Quarterly report [Sections 13 or 15(d)]



STYLE="font: 10pt Times New Roman, Times, Serif">
























UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION








WASHINGTON,
DC 20549










FORM
10-Q/A












(Amendment
No. 1)





(Mark
One)
















































[X]




QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934












For
quarter ended September 30, 2020















[  ]



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

0-24968









THE
SINGING MACHINE COMPANY, INC.





(Exact
Name of Registrant as Specified in its Charter)



















DELAWARE






95-3795478



(State
of Incorporation )






(IRS
Employer I.D. No.)









6301
NW 5

th

Way, Suite 2900, Fort Lauderdale FL 33309





(Address
of principal executive offices)








(954)
596-1000




(Registrant’s
telephone number, including area code)








Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90 days. Yes [X] No [  ]








Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One)








Large
accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller Reporting Company
[X] Emerging growth company [  ]








Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]









APPLICABLE
ONLY TO ISSUES INVOLVED IN BANKRUPTCY






PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:











Indicated
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ]
No [  ]











APPLICABLE
ONLY TO CORPORATE ISSUERS:









Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:





















CLASS






NUMBER
OF SHARES OUTSTANDING



Common
Stock, $0.01 par value






38,557,643
as of November 13, 2020



























































EXPLANATORY
NOTE









As
described in form 8K filed on January 29, 2021, the Audit Committee of the Board of Directors of The Singing Machine Company,
Inc. (the “Company”) and management, in consultation with the Company’s independent registered public accounting
firm, EisnerAmper LLP, has concluded that the following previously issued consolidated financial statements and related disclosures
of the Company should no longer be relied upon due to misstatements contained in such financial statements:






















i.



The
audited consolidated financial statements for the fiscal years ended March 31, 2020 and 2019;






ii.




The
unaudited condensed consolidated financial statements as of and for each of the interim
periods ended September 30, 2020 and 2019, June 30, 2020 and 2019 and December 31, 2019
(the “Restated Periods”)













The
management of the Company has determined that in accordance with FASB ASC Topic 606 section 10-32-26, the Company incorrectly
accounted for the cost of cooperative (“co-op”) promotion allowances (previously referred to as “cooperative
advertising”), as selling expenses instead of a reduction of the transaction prices recorded in net sales for each of the
Restated Periods.








Pursuant
to FASB ASC Topic 606 section 10-32-26, if cooperative allowances payable to a customer is a payment for a distinct good or service
from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other
purchases from suppliers. If the amount of consideration payable to the customer exceeds the fair value of the distinct good or
service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction
price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account
for all of the consideration payable to the customer as a reduction of the transaction price.










Effects
of the Misstatements










The
effects of this accounting error do not impact the consolidated balance sheets, statements of cash flows and statements of shareholders’
equity for any current or past reporting period. The effects are confined to the consolidated statements of operations, MD&A
discussions, notes to consolidated financial statements, and management’s assessment of internal control of the Restated
Periods. The net income or loss reported in the aforementioned reporting periods has not changed. The impact of this error on
the audited consolidated financial statements is as follows:


























For
the three months and the six months ended September 30, 2020 reported net sales will be reduced by $902,280, and $1,173,840,
respectively, representing an approximate four percent reduction in each period. Total net sales for the three months ended
September 30, 2020 as originally reported were $23,187,519 and will be restated to $22,285,239 reducing the gross profit percentage
from 29.0% to 26.1%. Total net sales for the six months ended September 30, 2020 as originally reported were $26,511,062 and
will be restated to $25,337,222 reducing the gross profit percentage from 30.0% to 26.8%. Correspondingly, for the three months
and the six months ended September 30, 2020 reported total operating expenses will be reduced by $902,280, and $1,173,840,
respectively, representing a 21 % and an approximate 19% reduction in each period, respectively. Total operating expenses
as originally reported of $4,286,745 will be restated to $3,384,465 for the three months ended September 30, 2020. Total operating
expenses as originally reported of $6,291,695 will be restated to $5,117,855 for the six months ended September 30, 2020 Net
income of $2,407,874 for the three months ended September 30, 2020, and net income of $2,201,070 for the six months ended
September 30, 2020, as previously reported, are not changed by these restatements.










For
the three months and the six months ended September 30, 2019 reported net sales will be reduced by $1,027,327, and $1,196,129,
respectively, representing an approximate five percent reduction in each period. Total net sales for the three months ended
September 30, 2019 as originally reported were $20,081,842 and will be restated to $19,054,515 reducing the gross profit percentage
from 28.1% to 24.2%. Total net sales for the six months ended September 30, 2019 as originally reported were $24,890,882 and
will be restated to $23,694,753 reducing the gross profit percentage from 26.6% to 22.9%. Correspondingly, for the three months
and the six months ended September 30, 2019 reported total operating expenses will be reduced by $1,027,327 and $1,196,129,
respectively, representing an approximate 21% and 17% reduction in each period, respectively. Total operating expenses as
originally reported of $4,782,986 will be restated to $3,755,659 for the three months ended September 30, 2019. Total operating
expenses as originally reported of $6,872,796 will be restated to $5,676,667 for the six months ended September 30, 2019.
Net income of $624,222 for the three months ended September 30, 2019, and net loss of $245,359 for the six months ended September
30, 2019, as previously reported, and are not changed by these restatements.














Internal
Controls Over Financial Reporting














As
a result of the misstatements, management also concluded that we had a material weakness in our control over financial reporting.
For more information regarding management’s assessment of internal control over financial reporting and disclosure controls
and procedures, as well as the related remediation actions, refer to Item 4 “Controls and Procedures” in this Interim
Report on Form 10-Q/A.








This
Form 10-Q/A amends and restates the entire contents of the original Form 10-Q. The Part I portions of this Form 10-Q/A that have
been revised to give effect to the restatements and matters related thereto are as follows:































Item
1. Financial Statements










Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations










Item
4. Controls and Procedures








In
addition, the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of
the date of this filing in connection with this Form 10-Q/A Part II Item 6 Exhibits 31.1, 31.2, 32.1 and 32.2.








Except
as described above, no other changes have been made to the Company’s Interim Report on Form 10-Q/A for the six months ended
September 30, 2020 (the “Original Filing”). This Form 10-Q/A speaks as of the date of the Original Filing and does
not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have
been affected by subsequent events.








The
Company will be amending the previous Form 10-K reports covering the audited consolidated financial statements as of and for each
of the years ended March 31, 2020 and 2019, and the Form 10-Q report covering the unaudited condensed consolidated financial statements
as of and for each of the interim periods ended June 30, 2020 and 2019, through separate filings of Forms 10-K/A and 10-Q/A, respectively.
The interim period covering December 31, 2019 will be restated in connection with our filing of the December 31, 2020 Form 10-Q.









































THE
SINGING MACHINE COMPANY, INC. AND SUBSIDIARIES






















































































































































































































INDEX





















Page
No.




PART I. FINANCIAL INFORMATION







Item
1.




Financial Statements





















Condensed Consolidated Balance Sheets – September 30, 2020

(Unaudited) and March 31, 2020




3

















Condensed Consolidated Statements of Operations – Three and six months ended September 30, 2020 and 2019 (Unaudited and As Restated)





4

















Condensed Consolidated Statements of Cash Flows - Six months

ended September 30, 2020 and 2019(Unaudited)




5

















Condensed Consolidated Statements of Shareholders’ Equity –

Three and six months ended September 30, 2020 and 2019 (Unaudited)




6

















Notes to Condensed Consolidated Financial Statements -

September 30, 2020 (Unaudited and As Restated)




7













Item
2.










Management’s Discussion and Analysis of Financial

Condition and Results of Operations



19













Item
3.




Quantitative and Qualitative Disclosures About Market Risk



24













Item
4

.



Controls and Procedures




24
















PART II. OTHER INFORMATION
















Item
1.




Legal Proceedings




25












Item
1A.




Risk Factors




25












Item
2.




Unregistered Sales of Equity Securities and Use of Proceeds




25












Item
3.




Defaults Upon Senior Securities




25












Item
4.




