The Singing Machine pany(MICS) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 The condensed consolidated balance sheets show a significant increase in total assets and liabilities from March 31, 2020, to September 30, 2020, primarily driven by a substantial rise in accounts receivable and accounts payable, alongside an increase in operating lease right-of-use assets and corresponding liabilities | Metric | Sep 30, 2020 (Unaudited) ($) | Mar 31, 2020 ($) | | :-------------------------------- | :----------------------- | :----------- | | Assets | | | | Cash | $1,071,242 | $345,200 | | Accounts receivable, net | $18,172,977 | $1,860,500 | | Inventories, net | $8,201,752 | $7,601,277 | | Total Current Assets | $27,613,810 | $13,819,684 | | Operating Leases - right of use assets | $2,460,942 | $573,874 | | Total Assets | $31,567,252 | $16,601,137 | | Liabilities | | | | Accounts payable | $14,929,143 | $5,041,610 | | Total Current Liabilities | $20,614,631 | $9,502,409 | | Total Liabilities | $23,678,119 | $10,913,074 | | Shareholders' Equity | | | | Total Shareholders' Equity | $7,889,133 | $5,688,063 | Condensed Consolidated Statements of Operations The company reported significant improvements in net sales, gross profit, and net income for both the three and six months ended September 30, 2020, compared to the same periods in 2019, driven by increased sales and a gain from an insurance claim | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $23,187,519 | $20,081,842 | $26,511,062 | $24,890,882 | | Gross Profit | $6,725,284 | $5,642,320 | $7,959,296 | $6,630,026 | | Income (Loss) from Operations | $2,438,539 | $859,334 | $1,667,601 | $(242,770) | | Gain from damaged goods insurance claim | $936,537 | $- | $1,067,829 | $- | | Net Income (Loss) | $2,407,874 | $624,222 | $2,201,070 | $(245,359) | | Net Income (Loss) per Common Share (Basic and Diluted) | $0.06 | $0.02 | $0.06 | $(0.01) | Condensed Consolidated Statements of Cash Flows For the six months ended September 30, 2020, net cash used in operating activities decreased significantly compared to the prior year, while net cash provided by financing activities also saw a decrease | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net Income (loss) | $2,201,070 | $(245,359) | | Net cash used in operating activities | $(673,980) | $(2,215,634) | | Net cash used in investing activities | $(84,975) | $(213,186) | | Net cash provided by financing activities | $1,484,997 | $4,471,984 | | Net change in cash | $726,042 | $2,043,164 | | Cash at end of period | $1,071,242 | $2,254,572 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased from March 31, 2020, to September 30, 2020, primarily due to net income | Metric | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :----------------------- | :----------- | :----------- | | Total Shareholders' Equity | $7,889,133 | $5,688,063 | | Accumulated Deficit | $(12,225,486) | $(14,426,556) | | Common Stock Shares Outstanding | 38,557,643 | 38,557,643 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's financial reporting, including its business overview, significant accounting policies, specific financial instrument details, commitments, contingencies, and related party transactions, offering crucial context to the condensed financial statements NOTE 1 – BASIS OF PRESENTATION The Singing Machine Company, Inc. and its wholly-owned subsidiaries are primarily engaged in the development, marketing, and sale of consumer karaoke audio systems, accessories, musical instruments, and musical recordings to retailers and distributors - The Singing Machine Company, Inc. (SMC) and its subsidiaries (Macau Subsidiary, SMC Logistics, Inc., SMC-Music, Inc.) focus on developing, marketing, and selling consumer karaoke audio systems, accessories, musical instruments, and musical recordings[22] - Products are sold by SMC to retailers and distributors for resale to consumers[22] NOTE 2 - SUMMARY OF ACCOUNTING POLICIES This section outlines the key accounting policies used in preparing the condensed consolidated financial statements, including principles of consolidation, use of estimates, revenue recognition, and recent accounting pronouncements, emphasizing compliance with GAAP and SEC requirements for interim reporting PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The condensed consolidated financial statements include all wholly-owned subsidiaries, with inter-company transactions eliminated, and are prepared in accordance with GAAP for interim information and SEC Form 10-Q requirements - The financial statements consolidate the Company and its wholly-owned subsidiaries, eliminating all inter-company accounts and transactions[23] - Statements are prepared in accordance with GAAP for interim financial information and SEC Form 10-Q requirements, and do not include all disclosures required for complete annual statements[23] USE OF ESTIMATES Management makes estimates and assumptions for items like sales returns, warranty reserves, and inventory reserves, which are based on judgment and historical data, and have not materially impacted financial condition historically - Estimates and assumptions are made for sales returns and allowances, warranty reserves, inventory reserves, and promotional incentives[24] - Historically, changes to these estimates have not had a material impact on the Company's financial condition[24] COLLECTIBILITY OF ACCOUNTS RECEIVABLE The allowance for doubtful accounts is based on management's estimates of customer creditworthiness, economic conditions, and historical data, with 100% reserves for bankrupt customers and other reserves based on collection experience - Allowance for doubtful accounts is based on management's estimates of customer creditworthiness, current economic conditions, and historical information[25] - 100% reserves are set for customers in bankruptcy, with other reserves based on historical collection experience[25] - The Company is subject to chargebacks from customers for cooperative marketing, defective returns, and freight, which reduce collectability of open invoices[26] FOREIGN CURRENCY TRANSLATION 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 recorded in operations and translations in shareholders' equity, none