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

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands except share data)

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

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

EMERSON RADIO CORP. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)

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

EMERSON RADIO CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1— BACKGROUND AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Emerson Radio Corp. and its subsidiaries (“Emerson” or the “Company”). The Company designs, sources, imports and markets certain houseware and consumer electronic products, and licenses the Company’s trademarks for a variety of products.

The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of December 31, 20172022 and the results of operations for the three and nine month periods ended December 31, 2017 2022 and December 31, 2016.2021. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes; actual results could materially differ from those estimates. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accordingly do not include all of the disclosures normally made in the Company’s annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 20172022 (“fiscal 2017”2022”), included in the Company’s annual reportAnnual Report on Form 10-K,10-K, as amended, for fiscal 2017.2022.

The results of operations for the three and nine month periods ended December 31, 20172022 are not necessarily indicative of the results of operations that may be expected for any other interim periodsperiod or for the full year ending March 31, 20182023 (“fiscal 2018”2023”).

Whenever necessary, reclassifications are made to conform the prior year’s consolidated financial statements to the current year’s presentation.

Unless otherwise disclosed

Recently Adopted Accounting Pronouncements

Accounting Standards Update 2019-12“Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” (Issued December 2019)

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard took effect in the notes to thesefirst quarter ( June 2021) of the Company’s fiscal year ending March 31, 2022. The adoption of ASU 2019-12 had no material impact on the Company’s consolidated financial statements the estimated fair value of the financial assets and liabilities approximates the carrying value.related disclosures.

Sales Allowance and Marketing Support Expenses

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 Accounting Pronouncements

The following Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board (“FASB”) 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. These are not yet effective for this financial period.

Accounting Standards Update 2014-09 “Revenue from Contracts with Customers”2016-13“Financial Instruments – Credit Losses” (Issued May 2014)June 2016)

In May 2014, June 2016, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers" in order to ensure that revenue recognition requirements are the same under both US GAAP and International Financial Reporting Standards ("IFRS"). ASU 2014-09 removes inconsistencies and provides a more robust framework for addressing revenue issues. ASU 2014-09 was effective for reporting periods and interim periods beginning on or after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 "Deferral of the Effective Date" to delay the implementation of ASU 2014-09 by one year, in response to feedback from preparers, practitioners and users of financial statements. Accordingly, ASU 2014-09 is now effective for reporting periods and interim periods beginning on or after December 15, 2017. Early adoption is permitted for reporting and interim periods beginning on or after December 15, 2016. The Company does not expect these amendments to have a material impact on its financial statements, as it is primarily a seller of tangible personal property whose contracts with customers and the related transaction prices and performance obligations will be minimally affected by the amendments.

Accounting Standards Update 2016-02 “Leases” (Issued February 2016)

In February 2016 the FASB issued ASU 2016-02 "Leases" 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. ASU 2016-02 creates a new Accounting Standards Codification Topic 842 "Leases" to replace the previous Topic 840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the previous model, but updated to align with certain changes to the lessee model and also the new revenue recognition provisions contained in ASU 2014-09 (see above). ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is assessing the standard to determine if ASU 2016-02 will have a material impact on its financial statements.

Accounting Standards Update 2016-13-13 “Financial Instruments – Credit Losses” (Issued June 2016)

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses"Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-132016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU 2016-132016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-132016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. 2022. Early adoption is permitted. The Company does not expect these amendments to have a material impact on its financial statements.

Revenue recognition: Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good. Under the Direct Import Program, title passes in the country of origin when the goods are passed over the rail of the customer’s vessel. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for future expected returns are based upon historical return rates and netted against revenues.

Revenue is measured as the amount of consideration the Company expects 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 return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.

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 the Company’s 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 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 606, “Revenue from Contracts with Customers” (“ASC 606”).

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 606, (i) sales incentives offered to customers that meet the criteria for accrual and (ii) 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 ASC 606.

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.

The Company offers limited warranties for its consumer electronics, comparable to those offered to consumers by the Company’s competitors in the United States. Such warranties typically consist of a one year period for microwaves and a 90 day period for audio products, under which the Company pays for labor and parts, or offers a new or similar unit in exchange for a non-performing unit.

Licensing: In addition to the distribution of products, the Company grants licenses for the right to access the Company’s intellectual property, specifically the Company’s trademarks, for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either (i) a non-refundable minimum guaranteed royalty or, (ii) the greater of (a) 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 (b) a minimum guaranteed royalty amount. In the case of the foregoing clause (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of the foregoing clause (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees 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 royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.

