FINANCING

6 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

FINANCING

NOTE 6 – FINANCING

Asset-backed Revolving Credit Facility

On October 14, 2022, the Company entered into a Loan and Security Agreement with Fifth Third Financial Corporation (the “Credit Agreement”), as Lender, replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company on October 13, 2022. The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $15 million revolving credit facility (“Credit Facility”). The Credit Facility was terminated on November 17, 2023. Availability under the Credit Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral (as defined in the Credit Agreement).

THE SINGING MACHINE COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023 and 2022

(Unaudited)

Costs associated with closing of the Credit Agreement of approximately $254,000 were deferred and are being amortized over life of the loan. During the three months ended September 30, 2023 and 2022, the Company incurred amortization expense of approximately $21,000 and $0, respectively associated with the amortization of deferred financing costs from the Credit Agreement. During the six months ended September 30, 2023 and 2022, the Company incurred amortization expense of approximately $42,000 and $8,000, respectively, associated with the amortization of deferred financing costs from the Credit Agreement.

Borrowings under the Credit Facility took the form of base rate loans at interest rates of the greater of either (a) the Prime Rate plus 0.50% or (b) the Secured Overnight Financing Rate (“SOFR”) 30-day term rate plus 3%, subject to a minimum of 0.050% in either case. For the three months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $22,000 and $0, respectively. For the six months ended September 30, 2023 and 2022, the Company incurred interest expense of approximately $42,000 and 8,000, respectively.

The Credit agreement included certain covenants which included, but were not limited to restrictions on debt, asset liens, capital expenditures, formation of new entities and financial covenants.

As of March 31, 2023, the Company was in default under the Credit Facility due to non-compliance with a covenant. On May 19, 2023 the Company executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and new financial covenants.

On August 30, 2023, the Company entered into a Waiver and Second Amendment (the “Revolving Loan Amendment”) to the Credit Agreement. The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Credit Agreement as of the date of the Revolving Loan Amendment and (ii) the amendment of the definition of “Borrowing Base” to reduce from $5,000,000 to $2,000,000.

On November 17, 2023, the Company voluntarily terminated the Credit Agreement as the Company could not comply with the debt coverage financial covenant effective September 30, 2023. There was no balance outstanding on the credit agreement as of the termination date.

Intercreditor Revolving Credit Facility Crestmark Bank and Iron Horse Credit:

On June 16, 2020, the Company entered into a two-year Credit and Security Agreement for a $2.5 million financing facility, with IHC on eligible accounts receivable and inventory. Also, on June 16, 2020, the Company entered into a two-year Loan and Security Agreement for a $10.0 million financing facility with Crestmark on eligible accounts receivable.

For the three and six months ended September 30, 2022, the Company incurred approximately $0 and $8,000, respectively, in amortization costs for deferred financing charges associated with the credit and security agreements with Crestmark and IHC. The Company also incurred interest expense of approximately $79,000 and $132,000 for the three and six months ended September 30, 2022, respectively, associated with the credit and security agreements with Crestmark and IHC.