of which were material - The Macau Subsidiary's functional currency is the Hong Kong dollar[27] - Financial statements are translated to U.S. dollars using period-end rates for assets/liabilities and average rates for revenues/expenses[27] - Net gains and losses from foreign exchange transactions are recorded in the statement of operations, and translations in shareholders' equity, with no material amounts during the periods presented[27] CONCENTRATION OF CREDIT RISK The Company faces credit risk primarily from accounts receivable and maintains cash balances in U.S. bank accounts exceeding FDIC insured limits, as well as in foreign financial institutions - The Company maintains cash in U.S. bank accounts exceeding FDIC insured amounts and in foreign financial institutions[29] - Financial instruments, particularly accounts receivable, subject the Company to concentrations of credit risk[30] | Metric | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :-------------------------------- | :----------- | :----------- | | Cash balances in foreign financial institutions | ~$896,000 | ~$217,000 | INVENTORY Inventories, primarily electronic karaoke equipment and accessories, are valued at the lower of cost or net realizable value using the FIFO method, including estimates for future returns and reserves for excess/obsolete items - Inventories consist mainly of electronic karaoke equipment, microphones, and accessories, valued at the lower of cost or net realizable value using the FIFO method[31] - Estimated amounts for future inventory returns due to warranty and allowance programs were approximately $1,114,000 as of September 30, 2020, and $1,367,000 as of March 31, 2020[31] - Inventory reserves for estimated excess and obsolete inventory were approximately $905,000 as of September 30, 2020, and $434,000 as of March 31, 2020[31] DEFERRED FINANCING COSTS Deferred financing costs, incurred for revolving credit facilities, are classified as current assets and amortized over twelve months, with approximately $74,000 incurred in June 2020 for the Crestmark and IHC Facilities - Deferred financing costs for revolving credit facilities are classified as current assets[34] - Approximately $74,000 in deferred financing costs were incurred in June 2020 for the Crestmark Facility and IHC Facility, amortized over twelve months[34] LONG-LIVED ASSETS Long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable, with impairment losses recognized if undiscounted future cash flows are less than the carrying amount - Long-lived assets are reviewed for impairment when circumstances suggest carrying amounts may not be recoverable[35] - Impairment losses are recognized if undiscounted future cash flows are less than the carrying amount, reducing carrying amounts to fair value[35] LEASES The Company follows FASB ASC 842, recognizing right-of-use assets and lease liabilities on the balance sheet for leases over twelve months, classifying them as finance or operating leases, and using the incremental borrowing rate for operating leases - The Company applies FASB ASC 842, 'Leases', requiring recognition of right-of-use (ROU) assets and lease liabilities for leases exceeding twelve months[36] - Leases are classified as finance or operating, impacting expense recognition in the income statement[36] - The incremental borrowing rate is used to discount operating lease payments, as the implicit interest rate is not readily determinable[37] PROPERTY AND EQUIPMENT Property and equipment are recorded at cost, net of accumulated depreciation, with depreciation calculated using accelerated and straight-line methods over estimated useful lives - Property and equipment are stated at cost, less accumulated depreciation[38] - Depreciation is provided using accelerated and straight-line methods over estimated useful lives[38] FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's short-term financial instruments, including accounts receivable, accounts payable, and revolving lines of credit, approximate fair value due to their short maturity periods and market-rate interest accruals - The carrying amounts of short-term financial instruments (accounts receivable, accounts payable, accrued expenses, refunds due to customers, due to/from related parties) approximate fair value due to their short maturity[40] - The carrying amounts of subordinated debt, finance leases, installment notes, and revolving lines of credit also approximate fair value due to short maturity and market-rate interest[40] - The Payroll Protection Program note payable's carrying amount approximates fair value, as management intends to apply for total forgiveness[40] REVENUE RECOGNITION AND RESERVE FOR SALES RETURNS Revenue is recognized when goods are delivered and control is transferred to the customer, based on FASB ASC 606, with a single performance obligation for product sales - Revenue is recognized in accordance with FASB ASC 606 when goods are delivered and control is transferred to the customer[41][42] - Contracts with customers typically consist of one performance obligation: the sale of products, with payment terms less than 120 days and no financing elements[44] - A sales return reserve is recorded based on historic return amounts, specific events, and management estimates for variable consideration under return allowance programs[47] | Product Line | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Classic Karaoke Machines | $16,045,445 | $11,737,193 | $18,432,258 | $15,893,233 | | Download Karaoke Machines | $3,214,493 | $4,005,488 | $3,187,553 | $4,146,488 | | SMC Kids Toys | $213,144 | $418,716 | $359,933 | $558,716 | | Music and Accessories | $3,714,437 | $3,920,445 | $4,531,318 | $4,292,445 | | Total Net Sales | $23,187,519 | $20,081,842 | $26,511,062 | $24,890,882 | SHIPPING AND HANDLING COSTS Shipping and handling costs, incurred by the Company and third-party logistics, are classified as selling expenses and increased for both the three and six months ended September 30, 2020, compared to the prior year - Shipping and handling costs are performed by the Company and third-party logistics companies[49] - These costs are classified as a component of selling expenses in the condensed consolidated statements