What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-22 compared with 2021-08-16 · 218 added, 153 removed, 139 unchanged (73% of the section changed)

32 unchanged sentences

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, this Quarterly Report on 10-Q, or in our other filings made with the SEC.

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.

are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the

35 unchanged sentences

economy for the foreseeable future.

While our facilities have remained operational during the first half of 2021, we continue

to experience various degrees of manufacturing cost pressures due to raw material and electronic component shortages as well as inflationary

price increases.

Although we regularly monitor the financial health and operations of companies in our supply chain, and use alternative

suppliers when necessary and available, financial hardship or government restrictions on our suppliers or sub-suppliers caused by the

COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to manufacture our products

and adversely affect our operations.

as consumer demand improves and economic activity increases, we have experienced supply chain challenges, including increased lead times,

We continue to experience various degrees of manufacturing cost pressures due to raw

material and electronic component shortages as well as inflationary price increases.

Although we regularly monitor the financial health

and operations of companies in our supply chain, and use alternative suppliers when necessary and available, financial hardship or government

restrictions on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw

materials or components required to manufacture our products and adversely affect our operations.

as consumer demand improved and economic activity increased, we have experienced supply chain challenges, including increased lead times,

port closures in China and delays in Los Angeles, global container shortages, as well as inflation of logistics and labor costs due to

16 unchanged sentences

OF OPERATIONS

following table sets forth, for the periods indicated, certain items related to our condensed consolidated statements of operations as

a percentage of net sales for the three months ended June 30, 2021 and 2020 as restated:

following table sets forth, for the periods indicated, certain items related to our consolidated statements of income as a percentage

of net sales for the three and six months ended September 30, 2021 and 2020 as restated:

Singing Machine Company, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

of Goods Sold

and administrative expenses

and amortization

the Six Months Ended

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative

Depreciation and amortization

Total Operating Expenses

Income from Operations

Other Income (Expenses)

Gain from damaged goods

insurance claim

Gain from extinguishment

of accounts payable

Interest expense

Financing costs

Total Other Income (expenses),

Income Before Income Tax

Income Tax Provision

ENDED SEPTEMBER 30, 2021 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2020

sales for the quarter ended September 30, 2021 decreased to approximately $17,369,000 from approximately $22,285,000 a decrease of approximately

$4,916,000 as compared to the same period ended September 30, 2020.

Sales of our Carpool Karaoke The Mic (“CPK”) product

decreased by approximately $2,306,000 during the three months ended September 30, 2021 compared to the same period ended September 30,

2020 as the company winds down it’s promotion of the original version of the product and recently launched a new version of the

product with several enhanced features for sale during the upcoming holiday season.

The remaining decrease in sales was primarily due

to delays in receiving goods from the Port of Los Angeles due to the disruption in the global supply chain.

profit for the quarter ended September 30, 2021 decreased to approximately $3,327,000 from approximately $5,823,000 a decrease

of approximately $2,496,000 as compared to the same period in the prior year.

The decrease in net sales contributed approximately

$1,284,000 to the decrease in gross profit.

The remaining decrease was primarily due to the decrease in gross profit margin of approximately

6.9 points on products sold.

profit margin for the three months ended September 30, 2021 was 19.2% compared to 26.1% for the three months ended September 30,

The decrease in CPK product sales which yield substantially more gross profit margin than our traditional product accounted for

approximately 4.0 margin points of the 6.9 gross profit margin point decrease with the remaining 2.9 point decrease primarily

due to product cost increases in raw materials and a significant increase in freight costs .

the quarter ended September 30, 2021, total operating expenses decreased to approximately $2,577,000 compared to approximately $3,384,000

from the same period in the prior year.

This represents a decrease in total operating expenses of approximately $807,000 from the quarter

ended September 30, 2020.

The decrease in operating expenses is primarily due to a decrease in selling expenses of $742,000.

a decrease in royalty expenses of approximately $321,000 associated with the decrease in CPK sales as explained in net sales.

expense decreased by approximately $286,000 due to the decrease in net sales and returns.

There was a decrease in in commissions of approximately

$83,000 commensurate with the decrease in net sales and discretionary marketing expenditures were down by approximately $52,000.

remaining decrease in operating expenses was due to variable general and administrative expenses.

FROM OPERATIONS

was income from operations of approximately $750,000 for the three months ended September 30, 2021 compared to income from operations

of approximately $2,439,000 for the three months ended September 30, 2020.

