What changed in this filing

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Item 1A. Risk Factors

2023-07-14 compared with 2022-07-14 · 533 added, 285 removed, 156 unchanged (84% of the section changed)

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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 WHICH

MAY IMPACT OUR BUSINESS AND FINANCIAL RESULTS.

COVID-19 pandemic has significantly affected U.S.

consumer shopping patterns and caused the health of the U.S.

and world economy to deteriorate

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

RELATED TO OUR COMPANY AND FINANCIAL CONDITION

MAY ENCOUNTER DIFFICULTIES ACCESSING CAPITAL

currently have a three-year Credit with Fifth Third Bank for a $15.0 million facility (decreasing to $7.5 million in off-peak season)

on eligible accounts receivable that matures on October 14, 2025 .

The Credit Facility is

subject to a termination fee an amount equal to (i) 2.00% of the facility amount if such prepayment occurs two years or more prior to

the maturity date or (ii) 0.50% of the facility amount if such prepayment occurs less than two years, prior to the maturity date.

of March 31, 2023, we were in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio covenant

On May 19, 2023, we executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and

new covenants that are required.

We must comply monthly with minimum liquidity (defined as excess loan availability plus cash on hand)

of $2.5 million between February and July and $4.0 million between September and June.

We must also maintain pre-defined minimum operating

cash flows between February and August 2023, until we achieve a fixed charge ratio of 1.15 :

1.0 beginning in September 2023 throughout

the remaining term of the Credit Agreement.

of the date of filing of this Annual Report, we are in compliance with the covenants specified in the Waiver and First Amendment agreement.

There can be no assurances that we will remain in compliance with the new covenants or have the ability to obtain any new financing or

that we will be able to successfully enter into any arrangements upon terms that are acceptable to us in the future.

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.

MAY NEED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS IN FURTHERANCE OF OUR BUSINESS PLAN.

incurred a net loss of approximately $4.6 million during the year ended March 31, 2023.

If we are unable to achieve profitable operations, we may need to raise additional capital

in order to fund our operations in furtherance of our business plan.

Any proposed financing may include shares of common stock, shares

of preferred stock, warrants to purchase shares of common stock or preferred stock, debt securities, units consisting of the foregoing

securities, equity investments from strategic development partners or some combination of each.

Any additional equity financings may

be financially dilutive to, and will be dilutive from an ownership perspective to, our stockholders, and such dilution may be significant

based upon the size of such financing.

Additionally, we cannot assure that such funding will be available on a timely basis, in needed

quantities, or on terms favorable to us, if at all.

ARE HEAVILY DEPENDENT ON OUR SENIOR MANAGEMENT, AND A LOSS OF A MEMBER OF OUR SENIOR MANAGEMENT TEAM COULD CAUSE OUR STOCK PRICE TO SUFFER .

we lose the services of Gary Atkinson, our Chief Executive Officer or Bernardo Melo, our Chief Revenue Officer, we may not be able to

find appropriate replacements on a timely basis, and our business could be adversely affected.

Atkinson and Melo have worked

at our company for 15 and 20 years, respectively, and are primarily responsible for all of our day-to-day operations.

Our existing operations

and continued future development depend to a significant extent upon the performance and active participation of these individuals.

we have entered into employment agreements with Messrs.

Atkinson and Melo, we cannot guarantee that we will be successful in retaining

the services of these individuals.

If we were to lose any of these individuals, we may not be able to find appropriate replacements on

a timely basis and our financial condition and results of operations could be materially adversely affected.

RELATED TO THE DEVELOPMENT, MANUFACTURE AND SHIPPING OF OUR PRODUCTS

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.

To introduce products on a timely basis, we must:

define and design new products to meet market demand;

features that continue to differentiate our products from those of our competitors;

our products to new manufacturing process technologies;

emerging technological trends in our target markets;

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

products to market on a timely basis at competitive prices;

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.

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.

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.

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 margins.

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.

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

The COVID-19 pandemic 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.

31, 2021 most of which were gradually repealed during the fiscal year ended March 31, 2023.

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 delayed delivery of some of our products.

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

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 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.

RELATED TO OUR BUSINESS AND INDUSTRY

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

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

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.

Sales to our top five customers together comprised approximately

89% and 90% of our net sales for our fiscal years ended March 31, 2023 and 2022, respectively.

In our fiscal year ended March 31, 2023,

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.

revenues from two of these customers represented greater than 10% of net sales, at 48% and 21% of total net sales.

In our fiscal year

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

We do not have long-term contractual arrangements with any of our customers and they can cancel their orders at any time prior

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

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,

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The primary reason for the 5.2%

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.

increase in returns was due to an increase in overstock returns from one major customer.

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

If we do not meet our customer’s demands

If we do not meet our customers’ demands

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

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as compared to $14.2 million in inventory as of March 31, 2022.

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.

The primary reason for the decrease in inventory was due to the sale

of prior fiscal year excess inventory from late delivery of key products for the prior year’s holiday season due to global logistics

issues that resulted in lost sales and an increase in inventory as of March 31, 2022 of approximately $5.5 million.

If we are unable

to sell excess inventory in the future 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.

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.

we have taken significant measures to prevent damage incidents there can be no guarantee of damage incidents occurring in the future.

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 certain damaged incidents 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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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™,

Ion® 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

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.