Trademarks

As a result of any of these factors, the Company’s operating results may fluctuate significantly, which may in turn cause its stock price to decline.

Legal, Regulatory and Tax Risks

The Company is subject to a variety of U.S. and foreign laws and regulations that are central to the Company’s business; its failure to comply with these laws and regulations could harm the Company’s business or operating results.

The Company is or may become subject to a variety of laws and regulations in the United States and abroad that involve matters central to its business, including laws and regulations regarding consumer protection, advertising, electronic commerce, intellectual property, manufacturing, anti-bribery and anti-corruption, and economic or other trade prohibitions or sanctions.

The increasingly global nature of the Company’s business operations subjects the Company to domestic and foreign laws and regulations such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery and anti-corruption laws in other jurisdictions. The Company’s products are also subject to U.S. export controls, including the United States Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls. The Company is also subject to a variety of laws and regulations regarding information security and privacy. For example, the European Union's General Data Protection Regulation and the California Consumer Privacy Act, or new interpretations of existing laws and regulations, impose significant requirements on how the Company collects, processes and transfers personal data, as well as significant fines for non-compliance. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.

Foreign regulations and changes in trade policies and the political, social and economic conditions in the United States and the foreign countries in which the Company operates its business could affect the Company’s revenues and earnings materially and adversely.

The Company has operations in China and derives a significant portion of its revenue from sales of products manufactured by third parties located in China. In addition, third parties located in China and other countries located in the same region produce and supply many of the components and raw materials used in the Company’s products. Additionally, a significant portion of the shipping of the Company’s finished goods to the United States occurs through Hong Kong. Conducting an international business inherently involves a number of difficulties and risks that could materially and adversely affect the Company’s ability to generate revenues and could subject the Company to increased costs. The diplomatic tensions between the United States and China, including over China’s enactment of the Hong Kong national security law, create uncertainties for doing business in China, and the risk of additional protectionist trade policies and tariffs or other escalating retaliatory policies, such as the passage of the Hong Kong Autonomy Act in July 2020 and the concurrent U.S. executive order that ended the special economic status afforded to Hong Kong under the United States-Hong Kong Policy Act of 1992, could increase the Company’s cost of doing business and adversely affect the Company’s business, financial condition and results of operations. Furthermore, it is unclear whether the current U.S. administration will alter the existing trade agreements between China and the U.S. or otherwise modify or impose additional tariffs on imports from China. It is possible that further tariffs may be imposed on the categories of products the Company imports to the United States, or that the Company’s business will be affected by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing the Company to raise prices or make changes to its operations, any of which could adversely affect demand for the Company’s products or increase its costs.

Among the other factors that may adversely affect the Company’s revenues and increase its costs are:

Any of the factors described above may materially and adversely affect the Company’s revenues and/or increase its operating expenses.

Tariffs or other restrictions placed on the Company’s products imported into the United States from China, or any related countermeasures taken by China, could have a material adverse effect on the Company’s business, profitability and results of operations.

The Company has operations in China and all of the Company’s products are currently manufactured by suppliers in China. Any tariffs or other trade restrictions affecting the import of these products to the United States from China or any retaliatory trade measures taken by China in response to existing or future tariffs could have a material adverse effect on the Company’s results of operations going forward. The Company’s dependency on its overseas suppliers could exacerbate these and other risks, and any tariffs on the categories of products the Company imports to the United States could negatively affect the demand for such products, increase the cost of components, delay production or affect the Company’s ability to compete against competitors who do not manufacture in China or otherwise are not subject to such tariffs.

Effective in September 2018, the United States imposed tariffs of 10% on approximately $200 billion worth of goods imported from China (“List 3 products”), including categories of products the Company imports from China. These tariffs were increased to 25% effective in May 2019 and were scheduled  to further increase to 30% in October 2019, which increases were subsequently delayed indefinitely after an interim deal was reached between the United States and China. Effective in September 2019, the United States imposed additional tariffs on essentially all remaining Chinese-origin imports, including approximately $300 billion worth of goods imported from China (“List 4 products”). Tariffs of 15% were imposed on certain List 4 products effective in September 2019 (“List 4A products”), and the remainder were scheduled to be subject to these tariffs effective in December 2019 (“List 4B products”). In January 2020, the United States and China signed a Phase One Economic and Trade Agreement, pursuant to which the tariff increases on the List 4B products remained suspended and the rate of additional tariffs on the List 4A products was reduced to 7.5%, while all other tariffs remain in place. The effects on the Company of these imposed and proposed tariffs are uncertain because of the dynamic nature of governmental actions and responses, as well as possible exemptions for certain products. If the U.S. and China are able to negotiate the issues to restore a mutually advantageous and fair trading regime, the increased tariffs could be eliminated, but given the uncertainties, including as a result of the recent change in U.S. administrations and any other political changes, there can be no assurance of whether, or when, this will be accomplished. If the currently imposed and proposed tariffs covering the categories of products that the Company imports continue or are increased, and the Company is unable to obtain an exception, it could have a material adverse effect on the Company’s business.

Although the Company is monitoring the trade environment and working to mitigate the effects of tariffs through pricing and sourcing strategies, including through ongoing inventory management, the Company cannot be certain how its customers and competitors will react to the actions taken. If the Company determines to pass some or all of these new tariff burdens on to its customers as product price increases in the future, the result may be a degradation of the Company’s competitive position and a loss of customers that would adversely affect the Company’s operating performance. Additional tariffs imposed by the United States, and any related countermeasures by China, including as a result of the heightened tensions between the United States and China over Hong Kong, could further increase the Company’s cost of goods and reduce its gross margins. We cannot predict future trade policy, whether exclusions will be reinstated, or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to further adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could further adversely impact our business, financial condition and results of operations.

The Company could be exposed to product liability or other claims for which its product liability or other insurance may be inadequate.

A failure of any of the products marketed by the Company may subject it to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. Although the Company currently maintains product liability insurance in amounts which the Company considers adequate, the Company cannot assure that:

Although the Company maintains liability insurance in amounts that it considers adequate, the Company cannot assure that such policies will provide adequate coverage against potential liabilities.