The decrease in income from operations of approximately $1,689,000

was primarily due to the decrease in gross profit offset by the reduction in operating expenses as explained above.

INCOME (EXPENSES)

from Payroll Protection Plan loan forgiveness

- related party

from damaged goods insurance claim

from extinguishment of accounts payable

Other Income (expenses), net

Before Income Tax Benefit

ENDED JUNE 30, 2021 COMPARED TO THE QUARTER ENDED JUNE 30, 2020

sales for the quarter ended June 30, 2021 increased to approximately $6,066,000 from approximately $3,052,000 an increase of approximately

$3,014,000 as compared to the same period ended June 30, 2020.

We shipped approximately $2,444,000 in holiday promotion goods to one

major customer who committed to earlier delivery for the three months ended June 30, 2021 as compared to the prior three months ended

June 30, 2020 when no holiday promotion goods were shipped to this customer.

The remaining increase in sales was primarily due to another

major customer that ordinarily does not order spring goods and decided to offer our product year-round.

profit for the quarter ended June 30, 2021 increased to approximately $1,578,000 from approximately $962,000 an increase of approximately

$616,000 as compared to the same period in the prior year.

The increase in net sales contributed approximately $949,000 to the increase

in gross profit but was offset by a decrease in gross profit margin percentage of approximately 5.5% or approximately $333,000.

profit margin for the three months ended June 30, 2021 was 26.0% compared to 31.5% for the three months ended June 30, 2020 due primarily

to the increase in holiday promotion goods as explained in net sales that yield a significantly lower gross profit margin and accounted

for approximately 4.4 margin points of the 5.5 margin point decrease.

The remaining decrease was primarily due to the gross margin on

the mix of products returned during the three months ended June 30, 2021.

the quarter ended June 30, 2021, total operating expenses increased to approximately $2,068,000 compared to approximately $1,733,000

income and (expenses) decreased by approximately $674,000 to approximately $116,000 in other income, net for the three months ended September

30, 2021 compared to approximately $790,000 in other income, net for the same period ended September 30, 2020.

During the three months

ended September 30, 2021 there was accounts payable forgiveness of approximately $236,000 from one vendor on goods that were damaged

in the prior year compared to a recovery of approximately $937,000 in out-of-pocket expenses relating to a prior year damaged goods insurance

claim during the three months ended September 30, 2020.

The remaining variance in other income, net was primarily due to a decrease in

interest expense and amortization of deferred financing costs associated with the financing terms of the Crestmark Facility and IHC Facility

and decreased borrowings from the Crestmark Facility.

the three months ended September 30, 2021 and 2020 the Company recognized an income tax provision of approximately $174,000 and

$821,000, respectively, due to management’s best estimate of the Company’s full year effective tax rate of approximately

20.1% and 25.2%, respectively.

the three months ended September 30, 2021 there was net income of approximately $692,000 compared to net income of approximately

$2,408,000 for the same period a year ago.

The decrease in net income was primarily due to the same reasons discussed in Income from

Operations, Other Income (Expenses) and Income Taxes.

MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2020

sales for the six months ended September 30, 2021 decreased to approximately $23,435,000 from $25,337,000 a decrease of approximately

$1,902,000 as compared to the same period ended September 30, 2020.

Sales of our CPK product decreased by approximately $1,488,000 during

the six months ended September 30, 2021 compared to the same period ended September 30, 2020 as the Company winds down it’s promotion

of the original version of the product and recently launched a new version of the product with several enhanced features for sale during

the upcoming holiday season.

The remaining decrease in sales was primarily due to delays in receiving goods from the Port of Los Angeles

due to the disruption in the global supply chain.

profit for the six months ended September 30, 2021 decreased to approximately $4,905,000 from approximately $6,785,000 a decrease

of approximately $1,880,000 as compared to the same period in the prior year.

The decrease in net sales as indicated in Net Sales

contributed approximately $509,000 to the decrease in gross profit margin.

The remaining decrease was primarily due to the decrease in

gross profit margin of approximately 5.9 points on products sold.

profit margin for the six months ended September 30, 2021 was 20.9% compared to 26.8% for the six months ended September 30, 2020.

The decrease in CPK product sales which yield substantially more gross profit margin than our traditional product accounted for approximately

2.3 margin points of the 5.9 gross profit margin point decrease.