Mine Safety Disclosures




25












Item
5.




Other Information




25












Item
6.




Exhibits




25













SIGNATURES




26



















2



























PART
I. FINANCIAL INFORMATION










ITEM
1. FINANCIAL STATEMENTS











The
Singing Machine Company, Inc. and Subsidiaries






CONDENSED
CONSOLIDATED BALANCE SHEETS



















































































































































































































































































































































































































































































































































































































September
30, 2020









March
31, 2020












(Unaudited)















Assets











Current Assets



























Cash






$



1,071,242









$



345,200






Accounts receivable,
net of allowances of $600,799 and $337,461, respectively









18,172,977












1,860,500






Due from banks









-












2,388,438






Accounts receivable
related party - Winglight Pacific, Ltd









-












100,000






Insurance claim
receivable









-












1,268,463






Inventories, net









8,201,752












7,601,277






Prepaid expenses
and other current assets









115,617












252,473






Deferred
financing costs









52,222












3,333






Total
Current Assets









27,613,810












13,819,684

































Property and equipment,
net









717,436












771,349






Deferred tax assets









677,267












1,285,721






Operating Leases
- right of use assets









2,460,942












573,874






Other
non-current assets









97,797












150,509






Total
Assets






$



31,567,252









$



16,601,137


































Liabilities
and Shareholders’ Equity












Current
Liabilities



























Accounts payable






$



14,929,143









$



5,041,610






Accrued expenses









1,428,364












1,529,168






Due to related party
- Starlight Consumer Electronics Co., Ltd.









14,400












14,400






Due to related party
- Starlight Electronics Co., Ltd









114,243












372,300






Due to related party
- Starlight R&D, Ltd.









115,016












115,016






Revolving lines
of credit









1,156,323












-






Refunds due to customers









120,565












806,475






Reserve for sales
returns









1,723,055












1,224,000






Current portion
of finance leases









10,091












14,953






Current portion
of installment notes









65,621












63,098






Current portion
of note payable - Paycheck Protection Program









172,685












-






Current
portion of operating lease liabilities









765,125












321,389






Total
Current Liabilities









20,614,631












9,502,409

































Finance
leases, net of current portion









-












2,550






Installment
notes, net of current portion









246,581












283,193






Note
payable - Payroll Protection Program, net of current portion









271,215












-






Operating
lease liabilities, net of current portion









1,743,033












322,263






Subordinated
related party debt - Starlight Marketing Development, Ltd.,









802,659












802,659






Total
Liabilities









23,678,119












10,913,074

































Commitments
and Contingencies






















































Shareholders’
Equity


























Preferred stock, $1.00 par value;
1,000,000 shares authorized; no

shares issued and
outstanding









-












-






Common stock, Class A, $0.01 par value;
100,000 shares authorized; no shares
issued and outstanding









-












-






Common stock, Class
B, $0.01 par value; 100,000,000 shares authorized; 38,557,643 shares
issued and outstanding









385,576












385,576






Additional paid-in
capital









19,729,043












19,729,043






Accumulated
deficit









(12,225,486



)









(14,426,556



)



Total
Shareholders’ Equity









7,889,133












5,688,063






Total
Liabilities and Shareholders’ Equity






$



31,567,252









$



16,601,137













See
notes to the condensed consolidated financial statements



















3


























The
Singing Machine Company, Inc. and Subsidiaries






CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS






(Unaudited)































































































































































































































































































































































































































































































































































































































































































































































For
the Three Months Ended









For
the Six Months Ended












September
30, 2020









September
30, 2019









September
30, 2020









September
30, 2019












(as restated)









(as restated)









(as restated)









(as restated)













































Net Sales






$



22,285,239









$



19,054,515









$



25,337,222









$



23,694,753

























































Cost
of Goods Sold









16,462,235












14,439,522












18,551,766












18,260,856

























































Gross Profit









5,823,004












4,614,993












6,785,456












5,433,897

























































Operating Expenses



















































Selling expenses









1,474,811












1,460,802












1,773,804












1,951,293






General and administrative
expenses









1,841,873












2,235,269












3,205,163












3,606,325






Depreciation









67,781












59,588












138,888












119,049






Total
Operating Expenses









3,384,465












3,755,659












5,117,855












5,676,667

























































Income (Loss) from
Operations









2,438,539












859,334












1,667,601












(242,770



)






















































Other Income (Expenses)



















































Gain from damaged
goods insurance claim









936,537












-












1,067,829












-






Gain from extinguishment
of accounts payable









-












-












390,000












-






Interest expense









(127,731



)









(47,639



)









(157,321



)









(50,514



)



Finance
costs









(18,431



)









(3,333



)









(24,836



)









(6,666



)



Total
Other Income (Expenses), net









790,375












(50,972



)









1,275,672












(57,180



)






















































Income (Loss) Before
Income Tax (Provision) Benefit









3,228,914












808,362












2,943,273












(299,950



)






















































Income
Tax (Provision) Benefit









(821,040



)









(184,140



)









(742,203



)









54,591

























































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



)



Diluted






$



0.06









$



0.02









$



0.06









$



(0.01



)






















































Weighted Average Common and Common



















































Equivalent Shares:



















































Basic









38,557,643












38,518,513












38,557,643












38,494,687






Diluted









39,107,908












39,343,383












38,982,775












38,494,687













See
notes to the condensed consolidated financial statements



















4




























The
Singing Machine Company, Inc. and Subsidiaries






CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS






(Unaudited)















































































































































































































































































































































































































































































































































































































































For
the Six Months Ended












September
30, 2020









September
30, 2019



























Cash flows from operating
activities



























Net
Income (loss)






$



2,201,070









$



(245,359



)



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



























Depreciation









138,888












119,049






Amortization of
deferred financing costs









24,836












6,666






Change in inventory
reserve









471,131












-






Change in allowance
for bad debts









263,338












280,099






Stock based compensation









-












22,504






Change in net deferred
tax assets









608,454












(54,591



)



Gain from extinguishment
of accounts payable









390,000












-






Changes in operating
assets and liabilities:



























Accounts receivable









(16,575,815



)









(14,759,924



)



Due from banks









2,388,438












2,236,779






Accounts receivable
- related parties









100,000












(913,720



)



Insurance receivable









1,268,463












(1,247,981



)



Inventories









(1,071,606



)









(9,264,414



)



Prepaid expenses
and other current assets









136,856












16,667






Other non-current
assets









52,712












(104,659



)



Accounts payable









9,497,533












16,614,553






Accrued expenses









(100,804



)









827,153






Due to related parties









(258,057



)









259,767






Customer deposits









-












66,923






Refunds due to customers









(685,910



)









1,617,698






Reserve for sales
returns









499,055












2,334,491






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









(22,562



)









(27,335



)



Net
cash used in operating activities









(673,980



)









(2,215,634



)






























Cash flows from investing
activities



























Purchase
of property and equipment









(84,975



)









(213,186



)



Net
cash used in investing activities









(84,975



)









(213,186



)












Cash flows from financing
activities



























Net proceeds from
revolving lines of credit









1,156,323












4,428,588






Proceeds from note
payable - Payroll Protection Program









443,900












-






Payment of bank
term note









-












(125,000



)



Payment of deferred
financing charges









(73,725



)









-






Proceeds from installment
note









-












175,840






Proceeds from subscription
receivable









-












2,200






Proceeds from exercise
of stock options









-












10,200






Payment on subordinated
debt - related party









-












(12,708



)



Payments on installment
notes









(34,089



)









-






Payments
on finance leases









(7,412



)









(7,136



)



Net
cash provided by financing activities









1,484,997












4,471,984






Net change in cash









726,042












2,043,164

































Cash at beginning
of period









345,200












211,408






Cash at end
of period






$



1,071,242









$



2,254,572

































Supplemental disclosures
of cash flow information:



























Cash
paid for interest






$



142,674









$



62,370






Operating
leases - right of use assets initial adoption






$



-









$



1,108,330






Operating
lease liabilities - initial adoption






$



-









$



1,234,368






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






$



2,184,105









$



-





















See
notes to the condensed consolidated financial statements























5






























The
Singing Machine Company, Inc. and Subsidiaries






CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY





For
the three months ended September 30, 2020 and 2019




(Unaudited)

































































































































































































































































































































































































































































































































