To the extent product liability or other litigation losses are beyond the limits or scope of the Company’s insurance coverage, the Company’s expenses could materially increase.

The Company’s business could be materially and adversely affected if it cannot protect its intellectual property rights or if it infringes on the intellectual property rights of others.

The Company’s ability to compete effectively depends on its ability to maintain and protect its proprietary rights. The Company owns the Emerson® and other trademarks, which are materially important to its business, as well as other trademarks, licenses and proprietary rights that are used for certain of the products that it markets and sells. The Company’s trademarks are registered throughout the world, including the United States and other countries. The laws of some foreign countries in which the Company operates may not protect the Company’s proprietary rights to the same extent as do laws in the United States. The protections afforded by the laws of such countries may not be adequate to protect the Company’s intellectual property rights.

Third parties may seek to challenge, invalidate, circumvent or render unenforceable any trademarks, patents or proprietary rights owned by or licensed to the Company. In addition, in the event third-party licensees fail to protect the integrity of the Company’s trademarks, the value of these marks could be materially and adversely affected. The Company’s inability to protect its proprietary rights could materially and adversely affect the license of its trade names, trademarks and other proprietary rights to third parties as well as its ability to sell its products. Litigation has been and may in the future be necessary to enforce the Company’s intellectual property rights, protect the Company’s trade secrets and determine the scope and validity of such intellectual property rights. Any such litigation, whether or not successful, could result in substantial costs and diversion of resources and management’s attention from the operation of the Company’s business.

The Company may be liable for additional tax payments to the IRSreceive notices of claims of infringement of other parties’ proprietary rights. Such actions could result in connection with the extraordinary dividend paid bylitigation and the Company to recipients on March 24, 2010.

On March 2, 2010, the Board declared an extraordinary dividendcould incur significant costs and diversion of $1.10 per common share which was paid on March 24, 2010. In connection withresources in defending such claims. The party making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief. Such relief could effectively block the Company’s determination asability to the taxability of the dividend, the Board relied upon informationmake, use, sell, distribute or market its products and research provided to it by the Company’s tax advisors and,services in reliance on the “stock-for-debt” exception in the Internal Revenue Code Sections 108(e)(8) and (e)(10), concluded that 4.9% of such dividend paid was taxable to the recipients.certain jurisdictions. The Company initially withheld from the dividend paid to foreign shareholders an amount equal to the tax liability associated with such dividend based on this exception. In August 2012, the Company received a Form 886-A from the IRS which challenges the Company’s conclusions and determines that the Company does not qualify for the above-referenced exception. The Company prepared and, on October 25, 2012, delivered its rebuttal to the IRS contesting the IRS determination.

In the event that the Company is not successful in establishing with the IRS that the Company’s calculations were correct, then the shareholders who received the dividend likely will be subject to and liable for an assessment of additional taxes due. Moreover, the Company may be contingently liable for taxes due by certain of its shareholders resulting from the dividend paid by the Company. Any such liability, should italso be required to seek licenses to such intellectual property. The Company cannot predict, however, whether such licenses would be recognized by the Company, would likely have a material adverse effectavailable or, if available, that such licenses could be obtained on the Company’s results of operations in the period recognized. As of March 31, 2016, the Company believesterms that it is more likely than not

that the assessment period for the Company for tax under section 1461 of the Internal Revenue Code in connection with the withholding tax requirements pertainingare commercially reasonable and acceptable to the March 2010 dividend have expired, such that ifCompany. The failure to obtain the IRS were to attempt to assess tax,necessary licenses or other rights could delay or preclude the assessment would be time-barred. Thusly, assale, manufacture or distribution of March 31, 2016, the Company believes that it is more likely than not that it will not be liable for such assessment; however, there can be no assurance that the Company would be successfulits products and could result in defending its position if the IRS were to attempt to assess tax. See Note 3 “Related Party Transactions—Dividend-Related Issues with S&T”increased costs to the consolidated financial statements.Company.

An information systems interruption or breach in security, including as a result of cyber-attacks, could adversely affect the Company’sCompany’s business, results of operations and reputation.

In the ordinary course of business, the Company electronically maintains sensitive data, including intellectual property, its proprietary business information and that of its customers and suppliers, and some personally identifiable information of employees, in its facilities and on its networks. In addition, the Company sells its products through online marketplaces, including Amazon, which rely upon third-party online payment platform service providers that maintain personal information collected from customers. The secure processing, maintenance and transmission of this information is important to the Company’s operations. A breach of the Company’s security systems and procedures or those of its vendors could result in significant data losses or theft of the Company’s customers'customers’ or the Company’s employees'employees’ intellectual property, proprietary business information or personally identifiable information.  A cybersecurity breach could negatively affect the Company’s reputation. 

Because the techniques such as viruses and worms, phishing attacks, distributed denial-of-service attacks, ransomware, used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, the Company may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software or applications the Company procures from third parties or uses in its online marketplaces may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to the Company’s systems or facilities through fraud, trickery or other forms of deceiving its employees. Accordingly, the Company may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, or if such measures are implemented, and even with appropriate training conducted in support of such measures, human errors may still occur. It is virtually impossible for the Company to entirely mitigate this risk. A party, whether internal or external, who is able to circumvent the Company’s security measures or those of its vendors could misappropriate information. In addition, cyber insurance may not protect against all of the costs and liabilities arising from a cyber-attack.

If the Company failsor the online payment platforms it uses fail to reasonably maintain the security of confidential information, the Company may suffer significant reputational and financial losses and the Company’s results of operations, cash flows, financial condition, and liquidity may be adversely affected. In addition, a system breach could result in other negative consequences, including disruption of internal operations, and may subject the Company to private litigation, government investigations, enforcement actions, and cause the Company to incur potentially significant liability, damages, or remediation costs.

The Company operates its business in jurisdictions where intellectual property theft or compromise is common.

Currently, a majority of the Company’s products are manufactured in China. Subject to contractual confidentiality obligations, the Company is required to share significant product design materials with third-parties necessary for the design and manufacture of our products. The Company cannot be sure that its data or intellectual property will not be compromised through cyber-intrusion, theft or other means, particularly when the data or intellectual property is held by partners in foreign jurisdictions. Should the Company’s intellectual property be compromised, it may be difficult to enforce the Company’s rights in China and other foreign jurisdictions in which the Company operates.