of operations[49] | Period | Shipping and Handling Expenses ($) | | :----------------------- | :----------------------------- | | 3 Months Ended Sep 30, 2020 | ~$305,000 | | 3 Months Ended Sep 30, 2019 | ~$225,000 | | 6 Months Ended Sep 30, 2020 | ~$388,000 | | 6 Months Ended Sep 30, 2019 | ~$314,000 | STOCK BASED COMPENSATION Stock-based compensation for employees is measured at fair value using the Black-Scholes model and expensed over the service period - Stock-based payments to employees are measured at fair value using the Black-Scholes option valuation model and expensed over the service period[50] | Period | Stock Option Expense ($) | | :----------------------- | :------------------- | | 3 Months Ended Sep 30, 2020 | $0 | | 3 Months Ended Sep 30, 2019 | ~$5,000 | | 6 Months Ended Sep 30, 2020 | $0 | | 6 Months Ended Sep 30, 2019 | ~$10,000 | ADVERTISING Advertising costs are expensed when incurred, and cooperative advertising agreements with major customers require proof of performance - Costs for producing and publishing advertising are charged to operations when first incurred[52] - Cooperative advertising agreements with major customers require proof of performance, with allowances ranging from 1% to 13% of purchase[52] | Period | Advertising Expense ($) | | :----------------------- | :------------------ | | 3 Months Ended Sep 30, 2020 | ~$1,094,000 | | 3 Months Ended Sep 30, 2019 | ~$1,419,000 | | 6 Months Ended Sep 30, 2020 | ~$1,415,000 | | 6 Months Ended Sep 30, 2019 | ~$1,780,000 | RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred and included in selling, general, and administrative expenses, showing a decrease for both the three and six months ended September 30, 2020, compared to the prior year - Research and development costs are charged to results of operations as incurred and are a component of selling, general and administrative expenses[55] | Period | R&D Costs ($) | | :----------------------- | :-------- | | 3 Months Ended Sep 30, 2020 | ~$2,000 | | 3 Months Ended Sep 30, 2019 | ~$18,000 | | 6 Months Ended Sep 30, 2020 | ~$15,000 | | 6 Months Ended Sep 30, 2019 | ~$23,000 | INCOME TAXES The Company follows FASB ASC 740 for income taxes, recognizing deferred tax assets and liabilities and a valuation allowance for unrealizable deferred tax assets - The Company follows FASB ASC 740, recognizing deferred tax assets and liabilities for temporary differences between financial statement and tax carrying amounts[56] - A valuation reserve of approximately $88,000 was recognized for deferred tax assets related to net operating loss carryforwards as of September 30, 2020, and March 31, 2020[56] | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income Tax (Provision) Benefit | $(821,040) | $(184,140) | $(742,203) | $54,591 | | Estimated Effective Tax Rate (%) | ~25.2% | ~18.3% | ~25.2% | ~18.3% | | Net Deferred Tax Assets ($) | ~$677,000 (Sep 30, 2020) | ~$1,286,000 (Mar 31, 2020) | | | COMPUTATION OF EARNINGS PER SHARE Earnings per common share are calculated by dividing net income by the weighted average common shares outstanding - Income per common share is computed by dividing net income by the weighted average of common shares outstanding[59] - Total potential dilutive shares from common stock options were approximately 2,230,000 as of September 30, 2020, and 2,250,000 as of September 30, 2019[59] - These shares were included in diluted EPS computation for the three and six months ended September 30, 2020, and the three months ended September 30, 2019, but excluded for the six months ended September 30, 2019, due to their anti-dilutive effect[59] RECENT ACCOUNTING PRONOUNCEMENTS The Company is evaluating the potential effects of ASU 2019-12, 'Income Taxes,' effective after December 15, 2020, which modifies interim income tax provision calculations, and ASU 2016-13, 'Financial Instruments—Credit Losses,' effective after April 1, 2023, requiring immediate recognition of expected credit losses - The Company is evaluating ASU 2019-12, 'Income Taxes' (Topic 740), effective for fiscal years beginning after December 15, 2020, which may affect interim income tax provision calculations[60] - The Company is also evaluating ASU 2016-13, 'Financial Instruments—Credit Losses' (Topic 326), effective for smaller reporting companies for fiscal years beginning after April 1, 2023, which requires immediate recognition of expected credit losses[62] NOTE 3 - INVENTORIES, NET Inventories, net, increased from March 31, 2020, to September 30, 2020, primarily due to an increase in finished goods and inventory in transit, partially offset by an increase in inventory reserves | Component | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :-------------------------- | :----------- | :----------- | | Finished Goods | $6,872,000 | $6,595,000 | | Inventory in Transit | $1,121,000 | $73,000 | | Estimated Amount of Future Returns | $1,114,000 | $1,367,000 | | Subtotal | $9,107,000 | $8,035,000 | | Less: Inventory Reserve | $905,000 | $434,000 | | Inventories, net | $8,202,000 | $7,601,000 | NOTE 4 – PROPERTY AND EQUIPMENT Property and equipment, net, slightly decreased from March 31, 2020, to September 30, 2020, due to increased accumulated depreciation, despite an increase in molds and tooling | Component | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :-------------------------- | :----------- | :----------- | | Computer and office equipment | $445,000 | $445,000 | | Furniture and fixtures | $98,000 | $98,000 | | Warehouse equipment | $195,000 | $195,000 | | Molds and tooling | $1,765,000 | $1,680,000 | | Total | $2,503,000 | $2,418,000 | | Less: Accumulated depreciation | $1,786,000 | $1,647,000 | | Property and equipment, net | $717,000 | $771,000 | | Period | Depreciation Expense ($) | | :----------------------- | :------------------- | | 3 Months Ended Sep 30, 2020 | ~$68,000 | | 3 Months Ended Sep 30, 2019 | ~$60,000 | | 6 Months Ended Sep 30, 2020 | ~$139,000 | | 6 Months Ended Sep 30, 2019 | ~$119,000 | NOTE 5 – BANK FINANCING This note details the Company's various financing arrangements, including a new Intercreditor Revolving Credit Facility with Crestmark and IHC replacing the previous PNC Bank facility, a Paycheck Protection Program