NOTE 2— EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts). Weighted average shares includes the impact of shares held in treasury.

NOTE 3— SHAREHOLDERS’ EQUITY

NOTE 3 — SHAREHOLDERS’ EQUITY

Outstanding capital stock at December 31, 20172022 consisted of common stock and Series A preferred stock. The Series A preferred stock is non-voting, has no dividend preferences and has not been convertible since March 31,2002; however, it retains a liquidation preference.

At December 31, 2017,2022, the Company had no options, warrants or other potentially dilutive securities outstanding.

In December 2016, the Company publicly announced the approval by the Board of Directors of the repurchase of up to $5 million of its common stock, that the repurchases may be effected from time to time at prevailing market prices, through open market or in privately negotiated transactions, which may include, in whole or in part, the establishment of a purchase program pursuant to the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, through block purchases or through accelerated or forward or similar stock purchases, and that the Company intends to run the repurchase program through the end of calendar 2017, unless the period is extended or shortened by the Board of Directors.

In September 2017, the Company’s Board of Directors approved an additional $5 million, bringing the total authorized stock repurchases under the program to $10 million and extended the program to June 30, 2018. Under the program, repurchases will be funded from available working capital and any repurchased shares will be held in the treasury as authorized and issued shares available for general corporate purposes. During the three months ended December 31, 2017, 669,357 shares for $991,972 were repurchased. As of December 31, 2017, the Company had repurchased 3,226,388 shares for $4,710,572 under this program. The remaining balance of the program is $5,289,428 as of December 31, 2017.    NOTE 4— INVENTORY

NOTE 4 — INVENTORY

Inventories, which consist primarily of finished goods, are stated at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-outfirst-in, first-out method. As of December 31, 20172022 and March 31, 2017,2022, inventories consisted of the following (in thousands):

NOTE 5— INCOME TAXES

NOTE 5 — INCOME TAXES

At December 31, 2017,2022, the CompanyCompany had $3.1$16.0 million of U.S. federal net operating loss (“NOL”) carry forwards andforwards. These losses do not expire but are limited to utilization of 80% of taxable income in any one year. At December 31, 2022, the Company had approximately $5.6$18.7 million of U.S. state net operating lossNOL carry forwards. The tax benefits related to these state NOL carry forwards included in net deferred tax assets thatand future deductible temporary differences are availablerecorded to offset future taxable income and can be carried forward for 20 years. Managementthe extent management believes it is lessmore likely than likelynot that all of the net deferred tax assetssuch benefits will be realized through tax planning strategies available in future periods and through future profitable operating results, therefore management has increased its valuation allowance by $712,000 to a totalrealized.

The income of $1,000,700 as of foreign subsidiaries before taxes was $247,000 for the three month period ended December 31, 2017.2022 as compared to income of foreign subsidiaries before taxes of $19,000 for the three month period ended December 31, 2021. The gross amountincome of foreign subsidiaries before taxes was $489,000 for the Company’snine month period ended December 31, 2022 as compared to income of foreign subsidiaries before taxes of $71,000 for the nine month period ended December 31, 2021.  

The Company analyzed the future reasonability of recognizing its deferred tax assets at December 31, 2017 was $1,570,000 as compared to $1,080,000 as2022. As a result, the Company concluded that a 100% valuation allowance of March 31, 2017.$4,800,000 would be recorded against the assets.

Due to

Although the Company generated a change in ownership of Grande by Wealth Warrior Global Limited, as disclosed in a Schedule 13D filing on October 10, 2017, the Company’s ability to use a portion of its domestic NOL and tax carryforwards may be limited in future periods under the change of ownership provisions of the Tax Reform Act of 1986 (Internal Revenue Code Section 382). Furthermore, a portion of the carryforwards may expire before being applied to reduce futurenet operating loss, it recorded income tax liabilities (see Item 1A. Risk Factors).

The Company’s effective tax rate differsexpense of nil and $10,500, respectively, during the three and nine month periods ended December 31, 2022, primarily resulting from the federal statutory rate primarily due to income and losses incurred in foreign jurisdictions and taxed at locally applicable tax rates, subpart F income included in the Company’s tax expense, expenses that are not deductible for federal income tax purposes, increases to the valuation allowance and state income taxes. During the three and nine month periods ended December 31, 2021, the Company recorded income tax expense of nil and $10,500, respectively, primarily resulting from state income taxes. After the adoption of ASU 2019-12 “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes”during fiscal 2022, these non-income based state taxes are now reported within selling, general and administrative expenses.