There was a decrease of approximately 2.5 points of gross

margin primarily due to product cost increases in raw materials, a significant increase in freight costs with the remaining

variance due to the mix of products sold.

the six months ended September 30, 2021, total operating expenses decreased to approximately $4,645,000 compared to approximately $5,118,000

from the same period in the prior year.

This represents an increase in total operating expenses of approximately $335,000 from the quarter

ended June 30, 2020.

There was an increase in selling expenses of approximately $279,000 of which $182,000 was primarily due to variable

expenses including commissions, freight and royalties which were all commensurate with the increase in net sales.

There was an increase

in discretionary expenses of approximately $97,000 due to increased on-line media marketing for the spring and summer seasons.

and administrative expenses increased by approximately $58,000 due to increased costs associated with the logistics operations.

the three months ended June 30, 2021 and 2020, total operating expenses as a percentage of net sales were 34.0% and 56.8%, respectively.

This decrease of approximately 22.8 percentage points was primarily due to the significant increase in holiday promotion goods shipped

direct import to one major customer that incurred significantly less selling and administrative expenses as compared to goods shipped

from our California warehouse facility.

This represents a decrease in total operating expenses of approximately $473,000 from the six

months ended September 30, 2020.

The decrease in operating expenses is primarily due to a decrease in selling expenses of $463,000.

was a decrease in royalty expenses of approximately $210,000 associated with the decrease in CPK sales as explained in net sales.

expense decreased by approximately $251,000 due to the decrease in net sales and returns.

There was a decrease in in commissions of approximately

$46,000 commensurate with the decrease in net sales.

These decreases in selling expenses were offset by an increase in discretionary

marketing expenditures of approximately $45,000 with the remaining variance primarily due to variable general and administrative expenses.

FROM OPERATIONS

was a loss from operations of approximately $490,000 for the three months ended June 30, 2021 compared to a loss from operations of approximately

$771,000 for the three months ended June 30, 2020.

The decrease in the loss from operations of approximately $281,000 was primarily due

to the increase in gross profit from increased net sales offset by an increase in operating expenses as explained above.

was income from operations of approximately $261,000 for the six months ended September 30, 2021 compared to income from operations

of approximately $1,668,000 for the six months ended September 30, 2020.

The decrease in income from operations of approximately $1,407,000

was primarily due to the decrease in gross profit offset by a reduction in operating expenses as explained above.

INCOME (EXPENSES)

income, net decreased by approximately $142,000 to approximately $343,000 in other income, net for the three months ended June 30, 2021

compared to approximately $485,000 in other income, net for the same period ended June 30, 2020.

For the three months ended June 30,

2021, there were one-time gains of approximately $459,000 primarily due to forgiveness of the loan under the Paycheck Protection Program

of approximately $448,000 which included principal and interest and offset by $116,000 in other expenses primarily due to interest paid

on the Intercreditor Revolving Credit Facility.

For the three months ended June 30, 2020, there were one-time gains of approximately

$521,000 due to a gain from insurance proceeds received for a damaged goods claim of approximately $131,000 and settlement of accounts

payable of approximately $390,000 by the vendor responsible for the damaged goods.

These one-time gains were offset by approximately

$36,000 in other expenses primarily due to interest paid on existing debt.

the three months ended June 30, 2021 and 2020 the Company recognized an income tax benefit of approximately $28,000 and $79,000, respectively,

due to management’s best estimate of the Company’s full year effective tax rate of approximately 19.1% and 27.6%, respectively.

the three months ended June 30, 2021 there was a net loss of approximately $119,000 compared to a net loss of approximately $207,000

income and (expenses) decreased by approximately $817,000 to approximately $459,000 in other income, net for the six months ended September

30, 2021 compared to approximately $1,276,000 in other income, net for the same period ended September 30, 2020.

During the six months

ended September 30, 2021 there were one-time gains of approximately $684,000 primarily due to forgiveness of the loan under the Paycheck

Protection Program of approximately $448,000 which included principal and interest and there was an accounts payable forgiveness of approximately

$236,000 from one vendor on goods that were damaged in the prior year compared to a recovery of approximately $1,067,000 in out-of-pocket

expenses relating to a prior year damaged goods insurance claim during the six months ended September 30, 2020 and accounts payable forgiveness

of $390,000 from the vendor who caused the damaged goods problem.

