What changed in this filing

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Item 1A. Risk Factors

2021-07-14 compared with 2020-08-13 · 294 added, 256 removed, 78 unchanged (88% of the section changed)

forth below and elsewhere in this Annual Report on Form 10-K and in the other documents we file with the SEC are risks and uncertainties

that could cause actual results to differ materially from the results contemplated by the forward looking statements contained

in this Annual Report.

that could cause actual results to differ materially from the results contemplated by the forward looking statements contained in this

Annual Report.

ASSOCIATED WITH OUR BUSINESS

COVID-19 PANDEMIC HAS AFFECTED OUR BUSINESS IN MANY DIFFERENT WAYS, AND MAY AMPLIFY THE RISKS AND UNCERTAINTIES FACING OUR BUSINESS

AND THEIR POTENTIAL IMPACT ON OUR FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS.

COVID-19 PANDEMIC HAS AFFECTED OUR BUSINESS IN MANY DIFFERENT WAYS, AND MAY AMPLIFY THE RISKS AND UNCERTAINTIES FACING OUR BUSINESS AND

THEIR POTENTIAL IMPACT ON OUR FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS.

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

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.

and world economy to deteriorate

in Fiscal 2021.

During Fiscal 2021, demand for consumer electronics products including home based entertainment and toys was strong and

resulted in a reduction in end-of-season overstock returns from three major customers as compared to overstock returns in Fiscal 2020.

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.

SUPPLY CHAIN MAY BE MATERIALLY ADVERSELY IMPACTED DUE TO THE COVID-19 PANDEMIC.

rely upon the facilities of our third-party manufacturers in China to manufacture our products and export our products throughout

The pandemic has resulted in significant governmental measures being implemented to control the spread of COVID-19,

including, among others, restrictions on manufacturing and the movement of employees in many regions of China.

If the outbreak

of COVID-19 is not effectively controlled, our third-party manufacturers may not have the materials, capacity, or capability to

manufacture our products according to our schedule and specifications.

rely upon the facilities of our third-party manufacturers in China to manufacture our products and export our products throughout the

The pandemic has resulted in significant governmental measures being implemented to control the spread of COVID-19, including,

among others, restrictions on manufacturing and the movement of employees in many regions of China during Fiscal 2021.

Currently, the

increased demand for consumer electronics products and current economic recovery has 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, we have experienced longer delivery lead times and some unavailability of

these components which have delayed delivery of some of our products.

We have also experienced delays in delivery schedules due 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 believe that most

of these issues are temporary, if the outbreak of COVID-19 is not effectively controlled, our third-party manufacturers may not have

the materials, capacity, or capability to manufacture our products according to our schedule and specifications.

If our third-party manufacturers’

operations are

curtailed, we may need to seek alternate manufacturing sources, which may be more expensive and cause significant delays in procurement.

At the current moment, restrictions have been eased and our third-party manufacturers in China are able to operate normally, however

we are unable to predict future supply chain disruptions should the pandemic continue.

operations are curtailed, we may need to seek alternate manufacturing sources, which may be more expensive and cause significant delays

in procurement.

At the current moment, restrictions have been eased and our third-party manufacturers in China are able to operate normally,

however we are unable to predict future supply chain disruptions should the pandemic continue.

If the pandemic continues uncontrolled,

the impact on our supply chain in China may have a material adverse effect on our results of operations and cash flows.

we currently distribute all of our products from our warehouse facility in Ontario California.

An outbreak of COVID-19 infections

among our warehouse staff could close the warehouse, resulting in loss of sales.

The COVID-19 outbreak could also delay our release

or delivery of new or product offerings or require us to make unexpected changes to such offerings, which may materially adversely

affect our business and operating results.

we currently distribute 52% of our products from our warehouse facility in Ontario California and approximately 48% of our products are

shipped direct import.

An outbreak of COVID-19 infections among our warehouse staff or workers in the Port of Los Angeles or ports in

China could close the warehouse or shipping ports, resulting in loss of sales.

The COVID-19 outbreak could also delay our release or

delivery of new or product offerings or require us to make unexpected changes to such offerings, which may materially adversely affect

our business and operating results.

IN GOVERNMENT REGULATIONS RELATING TO INTERNATIONAL TARIFFS COULD SIGNIFICANTLY REDUCE OUR REVENUES, PRODUCT COST AND PROFITABILITY.

Trump administration and members of the U.S.

government administration and members of the U.S.

Congress have made public statements indicating possible significant changes in U.S.

trade policy and have taken certain actions that may impact U.S.

trade, including imposing tariffs on certain goods imported into

the United States.

trade, including imposing tariffs on certain goods imported into the

United States.