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of December 31, 2017,2022, the Company’s open tax years for examination for U.S. federal tax are fiscal 2015-fiscal 2017-2021, and for U.S. statesstates’ tax are fiscal 2012-fiscal 2016.

2016-2021.Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense.

On

As of December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant change in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21%. As a result of the enacted law,31, 2022, the Company was required to revalue its deferred tax assets and liability at the rate in effect during their scheduled reversal. This revaluation resulted in an additionis asserting under ASC 740-30 that all of $665,600 on a gross basis, to income tax expense in continuing operations and a corresponding reduction in the deferred tax asset. However, the net impact of the revaluation resulted in income tax expense of $223,000, after adjustments to the valuation allowance against the Company’s deferred tax assets. The new legislation will require the Company to pay tax on the unremitted earnings of its foreign subsidiaries though are indefinitely invested. The Company evaluates this assertion each period based on a number of factors, including the operating plans, budgets, and forecasts for both the Company and its foreign subsidiaries; the long-term and short-term financial requirements in the U.S. and in each foreign jurisdiction; and the tax consequences of any decision to repatriate earnings of foreign subsidiaries to the U.S.

As of December 31, 2017. Because2022 and March 31, 2022, the Company had a federal tax liability of approximately $1,603,000 and $1,808,000, respectively, related to the repatriation of the complexities involved in determining the previously unremittedCompany’s undistributed earnings and profits of all ourits foreign subsidiaries the Company is still in the process of obtaining, preparing, and analyzing theas required information and expects to

record an initial estimate of the impact on our Consolidated Financial Statements in the 4th quarter. The other provisions ofby the Tax Cuts and Jobs Act are not expected to have a material impact onof 2017 (the “Tax Act”). As of December 31, 2022, the fiscal 2018 consolidated financial statements.Company’s short term portion was approximately $401,000 and the long term portion was approximately $1,202,000.

The liability is payable over 8 years. The firstfive installments are each equal to 8%, the sixth is equal to 15%, the seventh is equal to 20% and the final installment is equal to 25% of the liability. As of December 31, 2022, the Company has paid five of the eight installments. Each installment must be remitted on or before July 15^th of the year in which such installment is due. 

NOTE 6— RELATED PARTY TRANSACTIONS

From time to time, Emerson engages in business transactions with its controlling shareholder, Nimble Holdings Company Limited (“Nimble”), formerly known as The Grande Holdings Limited (“Grande”), and one or more of Grande’sNimble’s direct and indirect subsidiaries, and companiesor with entities related to the Company’s Chairman of the Board.Board of Directors. Set forth below is a summary of such transactions.

Controlling Shareholder

S&T International Distribution Limited (“S&T”), which is a wholly owned subsidiary of Grande N.A.K.S. Ltd., which is a wholly owned subsidiary of Grande,Nimble, collectively have, based on a Schedule 13D/A filed with the SEC on February 15, 2019, the shared power to vote and direct the disposition of 15,243,283 shares, or approximately 63.8%72.4%, of the Company’s outstanding common stock.stock as of December 31, 2022. Accordingly, the Company is a “controlled company” as defined in Section 801(a)801(a) of the NYSE American Company Guide.

On September 26, 2017, Wealth Warrior Global Limited

Related Party Transactions

Charges of rental and utility fees on office space in Hong Kong

During the three and nine month periods ended December 31, 2022, the Company was billed approximately $40,000 and $119,000, respectively, for rental and utility fees from Vigers Appraisal and Consulting Ltd (“Wealth Warrior”VACL”) acquired approximately 65.9% of the outstanding share capital of Grande from Sino Bright Enterprises Co., Ltd.,which is a company related to the Company’s Chairman of the Board. Based upon disclosures filed by Wealth Warrior on a Schedule 13D on October 10, 2017, Wealth Warrior, together with its affiliates, collectively hold 73.9%Board of the outstanding share capitalDirectors. As of Grande as of October 10, 2017. Accordingly, a change of control ofDecember 31, 2022 the Company was deemedowed approximately $800 to have occurred as Wealth Warrior may be deemedVACL related to be a controlling person of Grande, and as a result may be deemed to share the power to vote or direct the vote of (and to share the power to dispose or direct the disposition of) the shares of the Company held for the account of S&T.these charges.  

