPS reflects potential dilution from in-the-money options using the treasury stock method[61](index=61&type=chunk) - Options to purchase **1,660,000 shares** (2021) and **2,230,000 shares** (2020) were excluded from diluted EPS calculations as they were anti-dilutive[61](index=61&type=chunk) [ADOPTION OF NEW ACCOUNTING STANDARDS](index=16&type=section&id=ADOPTION%20OF%20NEW%20ACCOUNTING%20STANDARDS) Reports on the adoption of new accounting pronouncements and their impact on the financial statements - The Company adopted ASU 2019-12, 'Income Taxes' (Topic 740), for the interim period ended June 30, 2021, which did not have a material effect on the financial statements[62](index=62&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=16&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Discusses recently issued accounting standards that the company is currently evaluating - The Company is evaluating ASU 2016-13, 'Financial Instruments—Credit Losses' (Topic 326), which requires immediate recognition of expected credit losses and is effective for smaller reporting companies for fiscal years beginning after April 1, 2023[63](index=63&type=chunk) [NOTE 4 - INVENTORIES, NET](index=16&type=section&id=NOTE%204%20-%20INVENTORIES%2C%20NET) Provides a detailed breakdown of inventory components and their net values Inventories, Net (June 30, 2021 vs. March 31, 2021) | Component | June 30, 2021 ($) | March 31, 2021 ($) | | :-------------------------- | :------------ | :------------- | | Finished Goods | $6,288,000 | $5,348,000 | | Inventory in Transit | $2,217,000 | $250,000 | | Estimated Amount of Future Returns | $501,000 | $528,000 | | Subtotal | $9,006,000 | $6,126,000 | | Less: Inventory Reserve | $636,000 | $636,000 | | **Inventories, net** | **$8,370,000** | **$5,490,000** | - Net inventories increased significantly to **$8,370,000** at June 30, 2021, from **$5,490,000** at March 31, 2021, primarily due to a substantial increase in inventory in transit[64](index=64&type=chunk) [NOTE 5 – PROPERTY AND EQUIPMENT](index=17&type=section&id=NOTE%205%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT) Presents a detailed breakdown of property and equipment, including cost and accumulated depreciation Property and Equipment, Net (June 30, 2021 vs. March 31, 2021) | Category | June 30, 2021 ($) | March 31, 2021 ($) | | :---------------------- | :------------ | :------------- | | Computer and office equipment | $445,000 | $445,000 | | Furniture and fixtures | $98,000 | $98,000 | | Warehouse equipment | $199,000 | $199,000 | | Molds and tooling | $1,933,000 | $1,878,000 | | **Total Cost** | **$2,675,000** | **$2,620,000** | | Less: Accumulated depreciation | $2,014,000 | $1,946,000 | | **Property and equipment, net** | **$661,000** | **$674,000** | - Net property and equipment slightly decreased to **$661,000** at June 30, 2021, from **$674,000** at March 31, 2021, despite an increase in molds and tooling[65](index=65&type=chunk) - Depreciation expense for the three months ended June 30, 2021, was approximately **$68,000**, a slight decrease from **$71,000** in the prior year[68](index=68&type=chunk) [NOTE 6 – BANK FINANCING](index=18&type=section&id=NOTE%206%20%E2%80%93%20BANK%20FINANCING) Details the company's various bank financing arrangements, including revolving credit facilities and notes payable [Intercreditor Revolving Credit Facility Crestmark Bank and Iron Horse Credit](index=18&type=section&id=Intercreditor%20Revolving%20Credit%20Facility%20Crestmark%20Bank%20and%20Iron%20Horse%20Credit) Describes the terms and availability of the company's revolving credit facilities - The Company has a **$10.0 million** (decreasing to **$5.0 million** off-peak) Crestmark Facility for accounts receivable and a **$2.5 million** IHC Facility for inventory financing, both expiring on June 15, 2022[69](index=69&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk) - As of June 30, 2021, approximately **$1,500,000** of borrowings were available under these facilities[69](index=69&type=chunk) - Interest expense for the three months ended June 30, 2021, was approximately **$45,000** for Crestmark (0 in 2020) and **$39,000** for IHC (up from **$8,000** in 2020)[70](index=70&type=chunk)[72](index=72&type=chunk) - The IHC Facility requires a fixed charge coverage ratio of **1:1 times**, which the Company was in compliance with as of June 30, 2021[76](index=76&type=chunk) [Note Payable Payroll Protection Plan](index=18&type=section&id=Note%20Payable%20Payroll%20Protection%20Plan) Details the PPP loan received and its subsequent forgiveness - The Company received approximately **$444,000** from the PPP in May 2020, which was fully forgiven in June 2021, resulting in a **$448,000** gain (including principal and interest) recognized in other income[77](index=77&type=chunk) [Installment Notes Payable](index=20&type=section&id=Installment%20Notes%20Payable) Provides information on the company's installment notes for an ERP system project - The Company has installment notes totaling approximately **$365,000** for an ERP System project, with **60-month terms** and interest rates ranging from **7.58% to 9.25%**[80](index=80&type=chunk) - The outstanding balance was approximately **$265,000** at June 30, 2021, down from **$281,000** at March 31, 2021[80](index=80&type=chunk) [Subordinated Debt/Note Payable to Related Party](index=20&type=section&id=Subordinated%20Debt%2FNote%20Payable%20to%20Related%20Party) Discusses the conversion and outstanding balance of subordinated related party debt - Subordinated related party debt of approximately **$803,000** was converted to a **6%** note payable on June 1, 2020, with an outstanding balance of approximately **$503,000** at June 30, 2021[81](index=81&type=chunk)[83](index=83&type=chunk) - The Company intends to make additional payments and pay off the remaining balance within the next twelve months, provided it meets repayment requirements of the Crestmark and IHC Facilities[82](index=82&type=chunk) [NOTE 7 - COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=NOTE%207%20-%20COMMITMENTS%20AND%20CONTINGENCIES) Discloses the company's legal matters, lease obligations, and other potential liabilities [LEGAL MATTERS](index=20&type=section&id=LEGAL%20MATTERS) Reports on legal proceedings and management's assessment of their potential financial impact - A complaint was filed against the SMCL subsidiary in September 2020 alleging employment practice violations; management believes the claims lack merit and will not materially affect financial results[84](index=84&type=chunk) [LEASES](index=20&type=section&id=LEASES) Provides details on the company's operating lease agreements and future minimum payments - The Company has operating lease agreements for offices and a warehouse in Florida, California, and Macau, with terms expiring through 2024[87](index=87&type=chunk) Operating Lease Liabilities (June 30, 2021) | Year | Operating Leases ($) | | :------------------------ | :--------------- | | 2021 (remaining 6 months) | $466,342 | | 2022 | $938,348 | | 2023 | $674,488 | | 2024 | $30,739 | | **Total Minimum Future Payments** | **$2,109,917** | | Less: Imputed Interest | $158,354 | | **Present Value of Lease Liabilities** | **$1,951,563** | - Operating lease expense was **$232,262** for the three months ended June 30, 2021, with a weighted average remaining lease term of **27.0 months** and a weighted average discount rate of **6.25%**[95](index=95&type=chunk) [NOTE 8 - STOCK OPTIONS](index=22&type=section&id=NOTE%208%20-%20STOCK%20OPTIONS) Summarizes the activity and status of the company's stock option plans Stock Option Activity (Three Months Ended June 30, 2021) | Metric | Number of Options | Weighted Average Exercise Price ($) | | :-------------------------- | :---------------- | :------------------------------ | | Balance at beginning of period | 1,680,000 | $0.32 | | Granted | - | - | | Exercised | (20,000) | $0.24 | | **Balance at end of period** | **1,660,000** | **$0.32** | | Options exercisable at end of period | 1,560,000 | $0.33 | - No stock options were issued during the three months ended June 30, 2021 or 2020[97](index=97&type=chunk) - As of June 30, 2021, there was approximately **$5,000** of unrecognized expense remaining on currently vesting options, with approximately **four months** until full vesting[100](index=100&type=chunk) [NOTE 9 - GEOGRAPHICAL INFORMATION](index=24&type=section&id=NOTE%209%20-%20GEOGRAPHICAL%20INFORMATION) Presents a breakdown of sales by geographic region Sales by Geographic Region (Three Months Ended June 30, 2021 vs. 2020) | Region | June 30, 