Preferred
Stock









Common
Stock









Additional
Paid











Subscriptions















Accumulated





















Shares









Amount









Shares









Amount









in
Capital












Receivable











Deficit











Total


















































































Balance
at June 30, 2020









-









$



-












38,557,643









$



385,576









$



19,729,043









$



-









$



(14,633,360



)






$



5,481,259









































































































Net
income

















































































2,407,874












2,407,874









































































































Balance
at September 30, 2020









-









$



-












38,557,643









$



385,576









$



19,729,043









$



-









$



(12,225,486



)






$



7,889,133









































































































Balance
at June 30, 2019









-









$



-












38,497,643









$



384,977









$



19,704,436









$



-









$



(12,439,137



)






$



7,650,276









































































































Net
income

















































































624,222












624,222






Employee
compensation-stock option

























































5,002




































5,002






Exercise
of stock options

































60,000












600












9,600




































10,200









































































































Balance
at September 30, 2019









-









$



-












38,557,643









$



385,577









$



19,719,038









$



-









$



(11,814,915



)






$



8,289,700
























The
Singing Machine Company, Inc. and Subsidiaries






CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY





For
the six months ended September 30, 2020 and 2019




(Unaudited)







































































































































































































































































































































































































































































































































































































































Preferred
Stock









Common
Stock











Additional
Paid













Subscriptions













Accumulated



















Shares









Amount









Shares









Amount










in
Capital















Receivable















Deficit















Total


















































































Balance
at March 31, 2020









-









$



-












38,557,643









$



385,576









$



19,729,043









$



-









$



(14,426,556



)






$



5,688,063









































































































Net
income

















































































2,201,070












2,201,070









































































































Balance
at September 30, 2020









-









$



-












38,557,643









$



385,576









$



19,729,043









$



-









$



(12,225,486



)






$



7,889,133









































































































Balance
at March 31, 2019









-









$



-












38,464,753









$



384,648









$



19,687,263









$



(2,200



)






$



(11,569,556



)









8,500,155









































































































Net
loss

















































































(245,359



)









(245,359



)



Employee
compensation-stock option

























































10,004




































10,004






Collection
of subscription receivable





































































2,200
























2,200






Exercise
of stock options

































60,000












600












9,600




































10,200






Issuance
of common stock - directors

































32,890












329












12,171




































12,500









































































































Balance
at September 30, 2019









-









$



-












38,557,643









$



385,577









$



19,719,038









$



-









$



(11,814,915



)






$



8,289,700













See
notes to the condensed consolidated financial statements.





















6


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES








NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












NOTE
1 – BASIS OF PRESENTATION










OVERVIEW







The
Singing Machine Company, Inc., a Delaware corporation (the “Company”, “SMC”, “The Singing Machine”)
and its three wholly-owned subsidiaries SMC (Comercial Offshore De Macau) Limitada (“Macau Subsidiary”), SMC Logistics,
Inc. (“SMC-L”) and SMC-Music, Inc.(“SMC-M”) are primarily engaged in the development, marketing, and sale
of consumer karaoke audio systems, accessories, musical instruments and musical recordings. The products are sold by SMC to retailers
and distributors for resale to consumers.








NOTE
2 – RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS








The
Company has determined that in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 606, Revenue from Contract with Customers

,

the Company incorrectly accounted for the cost
of its co-op promotion allowances (previously referred to as “cooperative advertising”) with its customers as selling
expenses instead of a reduction in net sales for each of the three and six months ended September 30, 2020 and 2019, as these
co-op promotion allowances are not a distinct good or service and the Company cannot reasonably estimate the fair value of the
benefit it receives from these arrangements.








The
effects of this accounting error do not impact the condensed consolidated balance sheets, statements of cash flows and statements
of shareholders’ equity. The effects are confined to the condensed consolidated statements of operations, and these notes
to condensed consolidated financial statements. The tables below set forth the condensed consolidated statements of operations,
including the balances as originally reported, adjustments and the as restated balances for each of the periods affected:
























































































































































































































































































































































































































































































































































































































































































































































































Originally
Reported For the Three Months Ended September 30, 2020










Adjustment










As
Restated For the Three Months Ended September, 30, 2020











Originally
Reported For the Six Months Ended September 30, 2020










Adjustment










As
Restated For the Six Months Ended September, 30, 2020
































































Net Sales






$



23,187,519









$



(902,280



)






$



22,285,239









$



26,511,062









$



(1,173,840



)






$



25,337,222

















































































Cost
of Goods Sold









16,462,235












-












16,462,235












18,551,766












-












18,551,766

















































































Gross Profit









6,725,284












(902,280



)









5,823,004












7,959,296












(1,173,840



)









6,785,456

















































































Operating Expenses











































































Selling expenses









2,377,091












(902,280



)









1,474,811












2,947,644












(1,173,840



)









1,773,804






General and administrative expenses









1,841,873












-












1,841,873












3,205,163












-












3,205,163






Depreciation









67,781












-












67,781












138,888












-












138,888






Total
Operating Expenses









4,286,745












(902,280



)









3,384,465












6,291,695












(1,173,840



)









5,117,855

















































































Income


from Operations









2,438,539












-












2,438,539












1,667,601












-












1,667,601

















































































Other Income (Expenses)











































































Gain from damaged goods insurance
claim









936,537












-












936,537












1,067,829












-












1,067,829






Gain from extinguishment of accounts
payable









-












-












-












390,000












-












390,000






Interest Expense









(127,731



)









-












(127,731



)









(157,321



)









-












(157,321



)



Finance
Costs









(18,431



)









-












(18,431



)









(24,836



)









-












(24,836



)



Total
Other Income (Expenses), net









790,375












-












790,375












1,275,672












-












1,275,672

















































































Income Before
Income Tax Provision









3,228,914












-












3,228,914












2,943,273












-












2,943,273

















































































Income Tax Provision









(821,040



)









-












(821,040



)









(742,203



)









-












(742,203



)














































































Net Income






$



2,407,874









$



-









$



2,407,874









$



2,201,070









$



-









$



2,201,070




















7


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)






































































































































































































































































































































































































































































































































































































































































































































Originally
Reported For the Three Months Ended






September 30, 2019











Adjustment











As
Restated For the Three Months Ended






September, 30,
2019













Originally
Reported For the Six Months Ended






September 30, 2019











Adjustment











As
Restated For the Six Months Ended






September, 30,
2019

































































Net
Sales






$



20,081,842









$



(1,027,327



)






$



19,054,515









$



24,890,882









$



(1,196,129



)






$



23,694,753

















































































Cost
of Goods Sold









14,439,522












-












14,439,522












18,260,856












-












18,260,856

















































































Gross
Profit









5,642,320












(1,027,327



)









4,614,993












6,630,026












(1,196,129



)









5,433,897

















































































Operating
Expenses











































































Selling expenses









2,488,129












(1,027,327



)









1,460,802












3,147,422












(1,196,129



)









1,951,293






General and administrative
expenses









2,235,269












-












2,235,269












3,606,325












-












3,606,325






Depreciation









59,588












-












59,588












119,049












-












119,049






Total
Operating Expenses









4,782,986












(1,027,327



)









3,755,659












6,872,796












(1,196,129



)









5,676,667

















































































Income
(Loss) from Operations









859,334












-












859,334












(242,770



)









-












(242,770



)














































































Other
Expenses











































































Interest Expense









(47,639



)









-












(47,639



)









(50,514



)









-












(50,514



)



Finance
Costs









(3,333



)









-












(3,333



)









(6,666



)









-












(6,666



)



Total
Other Expenses









(50,972



)









-












(50,972



)









(57,180



)









-












(57,180



)














































































Income
(Loss) Before Income Tax (Provision) Benefit









808,362












-












808,362












(299,950



)









-












(299,950



)














































































Income
Tax (Provision) Benefit









(184,140



)









-












(184,140



)









54,591












-












54,591






























Net Income (Loss)


$

624,222



$

-



$

624,222



$

(245,359

)


$

-



$

(245,359

)










NOTE
3 - SUMMARY OF ACCOUNTING POLICIES










PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION











The
condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All
inter-company accounts and transactions have been eliminated in the condensed consolidated financial statements. The accompanying
unaudited financial statements for the three and six months ended September 30, 2020 and 2019 have been prepared in accordance
with generally accepted accounting principles applicable to interim financial information and the requirements of Form 10-Q/A
and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information
and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial
statements. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting
of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed
consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The condensed consolidated balance sheet information as of March 31,
2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A
for the year ended March 31, 2020. The interim condensed consolidated financial statements should be read in conjunction with
that report.











