COMMITMENTS AND CONTINGENCIES

3 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

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, California and Hong Kong expiring in various years through 2025. We entered into a operating lease agreement, effective October 15, 2022, for our administrative office located in Hong Kong. The office is approximately 1,900 square feet and oversees our regional contract manufacturing, logistics, and select marketing functions. The lease expires October 14, 2025, and the monthly base rent is approximately $4,900 for the entire term of the lease.

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. We have elected not to renew this lease and are in the process of migrating our North American logistics operations to an outsourced business partner specializing in these matters. 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 require 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 June 30, 2023 and March 31, 2023, the remaining amounts due on this capital leasing arrangement was approximately $8,600 and $11,000, respectively.

In February 2023, we entered into a financing leasing arrangement with Wells Fargo Equipment Finance to finance the leasing of two used forklifts in the amount of approximately $55,000. The lease requires monthly payments in the amount of approximately $1,075 per month over a total lease term of 60 months which commenced on February 1, 2023. The agreement has an effective interest rate of 6.5% and the Company has the option to purchase the equipment at the end of the lease term for one dollar. As of June 30, 2023 and March 31, 2023, the remaining amounts due on this financing leasing arrangement was approximately $51,300 and $53,300 respectively.

THE SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited)

Supplemental balance sheet information related to leases as of June 30, 2023 is as follows:

Assets:
Operating lease – right-of-use assets	$	331,878
Finance leases as a component of property and equipment		59,900
Liabilities
Current
Current portion of operating leases	$	277,733
Current portion of finance leases		18,531
Noncurrent
Operating lease liabilities, net of current portion	$	78,809
Finance leases, net of current portion		41,369

Supplemental statement of operations information related to leases for the three months ended June 30, 2023 is as follows:

Operating lease expense as a component of general and administrative expenses	$	237,007
Finance lease cost
Depreciation of leased assets as a component of depreciation	$	58,765
Interest on finance lease liabilities as a component of interest expense	$	1,093

Supplemental cash flow information related to leases for the three months ended June 30, 2023 is as follows:

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow paid for operating leases	$	252,313
Financing cash flow paid for finance leases	$	4,404

Scheduled maturities of operating and finance lease liabilities outstanding as of June 30, 2023 are as follows:

Lease term and Discount Rate
Weighted average remaining lease term (months)
Operating leases	13.2
Finance leases	48.8
Weighted average discount rate
Operating leases	6.50	%
Finance leases	9.86	%

THE SINGING MACHINE COMPANY, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 and 2022

(Unaudited)

The following table summarizes information regarding lease maturities and balance due as follows:

Year	Operating Leases		Finance Leases
2023 (remaining six months)	$	227,507	$	10,984
2024		120,008		17,435
2025		48,774		12,903
2026		-		12,903
2027 and beyond		-		13,978
Total Minimum Future Payments		396,289		68,203
Less: Imputed Interest		39,747		8,303
Present Value of Lease Liabilities	$	356,542	$	59,900