loan, installment notes for an ERP system, and a subordinated related party debt Intercreditor Revolving Credit Facility Crestmark Bank and Iron Horse Credit The Company entered into a new two-year Intercreditor Revolving Credit Facility on June 16, 2020, with Crestmark Bank ($10.0M on receivables) and Iron Horse Credit ($2.5M on inventory), replacing the PNC Bank facility - On June 16, 2020, the Company executed a two-year Intercreditor Revolving Credit Facility with Crestmark Bank ($10.0 million on eligible accounts receivable) and Iron Horse Credit (up to $2,500,000 in inventory financing), replacing the PNC Bank facility[65][70] - The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus 5.50% with a floor of 8.75%, and requires a mandatory pay-down to zero in January and February each year[67][68] - The IHC Facility bears interest at 1.292% per month or 15.51% annually and requires maintaining a fixed charge coverage ratio test (waived for the first six months)[71][75] | Facility | Outstanding Balance (Sep 30, 2020) ($) | Interest Expense (3 Months Ended Sep 30, 2020) ($) | Interest Expense (6 Months Ended Sep 30, 2020) ($) | | :----------------------- | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Crestmark Facility | ~$134,000 | ~$51,000 | ~$51,000 | | IHC Facility | $1,022,000 | ~$54,000 | ~$62,000 | Revolving Credit Facility PNC Bank The PNC Revolving Credit Facility, renewed in 2017, was terminated on June 16, 2020, after the Company defaulted on its fixed charge coverage ratio in September 2019 and remained in default until termination - The PNC Revolving Credit Facility was terminated on June 16, 2020, and replaced by the Intercreditor Revolving Credit Facility[72] - The Company defaulted on the PNC facility in September 2019 due to non-compliance with the fixed charge coverage ratio requirement[72] - No amounts were due on the PNC Revolving Credit Facility as of September 30, 2020, and March 31, 2020[72] Note Payable Payroll Protection Plan The Company received a $444,000 loan under the Paycheck Protection Program (PPP) on May 5, 2020, with a 1% interest rate, and expects to apply for total forgiveness of the loan, which is payable over two years if unforgiven - On May 5, 2020, the Company received approximately $444,000 under the Paycheck Protection Program (PPP) loan[73] - The loan and accrued interest may be forgivable if proceeds are used for eligible purposes (payroll, benefits, rent, utilities) and payroll levels are maintained[73] - The unforgiven portion is payable over two years at a 1% interest rate, with payments deferred until a forgiveness application is processed[73] | Metric | Outstanding Balance (Sep 30, 2020) ($) | Interest Expense (3 Months Ended Sep 30, 2020) ($) | Interest Expense (6 Months Ended Sep 30, 2020) ($) | | :----------------------- | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | PPP Note Payable | ~$444,000 | ~$1,000 | ~$2,000 | Installment Notes Payable The Company entered into a financing arrangement with Dimension Funding in June 2019 to finance an ERP system, resulting in three installment notes totaling approximately $365,000, with 60-month terms and interest rates ranging from 7.58% to 9.25% - In June 2019, the Company financed an ERP System project through Dimension Funding, LLC, with three installment notes totaling approximately $365,000[74] - The notes have 60-month terms with interest rates of 7.58%, 8.55%, and 9.25%, payable in monthly installments of $7,459[74] | Metric | Outstanding Balance (Sep 30, 2020) ($) | Outstanding Balance (Mar 31, 2020) ($) | Interest Expense (3 Months Ended Sep 30, 2020) ($) | Interest Expense (6 Months Ended Sep 30, 2020) ($) | | :----------------------- | :------------------------------- | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Installment Notes | ~$312,000 | ~$346,000 | ~$7,000 | ~$14,000 | Subordinated Debt/Note Payable to Related Party Approximately $803,000 of related party debt to Starlight Marketing Development, Ltd. was converted to a 6% subordinated note payable on June 1, 2020, as part of the Intercreditor Revolving Credit Facility agreement - Approximately $803,000 of related party debt to Starlight Marketing Development, Ltd. was converted to a 6% subordinated note payable on June 1, 2020[78] - Repayment of the subordinated note payable is allowed only if amounts borrowed against the Crestmark and IHC facilities are paid in full, the Company maintains a 1:1 debt coverage ratio, and exhibits sufficient cash liquidity[79] | Metric | Outstanding Balance (Sep 30, 2020) ($) | Outstanding Balance (Mar 31, 2020) ($) | Interest Expense (3 Months Ended Sep 30, 2020) ($) | Interest Expense (6 Months Ended Sep 30, 2020) ($) | | :----------------------- | :------------------------------- | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Subordinated Note Payable | ~$803,000 | ~$803,000 | ~$12,000 | ~$24,000 | NOTE 6 - COMMITMENTS AND CONTINGENCIES This section details the Company's commitments and contingencies, including a significant insurance claim settlement for damaged goods, ongoing legal matters in the ordinary course of business, and various operating and finance lease agreements for facilities and equipment INSURANCE CLAIM SETTLEMENT – DAMAGED GOODS INCIDENT The Company recovered approximately $2,336,000 from cargo insurance for a prior year damaged goods incident, settling a $1,268,000 insurance claim receivable and recognizing a gain of approximately $937,000 for the three months and $1,068,000 for the six months ended September 30, 2020 - The Company recovered approximately $2,336,000 from cargo insurance coverage for a damaged goods incident[80] - This settlement resolved approximately $1,268,000 in insurance claim receivable[80] | Period | Gain from damaged goods insurance claim ($) | | :----------------------- | :------------------------------------ | | 3 Months Ended Sep 30, 2020 | ~$937,000 | | 6 Months Ended Sep 30, 2020 | ~$1,068,000 | LEGAL MATTERS Management is not aware of any legal proceedings beyond those arising in the ordinary course of business - Management is not aware of any legal proceedings other than matters that arise in the ordinary course of business[81] LEASES The Company has operating lease agreements