USE
OF ESTIMATES











The
Singing Machine makes estimates and assumptions in the ordinary course of business relating to sales returns and allowances, warranty
reserves, inventory reserves and reserves for promotional incentives that affect the reported amounts of assets and liabilities
and of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty; therefore,
the determination of estimates requires the exercise of judgment. Historically, past changes to these estimates have not had a
material impact on the Company’s financial condition. However, circumstances could change which may alter future expectations.









COLLECTABILITY
OF ACCOUNTS RECEIVABLE











The
Singing Machine’s allowance for doubtful accounts is based on management’s estimates of the creditworthiness of its
customers, current economic conditions and historical information, and, in the opinion of management, is believed to be in an
amount sufficient to respond to normal business conditions. Management sets 100% reserves for customers in bankruptcy and other
reserves based upon historical collection experience. Should business conditions deteriorate or any major customer default on
its obligations to the Company, this allowance may need to be significantly increased, which would have a negative impact on operations.










The
Company is subject to chargebacks from customers for cooperative promotional programs, defective returns, return freight and handling
charges that are deducted from open invoices and reduce collectability of open invoices.











FOREIGN
CURRENCY TRANSLATION













The
functional currency of the Macau Subsidiary is the Hong Kong dollar. The financial statements of the subsidiary are translated
to U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for
revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are recorded in the condensed
consolidated statement of operations and translations




are
recorded in a separate component of shareholders’ equity. Any such amounts were not material during the periods presented.

















8
































THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












Concentration
of Credit Risk











At
times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation
insured amounts. The Company also maintains cash balances in foreign financial institutions. The amounts at foreign financial
institutions at September 30, 2020 and March 31, 2020 are approximately $896,000 and $217,000, respectively.








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











INVENTORY











Inventories
are comprised primarily of electronic karaoke equipment, microphones and accessories, and are stated at the lower of cost or net
realizable value, as determined using the first in, first out method. Inventories also include an estimate for the net realizable
value of expected future inventory returns due to warranty and allowance programs. As of September 30, 2020 and March 31, 2020
the estimated amounts for










these
future inventory returns were approximately $1,114,000 and $1,367,000, respectively. The Company reduces inventory on hand to
its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item
falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory
items declines below cost. Management regularly reviews the Company’s investment in inventories for such declines in value.
As of September 30, 2020 and March 31, 2020 the Company had inventory reserves of approximately $905,000 and $434,000, respectively
for estimated excess and obsolete inventory.









DEFERRED
FINANCING COSTS











The
Company classifies deferred financing costs incurred when obtaining or renewing revolving credit facilities as assets in the accompanying
condensed consolidated balance sheets as it is likely that during certain periods during non-peak season there will be no balance
due on these credit facilities to offset the deferred financing costs. In June 2020, the Company incurred approximately $74,000
in deferred financing costs associated with the closing of the Crestmark Facility and the IHC Facility which are being amortized
over twelve months and were classified as current assets on the accompanying condensed consolidated balance sheets.









LONG-LIVED
ASSETS













The
Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication
that the carrying amounts may not be recoverable. If the undiscounted future cash flows attributable to the related assets are
less than the carrying amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-05,
“Accounting for the Impairment or Disposal of Long-Lived Assets.”











LEASES











The
Company follows FASB ASC 842, “Leases”. The ASC requires lessees to recognize leases on the balance sheet and disclose
key information about leasing arrangements. The standard establishes a right-of-use model (ROU) that requires a lessee to recognize
a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases are classified
as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
(See Note 7– LEASES).








The
Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease
payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date. The liability
is equal to the present value of the remaining minimum lease payments. The asset is based on the liability, subject to certain
adjustments. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard)
while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard).
As the interest rate implicit in the Company’s operating leases is not readily determinable, the Company utilizes its incremental
borrowing rate to discount the lease payments. The Company utilizes the implicit rate for its finance leases.









PROPERTY
AND EQUIPMENT













Property
and equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense
as incurred. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful
lives using accelerated and straight-line methods.









FAIR
VALUE OF FINANCIAL INSTRUMENTS













We
follow FASB ASC 825, “Financial Instruments”, which requires disclosures of information about the fair value of certain
financial instruments for which it is practicable to estimate that value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.








The
carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, accrued
expenses, refunds due to customers and due to/from related parties approximates fair value due to the relatively short period
to maturity for these instruments. The carrying amounts on the subordinated debt to Starlight Marketing Development, Ltd. (related
party), finance leases and installment notes approximate fair value due to the relatively short period to maturity and related
interest accrued at a rate similar to market rates.

















9




























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)









The
carrying amount on the revolving lines of credit approximate fair value due the relatively short period to maturity and related
interest accrued at market rates. The carrying amount on the Payroll Protection Program note payable approximates fair value due
the relatively short period to maturity as management intends to apply for total forgiveness of the loan in the current fiscal
year.











REVENUE
RECOGNITION AND RESERVE FOR SALES RETURNS









The
Company recognizes revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”. All revenue is
generated from contracts with customers. The Company recognizes revenue when the goods are delivered and control of the goods
sold is transferred to the customer, in an amount, referred to as the transaction price, that reflects the consideration to which
the Company is expected to be entitled in exchange for those goods. The Company determines revenue recognition utilizing the following
five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract
(promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction
price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product
or service for each performance obligation.








The
Company’s contracts with customers consist of one performance obligation (the sale of the Company’s products). The
Company’s contracts have no financing elements, payment terms are less than 120 days and have no further contract asset
or liability obligations once control of goods is transferred to the customer. Revenue is recorded in the amount of consideration
the Company expects to receive for the sale of these goods.










The
Company selectively participates in a retailer’s co-op promotion initiatives to maximize sales of the Company’s products
on the retail floor or to assist in developing consumer awareness of new product launches, by providing marketing fund allowances
to our customers. As these co-op promotion initiatives are not a distinct good or service and the Company cannot reasonably estimate
the fair value of the benefit it receives from these arrangements, the cost of these allowances at the time they are offered to
the customers are recorded as a reduction to net sales. For the three months ended September 30, 2020 and 2019 co-op promotion
allowances were approximately $902,000 and $1,027,000, respectively. For the six months ended September 30, 2020 and 2019 co-op
promotion allowances were approximately $1,174,000 and $1,196,000, respectively.








Costs
incurred in fulfilling contracts with customers include administrative costs associated with the procurement of goods are included
in general and administrative expenses, in-bound freight costs are included in the cost of goods sold and accrued sales representative
commissions are included in selling expenses in the accompanying condensed consolidated statements of operations as our underlying
customer agreements are less than one year.










The
Company disaggregates revenues by product line and major geographic region as most of its revenue is generated by the sales of
karaoke hardware and the Company has no other material business segments (See Note 9 – GEOGRAPHICAL INFORMATION).










While
the Company generally does not allow products to be returned, the Company does provide for variable consideration contingent upon
the occurrence of uncertain future events. Variable consideration is estimated at the expected value or at the most likely amount
depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that
a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration
is resolved. The Company estimates variable consideration under our return allowance programs for goods returned to the customer
for various reasons, whereby a sales return reserve is recorded based on historic return amounts, specific events as identified
and management estimates.








The
Company’s reserve for sales returns were approximately $1,723,000 and $1,224,000 as of September 30, 2020 and March 31,
2020, respectively.