Fluctuations in the Company’s tax obligations and effective tax rate and realization of deferred tax assets, including net operating loss carryforwards, may result in volatility of the Company’s operating results.

The Company is subject to income taxes in various federal, state, local and certain foreign jurisdictions. The Company records tax expense based on its estimates of future payments, which may include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss carryforwards. In addition, tax laws in certain jurisdictions may limit the ability to use net operating loss carryforwards upon a change in control. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. In addition, the Company’s effective tax rate in a given financial statement period may be materially affected by a variety of factors including but not limited to changes in the mix and level of revenues, varying tax rates in the different jurisdictions in which the Company operates, fluctuations in the valuation allowance, timing of the utilization of net operating loss carryforwards, or by changes to existing accounting rules or regulations. Further, tax legislation or changes in tax rules and regulations or the interpretations thereof may be enacted in the future which could negatively affect the Company’s current or future tax structure and effective tax rates. For example, the Organisation for Economic Co-operation and Development's (“OECD”) Inclusive Framework project is currently considering proposals that, if implemented, could increase our effective tax rate. In particular, the Inclusive Framework project includes a global minimum tax proposal that contains various mechanisms to subject a multinational corporation's income to a 15% minimum rate. Though the details of these proposals are still under development, many countries have expressed a strong interest in implementing the rules, regardless of whether consensus is reached at the OECD, and the EU recently agreed to implement the Inclusive Framework project's global minimum tax rules starting in 2024. Whether, and to what extent, these rules are implemented consistently across jurisdictions may increase our related compliance costs and could have an adverse impact on our global effective tax rate, financial condition and results of operations.

Corporate Governance and Stock Ownership Risks

There is a limited trading market for the Company’s common stock and the market price of the Company’s common stock is subject to volatility.

The Company’s common stock, which trades on the NYSE American, has experienced, and may experience in the future, significant price and volume fluctuations, which could adversely affect the market price of the Company’s common stock. For example, the Company believes that recent volatility in the market price of the Company’s common stock reflects market and trading dynamics unrelated to the Company’s underlying business or macro or industry fundamentals. These fluctuations have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums. The Company may continue to incur rapid and substantial increases or decreases in its stock price that may not coincide in timing with the disclosure of news or developments by or affecting the Company. Accordingly, the market price of the Company’s common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in the Company’s business. The market price of the Company’s common stock may also fluctuate significantly in response to various factors and events, including:

In addition, the securities markets have recently experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies due to, among other factors, the actions of market participants or other actions outside of the Company’s control, including general market volatility caused by the coronavirus ("COVID-19") pandemic, high inflation, rising interest rates and bank failures. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively impact the market price of the Company’s common stock. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. The Company may be the target of this type of litigation in the future, which could result in substantial costs and divert management’s attention.

The Company is a “controlled company”“controlled company” within the meaning of the NYSE MKTAmerican rules and, as a result, qualifies for, and relies on, exemptions from certain corporate governance requirements. As a result, the Company’sCompany’s shareholders do not have the same protections afforded to shareholders of companies that are subject to such requirements.

Nimble Holdings Company Limited (“Nimble”), formerly known as The Grande Holdings Limited, through one of its indirect subsidiaries, is the beneficial owner of approximately 56.2%72.4% of the Company’s outstanding common stock as of June 23, 2016.March 31, 2023. As a result, the Company is a “controlled company” within the meaning of the NYSE MKTAmerican Company Guide. Under the NYSE MKTAmerican rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE MKTAmerican corporate governance requirements, including the requirements that:

The Company has elected to use certain of these exemptions and the Company may continue to use all or some of these exemptions in the future for so long as the Company is a controlled company. The Company’s Board of Directors acts as the nominating committee and compensation committee and determines the compensation and benefits of the Company’s executive officers,

administers its employee stock and benefit plans, as may be in effect from time to time, and reviews policies relating to the compensation and benefits of its employees. Although all board members have fiduciary obligations in connection with compensation matters, the Company’s lack of an independent compensation committee presents the risk that any executive officers who are also directors may have influence over their personal compensation and benefits levels that may not be commensurate with the Company’s financial performance. Accordingly, shareholders of the Company do not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE MKT.American.

The controlling ownership of the Company’sCompany’s common stock by an indirect subsidiary of GrandeNimble substantially reduces the influence of other stockholders, and the interests of GrandeNimble may conflict with the interests of the Company’sCompany’s other stockholders.

Grande,

Nimble, through one of its indirect subsidiaries, is the beneficial owner of approximately 56.2%72.4% of the Company’s outstanding common stock as of June 23, 2016.March 31, 2023. As a result, GrandeNimble will be able to exert significant influence over the Company’s business and have the ability to control the approval process for actions by the Company that require stockholder approval, including: the election of the Company’s directors and the approval of mergers, sales of assets or other significant corporate transactions or matters submitted for stockholder approval. GrandeNimble may have interests that differ from your interests and may cause the shares in the Company beneficially owned by GrandeNimble to be voted in a way with which you disagree and that may be adverse to your interests. In addition, several provisions of the Company’s organizational documents and Delaware law may deter or prevent a takeover attempt, including a takeover attempt in which the potential purchaser offers to pay a per share price greater than the current market price of itsthe Company’s common stock. Under the terms of the Company’s certificate of incorporation, its board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for the Company’s common stock, including transactions that may be in your best interests.

Certain

The Company’s bylaws designate the Court of Chancery of the Company’s directors and officersState of Delaware or the federal district courts in Delaware as the exclusive forum for certain litigation that may be initiated by the Company’s stockholders, which could limit stockholders’ ability to have actual or potential conflicts of interest because of their relationships with Grande, and accordingly have loyalties and fiduciary obligationscertain claims heard in any other judicial forum.

Pursuant to both Grande and the Company.

Mr. Christopher Ho, the Company’s Chairmancorporate bylaws, as amended (the “bylaws”), unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the Board,State of Delaware will be the sole and Mr. Duncan Hon,exclusive forum for the Chief Executive Officer andfollowing types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on behalf of the Company; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company have material relationships with Grande that may have actual or potential conflicts of interest with their duties to the Company. Effective May 30, 2016, Mr. Hon also serves as the Chief Executive Officer and an executive director of Grande. As described in Note 3 to the Company’s financial statements and in the Company’s previous filings with the SEC, there have historically been certain related party transactions between the Company and certain subsidiaries and affiliates of Grande. Although the Company has established procedures designed to ensure that material related party transactions are fair to the Company, transactions between the Company and Grande, even if entered into on an arm’s-length basis, create the potential for, or could result in, conflicts of interests.

The Company recently received a notice of non-compliance from NYSE MKT related to the composition of the Company’s Audit Committee.  Although the Company has cured such non-compliance, if the Company is unable to maintain compliance with the continued listing standards of the NYSE MKT, then the Company’s common stock could be delisted from the NYSE MKT, which could negatively impact the liquidity and trading price of the Company’s common stock. 

On June 7, 2016, the Company received a notice from the NYSE MKT indicating that the Company no longer satisfied the continued listing standards set forth in Section 803(B)(2)(c) of the NYSE MKT Company Guide that require the Audit Committee of the Board to be comprised of at least two independent members. The Company received the notice following the resignation of five directors, including four independent directors, in late May and early June 2016 following the completion of the Grande Restructuring Plan. See Item 1— “Recent Developments.” As a result of these resignations, the Company had only one independent director and the Company’s Audit Committee was no longer comprised of two independent members as required under the Company Guide. Pursuant to Section 803(B)(6)(b) of the Company Guide, the Company was provided until the earlier of (i) the next annual shareholders' meeting or (ii) one year from the occurrence of the event that caused the failure to comply with this requirement; provided, however, that if the annual shareholders' meeting occurs no later than 75 days following the event that caused the failure to comply with the audit committee composition requirement, a smaller reporting company shall instead have 75 days from such event to regain compliance with the requirement to have two independent directors serving on the audit committee.

Effective as of June 19, 2016, the Company’s Board of Directors appointed Mr. Kin Yuen as an independent director and member of the Audit Committee, following which the Company regained compliance with Section 803(B)(2)(c) of the Company Guide. Although the Exchange’s notification of non-compliance with Section 803(B)(2)(c), and the Company’s subsequent cure of such non-compliance by the appointment of Mr. Yuen, has had no current effect on the listing of the Company’s shares, failure to regain compliance within the prescribed grace period could have resulted in the Company’s shares being delisted from the NYSE

MKT. If the Company’s common stock is delisted from the NYSE MKT and transferred to the over-the-counter market, it may result in decreased liquidity by making the trading of the Company’s common stock less efficient.  

The Company’s board of directors has formed a Special Committee of independent directors to explore strategic alternatives. However, there can be no assurances that any transaction will occur, or if such a transaction does occur, the value of that transactionstockholder to the Company or its shareholders.

Thethe Company’s board of directors formed an ad hoc Special Committee consisting solely of independent directors in March 2013 to evaluate possible strategic alternatives intended to enhance stockholder value. These alternatives could include, among others, possible joint ventures, strategic partnerships, marketing alliances, sale of allstockholders; (iii) any action or some of our assets or other possible transactions. However, there can be no assurance that any such strategic transaction will occur. In addition, if suchproceeding asserting a transaction occurs, there can be no assurances as to the value of any such transaction toclaim against the Company or its stockholders.any current or former director, officer or other employee of the Company or any stockholder arising pursuant to any provision of the General Corporation Law of Delaware or the Company’s certificate of incorporation or bylaws (as each may be amended from time to time); (iv) any action or proceeding to interpret, apply, enforce or determine the validity of the Company’s certificate of incorporation or bylaws (including any right, obligation or remedy thereunder); (v) any action or proceeding as to which the General Corporation Law of Delaware confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against the Company or any director, officer or other employee of the Company or any stockholder, governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. This forum selection clause in the Company’s bylaws does not apply to suits brought to enforce a duty or liability created by the Exchange Act, or any other claim for which the federal courts of the United States of America have exclusive jurisdiction. The bylaws further provide, that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. In addition, the bylaws provide that any person or entity holding, owning or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and to have consented to these provisions. The forum selection clause in the Company’s bylaws may limit stockholders’ ability to have certain claims heard in any court other than in the Court of Chancery or the federal district courts in Delaware.

Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products with retailers in the U.S. The Company is also continuing to invest in products and marketing activities to expand its sales through internet and ecommerce channels. These efforts require investments in appropriate human resources, media marketing and development of products in various categories in addition to the traditional home appliances and audio products on which the Company has historically focused. The Company also is continuing its efforts to identify strategic courses of action related to its licensing activities, including seeking new licensing relationships. The Company has engaged each of LMCA and GLS as an agent to assist in identifying and procuring potential licensees.

Emerson was informed

Emerson’s success is dependent on its ability to anticipate and respond to changing consumer demands and trends in November 2015 by one of its key customersa timely manner, as well as expanding into new markets and sourcing new products that commencing with the Spring of 2016, this customer will discontinue retailing in its stores the Emerson-branded microwave oven and compact refrigeration products currently soldare profitable to this customer by the Company. During fiscal 2015Geo-political factors may also affect the Company’s operations and fiscal 2016, net salesdemand for the Company’s products, which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The Company expects that U.S. tariffs on categories of these products bythat the Company imports from China, and China’s retaliatory tariffs on certain goods imported from the United States, as well as modifications to this customer were approximately $39.5 million and $19.0 million, respectively, comprising approximately 57.3% and 46.2%international trade policy, will continue to affect its product costs going forward. If no mitigation steps are taken, or the mitigation is unsuccessful, the combination of tariffs will result in significantly increased annualized costs to the Company as all of the Company’s total netproducts are currently manufactured by suppliers in China. Although the Company is monitoring the trade and political environment and working to mitigate the possible effect of tariffs with its suppliers as well as its customers through pricing and sourcing strategies, the Company cannot be certain how its customers and competitors will react to the actions taken. In addition, heightened tensions between the United States and China over Hong Kong and any resulting retaliatory policies may affect our operations in Hong Kong. At this time the Company is unable to quantify possible effects on its costs arising from the new tariffs, which are expected to increase the Company’s inventory costs and associated costs of sales as tariffs are incurred, and some costs may be passed through to the Company’s customers as product sales.price increases in the future. However, if the Company is unable to successfully pass through the additional costs or otherwise mitigate the effects of these tariffs, or if the higher prices reduce demand for the Company’s products, it will have a negative effect on the Company’s product sales and gross margins.

Starting in the fourth quarter of fiscal 2020, the global COVID-19 pandemic has presented significant challenges and impacted the Company’s business and operating results, and the operations and production capabilities of the Company’s suppliers in China. The pandemic has directly and indirectly disrupted certain sales and supply chain activities. Global component shortages, in particular semiconductor chips, arising from changes in consumer demand and reduced manufacturing capacity related to the COVID-19 pandemic may cause price fluctuations and longer lead times in the supply of these components. Although the Company continued shippingis seeking alternate suppliers for these components, developing alternate sources of supply will be time consuming, difficult and costly, and may require the re-tooling of products to thisaccommodate components from different suppliers. In addition to increasing cost trends, the Company’s suppliers are not equipped to hold meaningful amounts of inventory and could pause manufacturing, which could ultimately impact the Company’s ability to fulfill customer only through December 2015. Emerson anticipates that net product sales for fiscal 2017 will be negatively impacted by this event. The loss of these sales has had and is expected toorders on a timely basis. These impacts on the Company’s supply chain may continue to have a material adverse effect onimpact the Company’s ability to meet product demand, which could result in additional costs, customer dissatisfaction in the event of inventory shortages or may otherwise adversely impact the Company’s business and results of operations.

ii) Audio product net sales were $2.2In light of the adverse macroeconomic conditions domestically and internationally, the Company has implemented certain cost-reduction actions intended to reduce expenditures. However, the environment remains uncertain and demand for the Company’s products remains competitive and retailer actions to continue carefully managing inventory. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.

For more information on risks associated with the Company’s operations, including tariffs and the COVID-19 pandemic, please see the risk factors within Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.

Legal Proceedings — On April 19, 2022, the US District Court for the District of Delaware granted judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “defendants”). Among other things, the court order issues an injunction and directs the US Patent and Trademark Office to cancel the defendants’ existing and proposed “Emerson Quiet Kool” trademarks and prohibits defendants from registering or applying to register or using the same mark or any other mark or name containing the word “Emerson” going forward. The judgment also awards $6.5 million to the Company. The defendants have to date conditionally made payments, including certain advances and a portion of their liability, which are reflected as advanced deposits in the Consolidated Balance Sheets, in connection with ongoing negotiations among the parties. The aggregate amount of the payments is $4.1 million, which has been reduced by approximately $0.8 million of legal fees incurred in fiscal 2016 compared to $2.9 million2023, in fiscal 2015, a decrease of $0.7 million, or 23.6%, resulting from decreased net sales of clock radios.

Licensing revenue — Licensing revenue in fiscal 2016 was $4.7 million as compared to $7.3 million for fiscal 2015, a decrease of $2.6 million, or 35.7%, driven by lower year-over-year sales by the Company’s licensees of Emerson ® branded product.

The Company’s largest license agreement is with Funai, which accounted for approximately 79%pursuit of the Company’s total fiscal 2016 and fiscal 2015 licensing revenue, and which was amended during November 2013 to extend the term of the agreement until March 31, 2018.advanced deposits. The agreement provides that Funai will manufacture, market, sell and distribute specified products bearing the Emerson^® trademark to customers in the U.S. and Canadian markets. Under the terms of the agreement, the Company receives non-refundable minimum annual royalty payments of $3.75 million each calendar year and a license feejudgement is presently on sales of product subjectappeal to the agreement in excessUS Court of Appeals for the minimum annual royalties. During fiscal 2016 and 2015 licensing revenues of $3.75 million and $5.8 million, respectively, were earned under this agreement.

As previously disclosed, on December 16, 2015, the Company received written notice from Funai stating its intention to terminate the agreement, with termination to be effective on December 31, 2016. As a result of such termination, unless the CompanyThird Circuit. There is successful in securing a new licensee to replace the licensing revenue which will be absent upon the Funai termination, the Company expects fiscal 2017, which begins April 1, 2016, licensing revenue will decline as compared to fiscal 2016 licensing revenue. As previously disclosed, since this licensing relationship contributes substantial product volume and market presence through Funai’s manufacture and distribution of products bearing the Emerson^®brand name in the United States, the loss of this relationship and licensing agreement with Funai is expected to materially and adversely affect the Company’s revenue, earnings and business. The Company is analyzing the impacts of the Funai termination to its business and is identifying strategic courses of action for consideration, including seeking new licensing relationships. There can be no assuranceguarantee that the Company will be able to securecollect the entire judgment or that a new licenseenegotiated resolution regarding these matters will ever be agreed among the parties or, distribution relationshipif agreed, how soon the parties will be able to replacedo so.

Licensing revenue — Licensing revenue in fiscal 2023 was approximately $1,102,000 as compared to $265,000 for fiscal 2022, an increase of $837,000, or 316%, of which $730,000 was derived from sell-off agreements made with customers of Emerson Quiet Kool. The balance of the increase in licensing revenue product volume and market presencewas due to the signing of Emerson-branded productstwo new license agreements in the United States,fiscal 2023, one of which had been provided through the license agreement with Funai.was terminated in June 2023.

Net revenues — As a result of the foregoing factors, the —The Company’s net revenues were $45.8$7.2 million for fiscal 20162023 as compared to $76.3$8.2 million for fiscal 2015,2022, a decrease of $30.5$1.0 million, or 40.1%.12.5%, which was driven primarily by the decrease in audio product net sales, offset by the increase in licensing revenue.

Cost of sales — Cost of sales includes thosethe components as described in Note 1 “Cost of Sales”Sales” of the Notes to the Consolidated Financial Statements. In absolute terms, cost of sales decreased $23.3$1.1 million, or 37.5%18.6%, to $38.8$5.1 million in fiscal 20162023 as compared to $62.1$6.2 million in fiscal 2015. Cost of sales as a percentage of net product sales was 94.6% in fiscal 2016 as compared to 90.0% in fiscal 2015.2022. The decrease in absolute terms for fiscal 20162023 as compared to fiscal 20152022 was primarily related to the reduceddecline in net product sales partlypartially offset by higher year-over-year gross cost of sales as a percentage of gross sales and approximately $1.6 millionsales. The increase in reversalsgross cost of reserves no longer required during fiscal 2015.

Other operating costs and expenses — Other operating costs and expenses include those components as described in Note 1 “Other Operating Costs and Expenses” of the Notes to the Consolidated Financial Statements. Other operating costs and expensessales as a percentage of net productgross sales was 0.9% infor fiscal 2016 and 1.0% in fiscal 2015. In absolute terms, other operating costs and expenses was $0.4 million in fiscal 20162023 as compared to $0.7 millionfiscal 2022 was primarily related to the change in fiscal 2015.the product mix of audio products compared to houseware products. 

Selling, general and administrative expenses (“(“S,G&A”&A”) — S,G&A, as a percentage of net revenues, was 17.4%58.5% in fiscal 20162023 as compared to 11.6%65.8% in fiscal 2015.2022. Fiscal 20162023 S,G&A, in absolute terms, was $7.9$4.2 million and in fiscal 20152022 S,G&A, in absolute terms, was $8.8$5.4 million, a decrease of $0.9$1.2 million, or 9.7%22.3%.

Analysis of S,G&A

Fiscal 2016 The decrease in S,G&A includedwas primarily due to reduced legal fees of approximately $0.3$794,000 or 62.3%. In the fourth quarter of fiscal 2023, the Company identified approximately $784,000 in legal fees incurred in the pursuit of $4.1 million in advanced deposits from Emerson Quiet Kool during fiscal 2023. The Company applied those legal and advisory fees pertainingagainst the advanced deposit of $4.1 million, which now amounts to work performed for$3.3 million on the Special Committeeconsolidated balance sheets. Legal fees during fiscal 2023 were approximately $479,000 as compared to $1,273,000 during fiscal 2022. The majority of the Company’s Board of Directors and approximately $0.5 milliondecrease in tax advisorylegal fees related to the auditapplication of specifically identified legal fees of approximately $784,000 against the advanced deposits of $4.1 million. The Company also benefitted by reductions in compensation costs of $242,000, insurance costs of $94,000 and directors fees of $63,000.

Loss on settlement of litigation — On January 3, 2022, a legal settlement was entered into between the Company and one of its former directors that resolved certain disputes, including certain claims against the former director and an indemnification claim made by the former director. The amount of the Company’s tax returns by the IRS, as mentioned elsewhere within this Annual Report on Form 10-K.settlement was $450,000.

Fiscal 2015 S,G&A included approximately $1.6 million in legal and advisory fees pertaining to work performed for the Special Committee of the Company’s Board of Directors and approximately $0.3 million in tax advisory fees related to the audit of the Company’s tax returns by the IRS, as mentioned elsewhere within this Annual Report on Form 10-K.

Excluding the aforementioned items, the fiscal 2016 S, G&A was $7.2 million and the fiscal 2015 S, G&A was $6.9 million, an increase of $0.3 million, or 4.3%, primarily due to higher year-over-year corporate and personnel costs.

Interest income, net — Interest income, net, was $178,000$702,000 in fiscal 20162023 as compared to $215,000$57,000 in fiscal 2015,2022, resulting from a reduction of itsan increase in interest rates earned on the Company’s short term investments in Certificates of Deposit during fiscal 2016.2023.

(Benefit) provision

Income from governmental assistance programs— During fiscal 2023, the Company recorded income of approximately $34,000 related to assistance received from the Hong Kong government under a program called the Employment Support Scheme ("ESS"). During fiscal 2022, the Company recorded income of approximately $207,000, related to its Paycheck Protection Program (“PPP”) loan forgiveness and of approximately $83,000, related to assistance received from the ESS program. See “Note 15 - Paycheck Protection Program and Employment Support Scheme”.

Provision for income tax expense— The Company adopted ASU 2019-12 during fiscal 2023 and recorded its non-income based state taxes of approximately $7,000 to S,G&A. In order to conform fiscal 2022 to the current presentation, approximately $11,000 of non-income based state taxes were reclassified to S,G&A. In fiscal 2016,2023 and fiscal 2022, the Company recorded an incomea full valuation allowance against its deferred tax benefitassets of $0.3 million, of which approximately $0.2 million was recorded in the fourth quarter of fiscal 2016, as compared to income tax expense of $3.1 million in fiscal 2015.$394,000 and $844,000, respectively. See Note 5 “Income Taxes”. of the Notes to the Consolidated Financial Statements.

Net (loss) income — As a result of the foregoing factors, the Company recorded a net loss of $1.0$1.4 million for fiscal 20162023 as compared to a net incomeloss of $1.9$3.6 million for fiscal 2015.2022.

Liquidity and Capital Resources

General

General

As of March 31, 2016,2023, the Company had cash and cash equivalents of approximately $30.1$25.3 million as compared to approximately $43.5$25.6 million at March 31, 2015.2022. Working capital decreased to $55.7$26.4 million at March 31, 20162023 as compared to $56.5$28.1 million at March 31, 2015 as adjusted to remove $0.9 million in deferred tax assets which were reclassified from current to noncurrent upon the early and retrospective adoption of Accounting Standards Update 2015-17 by the Company as of March 31, 2016.2022. The decrease in cash and cash equivalents of approximately $13.4 million was due to the below factors.$308,000 is set out in “Cash Flows” below.

Cash Flows

Net cash providedused by operating activities was approximately $6.8$0.3 million for fiscal 20162023, compared to approximately $4.7 million for fiscal 2022, resulting from a $2.5$1.7 million decreaseincrease in inventories,inventory, a $2.2 million decrease in accounts receivable, a $2.2 million decrease in royalty receivable, a $2.1 million decrease in prepaid purchases, a $0.6 million decrease in deferred tax assets, a $0.2 million decrease in prepaid expenses and other current assets, partially offset by a $1.0$1.4 million loss generated during the period, a $0.7 million increase in asset allowances, a $0.5$0.4 million decrease in long term liabilities,income taxes payable, a $0.4$0.2 million increase in licensing receivable and a $0.1 million decrease in accounts payable and other current liabilitiesreceivable partially offset by a $3.3 million increase in advanced deposits and a $0.4$0.2 million decreaseincrease in incomeshort term taxes payable.

Net cash usedprovided by investing activities was $20.2nil for fiscal 2023, compared to $25.0 million for fiscal 2022, primarily due to a decrease of investments made in short term certificates of deposit.deposits.

Net cash usedprovided by financing activities was nil duringfor both fiscal 2016.2023 and fiscal 2022.

Credit Arrangements

Letters of Credit— The Company has utilized Hang Seng Bank inutilizes the pastservices of one of its banks to issue secured letters of credit on behalf of the Company, as needed, on a 100% cash collateralized basis, although no letter of credit agreement is in place between the Company and Hang Seng Bank or any financial institution. The last letter of credit placed with Hang Seng Bank on this basis was in May 2014.basis. At March 31, 2016,2023 and March 31, 2022, the Company had no outstanding letters of credit. In the event that the Company does have outstanding letters of credit with Hang Seng Bank, a like amount of cash is posted by the Company as collateral against such outstanding letters of credit, and is classified as Restricted Cash on the balance sheet.outstanding.

Short-term Liquidity

In fiscal 2016, products representing approximately 47% of net sales were imported directly to the Company’s customers. The direct importation of product by the Company to its customers significantly benefits the Company’s liquidity because this inventory does not need to be financed by the Company.

The Company’s principal existing sources of cash are generated from operations. The Company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months.

Historically, a significant percentage of the Company’s product sales were made under the Direct Import Program. The direct importation of product by the Company to its customers can significantly benefit the Company’s liquidity because this inventory does not need to be financed by the Company. In fiscal 2023, approximately 16% of the Company’s product sales were imported directly to the Company’s customers. In fiscal 2022, approximately 9% of the Company’s product sales were imported directly to the Company’s customers.

As of March 31, 2016,2023, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product.

As described above, Emerson

Paycheck Protection Program Loan

In April and May of 2020, the Company applied for and received aggregate PPP loan proceeds of approximately $204,000 under the PPP. The Company used all of the Paycheck Protection Program ("PPP") loan proceeds for qualifying expenses in accordance with terms of the Coronavirus Aid, Relief, and Economic Security Act and applied for forgiveness of the loan to the extent applicable. On July 5, 2021, the Company’s PPP loan was informed in November 2015 by one of its key customers that, commencing with the Spring of 2016, this customer will discontinue retailing in its stores the Emerson-branded microwave oven and compact refrigeration products currently sold to this customercompletely forgiven by the Small Business Administration. See Note 15 “Paycheck Protection Program and Employment Support Scheme” of the Notes to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements

As of March 31, 2023, the Company did not have any off-balance sheet arrangements as defined under the rules of the Securities and Exchange Commission.

Legal Matters

The Company is subject to various legal proceedings, the outcomes of which are inherently uncertain. The Company records any potential gains related to legal proceedings only after cash is collected. The Company records a liability when it is probable that a loss has been incurred and the Company continued shipping these products to this customer only through December 2015. In addition, as described above,amount is reasonably estimable, the Company’s license agreementdetermination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with Funai was terminated by Funai effective on December 31, 2016. Both of these events willmanagement’s expectations could have a material impact on the Company’s business,our financial condition results of operations and cash position. The Company is analyzingoperating results. See Note 11 in the impacts to its business of these events and is identifying strategic courses of action for consideration.

Off-Balance Sheet Arrangements

On April 7, 2010, upon a request madeNotes to the Company by its foreign controlling stockholder, S&T, the Company entered into an agreement with S&T whereby the Company returned to S&T on April 7, 2010 that portion of the taxes that the Company had withheld from the dividend paid on March 24, 2010 to S&T which the Company believed was not subject to U.S. tax based on the Company’s good-faith estimate of its accumulated earnings and profits at that time, and received collateral (in the form of shares in the Company) which was sufficient to cover any claims for taxes on the dividend paid (the “Agreement”). The Company believes this transaction resulted in an off-balance sheet arrangement, which was comprised of a possible contingent tax liability of the Company, which, if recognized, would be offset by the calling by the Company on S&T of the indemnification provisions of the Agreement. In February 2011, upon the request of S&T to the Company, the Company and S&T agreed the collateral pledged as a part of the Agreement would no longer be required and this collateral was returned by the Company to S&T in March 2011 (see Note 3 “Related Party Transactions — Dividend-Related Issues with S&T”) and the Agreement was amended and restated to remove the collateral requirement but retain the indemnification provisions. The Agreement, as amended (the “Amended Agreement”), remains in effect as of today. In September 2014, the Company, with S&T’s consent, withheld $0.5 million in cash, to be pledged as collateral against the Amended Agreement, from the dividend paid to S&T on September 30, 2014 along with such dividend paid on that date to all common stockholders. The Company held, as of March 31, 2016, $0.5 million in cash collateral from S&T against the Amended Agreement which was classified by the Company as restricted cash on its balance sheet. As of March 31, 2016, the Company believes that it is more likely than not that the assessment period for the Company for tax under section 1461 of the Internal Revenue Code in connection with the withholding tax requirements pertaining to the March 2, 2010 dividend has expired, such that if the IRS were to attempt to assess tax, the assessment would be time-barred. Thusly, as of March 31, 2016, the Company believes that it is more likely than not that it will not be liable for the Potential Tax Exposure Related to the March 2010 Dividend. In April 2016, the Company, upon a request made by S&T, considered and agreed that the collateral pledged as a part of the Agreement would no longer be required and that such collateral would be returned by the Company to S&T, net of the $79,000 in expenses incurred by the Company in defending the IRS challenge with respect to the March 2, 2010 dividend. Thusly, on April 29, 2016, the Company paid $421,000 to S&T to effectuate the release of the collateral net of the aforementioned expenses incurred by the Company.Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted within the United States. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade accounts receivables, impairment of long-lived assets, valuation of deferred tax assets, sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each.

Revenue Recognition. Revenues from product distributionrecognition: Sales to customers and related cost of sales are primarily recognized at the point in time title passeswhen control of goods transfers to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Under both programs, the Company recognizes revenues at the time title passes to the customer as this is when the Company satisfies its performance obligation under the contracts with its customers. Estimates for possiblefuture expected returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific arrangements to

Revenue is measured as the contrary, returns are not permitted unless the goods are defective.

In addition to the distributionamount of products,consideration the Company grants licensesexpects to receive in exchange for transferring goods. Revenue is recorded net of customer discounts, promotional allowances, volume rebates and similar charges. When the Company offers the right to use the Company’s trademarks forreturn product, historical experience is utilized to establish a stated termliability for the manufacture and/or saleestimate of consumer electronicsexpected returns. Sales and other products under agreementstax amounts collected from customers for remittance to governmental authorities are excluded from revenue.

The Company adopted ASC topic 606 effective April 1, 2018. Sales allowances, marketing support programs, promotions and other volume-based incentives which require payment of either i) a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimumsprovided to retailers and distributors are accounted for on an accrual basis as variable feesa reduction to net revenues in the period in which the related sales are recognized. Prior to the adoption of ASC topic 606, the Company followed the provisions of ASC topic 605. The adoption of ASC topic 606 did not have a material impact on revenue recognition as compared to revenue recognition provided under ASC topic 605.

If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are not recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royaltyaccrued for when such support is paid to the Company in advance, the royalty paymentoffered.

Inventory. Inventory is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.

Inventories. Inventories are statedvalued at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out basis.basis and includes inventory purchase costs and allocated overhead. The Company records inventory reserves to reducevaluation adjustments for the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between theexcess cost of inventory andover the estimated market valuenet realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated on an individual product basis based upon assumptions about future demandon physical inspection of the product in connection with a physical inventory, review of slow-moving products, forecasted sales, and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.consideration of active marketing programs.

Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer’s financial condition and provides for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer’s ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.

Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it is determined that all or part of a net deferred tax asset will likely not be realized in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Sales Return Reserves. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.

Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 605, “Revenue Recognition”, subtopic 50 “Customer Payments and Incentives” and Securities and Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue Recognition, corrected copy” (“SAB’s 101 and 104”).

At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 605, “Revenue Recognition.”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all of which are required to be met in order to recognize revenue.

If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.

Recently-Issued Financial Accounting Pronouncements

The following Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board during the twelve months ended March 31, 2016 or during the interim period between March 31, 2016 and June 29, 2016 which relate to or could relate to the Company as concerns the Company’s normal ongoing operations or the industry in which the Company operates:

Accounting Standards Update 2016-10 (Topic 606) Revenue from Contracts with Customers (Issued April 2016)

The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update

clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The Company does not expect these amendments to have a material effect on its financial statements.

Accounting Standards Update 2016-07, Investments—Equity Method and Joint Ventures (Topic 323) (Issued March 2016)

The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. No additional disclosures are required at transition. The Company does not expect these amendments to have a material effect on its financial statements.

Accounting Standards Update 2016-02, Leases (Topic 842) (Issued February 2016)

The FASB is issuing this Update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the FASB is amending the FASB Accounting Standards Codification® and creating Topic 842, Leases. This Update, along with IFRS 16, Leases, are the results of the FASB’s and the International Accounting Standards Board’s (IASB’s) efforts to meet that objective and improve financial reporting. The amendments in this Update are effective for fiscal years beginning after December 15, 2018. While the Company is currently evaluating the provisions of ASU 2016-02 to determine how it will be affected, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases.

Accounting Standards Update 2016-01, Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Liabilities (Issued January 2016)

The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) as follows:

1. Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

2. Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.

3. Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities.

4. Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

5. Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

6. Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

7. Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

8. Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

Accounting Standards Update 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes (Issued November 2015)

To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. If an entity applies the guidance prospectively, the entity should disclose in the first interim and first annual period of change, the nature of and reason for the change in accounting principle and a statement that prior periods were not retrospectively adjusted. If an entity applies the guidance retrospectively, the entity should disclose in the first interim and first annual period of change the nature of and reason for the change in accounting principle and quantitative information about the effects of the accounting change on prior periods. The Company adopted ASU 2015-17 retrospectively at March 31, 2016 by reclassifying as of March 31, 2015 the $962,000 previously classified as current deferred tax assets to noncurrent deferred tax assets, and by presenting all deferred tax assets as of March 31, 2016 as noncurrent.

Accounting Standards Update 2015-11, Inventory (Topic 330) Simplifying the Measurement of Inventory (Issued July 2015)

An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The Board has amended some of the other guidance in Topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory. However, the Board does not intend for those clarifications to result in any changes in practice. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this Update, there are no other substantive changes to the guidance on measurement of inventory. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company does not expect these amendments to have a material effect on its financial statements.

The Financial Accounting Standards Board (FASB) voted to approve a one-year deferral of the effective date of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (July 2015).

In July 2015, the Financial Accounting Standards Board (“FASB”) voted to defer the effective date of the new accounting guidance related to revenue recognition by one year to December 15, 2017 for annual reporting periods beginning after that date and permitted early adoption of the standard, but not before fiscal years beginning after the original effective date of December 15, 2016. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company does not expect these amendments to have a material effect on its financial statements.

Not applicable.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

of Emerson Radio Corp and Subsidiaries

We have audited the accompanying consolidated balance sheets of Emerson Radio Corp. and Subsidiaries (the “Company”), as of March 31, 2016 and 2015, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Emerson Radio Corp. and Subsidiaries as of March 31, 2016 and 2015, and the results of their operations, and their cash flows for each of the two years in the period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the financial statements, the Company has retrospectively changed its method of accounting for the classification of deferred tax assets and liability as of March 31, 2016 due to the early adoption of Accounting Standards Update 2015-17.

Cranford, New Jersey

June 29, 2016

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For The Years Ended March 31, 2016 and 2015

The accompanying notes are an integral part of the consolidated financial statements.

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of March 31, 2016 and 2015

The accompanying notes are an integral part of the consolidated financial statements.

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For The Years Ended March 31, 2016 and 2015