The remaining variance in other income, net was primarily due to an

increase in interest expense and amortization of deferred financing costs associated with the financing terms of the Crestmark Facility

and IHC Facility.

the six months ended September 30, 2021 and 2020 the Company recorded an income tax provision of approximately $146,000 and an

income tax provision of approximately $742,000, respectively, due to management’s best estimate of the Company’s full year

effective tax rate of approximately 20.1% and 25.2%, respectively.

the six months ended September 30, 2021 there was net income of approximately $574,000 compared to net income of approximately

$2,201,000 for the same period a year ago.

The increase in net income was primarily due to the same reasons discussed in Loss from Operations and

Other Income (Expenses).

The decrease in net income was primarily due to the same reasons discussed in Income from

Operations, Other Income (Expenses) and Income Taxes.

AND CAPITAL RESOURCES

of June 30, 2021, Singing Machine had cash on hand of approximately $1,383,000 as compared to cash on hand of approximately $1,805,000

on June 30, 2020.

We had working capital of approximately $5,556,000 as of June 30, 2021.

Net cash provided by operating activities was

approximately $794,000 for the three months ended June 30, 2021, as compared to approximately $244,000 used in operating activities for

the same period a year ago.

During the three months ended June 30, 2021 there was a decrease in amounts due from Crestmark Bank of approximately

$4,214,000 as cash collected in excess of amounts due on accounts receivable financing was transferred to operating cash.

increase in accounts payable of approximately $3,790,000 primarily related to the purchase of inventory for the upcoming peak season.

These increases to cash provided by operating expenses were offset by an increase in accounts receivable of approximately $3,251,000

due to the increase in sales to two major customers and an increase in inventories of approximately $2,880,000 due to an earlier build-up

of inventory for the upcoming peak season due to global logistics issues and risks.

cash used in operating activities was approximately $244,000 for the three months ended June 30, 2020.

During the three months ended

June 30, 2020 there was a decrease in accounts payable of approximately $2,913,000 as the Company paid past due invoices to the vendor

that caused the damaged goods incident as explained below.

There was a seasonal decrease in reserves for sales returns of approximately

$844,000, a decrease in accrued expenses of approximately $521,000 and a decrease in refunds due to customers of approximately $415,000

primarily due to repayment of chargebacks to one customer for damaged goods received as explained below.

These decreases in cash used

in operating activities were offset by a decrease in amounts due from PNC Bank and Crestmark for collections on accounts receivable that

exceeded amounts due on the PNC and Crestmark Revolving Credit Facilities of approximately $2,121,000, a decrease in insurance receivable

of approximately $1,269,000 primarily due to proceeds received from the damaged goods insurance claim as explained below.

decreased by approximately $698,000 primarily due to one major customer buying goods for a summer program due to the increased demand

for karaoke products.

cash used in investing activities for the three months ended June 30, 2021 was approximately $56,000 as compared to approximately $45,000

used in investing activities for the same period ended a year ago and consisted primarily of purchases of molds and tooling for new products.

cash provided by financing activities for the three months ended June 30, 2021 was approximately $248,000 compared to cash provided by

financing activities of approximately $1,749,000 for the same period ended of the prior year.

During the three months ended June 30,

2021, we borrowed approximately $300,000 from our Intercreditor Revolving Credit Facility for working capital.

These financing activities

were offset by payments made on deferred finance charges associated with the renewal of the IHC Facility of approximately $38,000 with

the remaining difference primarily used to pay scheduled installments on installment notes and finance leases.

cash provided by financing activities for the three months ended June 30, 2020 was approximately $1,749,000.

We borrowed $1,400,000 from

our IHC Facility and received loan proceeds from Crestmark in the amount of approximately $444,000 million under the Paycheck Protection

These financing activities were offset by payments made on deferred finance charges associated with the closing of the Crestmark

and IHC Facilities of approximately $74,000 with the remaining difference used to pay scheduled installments on installment notes and

finance leases.

of September 30, 2021, Singing Machine had cash on hand of approximately $3,338,000 as compared to cash on hand of approximately $1,071,000

on September 30, 2020.

We had working capital of approximately $8,295,000 as of September 30, 2021.

Net cash used in operating

activities was approximately $576,000 for the six months ended September 30, 2021, as compared to approximately $674,000 used in operating

activities for the same period a year ago.

During the six months ended September 30, 2021 there was an increase in accounts receivable

of approximately $9,410,000 due to a seasonal increase in sales and a seasonal increase in inventories of approximately $13,722,000

due to in-transit and receipt of inventory for peak season.