On February 9, 2018, Grande announced that it will change its name to Nimble Holdings Company Limited, subject to certain regulatory approvals.

Related Party Transactions

Return of Pledged Collateral to S&T

In April 2016, the Company, upon a request made by S&T, considered and agreed to return to S&T the $500,000 of collateral which S&T had paid to the Company in September 2014 as a part of the indemnification agreement between S&T, Grande and the Company pertaining to an Internal Revenue Service challenge of the Company’s March 31, 2010 earnings and profits calculations underlying the taxability of a dividend paid during March 2010 to all of its stockholders, net of the $79,000 in expenses incurred by the Company in defending the IRS challenge. 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. From September 30, 2014 through March 31, 2016, this pledged collateral had been recorded by the Company as restricted cash on its balance sheet.

Ancillary Expenses Pertaining to Rented Office Space in Hong Kong

During the three and nine months month periods ended December 31, 2017,2021, the Company was billed approximately $4,000$500 and $13,000$1,100, respectively, for utility and service chargespurchases of personal protection equipment from The Grande Properties Management Limited (“GPML”) and LafeVigers Strategic Services LimitedLtd (“LSSL”VSSL”), which are companiesis a company related to the Company’s Chairman of the Board in connection withof Directors. VSSL was formerly known as Lafe Strategic Services Ltd. As of December 31, 2022 the Company’s rented office space in Hong Kong. The Company owed nilapproximately $500 to both GPML and LSSLVSSL related to these charges at December 31, 2017.charges.  

Administrative service fees charged to related parties

During the three and nine months ended December 31, 2017, the Company billed approximately $6,000 and $17,000 for administrative fees to Phenomenon Agents Ltd (“PAL”), Sansui Acoustics Research Corporation (“SARC”) and TWD Industrial Co. Ltd. (“TICL"), which are subsidiaries of Grande. The Company was owed nil from PAL, SARC and TICL related to these charges at December 31, 2017.NOTE 7— SHORT TERM INVESTMENTS

NOTE 7 — SHORT TERM INVESTMENTS

At both December 31, 20172022 and March 31, 2017,2022, the Company held short term investments in deposits totaling $22.2nil. The Company held $25.5 million in deposits which were classified as cash equivalents as of December 31, 2022 and $22.0 million of such deposits as of March 31, 2022.   

NOTE 8— CONCENTRATION RISK

Customer Concentration

For the three month period ended December 31, 2022, the Company’s two largest customers accounted for approximately 84% of the Company’s net revenues, of which Walmart accounted for approximately 50% and Amazon accounted for approximately 34%. No other customer accounted for greater than 10% of the Company's net revenues.

For the nine month period ended December 31, 2022, the Company’s three largest customers accounted for approximately 74% of the Company’s net revenues, of which Walmart accounted for approximately 42%, Amazon accounted for approximately 21% and Fred Meyer accounted for approximately 11%.

For the three month period ended December 31, 2021, the Company’s three largest customers accounted for approximately 92% of the Company’s net revenues, of which Amazon accounted for approximately 50%, Walmart accounted for approximately 37% and Fred Meyer accounted for approximately 5%.

For the nine month period ended December 31, 2021, the Company’s three largest customers accounted for approximately 88% of the Company’s net revenues, of which Walmart accounted for approximately 37%, Amazon accounted for approximately 36% and Fred Meyer accounted for approximately 15%.

A significant decline in net sales to any of the Company’s key customers would have a material adverse effect on the Company’s business, financial condition and results of operation.             

Product Concentration

For the three and nine month periods ended December 31, 2022, the Company’s gross product sales included microwave ovens, which generated approximately 9% and 24%, respectively, of the Company’s gross product sales and audio products, which generated approximately 91% and 75%, respectively, of the Company’s gross product sales. 

For the three and nine month periods ended December 31, 2021, the Company’s gross product sales included microwave ovens, which generated approximately 10% and 24%, respectively, of the Company’s gross product sales and audio products, which generated approximately 89% and 76%, respectively, of the Company’s gross product sales.     