Any changes in U.S.

trade policy could trigger retaliatory actions by affected countries, resulting in “trade

trade policy could trigger retaliatory actions by affected countries, resulting in “trade wars,”

in increased costs for goods imported into the United States.

All of our products are manufactured and imported from

China however, only our microphone products are currently subject to 7.5% tariffs currently in place.

Should the government decide

to expand its list of products to include our karaoke products that would subject our products to tariffs in the future, there

could be a significant increase in the landed cost of our products.

If we are unable to mitigate these increased costs through

price increases we could experience reductions in revenues, gross profit margin and results from operations.

SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES, AND THE LOSS OF ONE OR MORE OF THESE KEY CUSTOMERS

COULD SIGNIFICANTLY REDUCE OUR REVENUES AND CASH FLOW.

All of our products are manufactured and imported from China however, only

our microphone products are currently subject to 7.5% tariffs currently in place.

Should the government decide to expand its list of

products to include our karaoke products that would subject our products to tariffs in the future, there could be a significant increase

in the landed cost of our products.

If we are unable to mitigate these increased costs through price increases we could experience reductions

in revenues, gross profit margin and results from operations.

SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES, AND THE LOSS OF ONE OR MORE OF THESE KEY CUSTOMERS COULD

SIGNIFICANTLY REDUCE OUR REVENUES AND CASH FLOW.

rely on a few large customers to provide a substantial portion of our revenues.

As a percentage of net sales, our sales to our

three largest customers during the years ended March 31, 2020 and 2019 were approximately 63% and 66%, respectively .

have long-term contractual arrangements with any of our customers and they can cancel their orders at any time prior to delivery.

A substantial reduction in or termination of orders from any of our largest customers would decrease our revenues and cash flow.

ARE SUBJECT TO THE RISK THAT SOME OF OUR LARGE CUSTOMERS MAY RETURN KARAOKE PRODUCTS THAT THEY HAVE PURCHASED FROM US AND IF THIS

HAPPENS, IT WOULD REDUCE OUR REVENUES AND PROFITABILITY.

As a percentage of net sales, our sales to our three

largest customers during the years ended March 31, 2021 and 2020 were approximately 69% and 64%, respectively.

We do not have long-term

contractual arrangements with any of our customers and they can cancel their orders at any time prior to delivery.

A substantial reduction

in or termination of orders from any of our largest customers would decrease our revenues and cash flow.

ARE SUBJECT TO THE RISK THAT SOME OF OUR LARGE CUSTOMERS MAY RETURN KARAOKE PRODUCTS THAT THEY HAVE PURCHASED FROM US AND IF THIS HAPPENS,

IT WOULD REDUCE OUR REVENUES AND PROFITABILITY.

fiscal 2021 and 2020, a number of our customers and distributors returned karaoke products that they had purchased from us.

customers returned goods valued at approximately $5.4 million or 13.1% of our net sales in fiscal 2020 and approximately $3.8

million or 8.2% of our net sales in fiscal 2019.

The return of products is due to a variety of reasons including defective units,

customers’

overstock and buyer’s remorse.

The primary reason for the 4.9 percentage point increase in returns was

primarily due to overstock returns of licensed goods from one major customer and overstock returns of non-licensed products from

three other major customers.

Our factories charge customary repair and freight costs which increase our expenses and reduce profitability.

If any of our customers were to increase the volume of their returned karaoke products to us, it would reduce our revenues and

profitability.

ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE

THESE CONCESSIONS TO OUR CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY.

Our customers

returned goods valued at approximately $4.1 million or 9.1% of our net sales in fiscal 2021 and approximately $5.4 million or 14.1% of

our net sales in fiscal 2020.

The return of products is due to a variety of reasons including defective units, customers’

and buyer’s remorse.

The primary reason for the 5.0 percentage point decrease in returns was primarily due to one-time overstock

returns of licensed goods from one major customer and significant overstock returns of non-licensed products from three other major customers

in fiscal 2020 and not repeated in fiscal 2021.

Our factories charge customary repair and freight costs which increase our expenses and

reduce profitability.

If any of our customers were to increase the volume of their returned karaoke products to us, it would reduce our

revenues and profitability.

ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE THESE

CONCESSIONS TO OUR CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY.

there is intense competition in the karaoke industry, we are subject to pricing pressure from our customers.

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We are also subject to pressure from our customers regarding

certain financial incentives, such as return credits or large advertising or cooperative advertising allowances, which effectively

reduce our profit.