2021 ($) | June 30, 2020 ($) | | :------------ | :------------ | :------------ | | North America | $5,966,000 | $2,816,000 | | Europe | $- | $183,000 | | Australia | $100,000 | $53,000 | | **Total** | **$6,066,000** | **$3,052,000** | - Sales to customers outside the United States were primarily made by the Macau Subsidiary in US dollars[102](index=102&type=chunk) - North America accounted for the vast majority of sales, increasing from **$2,816,000** in 2020 to **$5,966,000** in 2021[102](index=102&type=chunk) [NOTE 10 –RELATED PARTY TRANSACTIONS](index=24&type=section&id=NOTE%2010%20%E2%80%93RELATED%20PARTY%20TRANSACTIONS) Details transactions and balances with related parties [DUE TO RELATED PARTIES](index=24&type=section&id=DUE%20TO%20RELATED%20PARTIES) Reports on amounts owed to related parties for services and licensing fees - Amounts due to related parties for services and licensing fees were approximately **$63,000** at June 30, 2021, and March 31, 2021[104](index=104&type=chunk) [TRADE](index=26&type=section&id=TRADE) Describes trade-related transactions with affiliated entities - In July 2020, the Company became the sole Canadian distributor after acquiring Cosmo's karaoke inventory for approximately **$685,000**[107](index=107&type=chunk) - A gain of approximately **$11,000** from Cosmo was recognized in Q1 2022 related to payments on prior year sales previously deemed uncollectible[107](index=107&type=chunk) - Service expenses from Starlight Electronics Co, Ltd (SLE), a related party, were approximately **$91,000** for both three-month periods ended June 30, 2021 and 2020[108](index=108&type=chunk) [NOTE 11 – RESERVE FOR SALES RETURNS](index=26&type=section&id=NOTE%2011%20%E2%80%93%20RESERVE%20FOR%20SALES%20RETURNS) Explains the company's policy and changes in the reserve for estimated sales returns - The Company records a sales return reserve at the time of sale for estimated defective goods returns, based on historical amounts and management estimates[109](index=109&type=chunk)[110](index=110&type=chunk) Changes in Reserve for Sales Returns (Six Months Ended June 30, 2021 vs. 2020) | Metric | June 30, 2021 ($) | June 30, 2020 ($) | | :------------------------------------ | :------------ | :------------ | | Reserve for sales returns at beginning of fiscal year | $960,000 | $1,224,000 | | Provision for estimated sales returns | $539,000 | $284,000 | | Sales returns received | $(749,000) | $(1,128,000) | | **Reserve for sales returns at end of period** | **$750,000** | **$380,000** | [NOTE 12 – REFUNDS DUE TO CUSTOMERS](index=26&type=section&id=NOTE%2012%20%E2%80%93%20REFUNDS%20DUE%20TO%20CUSTOMERS) Reports on the amounts owed to customers for product returns - Refunds due to customers were approximately **$94,000** at June 30, 2021, primarily for overstock returns from one customer, down from **$145,000** at March 31, 2021[112](index=112&type=chunk) [NOTE 13 - EMPLOYEE BENEFIT PLANS](index=26&type=section&id=NOTE%2013%20-%20EMPLOYEE%20BENEFIT%20PLANS) Provides information on the company's 401(k) plan and related contributions - The Company contributes to a 401(k) plan for employees; contributions and administrative costs totaled approximately **$18,000** for the three months ended June 30, 2021, up from **$14,000** in the prior year[113](index=113&type=chunk) [NOTE 14 - CONCENTRATIONS OF CREDIT AND SALES RISK](index=26&type=section&id=NOTE%2014%20-%20CONCENTRATIONS%20OF%20CREDIT%20AND%20SALES%20RISK) Addresses the company's exposure to credit and sales risk due to customer concentration - A majority of revenues are derived from U.S. retailers, with accounts receivable concentrated among several large customers[114](index=114&type=chunk) - At June 30, 2021, **78%** of accounts receivable were due from three customers, and for the three months ended June 30, 2021, four customers individually accounted for **10% or more** of net sales (**45%**, **18%**, **14%**, and **14%** respectively)[114](index=114&type=chunk)[115](index=115&type=chunk) [NOTE 15 – SUBSEQUENT EVENTS](index=28&type=section&id=NOTE%2015%20%E2%80%93%20SUBSEQUENT%20EVENTS) Discloses significant events that occurred after the reporting period, including stock redemption and private placement - On August 10, 2021, the Company completed a stock redemption of **19,623,155 common