Revenue
is derived from four different major product lines. Disaggregated revenue from these product lines for the three and six months
ended September 30, 2020 and 2019 consisted of the following:



































































































































































































Three Months Ended









Six Months Ended






Product Line






September
30, 2020









September
30, 2019









September
30, 2020









September
30, 2019












(as
restated)









(as
restated)









(as
restated)









(as
restated)













































Classic Karaoke Machines






$



15,018,000









$



11,656,000









$



17,040,000









$



15,542,000






Download Karaoke Machines









3,117,000












3,486,000












3,479,000












3,698,000






SMC Kids Toys









191,000












368,000












319,000












499,000






Music and Accessories









3,959,000












3,545,000












4,499,000












3,956,000

























































Total Net
Sales






$



22,285,000









$



19,055,000









$



25,337,000









$



23,695,000




















10




























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)










SHIPPING
AND HANDLING COSTS













Shipping
and handling costs are performed by both the Company and third-party logistics companies. Shipping and handling activities are
performed before the customer obtains control of the goods sold to them and are considered activities to fulfill the Company’s
promise to transfer the goods. For the three months ended September 30, 2020 and 2019 shipping and handling expenses were approximately
$305,000 and $225,000, respectively. For the six months ended September 30, 2020 and 2019 shipping and handling expenses were
approximately $388,000 and $314,000, respectively. These expenses are classified as a component of selling expenses in the accompanying
condensed consolidated statements of operations.











STOCK
BASED COMPENSATION











The
Company follows the provisions of the FASB ASC 718-20, “Compensation – Stock Compensation Awards Classified as Equity”.
ASC 718-20 requires all share-based payments to employees including grants of employee stock options, be measured at fair value
and expensed in the condensed consolidated statements of operations over the service period (generally the vesting period). The
Company uses the Black-Scholes option valuation model to value stock options. Employee stock option compensation expense for the
three and six months ended September 30, 2020 and 2019 includes the estimated fair value of options granted, amortized on a straight-line
basis over the requisite service period for the entire portion of the award. For the three months ended September 30, 2020 and
2019, the stock option expense was approximately $0 and $5,000, respectively. For the six months ended September 30, 2020 and
2019, the stock option expense was $0 and $10,000, respectively.









RESEARCH
AND DEVELOPMENT COSTS













Research
and development costs are charged to results of operations as incurred. These expenses are shown as a component of selling, general
and administrative expenses in the condensed consolidated statements of operations. For the three months ended September 30, 2020
and 2019, these amounts totaled approximately $2,000 and $18,000, respectively. For the six months ended September 30, 2020 and
2019, these amounts totaled $15,000 and $23,000 respectively.









INCOME
TAXES









The
Company follows the provisions of FASB ASC 740 “Accounting for Income Taxes.” Under the asset and liability method
of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion
of a deferred tax asset will not be realized, a valuation allowance is recognized. As of September 30, 2020 and March 31, 2020
the Company recognized a valuation reserve of approximately $88,000 for deferred tax assets relating to net operating loss carryforwards
that the Company will more than likely not be able to realize prior to their expiration.










The
Company analyzes its deferred tax assets and liabilities at the end of each interim period and, based on management’s best
estimate of its full year effective tax rate, recognizes cumulative adjustments to its deferred tax assets and liabilities. For
the six months ended September 30, 2020 and 2019 we estimated our effective tax rate to be approximately 25% and 18%, respectively.
As of September 30, 2020 and March 31, 2020 the Singing Machine had net deferred tax assets of approximately $677,000 and $1,286,000,
respectively. The Company recorded an income tax provision of approximately $821,000 and $184,000 for the three months ended September
30, 2020 and 2019, respectively. The Company recorded an income tax provision of approximately $742,000 for the six months ended
September 30, 2020 and an income tax benefit of approximately $55,000 for the six months ended September 30, 2019.










The
Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a
previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and
unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or
annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50%
likelihood of

being realized upon ultimate resolution. As of September 30, 2020, there were no uncertain tax positions
that resulted in any adjustment to the Company’s provision for income taxes. The Company recognizes interest and
penalties related to unrecognized tax benefits in its provision for income taxes. The Company currently has no liabilities
recorded for accrued interest or penalties related to uncertain tax provisions.









COMPUTATION
OF EARNINGS PER SHARE









Income
per common share is computed by dividing net income by the weighted average of common shares outstanding during the period. As
of September 30, 2020 and 2019 total potential dilutive shares from common stock options amounted to approximately 2,230,000 and
2,250,000 shares, respectively. These shares were included in the computation of diluted earnings per share for the three and
six months ended September 30, 2020 and the three months ended September 30, 2019. These shares were not included in the computation
of diluted earnings per share for the six months ended September 30, 2019 because their effect was anti-dilutive.



















11


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












RECENT
ACCOUNTING PRONOUNCEMENTS







In
December 2019, the FASB issued ASU 2019-12, “Income Taxes”

(Topic 740).

Among several issues addressed in this
ASU, there was one area that may potentially affect the Company’s calculations of interim income tax provision or benefit.
The guidance specifies that an entity should apply the annual effective tax rate to the year-to date income or loss as long as
the tax benefits for any losses are expected to be realized during the year or would be recognizable as a deferred tax asset at
the end of the year eliminating the requirement of a valuation allowance for that interim period. There is specific guidance for
circumstances in which an entity incurs a loss on a year-to-date basis that exceeds the anticipated ordinary loss for the year,
which is an exception to the general guidance in Subtopic 740-270. This new guidance is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the potential effects of this
updated guidance on our condensed consolidated financial statements and related disclosures.








In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”

(Topic 326)

. This ASU represents
a significant change in the current accounting model by requiring immediate recognition of management’s estimates of current
expected credit losses. Under the prior model, losses were recognized only as they were incurred, which delayed recognition of
expected losses that might not yet have met the threshold of being probable.


The
amendments in ASU 2016-03 for smaller reporting companies are effective for fiscal years beginning after April 1, 2023 including
interim periods within that fiscal year. Early adoption is permitted. We are currently evaluating the potential effects of this
updated guidance on our condensed consolidated financial statements and related disclosures.









NOTE
4 - INVENTORIES, NET











Inventories
are comprised of the following components:























































































































September 30,









March 31,












2020









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
5 – PROPERTY AND EQUIPMENT











A
summary of property and equipment is as follows:




























































































































































USEFUL









September 30,









March 31,












LIFE









2020









2020




































Computer and office equipment









5-7
years









$



445,000









$



445,000






Furniture and fixtures









7
years












98,000












98,000






Warehouse equipment









7
years












195,000












195,000






Molds and tooling









3-5
years












1,765,000












1,680,000



























2,503,000












2,418,000






Less: Accumulated
depreciation





















1,786,000












1,647,000
























$



717,000









$



771,000











Depreciation
expense for the three months ended September 30, 2020 and 2019 was approximately $68,000 and $60,000, respectively. Depreciation
expense for the six months ended September 30, 2020 and 2019 was approximately $139,000 and $119,000, respectively.









NOTE
6 – BANK FINANCING










Intercreditor
Revolving Credit Facility Crestmark Bank and Iron Horse Credit









On
June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility on eligible accounts receivable and inventory which
replaced the Company’s previous revolving credit facility with PNC Bank which was terminated on June 16, 2020. The Company
signed a two-year Loan and Security Agreement for a $10.0 million financing facility with Crestmark Bank (“Crestmark Facility”)
on eligible accounts receivable. The outstanding loan balance cannot exceed $10.0 million during peak selling season between July
1 and December 31and is reduced to a maximum of $5.0 million between January 1 and July 31. Costs associated with closing of the
Intercreditor Revolving Credit Facility of approximately $74,000 are deferred and will be amortized over one year. During the
three and six months ended September 30, 2020 the Company incurred amortization expense of approximately $18,000 and $21,000,
respectively associated with the amortization of deferred financing costs from the Intercreditor Revolving Credit Facility.

