for offices and a warehouse in Florida, California, and Hong Kong, expiring through 2024, and finance leases for forklift vehicles - The Company has operating lease agreements for offices and a warehouse facility in Florida, California, and Hong Kong, with various expiration dates through 2024[82][83][84] - Finance leases for two forklift vehicles were entered into in May/June 2018, with monthly payments over 36 months and an effective interest rate of 4.5%[86] | Metric (Sep 30, 2020) | Amount ($) | | :-------------------------------- | :----------- | | Operating lease - right-of-use assets | $2,460,942 | | Finance leases (Property and equipment, net) | $28,499 | | Current portion of operating leases | $765,125 | | Current portion of finance leases | $10,091 | | Operating lease liabilities, net of current portion | $1,743,033 | | Finance leases, net of current portion | $- | | Weighted average remaining lease term (Operating leases) (months) | 35.8 months | | Weighted average remaining lease term (Finance leases) (months) | 9.0 months | | Weighted average discount rate (Operating leases) (%) | 6.25% | | Weighted average discount rate (Finance leases) (%) | 3.68% | | Period (Sep 30, 2020) | Operating Lease Expense ($) | Finance Lease Depreciation ($) | Finance Lease Interest ($) | | :----------------------- | :---------------------- | :------------------------- | :--------------------- | | 3 Months Ended | $176,698 | $1,554 | $109 | | 6 Months Ended | $325,423 | $3,109 | $263 | NOTE 7 - STOCK OPTIONS No stock options were granted during the six months ended September 30, 2020, compared to 100,000 options granted in the prior year - No stock options were issued during the six months ended September 30, 2020[92] - 100,000 stock options were issued to directors during the six months ended September 30, 2019, at an exercise price of $0.38[92] | Metric (Sep 30, 2020) | Number of Options | Weighted Average Exercise Price ($) | | :-------------------------- | :---------------- | :------------------------------ | | Balance at beginning of period | 2,230,000 | $0.26 | | Granted | - | - | | Exercised | - | - | | Balance at end of period | 2,230,000 | $0.26 | | Options exercisable at end of period | 2,230,000 | $0.26 | NOTE 8 - GEOGRAPHICAL INFORMATION Sales to customers outside the United States are primarily made by the Macau Subsidiary in US dollars - Sales to customers outside the United States are primarily conducted by the Macau Subsidiary in US dollars[97] | Geographic Region | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America | $22,476,856 | $16,263,563 | $25,564,563 | $20,877,336 | | Europe | $710,663 | $3,439,976 | $893,475 | $3,539,400 | | Australia | $- | $378,303 | $53,024 | $474,146 | | Total Net Sales | $23,187,519 | $20,081,842 | $26,511,062 | $24,890,882 | NOTE 9 –RELATED PARTY TRANSACTIONS This note details transactions with affiliates of the Chairman of the Board, Mr. Phillip Lau, including amounts due to/from related parties and trade activities DUE TO/FROM RELATED PARTIES As of September 30, 2020, the Company had approximately $244,000 due to related parties for services and licensing fees, a decrease from $502,000 at March 31, 2020 | Metric | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :----------------------- | :----------- | :----------- | | Amounts due to related parties | ~$244,000 | ~$502,000 | | Amounts due from related parties | $0 | $100,000 | TRADE Sales to related parties Winglight Pacific, Ltd. and Cosmo Communications of Canada ceased in the three and six months ended September 30, 2020 - Sales to Winglight Pacific, Ltd. (related party) were $0 for the three and six months ended September 30, 2020, compared to $778,000 and $852,000 respectively in 2019[100][103] - Sales directly to Cosmo Communications of Canada (related party) were $0 for the three and six months ended September 30, 2020, compared to $168,000 and $239,000 respectively in 2019[101][105] - On July 30, 2020, the Company acquired all of Cosmo's karaoke inventory for approximately $685,000 and became the sole and exclusive distributor of its products in Canada[102] | Period | Service Expenses from Starlight Electronics Co, Ltd. ($) | | :----------------------- | :------------------------------------------------- | | 3 Months Ended Sep 30, 2020 | ~$90,000 | | 3 Months Ended Sep 30, 2019 | ~$90,000 | | 6 Months Ended Sep 30, 2020 | ~$181,000 | | 6 Months Ended Sep 30, 2019 | ~$191,000 | NOTE 10 – RESERVE FOR SALES RETURNS The Company records a sales return reserve for defective goods at the time of sale, based on historical return amounts and management estimates - A sales reserve for defective goods is recorded at the time of sale, based on historic return amounts, specific exceptions, and management estimates[108] | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Reserve for sales returns at beginning of the year | $1,224,000 | $896,154 | | Provision for estimated sales returns | $2,306,668 | $3,543,813 | | Sales returns received | $(1,807,613) | $(1,209,322) | | Reserve for sales returns at end of the period | $1,723,055 | $3,230,645 | NOTE 11 – REFUNDS DUE TO CUSTOMERS Refunds due to customers significantly decreased from March 31, 2020, to September 30, 2020, primarily due to the resolution of overstock returns and chargebacks from a major customer related to prior year damaged goods | Metric | Sep 30, 2020 ($) | Mar 31, 2020 ($) | | :----------------------- | :----------- | :----------- | | Refunds due to customers | ~$121,000 | ~$807,000 | - Refunds due to customers at September 30, 2020, were primarily due to one major customer for overstock returns[110] - Refunds due at March 31, 2020, included approximately $1,691,000 in chargebacks from a major customer for damaged goods, partially offset by deductions on payment remittances[110] NOTE 12 - EMPLOYEE BENEFIT PLANS The Company contributes to a 401(k) plan for employees, with contributions and administrative costs charged to operations - The Company has a 401(k) plan for employees, with contributions dependent on employee contributions and limited to federal income tax maximums[111] | Period | Contributions and Administrative Costs ($) | | :----------------------- | :------------------------------------- | | 