shares** for approximately **$7,162,000**, with the shares to be retired to treasury[117](index=117&type=chunk) - Also on August 10, 2021, a private placement closed, raising approximately **$9,800,000** through the sale of common stock and warrants to institutional and strategic investors, including Stingray Group Inc[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - Approximately **$7,200,000** of the private placement funds were used for the stock redemption, with an expected increase in working capital of approximately **$1,800,000** after expenses[121](index=121&type=chunk) - In connection with these transactions, Phillip Lau, Peter Hon, and Yat Tung Lau resigned from the Board of Directors[157](index=157&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on the company's financial performance, liquidity, and capital resources for the quarter [FORWARD-LOOKING STATEMENTS](index=29&type=section&id=FORWARD-LOOKING%20STATEMENTS) Warns readers about the inherent uncertainties and risks associated with forward-looking information - The discussion contains forward-looking statements based on current expectations, subject to risks and uncertainties that could cause actual results to differ materially[123](index=123&type=chunk)[124](index=124&type=chunk) - Key factors to consider include changes in external factors, unanticipated cash requirements, shifts in business strategy, adverse economic conditions, vendor price increases, competitive market factors, and other risks detailed in SEC filings[125](index=125&type=chunk) [OVERVIEW](index=30&type=section&id=OVERVIEW) Provides a general description of the company's business, products, and market presence - The Singing Machine Company, Inc. and its subsidiaries develop, market, and sell consumer karaoke audio systems, accessories, musical instruments, and recordings, primarily to retailers and distributors in North America, Europe, and Australia[128](index=128&type=chunk)[129](index=129&type=chunk) - The business is highly seasonal, with a majority of retail sales occurring from September through December (holiday season), accounting for approximately **86%** and **85%** of net sales in fiscal 2021 and 2020, respectively[131](index=131&type=chunk) [COVID-19 UPDATE](index=30&type=section&id=COVID-19%20UPDATE) Discusses the ongoing impact of the pandemic on the company's operations, supply chain, and market demand - The COVID-19 pandemic continues to be unpredictable, causing manufacturing cost pressures due to raw material and electronic component shortages, as well as inflationary price increases[132](index=132&type=chunk) - The Company experienced supply chain challenges, including increased lead times, port closures, global container shortages, and rising logistics and labor costs, which are expected to continue throughout the fiscal year[133](index=133&type=chunk) - Demand for home entertainment products, including karaoke, microphones, and toys, grew during the pandemic and remains strong due to market shortages[134](index=134&type=chunk) [RESULTS OF OPERATIONS](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance, including revenue, expenses, and net income, for the reporting period [NET SALES](index=31&type=section&id=NET%20SALES) Explains the drivers behind changes in net sales for the reporting period - Net sales for the quarter ended June 30, 2021, increased by approximately **$3,014,000** (**98.7%**) to **$6,066,000**, compared to **$3,052,000** in the prior year[137](index=137&type=chunk) - The increase was primarily due to **$2,444,000** in holiday promotion goods shipped earlier to one major customer and year-round product offerings by another major customer[137](index=137&type=chunk) [GROSS PROFIT](index=31&type=section&id=GROSS%20PROFIT) Analyzes the changes in gross profit and gross profit margin - Gross profit increased by approximately **$616,000** to **$1,578,000**, but the gross profit margin decreased from **31.5%** to **26.0%** (a **5.5 percentage point** decrease)[138](index=138&type=chunk)[139](index=139&type=chunk) - The margin decrease was mainly due to the higher proportion of lower-margin holiday promotion goods (accounting for **4.4 margin points** of the decrease) and the mix of returned products[139](index=139&type=chunk) [OPERATING