Concentrations of Credit Risk

As a percent of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top two customers accounted for approximately 51% and 48%, respectively, as of December 31, 2022. No other customers accounted for greater than 10% of the Company's total trade accounts receivable, net of specific reserves as of December 31, 2022. As a percent of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top three customers accounted for approximately 69%, 17% and 11%, respectively, as of March 31, 2022. The Company periodically performs credit evaluations of its customers but generally does not require collateral, and the Company provides for any anticipated credit losses in the financial statements based upon management’s estimates and ongoing reviews of recorded allowances. Due to the high concentration of the Company’s net trade accounts receivables among just two customers, any significant failure by one of these customers to pay the Company the amounts owing against these receivables would result in a material adverse effect on the Company’s business, financial condition and results of operations.

The Company maintains its cash accounts with major U.S. and foreign financial institutions. The Company’s cash and restricted cash balances on deposit in the U.S. as of December 31, 2022 and March 31, 2022 were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per qualifying bank account in accordance with FDIC rules. The Company’s cash, cash equivalents and restricted cash balances in excess of these FDIC-insured limits were approximately $27.0 million and $25.1approximately $25.3 million at December 31, 2022 and March 31, 2022, respectively.

Supplier Concentration

During the three and nine month periods ended December 31, 2022, the Company procured 100% of its products for resale from its three largest factory suppliers, of which approximately 74% and 71%, respectively, was supplied by its largest supplier. During the three and nine month periods ended December 31, 2021, the Company procured 100% of its products for resale from its two largest factory suppliers, of which approximately 81% and 83%, respectively, was supplied by its largest supplier.    

NOTE 9— LEASES

The Company leases office space in the U.S. and in Hong Kong as well as a copier in the U.S. These leases have remaining non-cancellable lease terms of four months to twenty-two months. The Company has elected not to separate lease and non-lease components for all leased assets. The Company did not identify any events or conditions during the quarter ended December 31, 2022 to indicate that a reassessment or re-measurement of the Company’s existing leases was required. There were also no impairment indicators identified during the quarter ended December 31, 2022 that required an impairment test for the Company’s right-of-use assets or other long-lived assets in accordance with ASC topic 360-10, “Impairment and Disposal of Long-Lived Assets”.

As of December 31, 2022, the Company’s current operating lease liabilities and finance lease liabilities were $145,000 and $1,000, respectively and its non-current operating lease liabilities and finance lease liabilities were $98,000 and $1,000, respectively. These investmentsThe Company’s operating and finance lease right-of-use asset balances are presented in non-current assets. The net balance of the Company’s operating and finance lease right-of-use assets as of December 31, 2022 was $244,000 and $2,000, respectively.

In January 2023, the Company relocated its headquarters to a temporary office space. The Company's new landlord has yet to receive the proper permits to build out the agreed-upon space. The commencement date on the new lease will not begin until the Company moves into the agreed-upon space. The Company is not obligated to pay rent while it resides in the temporary office space. Due to the uncertainty of the commencement date, the right-of-use asset and lease liabilities cannot be calculated at this time.

The components of lease costs, which were comprisedincluded in operating expenses in the Company’s condensed consolidated statements of bank certificatesoperations, were as follows:

Information relating to the lease term and discount rate are as follows:

As of deposit,December 31, 2022 the maturities of lease liabilities were as follows:

NOTE 10— GOVERNMENTAL ASSISTANCE PROGRAMS

During the three month periods ended December 31, 2022 and December 31, 2021, the Company’s Hong Kong subsidiary recorded $4,000 and nil, respectively, under the governmental program called the Employment Support Scheme (“ESS”). The proceeds must be used for payroll expenses and the Company may be subject to government-appointed random reviews to verify the information submitted by the applicant. 

During the nine month periods ended December 31, 2022 and December 31, 2021, the Company’s Hong Kong subsidiary recorded $34,000 and nil, respectively, under the ESS. During the nine month periods ended December 31, 2022 and December 31, 2021, the Company recorded nil and $207,000, respectively, related to forgiveness of the Company's Paycheck Protection Program (”PPP”) loan.

The income realized from the amount granted under the ESS program and the PPP loan forgiveness are presented as Other Income under the description called “Income from governmental assistance programs” in the Consolidated Statements of Operations.

NOTE 11— 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 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 bear an interest rateare reflected as advanced deposits in the Consolidated Balance Sheets, in connection with ongoing negotiations among the parties. There is no guarantee that the Company will be able to collect the entire judgment or that a negotiated resolution regarding these matters will ever be agreed among the parties or, if agreed, how soon the parties will be able to do so.  

Item2. Management’sManagement’s Discussion and Analysis of Results of Operations and Financial Condition.

The following discussion of the Company’s operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Quarterly Report.