12
























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)









Under
the Crestmark Facility:




































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










Crestmark
shall maintain a base dilution reserve of 1% for each 1% of dilution over 15%.










Crestmark
will implement an availability block of 20% of amounts due on Iron Horse Credit (“IHC”) Intercreditor Revolving
Credit Facility.










Mandatory
pay-down of the loan to zero in January and February each year.








The
Crestmark Facility is secured by a perfected security interest in all assets including a first security interest in Accounts Receivable
and Inventory. Notwithstanding the foregoing, Crestmark shall subordinate its first security interest in inventory to IHC as agreed
between all parties. The Crestmark Facility bears interest at the Wall Street Journal Prime Rate plus 5.50% with a floor of 8.75%.
Interest and Maintenance Fees shall be calculated on the higher of the actual average monthly loan balance from the prior month
or a minimum average loan balance of $2,000,000. For the three and six months ended September 30, 2020 the Company recorded interest
expense of approximately $51,000. The Crestmark Facility expires on June 15, 2022. As of September 30, 2020, the Company had an
outstanding balance of approximately $134,000 on the Crestmark Facility.








In
addition, the Company executed a two-year Loan and Security Agreement with Iron Horse Credit (“IHC Facility”) for
up to $2,500,000 in inventory financing.








Under
the IHC Facility:


























Advance
rate shall not exceed the lower of (a) 70% of the inventory cost or (b) 85% of Net Orderly Liquidation Value (NOLV) as determined
by an independent third-party appraiser engaged by IHC.










The
Company must maintain a fixed charge coverage ratio test of 1:1 times measured on a rolling 12-month basis, defined as earnings
before interest, taxes, depreciation and amortization (“EBITDA”) less non-financed capital expenditures, cash
dividends and distributions paid and cash taxes paid divided by the sum of interest and principal on all indebtedness. This
financial covenant has been waived for the first six months of the IHC Facility.








The
IHC Facility is secured by a perfected security interest in the Company’s inventory. The IHC Facility bears interest at
1.292% per month or 15.51% annually. Interest shall be calculated on the higher of the actual average monthly loan balance from
the prior month or a minimum average loan balance of $1,000,000. Interest expense for the three and six months ended September
30, 2020 was approximately $54,000 and $62,000, respectively. The IHC Facility expires on June 15, 2022. As of September 30, 2020,
there was an outstanding balance of $1,022,000.











Revolving
Credit Facility PNC Bank











On
June 22, 2017, the Company renewed the existing revolving credit facility (the “PNC Revolving Credit Facility”) with
PNC Bank, National Association (“PNC”) for an additional three years which was terminated on June 16, 2020 and replaced
by the Intercreditor Revolving Credit Facility with Crestmark and IHC. In September 2019, the Company defaulted on the PNC Revolving
Credit Facility due to non-compliance with the fixed charge coverage ratio requirement. In November 2019, the Company entered
into a Forbearance Agreement with PNC whereby PNC delayed taking action they would have been be entitled to under a default through
March 31, 2020. The Company remained in default of the Forbearance Agreement up until termination of the Revolving Credit Facility
on June 16, 2020 at which time the Company executed the Intercreditor Revolving Credit Facility with Crestmark and IHC. As of
September 30, 2020, and March 31, 2020 there were no amounts due on the PNC Revolving Credit Facility. During the three months
ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $0 and $32,000, respectively, on amounts
borrowed against the PNC Revolving Credit Facility. During the six months ended September 30, 2020 and 2019 the Company incurred
interest expense of approximately $0 and $33,000, respectively on amounts borrowed against the PNC Revolving Credit Facility.









Note
Payable Payroll Protection Plan











On
May 5, 2020, the Company received loan proceeds from Crestmark in the amount of approximately $444,000 under the Paycheck Protection
Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), which provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses
of the qualifying business. The loans and accrued interest may be forgivable to the extent the Company uses the loan proceeds
for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness
may be reduced if the borrower terminates employees or reduces salaries during the eligible period. The unforgiven portion of
the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments until a forgiveness application
has been accepted and reviewed by the SBA, and the SBA has provided Crestmark with the loan forgiveness amount. For the three
months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $1,000 and $0, respectively. For
the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $2,000 and $0, respectively.
As of September 30, 2020 there was an outstanding balance on the PPP note payable of approximately $444,000. The Company currently
expects to apply for forgiveness of the entire loan balance.



















13


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












Installment
Notes Payable











On
June 18, 2019, the Company entered into a financing arrangement with Dimension Funding, LLC (“Dimension”) to finance
an entire ERP System project over a term of 60 months at a cost of approximately $365,000. As of September 30, 2020, the Company
executed three installment notes totaling approximately $365,000 for payments issued to the project vendor. The installment notes
have 60-month terms with


interest rates of 7.58%, 8.55% and 9.25%,
respectively. The installment notes are payable in monthly installments of $7,459 which include principal and interest. As of
September 30, 2020, and March 31, 2020 there was an outstanding balance on the installment notes of approximately $312,000 and
$346,000, respectively. For the three months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately
$7,000. For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of approximately $14,000 and
$7,000, respectively.











Subordinated
Debt/Note Payable to Related Party











In
conjunction with the Crestmark Facility and IHC Facility there is a subordination agreement on related party debt due to Starlight
Marketing Development, Ltd. of approximately $803,000. On June 1, 2020 the remaining amount due on the subordinated debt of approximately
$803,000 was converted to a note payable (“subordinated note payable”) which bears interest at 6%. As part of the
agreement to convert the subordinated


debt to a note payable it
was agreed that interest expense would be accrued at the same 6% interest rate on the unpaid principal retroactively from the
date that previously scheduled payments had been missed. During the three months ended September 30, 2020 and 2019 interest expense
was approximately $12,000 and $0, respectively on the subordinated note payable and the related party subordinated debt. During
the six months ended September 30, 2020 and 2019 interest expense was approximately $24,000 and $2,000, respectively on the subordinated
note payable and the related party subordinated debt.








In
connection with the Intercreditor Revolving Credit Facility the Company was required to subordinate the subordinated note payable.
Both the Crestmark Facility and IHC Facility agreements allow for the repayment of the subordinated note payable provided any
amounts borrowed against these credit facilities are paid in full, the Company maintains a 1 : 1 debt coverage ratio and exhibits
sufficient cash liquidity to support on-going operations. There is no set schedule with regards to repayment of the note and as
such the subordinated note payable has been classified as a non-current liability as of September 30, 2020 and March 31, 2020
on the consolidated balance sheets. As of September 30, 2020 and March 31, 2020 the remaining amount due on the subordinated debt
was approximately $803,000.








NOTE
7 - COMMITMENTS AND CONTINGENCIES









INSURANCE
CLAIM SETTLEMENT – DAMAGED GOODS INCIDENT











As
of this filing we have we recovered approximately $2,336,000 from our cargo insurance coverage which settled approximately $1,268,000
in insurance claim receivable with the remaining proceeds reflected in other income and (expenses) as a gain from damaged goods
insurance claim in the condensed consolidated statement of operations. For the three and six months ended September 30, 2020 the
gain from damaged goods insurance claim was approximately $937,000 and $1,068,000, respectively.











LEGAL
MATTERS











Management
is not aware of any legal proceedings other than matters that arise in the ordinary course of business.











LEASES










Operating
Leases











We
have operating lease agreements for offices and a warehouse facility in Florida, California and Hong Kong expiring in various
years through 2024.










We
entered into an operating lease agreement, effective October 1, 2017, for the corporate headquarters located in Fort Lauderdale,
Florida where we lease approximately 6,500 square feet of office space. The lease expires on March 31, 2024. The base rent payment
is approximately $8,800 per month, subject to annual adjustments.










We
entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California
for our logistics operations. On June 15, 2020 we executed a three-year lease extension which will expire on August 31, 2023.
The renewal base rent payment is $65,300 with a 3% increase every 12 months for the remaining term of the extension.










We
entered into an operating lease agreement, effective May 1, 2018, for 424 square feet of office space in Macau. The rent is fixed
at approximately $1,600 per month for the duration of the lease which expires on April 30, 2021. The lease provides for a renewal
option to extend the lease.