3 Months Ended Sep 30, 2020 | ~$20,000 | | 3 Months Ended Sep 30, 2019 | ~$18,000 | | 6 Months Ended Sep 30, 2020 | ~$34,000 | | 6 Months Ended Sep 30, 2019 | ~$32,000 | NOTE 13 - CONCENTRATIONS OF CREDIT AND SALES RISK The Company's revenue and accounts receivable are highly concentrated with a few large North American customers - A majority of the Company's revenues are derived from retailers in the United States[112] - Accounts receivable are concentrated with several large customers; at September 30, 2020, 93% of accounts receivable were due from four customers[112] - For the three months ended September 30, 2020, three customers individually accounted for 44%, 21%, and 12% of the Company's gross sales[114] - For the six months ended September 30, 2020, three customers individually accounted for 40%, 20%, and 15% of the Company's gross sales[115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting forward-looking statements, business overview, seasonal fluctuations, the impact of COVID-19, and detailed analysis of financial performance for the three and six months ended September 30, 2020, compared to the prior year, along with discussions on liquidity and capital resources FORWARD-LOOKING STATEMENTS This section contains forward-looking statements regarding anticipated financial trends, business strategy, and potential impacts of external factors, which are subject to risks and uncertainties and should not be considered guarantees of future performance - The report contains forward-looking statements about financial condition, results of operations, and business strategy, which are subject to known and unknown risks and uncertainties[117][118] - Important factors influencing these statements 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[119] - Readers are cautioned not to place undue reliance on these statements, and the Company undertakes no obligation to revise or publicly release revisions[120] OVERVIEW The Singing Machine Company, Inc. develops, markets, and sells consumer karaoke audio systems and related products globally, primarily through mass merchandisers and online retailers - The Singing Machine Company, Inc. and its subsidiaries are primarily engaged in the development, marketing, and sale of consumer karaoke audio systems, accessories, musical instruments, and musical recordings[121] - Products are sold throughout North America, Europe, and Australia, mainly through major mass merchandisers, warehouse clubs, and online retailers, including Amazon, Best Buy, Costco, Target, and Wal-Mart[122][123] - The business is highly seasonal, with a majority of retail sales occurring from September through December (Q2 and Q3), accounting for approximately 98% and 94% of net sales in fiscal 2020 and 2019, respectively[125] - The COVID-19 pandemic has significantly affected U.S. consumer shopping patterns, and its severity and duration could materially and adversely affect business operations, financial condition, and liquidity[126] RESULTS OF OPERATIONS The Company's results of operations for the three and six months ended September 30, 2020, show significant improvements in net sales, gross profit, and net income compared to the prior year, driven by increased demand for Carpool Karaoke products, recovery from a prior-year damaged goods incident, and reduced operating expenses | Metric (% of Net Sales) | 3 Months Ended Sep 30, 2020 (%) | 3 Months Ended Sep 30, 2019 (%) | 6 Months Ended Sep 30, 2020 (%) | 6 Months Ended Sep 30, 2019 (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of Goods Sold | 71.0% | 71.9% | 70.0% | 73.4% | | Gross Profit | 29.0% | 28.1% | 30.0% | 26.6% | | Total Operating Expenses | 18.5% | 23.8% | 23.8% | 27.6% | | Income (Loss) from Operations | 10.5% | 4.3% | 6.3% | -1.0% | | Total Other Income (expenses), net | 3.4% | -0.2% | 4.8% | -0.2% | | Income (Loss) Before Income Tax (Provision) Benefit | 13.9% | 4.1% | 11.1% | -1.2% | | Income Tax (Provision) Benefit | -3.5% | -0.9% | -2.8% | 0.2% | | Net Income (Loss) | 10.4% | 3.2% | 8.3% | -1.0% | QUARTER ENDED SEPTEMBER 30, 2020 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2019 For the three months ended September 30, 2020, the Company experienced a substantial increase in net sales, gross profit, and net income, primarily driven by higher Carpool Karaoke product sales, recovery from a prior-year damaged goods incident, and reduced operating expenses NET SALES Net sales increased by approximately $3.1 million, or 15.5%, to $23.2 million for the three months ended September 30, 2020, compared to the prior year, primarily due to a $1.1 million increase in Carpool Karaoke product sales and the absence of a $1.5 million sales reduction from a prior-year damaged goods incident | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Net Sales | ~$23,188,000 | ~$20,082,000 | +$3,106,000 | | CPK product sales increase | ~$1,098,000 | - | - | | Sales reduction from damaged goods (prior year) | - | ~$1,534,000 | - | | Remaining increase from internet demand | ~$474,000 | - | - | GROSS PROFIT Gross profit increased by approximately $1.1 million, or 19.2%, to $6.7 million, and gross profit margin improved to 29.0% for the three months ended September 30, 2020, driven by higher-margin Carpool Karaoke product sales and the impact of the prior-year damaged goods incident | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Gross Profit | ~$6,725,000 | ~$5,642,000 | +$1,083,000 | | Gross Profit Margin (%) | 29.0% | 28.1% | +0.9 pts | | CPK product sales contribution to gross profit | ~$638,000 | - | - | | Damaged goods incident contribution to gross profit variance | ~$286,000 | - | - | OPERATING EXPENSES Total operating expenses decreased by approximately $496,000, or 10.4%, to $4.3 million for the three months ended September 30, 2020, primarily due to reduced discretionary marketing and one-time expenses from the prior year, partially offset by increased royalty expenses on Carpool Karaoke products | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Total Operating Expenses | ~$4,287,000 | $4,783,000 | -$496,000 | | Selling expenses decrease | ~$111,000 | - | - | | Reduced discretionary marketing expenses | ~$200,000 | - | - | | Increased royalty