These increases in net cashed used in operating activities were offset

by an increase in in accounts payable of approximately $16,409,000 due to seasonal purchases of product for the peak season.

a decrease in amounts due from Crestmark Bank of approximately $4,557,000 as cash collected in excess of amounts due on the revolving

credit during the first quarter was used to pay for the seasonal increase in inventory.

There was a seasonal increase in reserve for

sales returns of approximately $904,000.

cash used in operating activities was approximately $674,000 for the six months ended September 30, 2020.

During the six months ended

September 30, 2020 there was an increase in accounts receivable of approximately $16,576,000 due to a seasonal increase in sales and

a seasonal increase in inventories of approximately $1,072,000 due to receipt of inventory for peak season, and a decrease in refunds

due to customers of approximately $686,000 as most of the refunds due to the damaged goods incident from the prior year were refunded

to the customer.

These increases in cash used in operating activities were offset by an increase in accounts payable of approximately

$9,498,000 due to seasonal purchases of product for the peak season and a decrease in insurance receivable of approximately $1,268,000

as we received proceeds for the one-time damaged goods incident that occurred in the prior fiscal year.

There was a decrease in amounts

due from banks of approximately $2,388,000 due to excess cash collected in excess of amounts due on the revolving credit facilities with

PNC Bank and Crestmark Bank and a seasonal increase in reserve for sales returns of approximately $499,000.

cash used in investing activities for the six months ended September 30, 2021 was approximately $78,000 as compared to approximately

$85,000 used in investing activities for the same period ended a year ago and consisted primarily of purchases of molds and tooling for

new products.

cash provided by financing activities for the six months ended September 30, 2021 was approximately $3,595,000 compared to cash provided

by financing activities of approximately $1,485,000 for the same period ended of the prior year.

We borrowed approximately $1,977,000

from our Crestmark Facility and IHC Facility for working capital.

In August 2021, the Company received net proceeds of approximately

$1,838,000 from the execution of private placement and stock redemption agreements as summarized in the next two paragraphs.

These financing

activities were offset by a payment of $150,000 on the subordinated related party debt, payment of deferred finance charges associated

with the closing of the Crestmark and IHC Facilities of approximately $38,000 with the remaining difference used to pay scheduled installments

on installment notes and finance leases.

August 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with large institutional

investors and a strategic investor for private placement of (i) 16,500,001 shares of its common stock (the “Shares”)

together with common warrants to purchase up to 16,500,000 shares of common stock for an exercise price of $0.35 per share, and (ii)

16,833,333 pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock

at an exercise price of $0.01 per share, together with Common Warrants to purchase up to 16,833,333 shares of common stock at an exercise

price of $0.35 per share (the “Private Placement”).

Shares issuable upon the exercise of the Pre-Funded Warrants and Common

Warrants are hereinafter referred to as the “Warrant Shares”.

The closing of the Private Placement took place on August 10,

2021, when the Shares, Common Warrants, and Pre-Funded Warrants were delivered to the purchasers and funds, in the amount of approximately

$9,800,000, were received by the Company.

Approximately $7,200,000 of the funds received were used to execute the Redemption Agreement

as explained in the next paragraph.

The Company received an increase in working capital of approximately $1,800,000 of working capital

after settlement of expenses associated with closing of these transactions.

August, 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with Koncepts International

Limited (“Koncepts”) and Treasure Green Holdings, Ltd.

(“Treasure Green”), pursuant to which the Company agreed

to redeem 19,623,155 shares of common stock of the Company (the “Redeemed Shares”).

The closing of the transactions set forth

in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed Shares were assigned and transferred back to the

Company and the Company paid approximately $7,200,000 to Koncepts and Treasure Green.

The Redeemed Shares were retired and are available

for reissuance in the future.

cash provided by financing activities for the six months ended September 30, 2020 was approximately $1,485,000 compared to cash provided

by financing activities of approximately $4,472,000 for the same period ended of the prior year.

We borrowed approximately $1,156,000

from our Crestmark Facility and IHC Facility for working capital and received loan proceeds from Crestmark in the amount of approximately

$444,000 under the Paycheck Protection Program.

These financing activities were offset by payments made on deferred finance charges associated

with the closing of the Crestmark and IHC Facilities of approximately $74,000 with the remaining difference used to pay scheduled installments

on installment notes and finance leases.