EXPENSES](index=31&type=section&id=OPERATING%20EXPENSES) Details the changes in selling, general, and administrative expenses - Total operating expenses increased by approximately **$335,000** to **$2,068,000** for the quarter ended June 30, 2021[141](index=141&type=chunk) - Selling expenses rose by **$279,000**, driven by variable expenses (commissions, freight, royalties) commensurate with increased sales and **$97,000** in increased online media marketing[141](index=141&type=chunk) - General and administrative expenses increased by **$58,000** due to higher logistics costs[141](index=141&type=chunk) - As a percentage of net sales, total operating expenses decreased significantly from **56.8%** to **34.0%** (a **22.8 percentage point** decrease), primarily due to lower selling and administrative expenses for direct import holiday promotion goods[142](index=142&type=chunk) [LOSS FROM OPERATIONS](index=33&type=section&id=LOSS%20FROM%20OPERATIONS) Discusses the factors contributing to the company's operating loss - Loss from operations decreased by approximately **$281,000** to **$(490,000)** for the three months ended June 30, 2021, compared to **$(771,000)** in the prior year, driven by increased gross profit offset by higher operating expenses[143](index=143&type=chunk) [OTHER INCOME (EXPENSES)](index=33&type=section&id=OTHER%20INCOME%20%28EXPENSES%29) Explains the components of other income and expenses, including one-time gains - Net other income decreased by approximately **$142,000** to **$343,000** for the three months ended June 30, 2021[144](index=144&type=chunk) - Q1 2021 included one-time gains of approximately **$459,000**, primarily from **$448,000** in PPP loan forgiveness, offset by **$116,000** in interest expenses[144](index=144&type=chunk) - Q1 2020 included one-time gains of approximately **$521,000** from a **$131,000** damaged goods insurance claim and **$390,000** from extinguishment of accounts payable, offset by **$36,000** in interest expenses[144](index=144&type=chunk) [INCOME TAXES](index=33&type=section&id=INCOME%20TAXES) Reports on the income tax provision or benefit and the effective tax rate - The Company recognized an income tax benefit of approximately **$28,000** for Q1 2021 (effective tax rate of **19.1%**) compared to **$79,000** for Q1 2020 (effective tax rate of **27.6%**)[145](index=145&type=chunk) [NET INCOME](index=33&type=section&id=NET%20INCOME) Summarizes the overall net income or loss and its primary drivers - Net loss improved to approximately **$(119,000)** for the three months ended June 30, 2021, from **$(207,000)** in the prior year, primarily due to improved operating loss and the PPP loan forgiveness[146](index=146&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Assesses the company's cash position, working capital, and ability to fund operations and investments - Cash on hand was approximately **$1,383,000** at June 30, 2021, compared to **$1,805,000** at June 30, 2020, with working capital of approximately **$5,556,000**[147](index=147&type=chunk) - Net cash provided by operating activities was approximately **$794,000** for Q1 2021, a significant improvement from **$244,000** used in Q1 2020[147](index=147&type=chunk) - Operating cash flow was positively impacted by a **$4,214,000** decrease in amounts due from Crestmark Bank and a **$3,790,000** increase in accounts payable, offset by increases in accounts receivable (**$3,251,000**) and inventories (**$2,880,000**) for peak season build-up[147](index=147&type=chunk) - Net cash provided by financing activities was approximately **$248,000** for Q1 2021, including **$300,000** borrowed from the Intercreditor Revolving Credit Facility, compared to **$1,749,000** in Q1 2020 which included **$1,400,000** from IHC and **$444,000** from PPP[150](index=150&type=chunk)[151](index=151&type=chunk) - The Company expects current working capital, available credit facilities, and proceeds from the recent private placement to be adequate for liquidity for at least the next twelve months[158](index=158&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=36&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Identifies the accounting policies that require significant judgment and estimates - The interim financial statements rely on management's subjective decisions, assessments, and