We gave advertising allowances of approximately $2.9 million during fiscal 2020 and $2.3 million during fiscal

We have historically offered advertising allowances to our customers because it is standard practice in the retail industry.

EXPERIENCE DIFFICULTY FORECASTING THE DEMAND FOR OUR KARAOKE PRODUCTS AND IF WE DO NOT ACCURATELY FORECAST DEMAND, OUR REVENUES,

NET INCOME AND CASH FLOW MAY BE AFFECTED.

certain financial incentives, such as return credits or large cooperative (“co-op”) promotion incentives, which

effectively reduce our net sales and profit.

We gave co-op promotion incentives of approximately $2.0 million during fiscal 2021 and

$2.9 million during fiscal 2020.

We have historically offered co-op promotion incentives to our customers because it is standard

practice in the retail industry.

EXPERIENCE DIFFICULTY FORECASTING THE DEMAND FOR OUR KARAOKE PRODUCTS AND IF WE DO NOT ACCURATELY FORECAST DEMAND, OUR REVENUES, NET

INCOME AND CASH FLOW MAY BE AFFECTED.

of our reliance on manufacturers in China for our machine production, our production lead times range from one to four months.

Therefore, we must commit to production in advance of customers’

It is difficult to forecast customer demand because

we do not have any scientific or quantitative method to predict this demand.

Our forecasting is based on management’s general

expectations about customer demand, the general strength of the retail market and management’s historical experiences.

past years we have overestimated demand for our products which led to excess inventory in some of our products and caused liquidity

problems that adversely affected our revenues, net income and cash flow.

ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS AND IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR

REVENUES AND NET INCOME.

of our customers place orders with us several months prior to the holiday season, but they schedule delivery two or three weeks

before the holiday season begins.

As such, we are subject to the risks and costs of carrying inventory during the time period

between the placement of the order and the delivery date, which reduces our cash flow.

As of March 31, 2020 we had approximately

$7.6 million in inventory.

It is important that we sell this inventory during fiscal 2021, so we have sufficient cash flow for

we must commit to production in advance of customers’

It is difficult to forecast customer demand because we do not have

any scientific or quantitative method to predict this demand.

Our forecasting is based on management’s general expectations about

customer demand, the general strength of the retail market and management’s historical experiences.

In past years we have overestimated

demand for our products which led to excess inventory in some of our products and caused liquidity problems that adversely affected our

revenues, net income and cash flow.

ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS AND IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR CASH

FLOW FOR OPERATIONS.

of our customers place orders with us several months prior to the holiday season, but they schedule delivery two or three weeks before

the holiday season begins.

As such, we are subject to the risks and costs of carrying inventory during the time period between the placement

of the order and the delivery date, which reduces our cash flow.

As of March 31, 2021 we had approximately $5.5 million in inventory.

It is important that we sell this inventory during fiscal 2022, so we have sufficient cash flow for operations.

ARE SUBJECT TO INSURANCE RISK OF LOSS FOR GOODS DAMAGED WHILE IN TRANSIT FROM THE MANUFACTURER TO THE CUSTOMER AND OUR WAREHOUSE.

of our goods are manufactured in China and are transported to customers and our warehouse in California via ocean vessel.

we are subject to damages that may occur to these goods when they are in transit to customers or our warehouse.

Should substantial

damage incur while goods are in transit we could experience a significant loss of revenue, inventory and incur significant out

of pocket expenses associated with destruction of the damaged goods which could cause a significant loss from operations and reduction

in cash flow.

In August 2019, a major customer received goods that were significantly water damaged due to excess moisture absorbed

in pallets shipped by the factory.

As a result we incurred a loss of approximately $2.4 million.

As of July 10, 2020 we have recovered

approximately $2.3 million from our cargo insurance coverage and secured vendor invoice credits of $0.4 million from the factory

that caused the damage.

While we have taken measures to prevent a similar incident in the future there can be no guarantee that

this type of damage or other types of damage could occur in the future.

Unfortunately, due the size of the claim, we can no longer

afford the same insurance coverage for goods damaged in transit and are now at risk for costs associated with damage to goods

BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND, IN LARGE PART, ON OUR SALES DURING THE RELATIVELY

BRIEF HOLIDAY SEASON.

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.

second and third quarter, combined, accounted for approximately 98% and 94% of net sales in fiscal 2020 and 2019, respectively.

are subject to damages that may occur to these goods when they are in transit to customers or our warehouse.

Should substantial damage

incur while goods are in transit we could experience a significant loss of revenue, inventory and incur significant out of pocket expenses

associated with destruction of the damaged goods which could cause a significant loss from operations and reduction in cash flow.

August 2019, a major customer received goods that were significantly water damaged due to excess moisture absorbed in pallets shipped

by the factory.