June 16, 2020, the Company executed an Intercreditor Revolving Credit Facility with Crestmark and IHC on eligible accounts receivable

2 unchanged sentences

As of this filing, we have borrowed approximately $990,000 on the IHC Facility, which provides for

a maximum loan amount of $2,500,000 on eligible inventory and borrowed approximately $500,000 on our Crestmark Facility which will make

available up to $10,000,000 of eligible accounts receivable as the fiscal year progresses.

a maximum loan amount of $2,500,000 on eligible inventory and borrowed approximately $5,600,000 on our Crestmark Facility which will

make available up to $10,000,000 of eligible accounts receivable as the fiscal year progresses.

As of this filing the Company has approximately

13 unchanged sentences

notification from the SBA that the loan had been forgiven in its entirety.

For the three months ended June 30, 2021, a gain of approximately

$448,000 (including principal and interest) from the forgiveness of the loan was included in other income and expenses in the accompanying

condensed consolidated statements of operations.

August 5, 2021, the Company entered into a stock redemption agreement (the “Redemption Agreement”) with Koncepts International

Limited (“Koncepts”) and Treasure Green Holdings, Ltd.

(“Treasure Green”), pursuant to which the Company agreed

to redeem approximately 19,623,155 shares of common stock of the Company (the “Redeemed Shares”).

The closing of the transactions

set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed Shares were assigned and transferred

back to the Company and the Company wired approximately $7,200,000 to Koncepts and Treasure Green.

The Redeemed Shares shall be retired

to treasury and shall become available for reissuance in the future.

August 5, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with large institutional

investors and a strategic investor for private placement of (i) 16,500,000 shares of its common stock (the “Shares”) together

with common warrants to purchase up to 16,500,000 shares of common stock for an exercise price of $0.35 per share, and (ii) 16,833,333

pre-funded warrants (“Pre-Funded Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock at an

exercise price of $0.01 per share, together with Common Warrants to purchase up to 16,833,333 shares of common stock at an exercise price

of $0.35 per share (the “Private Placement”).

Shares issuable upon the exercise of the Pre-Funded Warrants and Common Warrants

are hereinafter referred to as the “Warrant Shares”.

The closing of the Private Placement took place on August 10, 2021,

when the Shares, Common Warrants, and Pre-Funded Warrants were delivered to the purchasers and funds, in the amount of approximately

$9,800,000, were wired to the Company.

Approximately $7,200,000 of the funds received were used to execute the Redemption Agreement.

The Company expects an increase in working capital of approximately $1,800,000 of working capital after settlement of expenses associated

with closing of these transactions.

For the three and six months ended September 30, 2021, a gain

of approximately $448,000 (including principal and interest) from the forgiveness of the loan was included in other income and expenses

in the accompanying condensed consolidated statements of income.

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

1 unchanged sentence

As a result we incurred a loss in cash flow of approximately $1,559,000 in revenue and approximately $849,000 in additional

out of pocket expenses to retrieve, inspect, warehouse and properly destroy the goods in in fiscal 2020.

As of the fiscal year ended

March 31, 2021 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 consolidated statement of income as of March 31, 2021.

For the three months ended June 30, 2021 and 2020 the gain from damaged goods

insurance claim was approximately $0 and $131,000, respectively.

We also secured vendor invoice credits of $390,000 from the factory

that caused the damage which is reflected as gain from settlement of accounts payable in the condensed consolidated statement of operations

for the three months ended June 30, 2020.

as of August 10, 2021, and in connection with the transactions set forth in the Redemption Agreement and Purchase Agreement (as defined

above ), Phillip Lau, Peter Hon, and Yat Tung Lau (each a “Director” and together, the “Directors”) resigned

from the Board of Directors of the Company.

The Directors’ resignations are not a result of a disagreement on any matter relating

to the Company.

The Company intends to fill the newly created vacancies on the Board in due course.

out of pocket expenses to retrieve, inspect, warehouse and properly destroy the goods in the prior fiscal year.

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 income.

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.

We also secured vendor invoice credits of $390,000 from the factory that caused

the damage which is reflected as gain from extinguishment of accounts payable in the condensed consolidated statement of income for the

six months ended September 30, 2020.

believe that current working capital, the availability of cash from our Intercreditor Revolving Credit Facility (See Note 6 – Bank

19 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis