What changed in this filing

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Item 1A. Risk Factors

2022-07-14 compared with 2021-07-14 · 306 added, 237 removed, 135 unchanged (80% of the section changed)

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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 WHICH

MAY IMPACT OUR BUSINESS AND FINANCIAL RESULTS.

COVID-19 pandemic has significantly affected U.S.

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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.

in fiscal year 2022.

During our fiscal year ended March 31, 2022, demand for consumer electronics products including home based entertainment

and toys remained strong.

However, late delivery of key products for the holiday season due to global logistics issues resulted in lost

sales and an increase in inventory of approximately $5.5 million greater than planned at the end of our fiscal year ended March 31, 2022.

While many of the restrictions and measures initially implemented in response to the pandemic have since been softened or lifted in varying

degrees in different locations around the world, and the manufacture and distribution of COVID-19 vaccines during calendar year 2021

and 2022 helped to initiate a recovery from the pandemic, the uncertainty regarding existing and new potential variants of COVID-19 and

the success of any vaccines in respect thereof, may in the future cause a reduction in global economic activity or prompt, the re-imposition

of certain restrictions and measures.

In addition, even if not required by governmental authorities, increases in COVID-19 cases, such

as if a new variant emerges, may result in significantly reduced economic activity, which could impact our business and our financial

SUPPLY CHAIN MAY BE MATERIALLY ADVERSELY IMPACTED BY THE WORLDWIDE FINANCIAL MARKETS AND GLOBAL EVENTS

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.

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 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.

The COVID-19 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 our fiscal year ended March

31, 2021 and continuing into fiscal 2022.

In late calendar 2021, the increased demand for consumer electronics products and current economic

recovery continued to increase worldwide demand for products using semiconductor “chip” components in the production of most

consumer electronics which has resulted in an international shortage of chips available to fulfill demand.

As a result, we have experienced

longer delivery lead times and some unavailability of these components which have delayed delivery of some of our products.

experienced delays in delivery schedules due to new outbreaks of COVID-19 in Southern China that have forced temporary closures of some

key shipping ports.

The port closures have also led to a temporary shortage of shipping containers which have resulted in significant

price increases due to increased demand.

While we have seen the easing of COVID-19 restrictions and the impact on our business, we cannot

predict the impact of the resurgence of variants of COVID-19 and other factors affecting local and global economies, specifically China.

BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE MATERIALLY ADVERSELY AFFECTED BY ANY NEGATIVE IMPACT ON THE GLOBAL ECONOMY

AND CAPITAL MARKETS RESULTING FROM THE CONFLICT IN UKRAINE OR ANY OTHER GEOPOLITICAL TENSIONS.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the

military conflict between Russia and Ukraine.

On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market

disruptions, including significant volatility in credit and capital markets.

Additionally,

Russia’s military interventions in Ukraine have led to sanctions and other penalties being levied by the U.S., European Union and

other countries against Russia.

Additional potential sanctions and penalties have also been proposed and/or threatened.

Russian military

actions and the resulting sanctions could adversely affect the global economy and financial markets.

In addition, the invasion of Ukraine

and the resulting sanctions imposed on Russia have resulted in increased volatility in the financial markets and the markets for certain

commodities including oil, which may significantly impact the manufacturers that we rely on, but is not expected to have any direct impact

the Company has not experienced any direct impact from the conflict in the Ukraine, the extent and duration of the military action, sanctions

and resulting market disruptions are impossible to predict, but could be substantial and could adversely affect our operating results

as they impact the global economy in the future.

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

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Any changes in U.S.

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

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

and increased costs for goods imported into the United States.

All of our products are manufactured and imported from China.

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.

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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, 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.

Sales to the Company’s top five customers together

comprised approximately 90% of our net sales for both of our fiscal years ended March 31, 2022 and 2021.

In our fiscal year ended March

31, 2022, revenues from three of these customers represented greater than 10% of net sales at a percentage of 37%, 18%, and 17% of total

In our fiscal year ended March 31, 2021, revenues from four of these customers represented greater than 10% of net sales at

a percentage of 36%, 20%, 13% and 12% of total net sales.

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.

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.

our fiscal years ended March 31, 2022 and 2021, a number of our customers and distributors returned karaoke products that they had purchased

Our customers returned goods valued at approximately $3.6 million or 7.5% of our net sales in our fiscal year ended March 31,

2022 and approximately $4.1 million or 9.1% of our net sales in our fiscal year ended March 31, 2021.

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 1.6

percentage point decrease in returns was due to a decrease in overstock returns from our 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

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

Many of our customers

have demanded that we lower our prices, or they will buy our competitor’s products.

If we do not meet our customer’s

demands for lower prices, we will not sell as many karaoke products.

Many of our customers have

demanded that we lower our prices and threatened to buy our competitor’s products.

If we do not meet our customer’s demands

to lower our regular prices, we will not sell as many karaoke products.

We are also subject to pressure from our customers regarding

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.

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 $1.7 million during our fiscal year ended March

31, 2022 and $2.0 million during our fiscal year ended March 31, 2021.

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

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

we must commit to production in advance of customers’

we must commit to production in advance of customers’ orders.

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.

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

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As of March 31, 2022 we had approximately $14.2 million in inventory

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

as compared to $5.5 million in inventory as of March 31, 2021.

The primary reasons for the increase in inventory is due to late delivery

of key products for the holiday season due to global logistics issues resulting in lost sales and an increase in inventory as of March

31, 2022 of approximately $5.5 million with the remaining increase due to new product received and in-transit for a program with one

major customer.

If we are unable to sell this inventory during fiscal 2023 at historical or greater margins, our cash flow for operations

will be negatively impacted.

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

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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.

our fiscal year ended March 31, 2020, a major customer received goods that were significantly water damaged due to excess moisture absorbed

in pallets shipped by the factory resulting in a loss of approximately $2.4 million.

We recovered approximately $2.3 million from our

cargo insurance coverage during our fiscal year ended March 31, 2021.

During our fiscal years ended March 31, 2022 and 2021 we also secured

vendor invoice credits of approximately $0.3 million and $0.4 million, respectively, from the factory and factory’s representative

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.

Due the size of the claim, we have obtained insurance coverage for

goods that are shipped direct import to our customers whose shipping terms are FOB shipping point and for goods in transit to our California

warehouse however, certain exclusions have been added that may prevent insurance coverage of this type of incident in the future.

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

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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.

our sales occur during our second fiscal quarter ending September 30 and our third fiscal quarter ending December 31.

Sales in our second

and third quarter, combined, accounted for approximately 81% and 86% of net sales in our fiscal years ended March 31, 2022 and, 2021,

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®, eKids®, Bonaok, Karaoke USA™,

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

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

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

We believe that competition for karaoke

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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

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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.

our fiscal year ended March 31, 2022, 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 our fiscal year ending March 31, 2023.

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.

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emerging technological trends in our target markets;

changes in end-user preferences with respect to our customers’

changes in end-user preferences with respect to our customers’ products;

products to market on a timely basis at competitive prices;

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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,

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 substantially all of the products that we import to our warehouse facility in

Ontario, California.

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’

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.

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

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.

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

IF THERE IS ANY PROBLEM WITH THE MANUFACTURING PROCESS, OUR REVENUES AND NET PROFITABILITY MAY BE REDUCED.

are using five factories in the People’s Republic of China to manufacture the majority of our karaoke machines.

These factories

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

currently use five factories in China to manufacture all of our karaoke products.

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.

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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.

We rely on third party suppliers to produce the parts and materials that are used to manufacture and produce these

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

Currently 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.

DEPEND ON THE ABILITY OF OUR SUPPLIERS TO MANUFACTURE OUR PRODUCTS WITHOUT INFRINGING, MISAPPROPRIATING OF OTHERWISE VIOLATING THE INTELLECTUAL

PROPERTY OF PROPRIETARY RIGHTS OF OTHERS IN MANUFACTURING OUR PRODUCTS.

source our products from a variety of contract manufacturers.

We buy finished goods from our suppliers and generally do not source raw

materials and parts for manufacturing and assembly into the final product.

We rely on our contract manufacturers’ ability to secure

injected plastic, wood cabinets, integrated circuits, display panels, speaker drivers, and other components that are necessary for assembly

into our final products.

While we are not responsible to source raw materials, we rely on these suppliers to have all required licenses

or proprietary rights to the materials that are incorporated into the final product.

In addition, we rely on the representations of our

contract manufacturers that they are using materials and components that meet all necessary legal, safety, and compliance requirements.

If our suppliers do not have the proper licenses or rights or are not in compliance with all regulatory requirements, we may be named

a party or be subject to claims, including claims of infringement or violating the intellectual property or proprietary rights of third

parties with respect to our products.

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.

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

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.

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.

INFLATION AND UNFAVORABLE ECONOMIC CONDITIONS COULD NEGATIVELY AFFECT OUR OPERATIONS AND RESULTS.

global or regional economic conditions may be triggered by numerous developments beyond our control, including inflation, geopolitical

events, health crises such as the COVID-19 pandemic, and other events that trigger economic volatility on a global or regional basis.

Those types of unfavorable economic conditions could adversely affect our business and financial results.

In particular, a significant

deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment levels, inflationary pressures

or disruptions to credit and capital markets, could lead to decreased consumer confidence and consumer spending more generally, thus

reducing consumer demand for our products.

For example, in 2021 and continuing into 2022, the United States has experienced a rapid increase

in inflation levels of over 8.6%, which is now at a 40-year historic high.

Such heightened inflationary levels may negatively impact

consumer disposable income and discretionary spending and, in turn, reduce consumer demand for our products and increase our costs.

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

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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

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profitability.

LEVELS OF SECURITIES AND FINANCIAL MARKET RISK.

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 (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.

EXCHANGE RATE RISK

majority of our products are currently manufactured in the People’s Republic of China.

During the fiscal year ended March 31, 2021,

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

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.

MAY ENCOUNTER DIFFICULTIES ACCESSING CAPITAL

currently have an Intercreditor Revolving Credit Facility with Crestmark Bank for a $10.0 million facility (decreasing to $5.0 million

in off-peak season) on eligible accounts receivable under an evergreen arrangement that terminates upon written notice by the Company

and is subject to a termination fee if terminated by the Company anytime other than the annual renewal date of June 11.

a $2.5 million facility on eligible inventory with Iron Horse Credit that was to expire on June 11, 2022.

However, absent any termination

notice given by the Company to IHC, the current financing arrangement automatically renewed for another twelve-month term and is subject

to a termination fee if terminated by the Company prior to the twelve-month renewal date.

There can be no assurances that we can obtain

any new financing or that we will be able to successfully enter into any arrangements upon terms that are acceptable to the Company in

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.

PRODUCTION COSTS MAY INCREASE IF WE ARE REQUIRED TO MAKE PURCHASES USING THE CHINESE YUAN INSTEAD OF THE U.S.

majority of our products are currently manufactured in China.

During the fiscal year ended March 31, 2022, 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 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

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 our fiscal year ended March 31, 2022 and the associated exchange rates did not have

a material impact on our 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.

PROFIT MARGIN MAY BE DECREASED DUE TO INCREASED PRICES OF RAW MATERIALS, SHIPPING COSTS AND COSTS ASSOCIATED WITH PRODUCTION.

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

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We expect to see increased cost in our finished goods during fiscal year 2023 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.

to the significant increases in the price of oil, rising inflation, increased cost of trans-oceanic shipping, increased drayage costs,

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.

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.

SUCCESS DEPENDS LARGELY ON THE CONTINUED SERVICES OF OUR SENIOR MANAGEMENT TEAM AND CERTAIN KEY EMPLOYEES.

rely on our executive officers and key employees in the areas of business strategy, marketing, sales, services, and general and administrative

From time to time, there may be changes in our executive management team or key employees resulting from the hiring or departure

of executives or key employees, which could disrupt our business.

We do not maintain key-man insurance for any member of our senior management

team or any other employee.

The loss of one or more of our executive officers or key employees could have a serious adverse effect on

our business.

PRIMARILY RELY ON TRADE SECRET PROTECTION AND NON-DISCLOSURE AGREEMENTS TO PROTECT OUR PROPRIETARY INFORMATION, WHICH MAY NOT BE EFFECTIVE.

currently rely on trade secret protection and non-disclosure agreements with our employees, consultants and third-parties to protect

our confidential and proprietary information.

If we do not protect our intellectual property and other confidential information adequately,

competitors may be able to use our proprietary technologies and information and thereby erode any competitive advantages they provide

will be able to protect our proprietary rights from unauthorized use by third parties only to the extent these rights are effectively

maintained as confidential.

We expect to rely primarily on trade secret and contractual protections for our confidential and proprietary

information and we have taken security measures we believe are appropriate to protect this information.

These measures, however, may

not provide adequate protection for our trade secrets, know-how or other confidential information.

We seek to protect our proprietary

information by, among other things, entering into confidentiality agreements with employees, consultants and other third parties.

confidentiality agreements may not sufficiently safeguard our trade secrets and other confidential information and may not provide adequate

remedies in the event of unauthorized use or disclosure of this information.

Enforcing a claim that a party illegally disclosed or misappropriated

a trade secret or other proprietary information could be difficult, expensive and time-consuming and the outcome could be unpredictable.