expense on CPK product | ~$148,000 | - | - | | General and administrative expenses decrease | ~$393,000 | - | - | | One-time expenses (prior year) | - | ~$219,000 (damaged goods), ~$135,000 (J C Penney insurance) | - | INCOME FROM OPERATIONS Income from operations significantly increased by approximately $1.6 million, or 183.8%, to $2.4 million for the three months ended September 30, 2020, primarily due to the increase in gross profit and reduction in operating expenses | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Income from Operations | ~$2,439,000 | $859,000 | +$1,580,000 | OTHER INCOME (EXPENSES) Other income (expenses) increased by approximately $841,000 to $790,000 in net other income for the three months ended September 30, 2020, primarily due to a $937,000 recovery from a damaged goods insurance claim, partially offset by increased interest and financing costs | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Total Other Income (Expenses), net | ~$790,000 | $(51,000) | +$841,000 | | Recovery from damaged goods insurance claim | ~$937,000 | - | - | | Increase in interest expense and amortization of deferred financing costs | ~$96,000 | - | - | INCOME TAXES The Company recognized an income tax provision of approximately $821,000 for the three months ended September 30, 2020, based on an estimated full-year effective tax rate of 25.2%, compared to a $184,000 provision in the prior year | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | | :----------------------- | :-------------------------- | :-------------------------- | | Income Tax Provision | ~$821,000 | ~$184,000 | | Estimated Effective Tax Rate (%) | ~25.2% | ~18.3% | NET INCOME Net income for the three months ended September 30, 2020, increased significantly to $2.4 million, up from $624,000 in the prior year, reflecting improvements across operations, other income, and tax provisions | Metric | 3 Months Ended Sep 30, 2020 ($) | 3 Months Ended Sep 30, 2019 ($) | | :----------------------- | :-------------------------- | :-------------------------- | | Net Income | ~$2,408,000 | ~$624,000 | SIX MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2019 For the six months ended September 30, 2020, the Company transitioned from a net loss to a significant net income, driven by increased net sales, improved gross profit margins, reduced operating expenses, and substantial other income from insurance claims and vendor credits NET SALES Net sales increased by approximately $1.6 million, or 6.5%, to $26.5 million for the six months ended September 30, 2020, primarily due to a $939,000 increase in Carpool Karaoke product sales and the absence of a $1.5 million sales reduction from a prior-year damaged goods incident, partially offset by an $826,000 reduction in sales to J C Penney | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Net Sales | ~$26,511,000 | $24,891,000 | +$1,620,000 | | CPK product sales increase | ~$939,000 | - | - | | Sales reduction from damaged goods (prior year) | - | $1,534,000 | - | | Reduction in sales to J C Penney | -$826,000 | - | - | GROSS PROFIT Gross profit increased by approximately $1.3 million, or 20.0%, to $8.0 million, and gross profit margin improved to 30.0% for the six months ended September 30, 2020, driven by higher-margin Carpool Karaoke product sales and the impact of the prior-year damaged goods incident | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Gross Profit | ~$7,959,000 | $6,630,000 | +$1,329,000 | | Gross Profit Margin (%) | 30.0% | 26.6% | +3.4 pts | | CPK product sales contribution to gross profit | ~$542,000 | - | - | | Damaged goods incident contribution to gross profit variance | ~$296,000 | - | - | OPERATING EXPENSES Total operating expenses decreased by approximately $581,000, or 8.5%, to $6.3 million for the six months ended September 30, 2020, primarily due to reduced discretionary marketing, one-time prior-year expenses, and decreased travel, partially offset by increased royalty expenses and computer services | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Total Operating Expenses | ~$6,292,000 | $6,873,000 | -$581,000 | | Selling expenses decrease | ~$200,000 | - | - | | Reduced discretionary marketing expense | ~$343,000 | - | - | | Increase in royalty expenses | ~$130,000 | - | - | | General and administrative expenses decrease | ~$401,000 | - | - | | One-time expenses (prior year) | - | ~$219,000 (damaged goods), ~$135,000 (J C Penney insurance) | - | | Decrease in travel and entertainment | ~$153,000 | - | - | INCOME (LOSS) FROM OPERATIONS The Company reported income from operations of approximately $1.7 million for the six months ended September 30, 2020, a significant improvement from a loss of $243,000 in the prior year, driven by increased gross profit and reduced operating expenses | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | Change ($) | | :----------------------- | :-------------------------- | :-------------------------- | :------- | | Income (Loss) from Operations | ~$1,668,000 | $(243,000) | +$1,911,000 | OTHER INCOME (EXPENSES) Other income (expenses) increased by approximately $1.3 million to $1.3 million in net other income for the six months ended September 30, 2020, primarily due to a $1.1 million recovery from a damaged goods insurance claim and a $390,000 gain from extinguishment of accounts payable, partially offset by increased interest and financing costs | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | Change ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | | Total Other Income (Expenses), net | ~$1,276,000 | $(57,000) | +$1,333,000 | | Recovery from damaged goods insurance claim | ~$1,068,000 | - | - | | Gain from extinguishment of accounts payable | ~$390,000 | - | - | | Increase in interest expense and amortization of deferred financing costs | ~$125,000 | - | - | INCOME TAXES The Company recorded an income tax provision of approximately $742,000 for the six months ended September 30, 2020, based on an estimated full-year effective tax rate of 25.2%, a shift from an income tax benefit of $55,000 in the prior year | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :----------------------- | :-------------------------- | :-------------------------- | | Income