As a result we incurred a loss of approximately $2.4 million during Fiscal 2020.

During fiscal 2021 we recovered approximately

$2.3 million from our cargo insurance coverage and secured vendor invoice credits of $0.4 million from the factory that caused the damage.

While we have taken measures to prevent a similar incident in the future there can be no guarantee that this type of damage or other

types of damage could occur in the future.

Unfortunately, due the size of the claim, we can no longer obtain insurance coverage for goods

that are shipped direct import to our customers whose shipping terms are FOB shipping point however we have obtained insurance for goods

in transit to our California warehouse.

BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND, IN LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF

HOLIDAY SEASON.

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 86% and 85% of net sales in fiscal 2021 and 2020, respectively.

WE ARE UNABLE TO COMPETE IN THE KARAOKE PRODUCTS CATEGORY, OUR REVENUES AND NET PROFITABILITY WILL BE REDUCED.

major competitors for karaoke machines and related products are Singsation, Singtrix, Ion Audio, Karaoke USA and licensed property

karaoke products and other consumer electronics companies.

We believe that competition for karaoke machines is based primarily

on price, product features, reputation, delivery times, and customer support.

To the extent that we lower prices to attempt to

enhance or retain market share, we may adversely impact our operating margins.

Conversely, if we opt not to match competitor’s

price reductions we may lose market share, resulting in decreased volume and revenue.

To the extent our leading competitors reduce

prices on their karaoke machines, we must remain flexible to reduce our prices.

major competitors for karaoke machines and related products are Singsation®, Singtrix®, eKids®, Bonaok, Karaoke USA™,

Audio, licensed property karaoke products and other consumer electronics companies.

We believe that competition for karaoke

machines is based primarily on price, product features, reputation, delivery times, and customer support.

To the extent that we lower

prices to attempt to enhance or retain market share, we may adversely impact our operating margins.

Conversely, if we opt not to match

competitor’s price reductions we may lose market share, resulting in decreased volume and revenue.

To the extent our leading competitors

reduce prices on their karaoke machines, we must remain flexible to reduce our prices.

If we are forced to reduce our prices, it will

result in lower margins and reduced profitability.

Because of intense competition in the karaoke industry in the United States

during fiscal 2020, we expect that the intense pricing pressure in the low end of the market will continue in the karaoke market

in the United States in fiscal 2021.

In addition, we must compete with all the other existing forms of entertainment including,

but not limited to:

motion pictures, video arcade games, home video games, theme parks, nightclubs, television, prerecorded tapes,

CD’s, and DVD’s and streaming video.

Because of intense competition in the karaoke industry in the United States during

fiscal 2021, we expect that the intense pricing pressure in the low end of the market will continue in the karaoke market in the United

States in fiscal 2022.

In addition, we must compete with all the other existing forms of entertainment including, but not limited to:

motion pictures, video arcade games, home video games, theme parks, nightclubs, television, prerecorded tapes, CD’s, and DVD’s

and streaming video.

WE ARE UNABLE TO DEVELOP NEW KARAOKE PRODUCTS, OUR REVENUES MAY NOT CONTINUE TO GROW.

karaoke industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing

customer demands for greater performance.

In addition, the average selling price of any karaoke machine has historically decreased

over its life, and we expect that trend to continue.

As a result, our products may not be competitive if we fail to introduce

new products or product enhancements that meet evolving customer demands.

The development of new products is complex, and we may

not be able to complete development in a timely manner.

karaoke industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing customer

demands for greater performance.

In addition, the average selling price of any karaoke machine has historically decreased over its life,

and we expect that trend to continue.

As a result, our products may not be competitive if we fail to introduce new products or product

enhancements that meet evolving customer demands.

The development of new products is complex, and we may not be able to complete development

in a timely manner.

To introduce products on a timely basis, we must:

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effectively to technological changes or product announcements by others.

believe that we will need to continue to enhance our karaoke machines and develop new machines to keep pace with competitive and

technological developments and to achieve market acceptance for our products.

At the same time, we need to identify and develop

other products which may be different from karaoke machines.

believe that we will need to continue to enhance our karaoke machines and develop new machines to keep pace with competitive and technological

developments and to achieve market acceptance for our products.

At the same time, we need to identify and develop other products which

may be different from karaoke machines.

PRODUCTS ARE SHIPPED FROM CHINA AND ANY DISRUPTION OF SHIPPING COULD PREVENT OR DELAY OUR CUSTOMERS’

RECEIPT OF INVENTORY.

rely principally on four contract ocean carriers to ship virtually all of the products that we import to our warehouse facility

in Ontario, California.

rely principally on four contract ocean carriers to ship virtually all of the products that we import to our warehouse facility in Ontario,

Retailers that take delivery of our products in China rely on a variety of carriers to import those products.