In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. Accordingly, all amounts are approximations.

Forward-Looking Information

This report contains forward lookingforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”).

Forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company’s control, and which may cause the Company’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. The reader can identify these forward-looking statements through the Company’s use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “project,” “predict,” “could,” “intend,” “target,” “potential,” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The reader is cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. The Company has no obligation, and expressly disclaims any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. ManagementThe Company has expressed its expectations, beliefs and projections in good faith and it believes it has a reasonable basis for them. However, managementthe Company cannot assure the reader that its expectations, beliefs or projections will result or be achieved or accomplished.

Results of Operations

The following table summarizes certain financial information for the three and nine month periods ended December 31, 20172022 (fiscal 2018)2023) and December 31, 20162021 (fiscal 2017)2022) (in thousands):

Net product sales — Net product sales for the third quarter of fiscal 2018three month period ended December 31, 2022 were $4.1$1.7 million as compared to $3.8$2.5 million for the third quarterthree month period ended December 31, 2021, a decrease of  fiscal 2017, an increase of $0.3$0.8 million, or 8.3%32.1%. The Company’s sales during the third quarters of fiscal 2018three month periods ended December 31, 2022 and fiscal 2017December 31, 2021 were highly concentrated among the Company’s twothree largest customers – Wal-Mart, and Amazon for the third quarter of fiscal 2018 and Wal-Mart  and Fred Meyer for– comprising in the third quarter of fiscal 2017, where gross product sales comprised approximately 79.5%aggregate approximately 99% and 79.0%94%, respectively, of the Company’s total grossnet product sales.sales for such periods.

For

Net product sales for the nine month period of fiscal 2018, net product salesended December 31, 2022 were $10.4$4.3 million as compared to $14.1$6.3 million for the nine month period of fiscal 2017,ended December 31, 2021, a decrease of $3.7$2.0 million, or 26.0%31.1%. The Company’s sales during the nine month periods of fiscal 2018ended December 31, 2022 and fiscal 2017December 31, 2021 were highly concentrated among the Company’s twothree largest customers – Wal-Mart, Fred Meyer and Amazon for– comprising in the nine month period of fiscal 2018aggregate approximately 91% and Wal-Mart and Fred Meyer for the nine month period of fiscal 2017, where gross product sales comprised approximately 76.2% and 85.8%91%, respectively, of the Company’s total grossnet product sales.sales for such periods.

Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name. Net product sales may be periodically impacted by adjustments made to the Company’s sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period. In the aggregate, these adjustments had the effect of increasing net product sales and operating income by approximately $18,000approximately $10,000 and $40,000$6,000 for the third quarters of fiscal 2018three month periods ended December 31, 2022 and fiscal 2017,December 31, 2021, respectively, and approximately $41,000by approximately $16,000 and $121,000nil for thethe nine month periods of fiscal 2018ended December 31, 2022 and fiscal 2017December 31, 2021, respectively. Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson^® brand name. The major elements which contributed to the overall decrease in net product sales were as follows:

i)    Houseware products:Net sales decreased $0.1 million, or 43.9%, to $0.2 million for the three month period ended December 31, 2022 as compared to $0.3 million for the three month period ended December 31, 2021, driven by reduced demand for microwave ovens. For the nine month period ended December 31, 2022, houseware net product sales were $1.1 million, a decrease of $0.4 million, or 29.6%, from $1.5 million for the nine month period ended December 31, 2021, driven by a decrease in year-over-year sales of microwave ovens.

ii)         Audio products: Net sales decreased $0.7 million, or 30.7%, to $1.5 million for the three month period ended December 31, 2022 as compared to $2.2 million for the three month period ended December 31, 2021, resulting from decreased net sales of clock radios. For the nine month period ended December 31, 2022, audio net product sales were $3.3 million, a decrease of $1.5 million or 31.6%, from to $4.8 million for the nine month period ended December 31, 2021, driven by a decrease in year-over-year sales of clock radios.

Business operations —Emerson will — The Company expects to continue to expand theits existing distribution channels and to develop and promote new products to regain shelf spaces with retailers in the USA. EmersonU.S. The Company is also investingcontinuing to invest in products and marketing activities to expand its sales through internet and ecommerce channels. These efforts would 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 Emersonthe 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 Leveraged Marketing Corporation of America and Global Licensing Services Pte Limited as an agent to assist in identifying and procuring potential licensees.

Emerson has taken active steps

Emerson’s success is dependent on its ability to manageanticipate and control its operating costs. The operating costsrespond to changing consumer demands and trends in a timely manner, as well as expanding into new markets and sourcing new products that are profitable to the Company. Geo-political factors may also affect the Company’s operations and demand for the thirdCompany’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 current and proposed U.S. tariffs on categories of products that the Company imports from China, and China’s retaliatory tariffs on certain goods imported from the United States, as well as modifications to 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 products 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 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 2018 were $1.12020, 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 and the distribution capabilities of the Company’s third party logistics provider, including as a result of quarantine or closure. The pandemic has directly and indirectly disrupted certain sales and supply chain activities and affected the Company’s ability to address those challenges. Although the Company has since experienced increased demand in certain of its product categories and favorable impacts on its online channels as a result of the COVID-19 pandemic, the Company expects that the pandemic will continue to impact its business and operations over the coming quarters, including with respect to the magnitude and timing of orders by retailers, resellers, distributors and consumers. Additionally, surges in demand and shifts in shopping patterns related to the COVID-19 pandemic have strained the global freight network and availability of shipping containers, which has been further exacerbated by COVID-19 outbreaks and protocols at many port locations, resulting in carrier-imposed capacity restrictions, carrier delays and longer lead times, including shipment receiving and unloading backlogs at many U.S. ports. As a result, the Company’s shipping costs have recently increased by several multiples compared to fiscal 2021 averages. Global component shortages, in particular semiconductor chips, arising from these changes in consumer demand and reduced manufacturing capacity related to the COVID-19 pandemic have also caused and are likely to continue to result in significant price fluctuations and long lead times in the supply of these components. Although the Company is 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 accommodate components from different suppliers. In addition to increasing cost trends, the Company’s suppliers are not equipped to hold meaningful amounts of inventory and if shipping container capacity remains limited or unavailable, they could pause manufacturing, which could ultimately impact the Company’s ability to fulfill customer orders on a timely basis. These impacts on the Company’s supply chain have and may continue to impact 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.

In 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 highly uncertain and demand for the Company’s products remains difficult to assess due to many factors including the pace of economic recovery around the world, the status of various government stimulus programs, competitive intensity 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, please see the risk factors within Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2022.

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 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. There is no guarantee that the Company will be able to collect the entire judgment or that a negotiated resolution regarding these matters will ever be agreed among the parties or, if agreed, how soon the parties will be able to do so.

Licensing revenue — Licensing revenue for the three month period ended December 31, 2022 was $228,000 as compared to $1.2 million$65,000 for the third quarter of fiscal 2017. However, operating costs in the third quarter of fiscal 2018 included $76,000 of legal fees related to a trademark infringement suit taken by Emerson against a third party.

For the ninethree month period of fiscal 2018, operating costs were $3.8 million as compared to $3.9 million for the nine month period of fiscal 2017. However, operating costs for the nine month period of fiscal 2018 included $469,000 of legal fees related to a trademark infringement suit taken by Emerson against a third party.

Licensing revenue — Licensing revenue in the third quarter of fiscal 2018 was $0.2 million as compared to $1.2 million in the third quarter of fiscal 2017, a decrease of $1.0 million or 86.2% which can be primarily attributed to the loss of the license agreement with Funai which ended on December 31, 2016.

2021, an increase of $163,000, or 251.4%. Licensing revenue for the nine month period of fiscal 2018ended December 31, 2022 was $0.5 million$971,000 as compared to $3.5$195,000 for the nine month period ended December 31, 2021, an increase of $776,000 or 398.0%. For the three and nine month periods ended December 31, 2022 the Company recorded $105,000 and $700,000, respectively, in royalty income derived from sell-off agreements made with customers of Emerson Quiet Kool. Also contributing were year-over-year increases attributed to the signing of new licensing agreements as well as an escalation in the annual minimum royalty earned by the Company from one of its existing licensees.

Net revenues — Net revenues were $1.9 million for the three month period ended December 31, 2022 as compared to $2.6 million for the three month period ended December 31, 2021, a decrease of $0.7 million, or 24.9% and $5.3 million for the nine month period of fiscal 2017, a decrease of $3.0 million or 84.5% which can be primarily attributed to the loss of the license agreement with Funai which ended on December 31, 2016.

Management will continue to find licensees and to negotiate for a replacement licensee to Funai. However, given the current status of the world-wide TV consumer market, it is doubtful as to when a new contract will be concluded.

