COMMITMENTS AND CONTINGENCIES

6 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8 - COMMITMENTS AND CONTINGENCIES

COVID-19

The COVID-19 pandemic has significantly affected U.S. consumer shopping patterns and caused the health of the U.S. and world economy to deteriorate in fiscal year 2022. While many of the restrictions and measures initially implemented in response to the pandemic have since been softened or lifted in varying degrees in different locations around the world, the uncertainty regarding existing and new potential variants of COVID-19 and the success of any vaccines in respect thereof, may in the future cause a reduction in global economic activity or prompt, the re-imposition of certain restrictions and measures. The Company is dependent upon foreign companies for the manufacture of all its electronic products. The Company’s arrangements with manufacturers are subject to the risk of doing business abroad, such as import duties, trade restrictions, work stoppages, foreign currency fluctuations, political instability, and other factors, which could have an adverse impact on its business. The Company believes that the loss of any one or more of their suppliers would not have a long-term material adverse effect because other manufacturers with whom the Company does business would be able to increase production to fulfill their requirements. However, the loss of certain suppliers in the short-term could adversely affect business until alternative supply arrangements are secured. Additionally, in late calendar 2021, the increased demand for consumer electronics products and current economic recovery continued to increase worldwide demand for products using semiconductor “chip” components in the production of most consumer electronics which has resulted in an international shortage of chips available to fulfill demand. As a result, the Company has experienced longer delivery lead times and some unavailability of these components which have delayed delivery of some of our products. The Company has also experienced delays in delivery schedules due to new outbreaks of COVID-19 in Southern China that have forced temporary closures of some key shipping ports. The port closures have also led to a temporary shortage of shipping containers which have resulted in significant price increases due to increased demand. While we have seen the easing of COVID-19 restrictions and the impact on our business, we cannot predict the impact of the resurgence of variants of COVID-19 and other factors affecting local and global economies, specifically China.

LEGAL MATTERS

On September 11, 2020, a complaint was filed against the Company’s SMCL subsidiary and various staffing agencies used by SMCL in the Superior Court of San Bernardino County. The complaint alleges an employee of the Company committed employment practice violations against a former temporary employee not employed by the Company. Management investigated the allegation and has engaged an employment attorney to defend the lawsuit. The case is still in discovery and no trial date has been set. Management does not believe the claims have merit and does not believe the lawsuit will have a material adverse effect on the Company’s financial results.

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

LEASES

Operating Leases

We have operating lease agreements for offices and a warehouse facility in Florida and California 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. The lease expires on March 31, 2024. The base rent payment is approximately $9,700 per month, subject to annual adjustments.

We entered into an operating lease agreement, effective June 1, 2013 in Ontario, California for our logistics operations. On June 15, 2020 we executed a three-year lease extension which will expire on August 31, 2023. The renewal base rent payment is approximately $69,277 with a 3% increase every 12 months for the remaining term of the extension.

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

Finance Leases

On July 1, 2021 we entered into a long-term capital leasing arrangement with Union Credit Corporation to finance the leasing of a used forklift in the amount of approximately $24,000. The lease requires monthly payments in the amount of approximately $755 per month over a total lease term of 36 months which commenced on July 1, 2021. The agreement has an effective interest rate of 9.9% and the Company has the option to purchase the equipment at the end of the lease term for one dollar. As of September 30, 2022 and March 31, 2022, the remaining amounts due on this capital leasing arrangement was approximately $15,000 and $18,000, respectively. For the three months ended September 30, 2022 and 2021 the Company incurred interest expense of $389 and $0, respectively. For the six months ended September 30, 2022 and 2021 the Company incurred interest expense of $828 and $376, respectively.

THE SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022 and 2021

(Unaudited)

Supplemental balance sheet information related to leases as of September 30, 2022 is as follows:

Assets:
Operating lease - right-of-use assets	$	862,279
Finance leases as a component of Property and equipment, net of accumulated depreciation of $4,859		9,657
Liabilities
Current
Current portion of operating leases	$	848,723
Current portion of finance leases		7,988
Noncurrent
Operating lease liabilities, net of current portion	$	60,374
Finance leases, net of current portion		6,528

Supplemental statement of operations information related to leases for the three and six months ended September 30, 2022 is as follows:

	Three Months Ended		Six Months Ended
	September 30 2022		September 30 2022
Operating lease expense as a component of general and administrative expenses	$	227,839	$	457,088
Finance lease cost
Depreciation of leased assets as a component of depreciation	$	1,041	$	4,859
Interest on lease liabilities as a component of interest expense	$	389	$	828

Supplemental cash flow information related to leases for the six months ended September 30, 2022 is as follows:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow paid for operating leases			$	463,521
Financing cash flow paid for finance leases			$	3,709
Lease term and Discount Rate
Weighted average remaining lease term (months)
Operating leases	12.3
Finance leases	21.0
Weighted average discount rate
Operating leases	6.25	%
Finance leases	9.86	%

Scheduled maturities of operating and finance lease liabilities outstanding as of September 30, 2022 are as follows:

Year	Operating Leases		Finance Leases
2022, for the remaining 3 months	$	237,675	$	2,266
2023		674,488		9,065
2024		30,739		4,533
Total Minimum Future Payments		942,902		15,864
Less: Imputed Interest		33,805		1,348
Present Value of Lease Liabilities	$	909,097	$	14,516