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



















14


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












Finance
Leases











On
May 25, 2018 and June 4, 2018, we entered into two long-term capital leasing arrangements with Wells Fargo Equipment Finance (“Wells
Fargo”) to finance the leasing of two used forklift vehicles in the amount of approximately $44,000. The leases require
monthly payments in the amount of $1,279 per month over a total lease term of 36 months which commenced on June 1, 2018. The agreement
has an effective interest rate of 4.5% and the Company has the option to purchase the equipment at the end of the lease term for
one dollar. As of September 30, 2020 and March 31, 2020, the remaining amounts due on these capital leasing arrangements was approximately
$10,000 and $18,000, respectively. For the three months ended September 30, 2020 and 2019 the Company incurred interest expense
of $109 and $239, respectively. For the six months ended September 30, 2020 and 2019 the Company incurred interest expense of
$263 and $513, respectively.









Supplemental
balance sheet information related to leases as of September 30, 2020 is as follows:















































































Assets:












Operating lease - right-of-use
assets






$



2,460,942






Finance leases as a component of Property
and equipment, net of accumulated depreciation of $15,027









28,499






Liabilities















Current















Current portion
of operating leases






$



765,125






Current portion
of finance leases









10,091






Noncurrent















Operating lease
liabilities, net of current portion






$



1,743,033






Finance leases,
net of current portion









-












































































































































































































































Three
Months Ended









Six
Months Ended












September
30 2020









September
30 2020







Supplemental statement
of operations information related to leases for the three and six months ended September 30, 2020 is as follows:




























Operating lease expense
as a component of general and administrative expenses






$



176,698









$



325,423






Finance lease cost



























Depreciation of
leased assets as a component of depreciation






$



1,554









$



3,109






Interest on lease
liabilities as a component of interest expense






$



109









$



263

































Supplemental cash
flow information related to leases for the six months ended September 30, 2020 is as follows:



























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



























Operating cash flow
paid for operating leases


















$



343,177






Financing cash flow
paid for finance leases


















$



7,412

































Lease term and Discount
Rate



























Weighted average remaining lease term (months)



























Operating leases









35.8


















Finance leases









9.0


















Weighted average discount rate



























Operating leases









6.25



%















Finance leases









3.68



%





















Scheduled
maturities of operating and finance lease liabilities outstanding as of September 30, 2020 are as follows:












































































































































Year






Operating
Leases









Finance
Leases



























2020,
for the remaining 6 months






$



228,831









$



3,837






2021









882,229












6,394






2022









931,079












-






2023









673,592












-






2024









61,479












-






Total Minimum
Future Payments









2,777,210












10,231

































Less:
Imputed Interest









269,052












140

































Present
Value of Lease Liabilities






$



2,508,158









$



10,091












NOTE
8 - STOCK OPTIONS











During
the six months ended September 30, 2020 and 2019 the Company issued 0 and 100,000 stock options, respectively at an exercise price
of $0 and $.38 to directors as compensation for their service.








The
fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the assumptions
outlined below. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected
term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.

















15
























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)









A
summary of stock option activity for the six months ended September 30, 2020 is summarized below:











































































































September
30, 2020












Number
of Options









Weighted
Average Exercise Price






Stock Options:



























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











The
following table summarizes information about employee stock options outstanding at September 30, 2020:
































































































Range
of Exercise Price






Number
Outstanding at September 30, 2020









Weighted
Average Remaining Contractural Life









Weighted
Average Exercise Price









Number
Exercisable at September 30, 2020









Weighted
Average Exercise Price






$.04 - $.38









1,650,000












3.8









$



0.17












1,650,000









$



0.17






$.47 - $.55









580,000












6.9









$



0.50












580,000









$



0.50






*









2,230,000




































2,230,000

























*
Total number of options outstanding as of September 30, 2020 includes 1,080,000 options issued to five current and two former
directors as compensation and 1,150,000 options issued to key employees that were not issued from the Plan.











NOTE
9 - GEOGRAPHICAL INFORMATION









Sales
to customers outside of the United States for the three and six months ended September 30, 2020 and 2019 were primarily made by
the Macau Subsidiary in US dollars. Sales by geographic region for the periods presented are as follows:


























































































































































FOR THE THREE MONTHS ENDED









FOR THE SIX MONTHS ENDED












September 30,









September 30,












2020









2019









2020









2019












(as restated)









(as restated)









(as restated)









(as restated)













































North America






$



21,574,000









$



15,237,000









$



24,391,000









$



19,682,000






Europe









711,000












3,440,000












893,000












3,539,000






Australia









-












378,000












53,000












474,000












$



22,285,000









$



19,055,000









$



25,337,000









$



23,695,000











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











NOTE
10 –RELATED PARTY TRANSACTIONS











All
transactions listed below are related to the Company as they are all with affiliates of our Chairman of the Board, Mr. Phillip
Lau.











DUE
TO/FROM RELATED PARTIES











On
September 30, 2020 and March 31, 2020, the Company had amounts due to related parties in the amounts of approximately $244,000
and $502,000, respectively for services provided by these companies and licensing fees for use of pedestal model molds and tools
owned by the parent company. On September 30, 2020 and March 31, 2020, the Company had $0 and $100,000 due from a related party
for goods sold to this company.











TRADE









During
the three months ended September 30, 2020 and 2019 the Company sold approximately $0 and $778,000, respectively to Winglight Pacific,
Ltd. (“Winglight”), a related party, at a discounted price similar to prices granted to major direct import customers
shipped internationally with freight prepaid. The average gross profit margin on sales to Winglight for the three months ended
September 30, 2020 and 2019 was NA and 23.9%, respectively. The product was shipped to Cosmo Communications of Canada (“Cosmo”),
another related company and the Company’s primary distributor of its products to Canada at that time. These amounts were
included as a component of net sales in the accompanying condensed consolidated statements of operations.

















16
























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)











During
the three months ended September 30, 2020 and 2019 the Company sold approximately $0 and $168,000, respectively of product directly
to Cosmo from its California warehouse facility. These amounts were included as a component of net sales in the accompanying condensed
consolidated statements of operations.








On
July 30, 2020, the Company and Cosmo reached agreement that Cosmo would no longer be the Company’s Canadian distributor
and the Company became the sole and exclusive distributor of the Company’s products in Canada. As part of the agreement,
the companies executed a Purchase and Sales agreement whereby the Company acquired all of Cosmo’s karaoke inventory for
approximately $685,000.








During
the six months ended September 30, 2020 and 2019 the Company sold approximately $0 and $852,000, respectively to Winglight at
a discounted price similar to prices granted to major direct import customers shipped internationally with freight prepaid. The
average gross profit margin on sales to Winglight for the six months ended September 30, 2020 and 2019 was NA and 23.7%, respectively.
The product was shipped


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








During
the six months ended September 30, 2020 and 2019 the Company sold approximately $0 and $239,000, respectively of product directly
to Cosmo from its California warehouse facility. These amounts were included as a component of net sales in the accompanying condensed
consolidated statements of operations.








The
Company incurred service expenses from Starlight Electronics Co, Ltd, (“SLE”) a related party. The services from SLE
were approximately $90,000 for the three months ended September 30, 2020 and 2019. The services from SLE for the six months ended
September 30, 2020 and 2019 were approximately $181,000 and $191,000 respectively. These amounts were included as a component
of general and administrative expenses in the accompanying condensed consolidated statements of operations.











NOTE
11 – RESERVE FOR SALES RETURNS









A
return program for defective goods is negotiated with each of our wholesale customers on a year-to-year basis. Customers are allowed
to return defective goods within a specified period of time after shipment (between 6 and 9 months). The Company does make occasional
exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific exceptions
as identified and management estimates.








The
Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.
The liability for defective goods is included in the reserve for sales returns on the condensed consolidated balance sheets.








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
























































































September 30,









September 30,












2020









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
12 – REFUNDS DUE TO CUSTOMERS











As
of September 30, 2020 and March 31, 2020 the amount of refunds due to customers was approximately $121,000 and $807,000, respectively.
Refunds due to customers at September 30, 2020 were primarily due to one major customer for overstock returns. Refunds due to
customers at March 31, 2020 were primarily due to one major customer which reflects approximately $1,691,000 of chargebacks less
approximately $1,181,000 that the customer had deducted on payment remittances to the Company as of March 31, 2020. The remaining
$297,000 was primarily due to amounts due to two major customers for overstock returns.



















17


























THE
SINGING MACHINE COMPANY, INC AND SUBSIDIARIES






NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






September
30, 2020 and 2019






(Unaudited)












NOTE
13 - EMPLOYEE BENEFIT PLANS









The
Company has a 401(k) plan for its employees to which the Company makes contributions at rates dependent on the level of each employee’s
contributions. Contributions made by the Company are limited to the maximum allowable for federal income tax purposes. The amounts
charged to operations for contributions to this plan and administrative costs during the three months ended September 30, 2020
and 2019 totaled approximately $20,000 and $18,000, respectively. The amounts charged to operations for contributions to this
plan and administrative costs during the six months ended September 30, 2020 and 2019 totaled approximately $34,000 and $32,000,
respectively. The amounts are included as a component of general and administrative expense in the accompanying condensed consolidated
statements of operations. The Company does not provide any post-employment benefits to retirees.











NOTE
14 - CONCENTRATIONS OF CREDIT AND SALES RISK









The
Company derives a majority of its revenues from retailers of products in the United States. The Company’s allowance for
doubtful accounts is based upon management’s estimates and historical experience and reflects the fact that accounts receivable
are concentrated with several large


customers. At September 30,
2020, 93% of accounts receivable were due from four customers in North America that individually owed over 10% of total accounts
receivable. At March 31, 2020, 82% of accounts receivable were due from three customers in North America that individually owed
over 10% of total accounts receivable.










The
Company generates most of its revenue from retailers of products in the United States with a significant amount of sales concentrated
with several large customers the loss of which could have an adverse impact on the financial position of the Company. For the
three months ended September 30, 2020, there were three customers who individually accounted for 10% or more of the Company’s
net sales. Revenue derived from these customers as a percentage of net sales were 46%, 20%, and 10% respectively. For the three
months ended September 30, 2019, there were two customers who individually accounted for 10% or more of the Company’s net
sales. Revenue derived from these customers as a percentage of net sales were 42% and 12%, respectively.








For
the six months ended September 30, 2020, there were three customers who individually accounted for 10% or more of the Company’s
net sales. Revenue derived from these customers as a percentage of net sales were 43%, 20% and 14%, respectively. For the six
months ended September 30, 2019, there was one customer who individually accounted for 10% or more of the Company’s net
sales. Revenue derived from this customer as a percentage of net sales was 49%.



















18




























ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS










FORWARD-LOOKING
STATEMENTS









The
following discussion should be read in conjunction with the condensed consolidated financial statements and notes included elsewhere
in this quarterly report. This document contains certain forward-looking statements including, among others, anticipated trends
in our financial condition and results of operations and our business strategy. (See Part II, Item 1A, “Risk Factors “).
These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from these forward-looking statements.








Statements
included in this quarterly report that do not relate to present or historical conditions are called “forward-looking statements.”
Such forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results
or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements
may include, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions. Words
such as “believes,” “forecasts,” “intends,” “possible,” “estimates,”
“anticipates,” “expects,” “plans,” “should,” “could,” “will,”
and similar expressions are intended to identify forward-looking statements. Our ability to predict or project future results
or the effect of events on our operating results is inherently uncertain. Forward-looking statements should not be read as a guarantee
of future performance or results and will not necessarily be accurate indications of the times at, or by which, such performance
or results will be achieved.








Important
factors to consider in evaluating such forward-looking statements include, but are not limited to: (i) changes in external factors
or in our internal budgeting process which might impact trends in our results of operations; (ii) unanticipated working capital
or other cash requirements; (iii) changes in our business strategy or an inability to execute our strategy due to unanticipated
changes in the industries in which we operate; and (iv) the effects of adverse general economic conditions, both within the United
States and globally, (v) vendor price increases and decreased margins due to competitive pricing during the economic downturn
(vi)various competitive market factors that may prevent us from competing successfully in the marketplace and (vii) other factors
described in the risk factors section of our Annual Report on Form 10-K/A, this Quarterly Report on 10-Q/A, or in our other filings
made with the SEC.








Readers
are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only
as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking
statements.

















19
























RESTATEMENT
AND REVISION OF THE CONSOLIDATED FINANCIAL STATEMENTS









As
discussed in the Explanatory Note, this Amendment to Form 10-Q, amends and restates the Company’s condensed consolidated
financial statements and related disclosures in Part I, Item 1. “Financial Statements” as of and for the three and
six months ended September 30, 2020 and 2019, in order to correct an error in our accounting for co-op promotion allowances in
our previously issued financial statements. The impact of the accounting correction is further illustrated in Note 2 of the “Notes
to the Condensed Consolidated Financial Statements”. Accordingly, the Management’s Discussion and Analysis of Financial
Condition and Results of Operations set forth below are revised for the effects of these restatements.











OVERVIEW









The
Singing Machine Company, Inc., a Delaware corporation (the “Company”, “SMC”, “The Singing Machine”)
and its three wholly-owned subsidiaries SMC (Comercial Offshore De Macau) Limitada (“Macau Subsidiary”), SMC Logistics,
Inc. (“SMC-L”) and SMC-Music, Inc.(“SMC-M”) are primarily engaged in the development, marketing, and sale
of consumer karaoke audio systems, accessories, musical instruments and musical recordings. The products are sold by SMC to retailers
and distributors for resale to consumers.








Our
products are sold throughout North America, Europe and Australia primarily through major mass merchandisers and warehouse clubs,
on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms, music and
record stores, and specialty stores.








Representative
customers include Amazon, Best Buy, BJ’s Wholesale, Costco, Sam’s Club, Target, and Wal-Mart. Our business has historically
been subject to seasonal fluctuations causing our revenues to vary from quarter to quarter and between the same periods in different
fiscal years. Our products are manufactured for the most part based on the purchase indications of our customers. We are uncertain
of how significantly our business would be harmed by a prolonged economic recession, but we anticipate that continued contraction
of consumer spending would negatively affect our revenues and profit margins.








Sales
of consumer electronics and toy products in the retail channel are highly seasonal, with a majority of retail sales occurring
during the period from September through December in anticipation of the holiday season, which includes Christmas. A substantial
majority of our sales occur during the second quarter ending September 30 and the third quarter ending December 31. Sales in our
second and third quarter, combined, accounted for approximately 85% and 94% of net sales in fiscal 2020 and 2019, respectively.








The
COVID-19 pandemic has significantly affected U.S. consumer shopping patterns and caused the health of the U.S. economy to deteriorate.
We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration
of its impact on our business and our financial results. If the outbreak of COVID-19 is not effectively and timely controlled,
our business operations, financial condition, and liquidity may be materially and adversely affected as a result of prolonged
disruptions in consumer spending, a lack of demand for our products, forced retail store closures and other factors that we cannot
foresee. The extent to which COVID-19 will impact our business and our financial results will depend on future developments which
are highly uncertain and cannot be predicted.











RESULTS
OF OPERATIONS









The
following table sets forth, for the periods indicated, certain items related to our consolidated statements of operations as a
percentage of net sales for the three and six months ended September 30, 2020 and 2019 as restated:





































































































































































































































For
Three Months Ended









For
the Six Months Ended












September
30, 2020









September
30, 2019









September
30, 2020









September
30, 2019












(as restated)









(as restated)









(as restated)









(as restated)













































Net Sales









100.0



%









100.0



%









100.0



%









100.0



%






















































Cost of Goods Sold









73.9



%









75.8



%









73.2



%









77.1



%






















































Gross Profit









26.1



%









24.2



%









26.8



%









22.9



%






















































Operating Expenses



















































Selling expenses









6.6



%









7.7



%









7.0



%









8.2



%



General and administrative
expenses









8.3



%