estimates, which are inherently uncertain[159](index=159&type=chunk) - Critical accounting estimates and assumptions have not materially changed from those identified in the Company's 2021 Annual Report[159](index=159&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) States that this item is not required for smaller reporting companies - Not required for small reporting companies[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Addresses the effectiveness of the company's disclosure controls and internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=36&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Reports on the CEO and CFO's assessment of the effectiveness of disclosure controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in the consolidated financial statements close process[161](index=161&type=chunk)[162](index=162&type=chunk) - The material weakness was primarily related to errors in inventory cutoff and valuation of estimated returns, partly due to a new accounting software system[162](index=162&type=chunk) [Plan for material Weakness in Internal Control over Financial Reporting](index=36&type=section&id=Plan%20for%20material%20Weakness%20in%20Internal%20Control%20over%20Financial%20Reporting) Outlines the company's strategy to address identified material weaknesses in internal controls - Remediation measures include correcting system processing errors in the new ERP system related to returned goods recognition and costing[163](index=163&type=chunk)[164](index=164&type=chunk) - Management plans to strengthen ERP system training for finance and warehouse personnel on inventory cutoff and valuation procedures[164](index=164&type=chunk) - The Company will assess resource adequacy and explore additional third-party assistance for proper inventory controls[164](index=164&type=chunk) [Changes in Internal Controls](index=36&type=section&id=Changes%20in%20Internal%20Controls) Reports on any changes in internal control over financial reporting during the quarter - There were no changes in the Company's internal controls over financial reporting during the quarter ended June 30, 2021, that materially affected, or were reasonably likely to materially affect, internal control over financial reporting[164](index=164&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) Contains additional information not covered in the financial statements, including legal proceedings and exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) Discloses any material legal actions involving the company - A complaint was filed on September 11, 2020, against SMCL alleging employment practice violations; management believes the claims lack merit and will not have a material adverse effect on financial results[166](index=166&type=chunk) - Management is not aware of any other legal proceedings outside the ordinary course of business[167](index=167&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) States that this item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[168](index=168&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on any unregistered sales of equity securities and the application of their proceeds - No unregistered sales of equity securities or use of proceeds were reported[168](index=168&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms whether the company is in default on any of its senior securities - The Company is not currently in default upon any of its senior securities[168](index=168&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Reports on any mine safety disclosures, if applicable - No mine safety disclosures were reported[169](index=169&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) Includes any other material information not disclosed elsewhere in the report - No other information was reported[170](index=170&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) Lists all documents filed as exhibits to the quarterly report - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350[171](index=171&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) Provides the official signatures of the company's authorized officers, certifying the report - The report was signed on August 16, 2021, by Gary Atkinson, Chief Executive Officer, and Lionel Marquis, Chief Financial Officer[174](index=174&type=chunk)