Any disruptions in shipping, whether in California or China, caused by labor strikes, other labor disputes, terrorism, and international

incidents may prevent or delay our customers’

Any disruptions

in shipping, whether in California or China, caused by labor strikes, other labor disputes, terrorism, and international incidents may

prevent or delay our customers’

receipt of inventory.

If our customers do not receive their inventory on a

timely basis, they may cancel their orders or return products to us.

Consequently, our revenues and net income would be reduced

and our results of operations adversely affected.

If our customers do not receive their inventory on a timely basis, they may

cancel their orders or return products to us.

Consequently, our revenues and net income would be reduced and our results of operations

adversely affected.

MANUFACTURING OPERATIONS ARE LOCATED IN THE PEOPLE’S REPUBLIC OF CHINA, SUBJECTING US TO RISKS COMMON IN INTERNATIONAL OPERATIONS.

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will be producing all of our karaoke products in fiscal 2022.

Our arrangements with these factories are subject to the risks of

doing business abroad, such as import duties, trade restrictions, work stoppages, and foreign currency fluctuations, limitations

on the repatriation of earnings and political instability, which could have an adverse impact on our business.

Furthermore, we

have limited control over the manufacturing processes.

As a result, any difficulties encountered by our third-party manufacturers

that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely

affect our revenues, profitability and cash flow.

Also, since we do not have written agreements with any of these factories, we

are subject to additional uncertainty if the factories do not deliver products to us on a timely basis.

Our arrangements with these factories are subject to the risks of doing

business abroad, such as import duties, trade restrictions, work stoppages, and foreign currency fluctuations, limitations on the repatriation

of earnings and political instability, which could have an adverse impact on our business.

Furthermore, we have limited control over

the manufacturing processes.

As a result, any difficulties encountered by our third-party manufacturers that result in product defects,

production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our revenues, profitability

and cash flow.

Also, since we do not have written agreements with any of these factories, we are subject to additional uncertainty if

the factories do not deliver products to us on a timely basis.

DEPEND ON THIRD PARTY SUPPLIERS FOR PARTS FOR OUR KARAOKE MACHINES AND RELATED PRODUCTS, AND IF WE CANNOT OBTAIN SUPPLIES AS NEEDED,

OUR OPERATIONS WILL BE SEVERELY DAMAGED.

growth and ability to meet customer demand depends in part on our capability to obtain timely deliveries of karaoke machines and

our electronic products.

We rely on third party suppliers to produce the parts and materials we use to manufacture and produce

these products.

If our suppliers are unable to provide our factories with the parts and supplies, we will be unable to produce

our products.

We cannot guarantee that we will be able to purchase the parts we need at reasonable prices or in a timely fashion.

If we are unable to anticipate any shortages of parts and materials in the future, we may experience severe production problems,

which would impact our sales.

growth and ability to meet customer demand depends in part on our capability to obtain timely deliveries of karaoke machines and our

electronic products.

We rely on third party suppliers to produce the parts and materials we use to manufacture and produce these products.

If our suppliers are unable to provide our factories with the parts and supplies, we will be unable to produce our products.

there is a worldwide shortage of electronic chips due to the increased demand for semiconductors and we are currently competing with

large companies to obtain these parts and could see production and shipment delays.

We cannot guarantee that we will be able to purchase

the parts we need at reasonable prices or in a timely fashion.

If we are unable to anticipate any shortages of parts and materials in

the future, we may experience severe production problems and delivery delays, which would impact our sales.

DISCRETIONARY SPENDING MAY AFFECT KARAOKE PURCHASES AND IS AFFECTED BY VARIOUS ECONOMIC CONDITIONS AND CHANGES.

business and financial performance may be damaged more than most companies by adverse financial conditions affecting our business

or by a general weakening of the economy.

business and financial performance may be damaged more than most companies by adverse financial conditions affecting our business or

by a general weakening of the economy.

Purchases of karaoke machines and music are considered discretionary for consumers.

Our success will therefore be influenced by a number of economic factors affecting discretionary and consumer spending, such as

employment levels, business, interest rates, and taxation rates, all of which are not under our control.

Additionally, other extraordinary

events such as terrorist attacks or military engagements, which adversely affect the retail environment may restrict consumer

spending and thereby adversely affect our sales growth and profitability.

ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING FINANCIAL DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE

TO PAY US, OUR REVENUES AND PROFITABILITY WILL BE REDUCED.

sell products to retailers, including national chains, warehouse clubs, department stores, lifestyle merchants, specialty stores,

and direct mail catalogs and showrooms.

Deterioration in the financial condition of our customers could result in bad debt expense

to us and have a material adverse effect on our revenues and future profitability.

As of August 12, 2020 we are not aware of any

customers that are operating under the protection of bankruptcy laws other than J.

Penney who does not have any unpaid invoices.

This customer accounted for less than 3% of net sales for the Fiscal 2020.

DISRUPTION IN THE OPERATION OF OUR WAREHOUSE CENTER IN CALIFORNIA COULD IMPACT OUR ABILITY TO DELIVER MERCHANDISE TO OUR CUSTOMERS,

WHICH COULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.

will therefore be influenced by a number of economic factors affecting discretionary and consumer spending, such as employment levels,

business, interest rates, and taxation rates, all of which are not under our control.

Additionally, other extraordinary events such as

terrorist attacks or military engagements, which adversely affect the retail environment may restrict consumer spending and thereby adversely

affect our sales growth and profitability.

ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING FINANCIAL DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE TO PAY

US, OUR REVENUES AND PROFITABILITY WILL BE REDUCED.

sell products to retailers, including national chains, warehouse clubs, department stores, lifestyle merchants, specialty stores, and

direct mail catalogs and showrooms.

Deterioration in the financial condition of our customers could result in bad debt expense to us

and have a material adverse effect on our revenues and future profitability.

As of the filing date of this document we are not aware

of any customers that are operating under the protection of bankruptcy laws.

DISRUPTION IN THE OPERATION OF OUR WAREHOUSE CENTER IN CALIFORNIA COULD IMPACT OUR ABILITY TO DELIVER MERCHANDISE TO OUR CUSTOMERS, WHICH

COULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.

significant amount of our merchandise is shipped to our customers from our warehouse located in Ontario, California.

as fire or other catastrophic events, any malfunction or disruption of our centralized information systems or shipping problems

may result in delays or disruptions in the timely distribution of merchandise to our customers, which could substantially decrease

our revenues and profitability.

Events such as fire

or other catastrophic events, any malfunction or disruption of our centralized information systems or shipping problems may result in

delays or disruptions in the timely distribution of merchandise to our customers, which could substantially decrease our revenues and

profitability.

LEVELS OF SECURITIES AND FINANCIAL MARKET RISK.

the past twelve months, our financial condition and results of operations have affected our ability to continue traditional financing

with PNC Bank and PNC chose not to renew financing with the Company.

Fiscal 2020, our financial condition and results of operations affected our ability to continue traditional financing with PNC Bank and

PNC chose not to renew financing with the Company.

The PNC Revolving Credit Facility was terminated on June 16, 2020.

On June 16, 2020, the Company executed a tri-party Intercreditor Agreement for a Revolving Line of Credit (Intercreditor

Revolving Credit Facility”) on eligible accounts receivable and inventory.

The Company signed a two-year Loan and Security

Agreement for a $10,000,000 financing facility with Crestmark, a division of Meta Bank, NA (“Crestmark”) on eligible

On June 16, 2020,

the Company executed a tri-party Intercreditor Agreement for a Revolving Line of Credit (Intercreditor Revolving Credit Facility”)

on eligible accounts receivable and inventory.

The Company signed a two-year Loan and Security Agreement for a $10,000,000 (reduced to

$5,000,000 during non-peak season) financing facility with Crestmark, a division of Meta Bank, NA (“Crestmark”) on eligible

accounts receivable.

Further, the Company also executed a two-year Loan and Security Agreement with Iron Horse Credit (“Iron

Horse”) for up to $2,500,000 in inventory financing.

Should there be a disruption in the current levels of these markets

or a deterioration of our business, there can be no assurance that we will not experience an adverse effect, which may be material,

on our ability to access capital and on our business, financial condition and results of operations.

Further, the Company also executed a two-year Loan and Security Agreement with Iron Horse Credit (“Iron Horse”)

for up to $2,500,000 in inventory financing.

Should there be a disruption in the current levels of these markets or a deterioration of

our business, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access

capital and on our business, financial condition and results of operations.

EXCHANGE RATE RISK

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the Chinese local currency had no material effect on the Company as all of our purchases are denominated in U.S.

However, in the event our purchases are required to be made in Chinese local currency, the Yuan, we will be subject to the risks

involved in foreign exchange rates.

In the future the value of the Yuan may depend to a large extent on the Chinese government’s

policies and China’s domestic and international economic and political developments.