Net revenues — As a result of the foregoing factors, the Company’s net revenues were $4.2 million in the third quarter of fiscal 20182022 as compared to $4.9 million in the third quarter of fiscal 2017, a decrease of $0.7 million, or 14.2% and $11.0$6.5 million for the nine month period ended December 31, 2021 , a decrease of fiscal 2018$1.2 million, or 18.2%.

Cost of sales — Cost of sales decreased $0.5 million, or 25.5% to $1.3 million for the three month period ended December 31, 2022 as compared to $17.6$1.8 million for the ninethree month period of fiscal 2017, aended December 31, 2021. The decrease of $6.6 million or 37.7%.

Cost of sales — In absolute terms, cost of sales increased $0.7 million, or 20.4%, to $4.1 million in the third quarter of fiscal 2018 as compared to $3.4 million in the third quarter of fiscal 2017. The increase in absolute terms for the third quarter of fiscal 2018three month period ended December 31, 2022 as compared to the third quarter of fiscal 2017three month period ended December 31, 2021 was primarily related to increaseda decrease in net product sales partially offset by lowerhigher year-over-year gross cost of sales as a percentage of gross sales.

In absolute terms, cost

Cost of sales decreased $2.6$1.2 million, or 20.4%,25.9% to $10.3$3.6 million for the nine month period of fiscal 2018ended December 31, 2022 as compared to $12.9$4.8 million for the nine month period of fiscal 2017.ended December 31, 2021. The decrease in absolute terms for the nine month period of fiscal 2018ended December 31, 2022 as compared to the ninethree month period of fiscal 2017ended December 31, 2021 was primarily related to decreaseda decrease in net product sales andpartially offset by lowerhigher year-over-year gross cost of sales as a percentage of gross sales.

The Company purchases the products it sells from a limited number of factory suppliers. ForIn each of the third quarter of fiscal 2018three and fiscal 2017,nine month periods ended December 31, 2022 and December 31, 2021, the Company purchased 97% and 98%, respectively,100% of its products from its two largest suppliers. For the nine month period of fiscal 2018 and fiscal 2017, the Company purchased 93% and 92%, respectively, from its twothree largest suppliers.

Other operating costs and expenses — Other operating costs and expenses as a percentage of net product sales were 0.3% for the third quarter of fiscal 2018 as compared to 0.6% for the third quarter of fiscal 2017. In absolute terms, other operating costs and

expenses decreased $9,000, or 39.1%, to $14,000 for the third quarter of fiscal 2018 as compared to $23,000 for the third quarter of fiscal 2017 as a result of lower warranty and returns processing costs.

For the nine month period of fiscal 2018, other operating costs and expenses as a percentage of net product sales were 0.4% as compared to 1.4% for the nine month period of fiscal 2017. In absolute terms, other operating costs and expenses decreased $162,000, or 81.0%, to $38,000 for the nine month period of fiscal 2018 as compared to $200,000 for the nine month period of fiscal 2017 as a result of lower warranty and returns processing costs.

Selling, general and administrative expenses (“(“S,G&A”&A”) — S,G&A in absolute terms, was $1.1 million infor the third quarter of fiscal 2018three month period ended December 31, 2022 as compared to $1.2$1.5 million infor the third quarter of fiscal 2017,three month period ended December 31, 2021, a decrease of $0.1$0.4 million or 8.2%28.5%. S,G&A, as a percentage of net revenues, was 26.0% in54.4% for the third quarter of fiscal 2018three month period ended December 31, 2022 as compared to 24.3% in57.1% for the third quarter of fiscal 2017.three month period ended December 31, 2021. The decrease in S,G&A was dueprimarily attributable to reductionsa decrease in IT costs, tax counsel, travel & entertainment costs, directors fees and legal fees which included $76,000 relatedof $333,000, a decrease in compensation costs of $42,000, a decrease in insurance expense of $43,000 and a decrease in director’s fees of $15,000. Legal fees for the three month period ended December 31, 2022 were $169,000 as compared to a trademark infringement suit.$502,000 for the three month period ended December 31, 2021. Compensation costs for the three month period ended December 31, 2022 were $489,000 as compared to $531,000 for the three month period ended December 31, 2021. Insurance expense for the three month period ended December 31, 2022 was $111,000 as compared to $154,000 for the three month period ended December 31, 2021. Director’s fees for the three month period ended December 31, 2022 were $33,000 as compared to $48,000 for the three month period ended December 31, 2021.