Tax (Provision) Benefit | ~$742,000 | ~$55,000 | | Estimated Effective Tax Rate (%) | ~25.2% | ~18.3% | NET INCOME (LOSS) Net income for the six months ended September 30, 2020, was approximately $2.2 million, a significant improvement from a net loss of $245,000 in the prior year, reflecting positive changes across operations, other income, and tax provisions | Metric | 6 Months Ended Sep 30, 2020 ($) | 6 Months Ended Sep 30, 2019 ($) | | :----------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | ~$2,201,000 | ~$(245,000) | LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity improved with $1.1 million cash on hand and $7.0 million in working capital as of September 30, 2020 | Metric | Sep 30, 2020 ($) | Sep 30, 2019 ($) | | :-------------------------------- | :----------- | :----------- | | Cash on hand | ~$1,071,000 | ~$2,255,000 | | Working capital | ~$6,999,000 | - | | Net cash used in operating activities (6 months) | ~$674,000 | ~$2,216,000 | | Net cash provided by financing activities (6 months) | ~$1,485,000 | ~$4,472,000 | - The Company executed an Intercreditor Revolving Credit Facility with Crestmark and IHC, providing up to $10.0 million on eligible accounts receivable and $2.5 million on eligible inventory, replacing the PNC Bank facility[156] - The Company received approximately $444,000 from the Paycheck Protection Program (PPP) loan and expects to apply for total forgiveness[158] - Management believes current cash, available credit facilities, projected inventory reduction, and operating cash flow will be adequate for liquidity requirements for at least the next twelve months[159] INVENTORY SELL THROUGH The Company actively monitors customer inventory levels and sell-through activity to forecast defective returns and maintain optimal inventory - The Company monitors inventory levels and sell-through activity of major customers to anticipate defective returns and maintain appropriate inventory levels[160] - The warranty provision is believed to reflect proper reserves for potential defective sales returns based on historical return ratios and customer information[160] SEASONAL AND QUARTERLY RESULTS The Company's operations are highly seasonal, with the majority of net sales occurring in the second and third fiscal quarters due to the Christmas holiday season, leading to fluctuations in quarterly results based on order timing and fulfillment - Operations are historically seasonal, with the highest net sales in the second and third fiscal quarters (September-December) due to the Christmas holiday season[161] - Sales in the second and third fiscal quarters combined accounted for approximately 98% and 94% of net sales in fiscal 2020 and 2019, respectively[161] - Quarterly results can fluctuate significantly based on the amount and timing of customer orders and shipments[162] INFLATION Inflation has not significantly impacted the Company's operations, as prices are generally adjusted to reflect changes in the Consumer Price Index - Inflation has not had a significant impact on the Company's operations[163] - Prices are generally adjusted to track changes in the Consumer Price Index, as they are not fixed by long-term contracts[163] OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on its financial condition, revenues, results of operations, liquidity, or capital expenditures - The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on its financial condition, revenues, results of operations, liquidity, or capital expenditures[164] CRITICAL ACCOUNTING POLICIES The Company's interim financial statements rely on management's subjective decisions, assessments, and estimates, which have not materially changed from those identified in the 2020 Annual Report - Interim financial statements are prepared in accordance with GAAP, requiring subjective decisions, assessments, and estimates[165] - Critical accounting estimates and assumptions have not materially changed from those identified in the Company's 2020 Annual Report[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for smaller reporting companies - This disclosure is not required for small reporting companies[166] Item 4. Controls and Procedures The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2020, ensuring timely and accurate reporting - The CEO and CFO evaluated disclosure controls and procedures and concluded they were effective as of September 30, 2020[167] - Disclosure controls ensure information required for Exchange Act reports is recorded, processed, summarized, and reported timely[167] - No material changes in internal control over financial reporting occurred during the period covered by the report[168] PART II. OTHER INFORMATION Item 1. Legal Proceedings Management is not aware of any legal proceedings other than those arising 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[171] Item 1A. Risk Factors This item is not applicable for smaller reporting companies - This item is not applicable for smaller reporting companies[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities and use of proceeds[173] Item 3. Defaults Upon Senior Securities The Company is not currently in default upon any of its senior securities - The Company is not currently in default upon any of its senior securities[173] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - There are no mine safety disclosures[174] Item 5. Other Information There is no other information to report under this item - There is no other information to report[175] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer as required by the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act - Exhibits include certifications from the CEO (Gary Atkinson) and CFO (Lionel Marquis) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934[177] - Certifying statements from the CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act, are also filed[177] SIGNATURES The report is duly signed on November 16, 2020, by Gary Atkinson, Chief Executive Officer, and Lionel Marquis, Chief Financial Officer, on behalf of The Singing Machine Company, Inc - The report was signed on November 16, 2020[181] - Signatories include Gary Atkinson, Chief Executive Officer, and Lionel Marquis, Chief Financial Officer[181]