As a result, our production costs may

increase if we are required to make purchases using the Yuan instead of the U.S.

dollar and the value of the Yuan increases over

Any significant increase in the cost of manufacturing our products would have a material adverse effect on our business

and results of operations.

the event our purchases are required to be made in Chinese local currency, the Yuan, we will be subject to the risks involved in foreign

exchange rates.

In the future the value of the Yuan may depend to a large extent on the Chinese government’s policies and China’s

domestic and international economic and political developments.

As a result, our production costs may increase if we are required to

make purchases using the Yuan instead of the U.S.

dollar and the value of the Yuan increases over time.

Any significant increase in the

cost of manufacturing our products would have a material adverse effect on our business and results of operations.

We sell our product

to Canadian customers some of whom require us to invoice them in Canadian Dollars.

We are subject to risks involved in the exchange rate

between the Canadian and US dollar however, the exchange rate has been stable during fiscal 2021 and the associated exchange rates did

not have a material impact on the Company’s financial results.

Should the exchange rate between the Canadian and US Dollar become

more volatile and sales to Canadian customers increase, there could be a material adverse effect on our business.

RAW MATERIAL/PRODUCTION PRICING

in the price of oil has and will continue to affect the Company in connection with the sourcing and utilizing of petroleum based

raw materials and services.

We do not expect to see increased cost in our finished goods during fiscal year 2021 due to the significant

decrease in the price of oil offset by increased cost of trans-oceanic shipping and increases in the cost of labor related to

regulations instituted in China which impact wages related to the cost of production.

These issues are common to all companies

in the same type of business and if the Company is not able to negotiate lower costs, reduce other expenses, or pass on some or

all of these price increases to our customers, our profit margin may be decreased.

in the price of oil, electronic chip components and shipping costs have and will continue to affect the Company in connection with the

sourcing and delivery of raw materials and services.

We expect to see increased cost in our finished goods during fiscal year 2022 due

to the significant increases in the price of oil, increased cost of trans-oceanic shipping, electronic component price increases and

increases in the cost of labor related to regulations instituted in China which impact wages related to the cost of production.

issues are common to all companies in the same type of business and if the Company is not able to negotiate lower costs, reduce other

expenses, or pass on some or all of these price increases to our customers, our profit margin may be decreased.

ASSOCIATED WITH OUR CAPITAL STRUCTURE

OUR OUTSTANDING STOCK OPTIONS ARE EXERCISED, OUR EXISTING SHAREHOLDERS WILL SUFFER DILUTION.

of March 31, 2020, there were outstanding stock options to purchase an aggregate of 2,230,000 shares of common stock at exercise

prices ranging from $0.04 to $0.55 per share, not all of which are immediately exercisable.

The weighted average exercise price

of the outstanding stock options is approximately $0.26 per share.

of March 31, 2021, there were outstanding stock options to purchase an aggregate of 1,680,000 shares of common stock at exercise prices

ranging from $0.12 to $0.55 per share, not all of which are immediately exercisable.

The weighted average exercise price of the outstanding

stock options is approximately $0.32 per share.

SALES OF OUR COMMON STOCK HELD BY CURRENT SHAREHOLDERS AND INVESTORS MAY DEPRESS OUR STOCK PRICE.

of July 28, 2020 there were 38,557,643 shares of our common stock outstanding.

of June 25, 2021 there were 39,040,748 shares of our common stock outstanding.

We have filed two registration statements registering

an aggregate 3,794,250 of shares of our common stock (a registration statement on Form S-8 to register the sale of 1,844,250 shares

underlying options granted under our 1994 Stock Option Plan and a registration statement on Form S-8 to register 1,950,000 shares

of our common stock underlying options granted under our Year 2001 Stock Option Plan).

The market price of our common stock could

drop due to the sale of large number of shares of our common stock, such as the shares sold pursuant to the registration statements

or under Rule 144, or the perception that these sales could occur.

an aggregate 3,794,250 of shares of our common stock (a registration statement on Form S-8 to register the sale of 1,844,250 shares underlying

options granted under our 1994 Stock Option Plan and a registration statement on Form S-8 to register 1,950,000 shares of our common

stock underlying options granted under our Year 2001 Stock Option Plan).

The market price of our common stock could drop due to the sale

of large number of shares of our common stock, such as the shares sold pursuant to the registration statements or under Rule 144, or

the perception that these sales could occur.

STOCK PRICE MAY DECREASE IF WE ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK.

certificate of incorporation, as amended in January 2006, authorizes the issuance of 100,000,000 shares of common stock.

August 12, 2020, we had 38,557,643 shares of common stock issued and outstanding and an aggregate of 2,230,000 shares issuable

under our outstanding stock options.