In addition, trade secrets or other confidential information could otherwise become known or be independently developed by others in

a manner that could prevent legal recourse by us.

If any of our trade secrets or other confidential or proprietary information were disclosed

or misappropriated or if any such information was independently developed by a competitor, our competitive position could be harmed and

our business could suffer.

ASSOCIATED WITH OUR CAPITAL STRUCTURE

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

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 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.

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 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.

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.

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

SECURITIES ISSUANCES COULD RESULT IN SIGNIFICANT DILUTION TO OUR STOCKHOLDERS AND IMPAIR THE MARKET PRICE OF OUR COMMON STOCK.

issuances of shares of our common stock could depress the market price of our common stock and result in dilution to existing holders

of our common stock.

Also, to the extent outstanding options and warrants to purchase our shares of our common stock are exercised or

options or other equity-based awards are issued or become vested, there will be further dilution.

The amount of dilution could be substantial

depending upon the size of the issuances or exercises.

Furthermore, we may issue additional equity securities that could have rights

senior to those of our common stock.

CERTAIN OF OUR STOCKHOLDERS CONTROL A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK, THEY MAY HAVE EFFECTIVE CONTROL OVER ACTIONS

REQUIRING STOCKHOLDER APPROVAL

of the date of this report, Digital Power Lending beneficially owns and BitNile Holdings and Ault may be deemed to beneficially own an aggregate of 1568,849 shares of our common stock or approximately 52.0% of

our outstanding shares.

As a result, these stockholders, acting together, have the ability to control the outcome of matters

submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or

substantially all of our assets.

In addition, these stockholders, acting together, have the ability to control the management and

affairs of our company.

Accordingly, this concentration of ownership might harm the market price of our common stock by:

delaying, deferring or preventing

a change in corporate control;

impeding a merger, consolidation,

takeover or other business combination involving us;

discouraging a potential acquirer

from making a tender offer or otherwise attempting to obtain control of us.

A “CONTROLLED COMPANY” UNDER THE RULES OF THE NASDAQ CAPITAL MARKET, WE MAY CHOOSE TO EXEMPT OUR COMPANY FROM CERTAIN CORPORATE

GOVERNANCE REQUIREMENTS THAT COULD HAVE AN ADVERSE EFFECT ON OUR PUBLIC STOCKHOLDERS.

to March 31, 2022 and as of the date of this report, Digital Power Lending beneficially

owns and BitNile Holdings and Ault may be deemed to beneficially own an aggregate of 1,568,849 shares of our common

stock or approximately 52.0% of our outstanding shares.

Digital Power Lending is a wholly owned subsidiary of BitNile Holdings.

the Executive Chairman of Bitnile Holdings.

long as BitNile continues to hold more than 50% of the voting power of our

Company, we will be a “controlled company” as defined under Nasdaq Marketplace Rules.

so long as we are a controlled company under Nasdaq Marketplace Rules, we are permitted to elect to rely, and may rely, on certain exemptions

from corporate governance rules, including:

exemption from the rule that a majority of our board of directors must be independent directors;

exemption from the rule that the compensation of our CEO must be determined or recommended solely by independent directors;

exemption from the rule that our director nominees must be selected or recommended solely by independent directors.

a result, you may not have the same protection afforded to stockholders of companies that are subject to these corporate governance requirements.

has indicated it intends to appoint two directors to our Board of Directors.

Upon the appointment of the BitNile nominees, our Board of Directors will increase in size to seven directors, of which less than a majority will

be “independent” as defined under Nasdaq Marketplace Rules.

CERTIFICATE OF INCORPORATION ALLOW FOR OUR BOARD OF DIRECTORS TO CREATE NEW SERIES OF PREFERRED STOCK WITHOUT FURTHER APPROVAL BY OUR

STOCKHOLDERS, WHICH COULD ADVERSELY AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK.

board of directors has the authority to fix and determine the relative rights and preferences of preferred stock.

Our board of directors

has the authority to issue up to 1,000,000 shares of our preferred stock without further stockholder approval.

As a result, our board

of directors could authorize the issuance of a series of preferred stock that would grant to holders of preferred stock the right to

our assets upon liquidation, or the right to receive dividend payments before dividends are distributed to the holders of common stock.

In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our

common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result

in dilution to our existing stockholders.

Although we have no present intention to issue any shares of preferred stock or to create any

series of preferred stock, we may create such series and issue such shares in the future.

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

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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