As such, our Board of Directors has the power, without stockholder approval, to issue up

to 59,212,357 shares of common stock.

Any issuance of additional shares of common stock, whether by us to new shareholders or

the exercise of outstanding options, may result in a reduction of the book value or market price per share of our outstanding

certificate of incorporation, as amended in January 2006, authorizes the issuance of 1,000,000 shares of preferred stock, 100,000 shares

of Class A common stock and 100,000,000 shares of Class B common stock.

As of July 13, 2021 we had no shares of preferred stock or Class

A Common Stock issued and outstanding.

As of July 13, 2021, we had 39,060,748 shares of Class B common stock issued and outstanding

and an aggregate of 1,660,000 shares issuable under our outstanding stock options.

As such, our Board of Directors has the power, without

stockholder approval, to issue up to 59,279,252 shares of common stock.

Any issuance of additional shares of common stock, whether by

us to new shareholders or the exercise of outstanding options, may result in a reduction of the book value or market price per share

of our outstanding common stock.

Issuance of additional shares will reduce the proportionate ownership and voting power of our then existing

shareholders.

IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR

COMMON STOCK.

Issuance of additional shares will reduce the proportionate ownership and voting power of our then existing shareholders.

IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE

OF OUR COMMON STOCK.

law and our certificate of incorporation and bylaws contain provisions that could delay, defer or prevent a change in control

of our Company or a change in our management.

These provisions could also discourage proxy contests and make it more difficult

for you and other shareholders to elect directors and take other corporate actions.

These provisions of our certificate of incorporation

authorizing our board of directors to issue additional preferred stock, limiting the persons who may call special meetings

of shareholders, and establishing advance notice requirements for nominations for election to our board of directors or for proposing

matters that can be acted on by shareholders at shareholder meetings.

WE FAIL TO MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING, THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED.

law and our certificate of incorporation and bylaws contain provisions that could delay, defer or prevent a change in control of our

Company or a change in our management.

These provisions could also discourage proxy contests and make it more difficult for you and other

shareholders to elect directors and take other corporate actions.

These provisions of our certificate of incorporation include:

our board of directors to issue additional preferred stock, limiting the persons who may call special meetings of shareholders, and establishing

advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by shareholders

at shareholder meetings.

HAVE CONCLUDED THAT THERE IS A MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING, WHICH, IF NOT REMEDIATED, COULD MATERIALLY

ADVERSLY AFFECT OUR ABILITY TO TIMELY AND ACCURATELY REPORT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

IF WE FAIL TO MAINTAIN

EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING, THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED.

are required to establish and maintain appropriate internal controls over financial reporting.

Failure to establish those controls,

or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial

condition or results of operations.

Any actual or perceived weaknesses and conditions that need to be addressed in our internal

controls over financial reporting or disclosure of our management’s assessment of our internal controls over financial reporting

may have an adverse impact on the price of our common stock.

Failure to establish those controls, or

any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition

or results of operations.

Any actual or perceived weaknesses and conditions that need to be addressed in our internal controls over financial

reporting or disclosure of our management’s assessment of our internal controls over financial reporting may have an adverse impact

on the price of our common stock.

connection with the audit of our March 31, 2021 consolidated financial statements, we identified a deficiency, which we consider to

be “material weaknesses,”

which, could reasonably result in a material misstatement in the Company’s consolidated

financial statements

MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY SEVERAL FACTORS.

8 unchanged sentences

fluctuations in its financial results.

addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated

to the operating performance of particular companies.

These market fluctuations may also materially and adversely affect the market

price of our common stock.

addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the

operating performance of particular companies.

These market fluctuations may also materially and adversely affect the market price of

our common stock.

HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE FUTURE.

ANY RETURN ON INVESTMENT MAY BE

LIMITED TO THE VALUE OF OUR STOCK.

ANY RETURN ON INVESTMENT MAY BE LIMITED

TO THE VALUE OF OUR STOCK.

have never paid cash dividends on our stock and do not anticipate paying cash dividends on our stock in the foreseeable future.

The payment of cash dividends on our stock will depend on our earnings, financial condition and other business and economic factors

affecting us at such time as the board of directors may consider relevant.

If we do not pay cash dividends, our stock may be less

valuable because a return on your investment will only occur if our stock price appreciates.

of cash dividends on our stock will depend on our earnings, financial condition and other business and economic factors affecting us

at such time as the board of directors may consider relevant.

If we do not pay cash dividends, our stock may be less valuable because

a return on your investment will only occur if our stock price appreciates.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors