Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 20212022

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     

Commission file number 001-07731


EMERSON RADIO CORP.

(Exact name of registrant as specified in its charter)


 

Delaware

22-3285224

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

35 Waterview Blvd.,959 Route 46 East, Suite 140,210, Parsippany, NJ

07054

(Address of principal executive offices)

(Zip code)

(Zip code)

(973) 428-2000

(Registrant’sRegistrants telephone number, including area code)

 

Securities registered pursuant to Section12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share

MSN

MSNNYSE American

NYSE American


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes       No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).       Yes       No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes        No

Indicate the number of shares outstanding of common stock as of February 11, 2022:14, 2023: 21,042,652.

 




 


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

3

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

1413

Item 3. Quantitative and Qualitative Disclosures About Market Risk

1918

Item 4. Controls and Procedures

1918

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

19

Item 1. Legal Proceedings1A. Risk Factors

2119

Item 1A. Risk Factors

21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

2119

Item 3. Defaults Upon Senior Securities

2119

Item 4. Mine Safety Disclosure

2119

Item 5. Other Information

2119

Item 6. Exhibits

2119

SIGNATURES

20

22

 

 

PART I FINANCIAL INFORMATION

 

 

Item1. Financial Statements.

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

  

Three Months Ended December 31,

  

Nine Months Ended December 31,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net revenues:

                

Net product sales

 $1,704  $2,509  $4,335  $6,290 

Licensing revenue

  228   65   971   195 

Net revenues

  1,932   2,574   5,306   6,485 

Costs and expenses:

                

Cost of sales

  1,361   1,826   3,549   4,786 

Selling, general and administrative expenses

  1,051   1,469   3,686   4,207 
   2,412   3,295   7,235   8,993 

Operating loss

  (480)  (721)  (1,929)  (2,508)

Other (loss) income:

                

Loss on settlement of litigation

     (450)     (450)

Interest income, net

  235   7   424   40 

Income from governmental assistance programs

  4      34   207 

Loss before income taxes

  (241)  (1,164)  (1,471)  (2,711)

Provision for income tax expense

            

Net loss

  (241)  (1,164)  (1,471)  (2,711)

Basic loss per share

 $(0.01) $(0.06) $(0.07) $(0.13)

Diluted loss per share

 $(0.01) $(0.06) $(0.07) $(0.13)

Weighted average shares outstanding

                

Basic

  21,043   21,043   21,043   21,043 

Diluted

  21,043   21,043   21,043   21,043 

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

2,509

 

 

$

2,273

 

 

$

6,290

 

 

$

5,718

 

Licensing revenue

 

 

65

 

 

 

60

 

 

 

195

 

 

 

180

 

Net revenues

 

 

2,574

 

 

 

2,333

 

 

 

6,485

 

 

 

5,898

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

1,826

 

 

 

1,754

 

 

 

4,786

 

 

 

4,519

 

Selling, general and administrative expenses

 

 

1,469

 

 

 

1,560

 

 

 

4,196

 

 

 

4,601

 

 

 

 

3,295

 

 

 

3,314

 

 

 

8,982

 

 

 

9,120

 

Operating loss

 

 

(721

)

 

 

(981

)

 

 

(2,497

)

 

 

(3,222

)

Other (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on settlement of litigation

 

 

(450

)

 

 

 

 

 

(450

)

 

 

 

Interest income, net

 

 

7

 

 

 

18

 

 

 

40

 

 

 

128

 

Income from governmental assistance programs

 

 

 

 

 

28

 

 

 

207

 

 

 

83

 

Loss before income taxes

 

 

(1,164

)

 

 

(935

)

 

 

(2,700

)

 

 

(3,011

)

Provision for income tax expense

 

 

 

 

 

10

 

 

 

11

 

 

 

15

 

Net loss

 

 

(1,164

)

 

 

(945

)

 

 

(2,711

)

 

 

(3,026

)

Basic loss per share

 

$

(0.06

)

 

$

(0.04

)

 

$

(0.13

)

 

$

(0.14

)

Diluted loss per share

 

$

(0.06

)

 

$

(0.04

)

 

$

(0.13

)

 

$

(0.14

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

Diluted

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

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

 


3

 

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands except share data)

 

  

December 31, 2022

  

March 31, 2022

 
         

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $27,294  $25,576 

Accounts receivable, net

  927   1,294 

Licensing receivable

  191    

Inventory

  2,345   2,112 

Prepaid purchases

  644   141 

Prepaid expenses and other current assets

  254   390 

Total Current Assets

  31,655   29,513 

Non-Current Assets:

        

Property and equipment, net

  2   2 

Right-of-use asset-operating leases

  244   403 

Right-of-use asset-finance leases

  2   2 

Other assets

  90   90 

Total Non-Current Assets

  338   497 

Total Assets

 $31,993  $30,010 

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts payable and other current liabilities

  514   758 

Due to affiliate

  1    

Short-term operating lease liability

  145   211 

Short-term finance lease liability

  1   1 

Income tax payable, current portion

  401   195 

Advanced deposits

  4,100    

Deferred revenue

  182   210 

Total Current Liabilities

  5,344   1,375 

Non-Current Liabilities:

        

Long-term operating lease liability

  98   201 

Long-term finance lease liability

  1   2 

Income tax payable

  1,202   1,613 

Total Non-Current Liabilities

  1,301   1,816 

Total Liabilities

 $6,645  $3,191 

Shareholders’ Equity:

        

Series A Preferred shares — 10,000,000 shares authorized; 3,677 shares issued and outstanding; liquidation preference of $3,677,000

  3,310   3,310 

Common shares — $0.01 par value, 75,000,000 shares authorized; 52,965,797 shares issued at December 31, 2022 and March 31, 2022, respectively; 21,042,652 shares outstanding at December 31, 2022 and March 31, 2022, respectively

  529   529 

Additional paid-in capital

  79,792   79,792 

Accumulated deficit

  (25,082)  (23,611)

Treasury stock, at cost (31,923,145 shares at December 31, 2022 and March 31, 2022, respectively)

  (33,201)  (33,201)

Total Shareholders’ Equity

  25,348   26,819 

Total Liabilities and Shareholders’ Equity

 $31,993  $30,010 

 

 

 

December 31, 2021

 

 

March 31, 2021

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,744

 

 

$

5,245

 

Short term investments

 

 

 

 

 

25,045

 

Accounts receivable, net

 

 

2,619

 

 

 

691

 

Inventory

 

 

2,574

 

 

 

1,961

 

Prepaid purchases

 

 

287

 

 

 

361

 

Prepaid expenses and other current assets

 

 

383

 

 

 

289

 

Total Current Assets

 

 

30,607

 

 

 

33,592

 

Non-Current Assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

2

 

 

 

 

Right-of-use asset-operating leases

 

 

455

 

 

 

213

 

Right-of-use asset-finance leases

 

 

3

 

 

 

3

 

Other assets

 

 

90

 

 

 

94

 

Total Non-Current Assets

 

 

550

 

 

 

310

 

Total Assets

 

$

31,157

 

 

$

33,902

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

1,142

 

 

 

788

 

Paycheck Protection Program loan

 

 

 

 

 

204

 

Due to affiliate

 

 

1

 

 

 

1

 

Short-term operating lease liability

 

 

225

 

 

 

152

 

Short-term finance lease liability

 

 

1

 

 

 

1

 

Income tax payable, current portion

 

 

195

 

 

 

195

 

Deferred revenue

 

 

 

 

 

195

 

Total Current Liabilities

 

 

1,564

 

 

 

1,536

 

Non-Current Liabilities:

 

 

 

 

 

 

 

 

Long-term operating lease liability

 

 

244

 

 

 

82

 

Long-term finance lease liability

 

 

2

 

 

 

3

 

Income tax payable

 

 

1,613

 

 

 

1,836

 

Total Non-Current Liabilities

 

 

1,859

 

 

 

1,921

 

Total Liabilities

 

$

3,423

 

 

$

3,457

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Series A Preferred shares — 10,000,000 shares authorized; 3,677 shares issued

   and outstanding; liquidation preference of $3,677,000

 

 

3,310

 

 

 

3,310

 

Common shares — $0.01 par value, 75,000,000 shares authorized; 52,965,797

   shares issued at December 31, 2021 and March 31, 2021, respectively; 21,042,652

   shares outstanding at December 31, 2021 and March 31, 2021, respectively

 

 

529

 

 

 

529

 

Additional paid-in capital

 

 

79,792

 

 

 

79,792

 

Accumulated deficit

 

 

(22,696

)

 

 

(19,985

)

Treasury stock, at cost (31,923,145 shares at December 31, 2021

   and March 31, 2021, respectively)

 

 

(33,201

)

 

 

(33,201

)

Total Shareholders’ Equity

 

 

27,734

 

 

 

30,445

 

Total Liabilities and Shareholders’ Equity

 

$

31,157

 

 

$

33,902

 

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

 


4

 

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

  

Nine Months Ended December 31,

 
  

2022

  

2021

 
  

(In thousands)

 

Cash Flows from Operating Activities:

        

Net (loss)

 $(1,471) $(2,711)

Adjustments to reconcile net loss to net cash (used) by operating activities:

        

Loan forgiveness from Paycheck Protection Program

     (207)

Amortization of right-of-use assets

  159   164 

Asset valuation allowances

  39   149 

Changes in assets and liabilities:

        

Accounts receivable

  328   (2,077)

Licensing receivable

  (191)   

Inventory

  (233)  (613)

Prepaid purchases

  (503)  74 

Prepaid expenses and other current assets

  136   (94)

Other assets

     4 

Accounts payable and other current liabilities

  (244)  354 

Right of use assets-operating

     (403)

Short term lease liabilities

  (66)  73 

Long term lease liabilities

  (104)  161 

Due to affiliate

  1    

Income taxes payable

  (205)  (223)

Advanced deposits

  4,100    

Deferred revenue

  (28)  (195)

Net cash provided (used) by operating activities

  1,718   (5,544)

Cash Flows From Investing Activities:

        

Proceeds from sale of short-term investments

     25,045 

Additions to property and equipment

     (2)

Purchases of short-term investments

      

Net cash provided by investing activities

     25,043 

Cash Flows from Financing Activities:

        
       

Net cash provided by financing activities

      

Net increase in cash and cash equivalents

  1,718   19,499 

Cash and cash equivalents at beginning of the year

  25,576   5,245 

Cash and cash equivalents at end of the year

 $27,294  $24,744 

Supplemental disclosures:

        

Cash paid for:

        

Interest

 $8  $8 

Income taxes

 $205  $222 

 

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(2,711

)

 

$

(3,026

)

Adjustments to reconcile net loss to net cash (used) by operating

   activities:

 

 

 

 

 

 

 

 

Loan forgiveness from Paycheck Protection Program

 

 

(207

)

 

 

 

Amortization of right-of-use assets

 

 

164

 

 

 

171

 

Depreciation and amortization

 

 

 

 

 

2

 

Asset allowances and reserves

 

 

149

 

 

 

13

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,077

)

 

 

(994

)

Inventory

 

 

(613

)

 

 

42

 

Prepaid purchases

 

 

74

 

 

 

(259

)

Prepaid expenses and other current assets

 

 

(94

)

 

 

(57

)

Other assets

 

 

4

 

 

 

 

Accounts payable and other current liabilities

 

 

354

 

 

 

336

 

Right of use assets-operating

 

 

(403

)

 

 

 

Short term lease liabilities

 

 

73

 

 

 

(50

)

Long term lease liabilities

 

 

161

 

 

 

(130

)

Due to affiliate

 

 

 

 

 

1

 

Income taxes payable

 

 

(223

)

 

 

(197

)

Deferred revenue

 

 

(195

)

 

 

80

 

Net cash (used) by operating activities

 

 

(5,544

)

 

 

(4,068

)

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from sale of short-term investments

 

 

25,045

 

 

 

28,101

 

Purchases of short-term investments

 

 

 

 

 

 

Additions to property and equipment

 

 

(2

)

 

 

 

Net cash provided by investing activities

 

 

25,043

 

 

 

28,101

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from Paycheck Protection Program loan

 

 

 

 

 

204

 

Net cash provided by financing activities

 

 

 

 

 

204

 

Net increase in cash and cash equivalents

 

 

19,499

 

 

 

24,237

 

Cash and cash equivalents at beginning of the year

 

 

5,245

 

 

 

6,276

 

Cash and cash equivalents at end of the year

 

$

24,744

 

 

$

30,513

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

8

 

 

$

6

 

Income taxes

 

$

222

 

 

$

197

 

 

 

 

 

 

 

 

 

 

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

 



5

 

EMERSON RADIO CORP. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’SHAREHOLDERS EQUITY

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred

 

 

Number

 

 

Par

 

 

Paid-In

 

 

Accumulated

 

 

Treasury

 

 

Shareholders’

 

 

 

Stock

 

 

of Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance — March 31, 2021

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(19,985

)

 

$

(33,201

)

 

$

30,445

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,711

)

 

 

 

 

 

(2,711

)

Balance — December 31, 2021

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(22,696

)

 

$

(33,201

)

 

$

27,734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      

Common Stock

  

Additional

          

Total

 
  

Preferred

  

Number

  

Par

  

Paid-In

  

Accumulated

  

Treasury

  

Shareholders’

 
  

Stock

  

of Shares

  

Value

  

Capital

  

Deficit

  

Stock

  

Equity

 

Balance — March 31, 2022

 $3,310   52,965,797  $529  $79,792  $(23,611) $(33,201) $26,819 

Net loss

              (1,471)     (1,471)

Balance — December 31, 2022

 $3,310   52,965,797  $529  $79,792  $(25,082) $(33,201) $25,348 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred

 

 

Number

 

 

Par

 

 

Paid-In

 

 

Accumulated

 

 

Treasury

 

 

Shareholders’

 

 

 

Stock

 

 

of Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance — March 31, 2020

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(16,009

)

 

$

(33,201

)

 

$

34,421

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,026

)

 

 

 

 

 

(3,026

)

Balance — December 31, 2020

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(19,035

)

 

$

(33,201

)

 

$

31,395

 

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

 

      

Common Stock

  

Additional

          

Total

 
  

Preferred

  

Number

  

Par

  

Paid-In

  

Accumulated

  

Treasury

  

Shareholders’

 
  

Stock

  

of Shares

  

Value

  

Capital

  

Deficit

  

Stock

  

Equity

 

Balance — March 31, 2021

 $3,310   52,965,797  $529  $79,792  $(19,985) $(33,201) $30,445 

Net loss

              (2,711)     (2,711)

Balance — December 31, 2021

 $3,310   52,965,797  $529  $79,792  $(22,696) $(33,201) $27,734 

 

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

 


6

 

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, 20212022 and the results of operations for the three and nine month periods ended December 31, 2022 and December 31, 2021 and December 31, 2020.. 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, 20212022 (“fiscal 2021”2022”), included in the Company’s annual reportAnnual Report on Form 10-K,10-K, as amended, for fiscal 2021.2022.

The results of operations for the three and nine month periods ended December 31, 20212022 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the full year ending March 31, 20222023 (“fiscal 2022”2023”).

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

Recently Adopted Accounting Pronouncements

Accounting Standards Update 2019-12 “Income2019-12Income Taxes (Topic 740)(Topic 740) Simplifying the Accounting for Income Taxes”Taxes (Issued December 2019)

In December 2019, the FASB issued ASU 2019-12,2019-12, “Income Taxes (Topic 740)740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-122019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-122019-12 is effective for fiscal years beginning after December 15, 2020. This standard took effect in the first quarter (June( June 2021) of the Company’s fiscal year ending March 31, 2022.2022. The adoption of ASU 2019-122019-12 had no material impact on the Company’s consolidated financial statements and related disclosures.

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.

Accounting Standards Update 2016-13 “Financial2016-13Financial Instruments Credit Losses”Losses (Issued June 2016)

In June 2016, the FASB issued ASU 2016-132016-13 “Financial Instruments - Credit 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, 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 periodperiods beginning after December 15, 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.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.


7

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.

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

Three Months Ended December 31,

 

Nine Months Ended December 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

  

2021

  

2022

  

2021

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Net loss

 

$

(1,164

)

 

$

(945

)

 

$

(2,711

)

 

$

(3,026

)

 $(241) $(1,164) $(1,471) $(2,711)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Denominator for basic and diluted loss per share —

weighted average shares

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

 

 

21,043

 

  21,043   21,043   21,043   21,043 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Basic and diluted loss per share

 

$

(0.06

)

 

$

(0.04

)

 

$

(0.13

)

 

$

(0.14

)

 $(0.01) $(0.06) $(0.07) $(0.13)

 

NOTE 3 SHAREHOLDERS EQUITY

 

NOTE 3 — SHAREHOLDERS’ EQUITY

Outstanding capital stock at December 31, 20212022 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, 2021,2022, the Company had 0no options, warrants or other potentially dilutive securities outstanding.

 

8

NOTE 4 INVENTORY

 

NOTE 4 — INVENTORY

Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-outfirst-in, first-out method. As of December 31, 20212022 and March 31, 2021,2022, inventories consisted of the following (in thousands):

 

  

December 31, 2022

  

March 31, 2022

 

Finished goods

 $2,345  $2,112 

 

 

December 31, 2021

 

 

March 31, 2021

 

Finished goods

 

$

2,574

 

 

$

1,961

 

NOTE 5 INCOME TAXES

 


NOTE 5 — INCOME TAXES

At December 31, 2021,2022, the CompanyCompany had $13.2$16.0 million of U.S. federal net operating loss (“NOL”) carry forwards. These losses do not expire but are limited to utilization of 80% of taxable income in any one year. At December 31, 2021,2022, the Company had approximately $16.3$18.7 million of U.S. state NOL carry forwards. The tax benefits related to these state NOL carry forwards and future deductible temporary differences are recorded to the extent management believes it is more likely than not that such benefits will be realized.

The income of foreign subsidiaries before taxes was $247,000 for the three month period ended December 31, 2022 as compared to income of foreign subsidiaries before taxes of $19,000 for the three month period ended December 31, 2021. The income of foreign subsidiaries before taxes was $19,000$489,000 for the threenine month period ended December 31, 20212022 as compared to income before taxes of $103,000 for the three month period ended December 31, 2020. The income of foreign subsidiaries before taxes wasof $71,000 for the nine month period ended December 31, 2021 as compared to income before taxes of $103,000 for the nine month period ended December 31, 2020.       .  

The Company analyzed the future reasonability of recognizing its deferred tax assets at December 31, 2021.2022. As a result, the Company concluded that a 100% valuation allowance of approximately $4,152,000 would$4,800,000 would be recorded against the assets.

During

Although the Company generated a net operating loss, it recorded income tax expense of nil and $10,500, respectively, during the three and nine month periods ended December 31, 2022, primarily resulting from state income taxes. During the three and nine month periods ended December 31, 2021 and December 31, 2020,, the Company recorded income tax expense of nil and $9,900,$10,500, respectively, primarily resulting from state income taxes. DuringAfter the nine month periods ended December 31, 2021adoption 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 December 31, 2020, the Company recorded income tax expense of approximately $11,000 and $15,200 respectively, primarily resulting from state income taxes.administrative expenses.

 

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of December 31, 2021,2022, the Company’s open tax years for examination for U.S. federal tax are 2016-2021,2017-2021, and for U.S. states’ tax are 2015-2021.2016-2021. 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.

As of December 31, 20212022, the Company is asserting under ASC 740-30740-30 that all of the unremitted earnings of its foreign subsidiaries 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, 2021,2022 and March 31, 2022, the Company had a federal tax liability of approximately $1,808,000approximately $1,603,000 and $1,808,000, respectively, related to the repatriation of the Company’s undistributed earnings of its foreign subsidiaries as required by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). As of December 31, 2021,2022, the Company’s short term portion was approximately $195,000$401,000 and the long term portion was approximately $1,613,000.$1,202,000.

As of March 31, 2021, the Company had a federal tax liability of approximately $2,031,000 related to the repatriation of the Company’s undistributed earnings of its foreign subsidiaries as required by the Tax Act. As of March 31, 2021 the Company’s short term portion was approximately $195,000 and the long term portion was approximately $1,836,000.

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, 2021,2022, the Company has made 4paid five of the 8eight installments. Each installment is duemust be remitted on or before July 15th 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 Nimble’s direct and indirect subsidiaries, or 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 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 72.4%, of the Company’s outstanding common stock as of December 31, 2021.2022. Accordingly, the Company is a “controlled company” as defined in Section 801(a)801(a) of the NYSE American Company Guide.



9

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, 2021,2022, the Company was billed approximately $40,000 and $126,000,$119,000, respectively, for rental and utility fees from Vigers Appraisal and Consulting Ltd (“VACL”), which is a company related to the Company’s Chairman of the Board.Board of Directors. As of December 31, 20212022 the Company owed approximately $800 to VACL related to these charges.  

During the three and nine month periods ended December 31, 2021, the Company was billed approximately $600$500 and $2,000,$1,100, respectively, for purchases of personal protection equipment from Vigers Strategic Services Ltd (“VSSL”), which is a company related to the Company’s Chairman of the Board. Vigers Strategic Services LtdBoard of Directors. VSSL was formerly known as Lafe Strategic Services Ltd. As of December 31, 20212022 the Company owed nilapproximately $500 to VSSL related to these charges.  

NOTE 7 SHORT TERM INVESTMENTS

 

NOTE 7 — SHORT TERM INVESTMENTS

At both December 31, 20212022 and March 31, 2021,2022, the Company held short term investments in deposits totaling nil and $25.0 million, respectively.. The Company held $22.0$25.5 million in deposits which were classified as cash equivalents as of December 31, 20212022 and $1.0$22.0 million of such deposits as of March 31, 2021.   2022.   

NOTE 8 CONCENTRATION RISK

 

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 threenine 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%.

For the three month period ended December 31, 2020, the Company’s three largest customers accounted for approximately 88% of the Company’s net revenues, of which Walmart accounted for 42%, Amazon accounted for 39% and Fred Meyer accounted for 7%.

For the nine month period ended December 31, 2020, the Company’s three largest customers accounted for approximately 81% of the Company’s net revenues, of which Walmart accounted for 39%, Amazon accounted for 29% and Fred Meyer accounted for 13%.

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, 2021,2022, the Company’s gross product sales were comprisedincluded microwave ovens, which generated approximately 9% and 24%, respectively, of twothe Company’s gross product types within two categories — housewares productssales and audio products, which generated approximately 91% and 75%, respectively, of whichthe 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. Audiosales and audio products, which generated approximately 89% and 76%, respectively, of the Company’s gross product sales.

For the three and nine month periods ended December 31, 2020, the Company’s gross product sales were comprised of the same two product types within two categories — housewares products and audio products, of which microwave ovens generated approximately 25% and 36%, respectively, of the Company’s gross product sales. Audio products generated approximately 73% and 62%, 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 56%approximately 51% and 27%48%, respectively, as of December 31, 2021, respectively. 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 twothree customers accounted for approximately 69%, 17% and 28%11%, respectively, as of March 31, 2021, respectively.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, 20212022 and March 31, 20212022 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 $24.5$27.0 million and approximately $5.0$25.3 million at December 31, 20212022 and March 31, 2021,2022, respectively.

Supplier Concentration

During the three and nine month periods ended December 31, 2021,2022, the Company procured 100% of its products for resale from its twothree 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.    During the three and nine month periods ended December 31, 2020, the Company procured 95% and 98% of its products for resale from its two largest factory suppliers, of which 57% and 58%, respectively, was supplied by its largest supplier.    

 



10

NOTE 9 LEASES

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 thirteenfour months to three years.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, 20212022 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, 20212022 that required an impairment test for the Company’s right-of-use assets or other long-lived assets in accordance with ASC 360-10.topic 360-10, “Impairment and Disposal of Long-Lived Assets”.

As of December 31, 2021,2022, the Company’s current operating lease liabilities and finance lease liabilitiesliabilities were $225,000$145,000 and $1,000, respectively and its non-current operating lease liabilitiesand finance lease liabilities were $244,000$98,000 and $2,000,$1,000, respectively. The 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, 20212022 was $455,000$244,000 and $3,000, respectively.$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 included in operating expenses in the Company’s condensed consolidated statements of operations, were as follows:

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

Three Months Ended December 31,

 

Nine Months Ended December 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

  

2021

  

2022

  

2021

 

 

(in thousands)

 

 

(in thousands)

 

 

(in thousands)

 

(in thousands)

 

Lease cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Operating lease cost

 

$

64

 

 

$

64

 

 

$

191

 

 

$

191

 

 $60  $64  $185  $191 

Finance lease cost

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

Amortization of right-of-use assets

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

Interest on lease liabilities

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

Variable lease costs

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

            

Total lease cost

 

 

64

 

 

 

64

 

 

 

191

 

 

 

191

 

 60  64  185  191 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The supplemental cash flow information related to leases are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Operating cash flows from operating leases

 

 

63

 

 

 

67

 

 

 

194

 

 

 

200

 

 62  63  187  194 

Operating cash flows from finance leases

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

Financing cash flows from finance leases

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Operating leases

 

 

403

 

 

 

0

 

 

 

403

 

 

 

0

 

   403    403 

Finance leases

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

        

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

Weighted average remaining lease term (in months)

 

As of December 31, 2022

  

As of December 31, 2021

 

Operating leases

  18.8   27.3 

Finance leases

  17.2   29.2 
         

Weighted average discount rate

        

Operating leases

  7.50%  7.50%

Finance leases

  7.50%  7.50%

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

(in thousands)

 

Operating Leases

  

Finance Leases

 
         

2023

 $46  $1 

2024

  149   1 

2025

  62    

2026

      

Thereafter

      

Total lease payments

 $257  $2 

Less: Imputed interest

  (14)   

Total

 $243  $2 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in months)

 

As of December 31, 2021

 

 

As of December 31, 2020

 

Operating leases

 

 

27.3

 

 

 

19.0

 

Finance leases

 

 

29.2

 

 

 

41.2

 

 

 

 

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

 

 

 

 

Operating leases

 

 

7.50

%

 

 

7.50

%

Finance leases

 

 

7.50

%

 

 

7.50

%

11


As of December 31, 2021 the maturities of lease liabilities were as follows:

 

 

 

 

 

 

 

 

(in thousands)

 

Operating Leases

 

 

Finance Leases

 

 

 

 

 

 

 

 

 

 

2022

 

$

63

 

 

$

1

 

2023

 

 

233

 

 

 

1

 

2024

 

 

149

 

 

 

1

 

2025

 

 

63

 

 

 

1

 

Thereafter

 

 

 

 

 

 

Total lease payments

 

$

508

 

 

$

4

 

Less: Imputed interest

 

 

(39

)

 

 

(1

)

Total

 

$

469

 

 

$

3

 

NOTE 10 GOVERNMENTAL ASSISTANCE PROGRAMS  

 

NOTE 10 — PAYCHECK PROTECTION PROGRAM AND EMPLOYMENT SUPPORT SCHEME

On July 5, 2021, the Company’s Paycheck Protection Program (”PPP”) loan of approximately $204,400 plus accrued interest of $2,400 was forgiven by the Small Business Administration. The Company recorded the impact of its PPP loan forgiveness as other income during the quarter ended September 30, 2021.

During the three months month periods ended December 31, 2022 and December 31, 2021 and December 31, 2020,, the Company’s Hong Kong subsidiary recorded $4,000 and nil, and $28,000, 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 months month periods ended December 31, 2022 and December 31, 2021 and December 31, 2020, , the Company’s Hong Kong subsidiary recorded nil$34,000 and $83,000,nil, respectively, under the ESS program.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 PPP loan forgiveness and 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 SUBSEQUENT EVENT LEGAL PROCEEDINGS

On January 3,April 19, 2022, a legal settlement was entered into betweenthe US District Court for the District of Delaware granted judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and one of its former directors that resolved certain disputes,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 claims against the former directoradvances and an indemnification claim made by the former director. The amounta portion of the settlement was $450,000 and is presented separatelytheir liability, which are reflected as advanced deposits in the Consolidated Statements of Operations asBalance 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 loss on settlement of litigation fornegotiated resolution regarding these matters will ever be agreed among the three and nine month periods ended December 31, 2021.parties or, if agreed, how soon the parties will be able to do so.  

 


12

Item2. Management’sManagements 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-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:

the ongoing effects of the coronavirus (COVID-19) pandemic-related business disruption and economic uncertainty on both the Company’s projected customer demand and supply chain, as well as its operations and financial performance;

the Company’s ability to generate sufficient revenue to achieve and maintain profitability;

the Company’s ability to obtain new customers and retain key existing customers, including the Company’s ability to maintain purchase volumes of the Company’s products by its key customers;

the Company’s ability to obtain new licensees and distribution relationships and maintain relationships with its existing licensees and distributors;

the Company’s ability to resist price increases from its suppliers or pass through such increases to its customers;

changes in consumer spending for retail products, such as the Company’s products, and in consumer practices, including sales over the Internet;

the Company’s ability to maintain effective internal controls or compliance by its personnel with such internal controls;  

the Company’s ability to successfully manage its operating cash flows to fund its operations;

the Company’s ability to anticipate market trends, enhance existing products or achieve market acceptance of new products;

the Company’s ability to accurately forecast consumer demand and adequately manage inventory;

the Company’s dependence on a limited number of suppliers for its components and raw materials;

the Company’s dependence on third party manufacturers to manufacture and deliver its products;

increases in shipping costs for the Company’s products or other service issues with the Company’s third-party shippers;

the Company’s dependence on a third party logistics provider for the storage and distribution of its products in the United States;

the ability of third party sales representatives to adequately promote, market and sell the Company’s products;

the Company’s ability to maintain, protect and enhance its intellectual property;

the effects of competition;

the Company’s ability to distribute its products in a timely fashion, including as a result of labor disputes and public health threats and social unrest;

evolving cybersecurity threats to the Company’s information technology systems or those of its customers or suppliers;

 

changes in foreign laws and regulations and changes in the political and economic conditions in the foreign countries in which the Company operates;

changes in accounting policies, rules and practices;

changes in tax rules and regulations or interpretations;

changes in U.S. and foreign trade regulations and tariffs, including potential increases of tariffs on goods imported into the U.S., and uncertainty regarding the same;

limited access to financing or increased cost of financing;

the effects of currency fluctuations between the U.S. dollar and Chinese renminbi relative to the dollar and increases in costs of production in China; and

the other factors listed under “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 20212022 and other filings with the SEC.

Furthermore, the situation surrounding the COVID-19 pandemic remains fluid and the potential for a materialfluid. The extent of any impact on the Company’s results of operations and financial condition increases the longer the COVID-19 pandemic affects activity levels in the United States and globally. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on itsCompany's business, results of operations or financial position. The extent of any impactposition will depend on future developments, including the duration of the outbreak, duration of the measures taken to control the spread, the effectiveness of actions taken to contain and treat the disease, and demand for the Company’s products.

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. The Company has expressed its expectations, beliefs and projections in good faith and it believes it has a reasonable basis for them. However, the 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, 20212022 (fiscal 2022)2023) and December 31, 20202021 (fiscal 2021)2022) (in thousands):

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

Three Months Ended December 31,

 

Nine Months Ended December 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

  

2021

  

2022

  

2021

 

Net product sales

 

$

2,509

 

 

$

2,273

 

 

$

6,290

 

 

$

5,718

 

 $1,704  $2,509  $4,335  $6,290 

Licensing revenue

 

 

65

 

 

 

60

 

 

 

195

 

 

 

180

 

  228   65   971   195 

Net revenues

 

 

2,574

 

 

 

2,333

 

 

 

6,485

 

 

 

5,898

 

 1,932  2,574  5,306  6,485 

Cost of sales

 

 

1,826

 

 

 

1,754

 

 

 

4,786

 

 

 

4,519

 

 1,361  1,826  3,549  4,786 

Selling, general and administrative expenses

 

 

1,469

 

 

 

1,560

 

 

 

4,196

 

 

 

4,601

 

  1,051   1,469   3,686   4,207 

Operating loss

 

 

(721

)

 

 

(981

)

 

 

(2,497

)

 

 

(3,222

)

 (480) (721) (1,929) (2,508)

Loss on settlement of litigation

 

 

(450

)

 

 

-

 

 

 

(450

)

 

 

-

 

 - (450) - (450)

Interest income, net

 

 

7

 

 

 

18

 

 

 

40

 

 

 

128

 

 235  7  424  40 

Income from governmental assistance programs

 

 

-

 

 

 

28

 

 

 

207

 

 

 

83

 

  4   -   34   207 

Loss before income taxes

 

 

(1,164

)

 

 

(935

)

 

 

(2,700

)

 

 

(3,011

)

 (241) (1,164) (1,471) (2,711)

Provision for income taxes

 

 

-

 

 

 

10

 

 

 

11

 

 

 

15

 

            

Net loss

 

$

(1,164

)

 

$

(945

)

 

$

(2,711

)

 

$

(3,026

)

 $(241) $(1,164) $(1,471) $(2,711)

 

Net product sales — Net product sales for the three month period ended December 31, 2022 were $1.7 million as compared to $2.5 million for the three month period ended December 31, 2021 were $2.5 million as compared to $2.3 million for the three month period ended December 31, 2020, an increasea decrease of  $0.2$0.8 million, or 10.4%32.1%. The Company’s sales during the three month periods endedDecember 31, 2022 and December 31, 2021 and December 31, 2020 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon  and Fred Meyer – comprising in the aggregate approximatelyapproximately 99% and 94% and 90%, respectively, of the Company’s total net product sales. for such periods.

 

Net product sales for the nine month period ended December 31, 20212022 were $6.3$4.3 million as compared to $5.7$6.3 million for the nine month period ended December 31, 2020, an increase2021, a decrease of $0.6$2.0 million, or 10.0%31.1%. The Company’s sales during suchthe nine month periods ended December 31, 2022 and December 31, 2021 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer and Amazon – comprising in the aggregate approximatelapproximatelyy 91% and 83%91%, respectively, respectively, of the Company’s total net 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 approximatelyapproximately $10,000 and $6,000 and $3,000 for the three month periods ended December 31, 20212022 and December 31, 2020,2021, respectively, and approximately $12,000by approximately $16,000 and $46,000nil for thethe nine month periods ended December 31, 20212022 and December 31, 2020, respectively. Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name.2021, respectively. The major elements which contributed to the overall increasedecrease 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.

i)

Houseware products: Net sales decreased $0.3 million, or 54.2%, to $0.3 million for the three month period ended December 31, 2021 as compared to $0.6 million for the three month period ended December 31, 2020, driven by a decrease in year-over-year sales of microwave ovens. For the nine month period ended December 31, 2021, houseware net product sales were $1.5 million, a decrease of $0.6 million, or 29.6%, from $2.1 million for the nine month period ended December 31, 2020, driven by a decrease in year-over-year sales of microwave ovens.

ii)

Audio products: Net sales increased $0.5 million, or 32.8%, to $2.2 million for the three month period ended December 31, 2021 as compared to $1.7 million for the three month period ended December 31, 2020, resulting from increased net sales of clock radios.For the nine month period ended December 31, 2021, audio product net sales were $4.8 million, an increase of $1.2 million or 33.9%, from $3.6 million for the nine month period ended December 31, 2020 resulting from increased net sales of clock radios.

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 operationsThe 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 LMCAeach of Leveraged Marketing Corporation of America and Global Licensing Services Pte Limited as an agent to assist in identifying and procuring potential licensees.

Emerson’s success is dependent on its ability to anticipate and respond 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 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 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 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 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 effects of the COVID-19 pandemic on macroeconomic conditions domestically and internationally, along with the uncertainty associated with a potential recovery, the Company has implemented certain cost-reduction actions intended to reduce expenditures in light of the effects of the COVID-19 pandemic to the business.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. As a result, the Company is unable at this time to predict the full impact of the COVID-19 pandemic on its operations and financial results, and, depending on the magnitude and duration of the pandemic, including the further spread and severity of COVID-19 cases in areas in which the Company operates and the availability and distribution of effective vaccines, such impact may be material. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trendstrends.

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, 2021.2022.

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 $65,000 for the three month period ended December 31, 2021, was $65,000 as compared to $60,000 an increase of $163,000, or 251.4%. Licensing revenue for the threenine month period ended December 31, 2020,2022 was $971,000 as compared to $195,000 for the nine month period ended December 31, 2021, an increase of $5,000,$776,000 or 8.3%398.0%. TheFor 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 increase can beincreases 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 licensee.existing licensees.

Licensing revenue

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 ended December 31, 2021 was $195,0002022 as compared to $180,000 for the nine month period ended December 31, 2020, an increase of $15,000, or 8.3%. The year-over-year increase can be attributed to the escalation in the annual minimum royalty earned by the Company from its licensee.

Net revenues — As a result of the foregoing factors, the Company’s net revenues were $2.6 million for the three month period ended December 31, 2021 as compared to $2.3 million for the three month period ended December 31, 2020, an increase of $0.3 million, or 10.3%, and $6.5 million for the nine month period ended December 31, 2021 as compared, a decrease of $1.2 million, or 18.2%.

Cost of sales — Cost of sales decreased $0.5 million, or 25.5% to $5.9$1.3 million for the ninethree month period ended December 31, 2020, an increase of $0.6 million, or 10.0%

Cost of sales — In absolute terms, cost of sales increased $0.1 million, or 4.1%,2022 as compared to $1.8 million for the three month period ended December 31, 2021. The decrease in absolute terms for the three month period ended December 31, 2022 as compared to the three month period ended December 31, 2021 as compared to $1.7 million for the three month period ended December 31, 2020. The increase in absolute terms for the three month period ended December 31, 2021 as compared to the three month period ended December 31, 2020 was primarily related to an increasea 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 increased $0.3decreased $1.2 million, or 5.9%,25.9% to $3.6 million for the nine month period ended December 31, 2022 as compared to $4.8 million for the nine month period ended December 31, 2021 as compared to $4.5 million for the nine month period ended December 31, 2020.2021. The increasedecrease in absolute terms for the nine month period ended December 31, 20212022 as compared to the ninethree month period ended December 31, 20202021 was primarily related to an increasea decrease in net product sales partially 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 three month periods ended December 31, 2021and December 31, 2020, the Company purchased 100% and 95%, respectively, from its two largest suppliers. For the nine month periods ended December 31, 20212022 and December 31, 2020,2021, the Company purchased 100% and 98%, respectively,of its products from its twothree largest suppliers.

Selling, general and administrative expenses (“(S,G&A”&A) — S,G&A in absolute terms, was $1.1 million for the three month period ended December 31, 2022 as compared to $1.5 million for the three month period ended December 31, 2021, as compared to $1.6 million for three month period ended December 31, 2020, a decrease of $0.1$0.4 million or 5.8%28.5%. S,G&A, as a percentage of net revenues, was 57.1%54.4% for the three month period ended December 31, 20212022 as compared to 66.9%57.1% for the three month period ended December 31, 2020.2021. The decrease in S,G&A was primarily attributedattributable to a decrease in legal fees of $333,000, a decrease in compensation costs of approximately $113,000. Compensation costs$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, 20212022 were $531,000$169,000 as compared to $644,000$502,000 for the three month period ended December 31, 2020.2021. 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.

S,G&A in absolute terms, was $3.7 million for the nine month period ended December 31, 2022 as compared to $4.2 million for the nine month period ended December 31, 2021, as compared to $4.6 million for the nine month period ended December 31, 2020, a decrease of $0.4$0.5 million or 8.8%12.4%. S,G&A, as a percentage of net revenues, was 64.7%69.5% for the nine month period ended December 31, 20212022 as compared to 78.0%64.9% for the nine month period ended December 31, 2020.2021. The decrease in S,G&A was primarily attributedattributable to a decrease in compensation costs of $247,000, a decrease in legal fees of approximately $245,000$93,000, a decrease in insurance expense of $71,000, a decrease in director’s fees of $63,000, a decrease in commission expense of $30,000 and a decrease in compensationbad debt expense of $25,000. Compensation costs of approximately $126,000.for the nine month period ended December 31, 2022 were $1,524,000 as compared to $1,771,000 for the nine month period ended December 31, 2021. Legal fees for the nine month period ended December 31, 20212022 were approximately $1,100,000$1,007,000 as compared to approximately $1,345,000$1,100,000 for the nine month period ended December 31, 2020. The majority of the decrease in legal fees concerned the protection of the Emerson® trademark. Compensation costs2021. Insurance expense for the nine month period ended December 31, 2021 were approximately $1,770,0002022 was $388,000 as compared to approximately $1,896,000$459,000 for the nine month period ended December 31, 2020. The majority of2021. Director’s fees for the decrease in compensation costsnine month period ended December 31, 2022 were due$97,000 as compared to headcount reductions.$160,000 for the nine month period ended December 31, 2021. Commission expense for the nine month period ended December 31, 2022 was $33,000 as compared to $63,000 for the nine month period ended December 31, 2021. Bad debt expense for the nine month period ended December 31, 2022 was $2,000 as compared to $27,000 for the nine month period ended December 31, 2021.



 

Loss on settlement of litigationInterest income, netDuringInterest income, net, was $235,000 for the three month period ended December 31, 2022 as compared to $7,000 for the three month period ended December 31, 2021, a settlement agreement between the Company and onean increase of its former directors was entered into regarding an indemnification claim.$228,000. The amount of the settlement was $450,000. See “Note 11 – Subsequent Event”.

Interest income, net — Interest income, net, was $7,000 for the three month period ended December 31, 2021 as compared to $18,000 for the three month period ended December 31, 2020, a decrease of $11,000. The decreaseincrease was primarily due to lower average interest rates earned on the Company’s short term investments.

Interest income, net, was $40,000 for the nine month period ended December 31, 2021 as compared to $128,000 for the nine month period ended December 31, 2020, a decrease of $88,000. The decrease was primarily due to lowerhigher average interest rates earned on the Company’s short term investments.

Interest income, net, was $424,000 for the nine month period ended December 31, 2022 as compared to $40,000 for the nine month period ended December 31, 2021, an increase of $384,000. The increase was primarily due to higher average interest rates earned on the Company’s short term investments.

Income from governmental assistance programs— For the three and nine month periodsperiod ended December 31, 2021,2022, the Company recorded income of approximately nil and $207,000, respectively, related to its PPP loan forgiveness. For the three and nine month periods ended December 31, 2020, the Company recorded income of approximately $28,000 and $83,000, respectively, related to assistance received from the Hong Kong government$4,000 under the ESS program. See “Note 10 - Paycheck Protection Program and Employment Support Scheme”– Governmental Assistance Programs”.

Provision (benefit) for income taxes

For the threenine month period ended December 31, 2021,2022, the Company recorded income tax expense of nil as compared to income tax expense of $9,900 forapproximately $34,000 under the three month period ended December 31, 2020. See “Note 5 – Income Taxes”.

ESS program. For the nine month period ended December 31, 2021, the Company recorded income tax expense of $11,000$207,000 as compared toloan forgiveness in respect of its PPP loan. See “Note 10 – Governmental Assistance Programs”.

Provision (benefit) for income taxes — For both of the three month periods ended December 31, 2022 and December 31, 2021, the Company recorded income tax expense of $15,200 fornil. For both of the nine month periodperiods ended December 31, 2020.2022 and December 31, 2021, the Company under the adoption of ASU 2019-12 “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” incurred $10,950 of non-income based state taxes, which are now reported as S,G &A. See “Note 5 – Income Taxes”.

Although the Company generated net losses during fiscal 20222023 and fiscal 2021,2022, it was unable to realize an income tax benefit due to valuation allowances recorded against its deferred tax assets.

Net (loss) — As a result of the foregoing factors, the Company realized a net loss of $1,164,000$241,000 for the three month period ended December 31, 20212022 as compared to a net loss of $945,000$1,164,000 for the three month period ended December 31, 2020.2021.

For the nine month period ended December 31, 2021,2022, the Company realized a net loss of $2,711,000$1,471,000 as compared to a net loss of $3,026,000$2,711,000 for the nine month period ended December 31, 2020.2021.

Liquidity and Capital Resources

As of December 31, 2021,2022, the Company had cash and cash equivalents of approximately $24.7$27.3 million as compared to approximately $5.2$25.6 million at March 31, 2021.2022. Cash and cash equivalents includes short term investments in deposits which were classified as cash equivalents of $25.5 million as of December 31, 2022 compared to $22.0 million of such deposits as of March 31, 2022. Working capital decreased to $29.0$26.3 million at December 31, 20212022 as compared to $32.1$28.1 million at March 31, 2021.2022. The increase in cash and cash equivalents of approximately $19.5$1.7 million was due to thean increase in advanced deposits of $4.1 million (representing conditional payments received in connection with ongoing settlement negotiations) and a decrease in short term investments of $25.0 million, an increaseaccounts receivable of $0.4 million in accounts payable and other current liabilities and the increase in long term lease liabilities of $0.2 millionpartially offset by the net loss generated during the period of $2.7$1.5 million, an increase in prepaid purchases of $0.5 million, a decrease in accounts receivablepayable and other current liabilities of $1.9$0.2 million, an increase in inventory of $0.6$0.2 million and a decrease in federal taxes payable of $0.2 million and an increase in licensing receivables of $0.2 million.

Cash Flows

Net cash provided by operating activities was approximately $1.7 million for the nine month period ended December 31, 20221, resulting from an increase in advanced deposits of $4.1 million and a decrease in accounts receivable of $0.3 million and a decrease in prepaid expenses and other current assets of $0.1 million partially offset by the $1.5 million net loss generated during the period, an increase in prepaid purchases of $0.5 million, a decrease in accounts payable and other current liabilities of $0.2 million, an increase in right of use assetsinventory of $0.2 million, a decrease in federal taxes payable of $0.2 million a decrease in PPP loan payable of $0.2 million, a decrease in deferred revenue of $0.2 million and an increase in prepaid expenses and other current assetslicensing receivables of $0.1$0.2 million.

Cash Flows

Net cash used by operatinginvesting activities was approximately $5.5 millionnil for the nine month period ended December 31, 2021, resulting from a $2.7 million net loss generated during the period, an increase in accounts receivable of $2.1 million, an increase in inventory of $0.6 million, an increase in right of use assets of $0.4 million, a decrease in federal taxes payable of $0.2 million, the impact of the PPP loan forgiveness of $0.2 million partially offset by an increase in accounts payable and other current liabilities of $0.4 million, an increase in long-term lease liabilities of $0.2 million and a decrease in prepaid purchases of $0.1 million.2022.

Net cash provided by investing activities was approximately $25.0 million for the nine month period ended December 31, 2021 due to a decrease in short term deposits.

Net cash used by financing activities was nil for the nine month period ended December 31, 2021.2022.


Sources and Uses of Funds

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

Paycheck Protection Program Loan

In April and May of 2020, the Company applied for and received aggregate loan proceeds of approximately $0.2 million under the PPP. The PPP loan accrued interest at 1% and matures two years from the date of issuance, with a deferral of payments for the first six months. The Company used all of the PPP loan proceeds for qualifying expenses in accordance with terms of the CARES Act and applied for forgiveness of the loan to the extent applicable. On July 5, 2021, the Company’s PPP loan was completely forgiven by the Small Business Administration. See Note 10 of the Notes to the Interim Consolidated Financial Statements.

Off-Balance Sheet Arrangements

As of December 31, 2021,2022, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC.

Recently Adopted Accounting Pronouncements

Accounting Standards Update 2019-12 “IncomeIncome Taxes (Topic(Topic 740) Simplifying the Accounting for Income Taxes”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 first 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 and related disclosures.

 

Recently Issued Accounting Pronouncements

The following ASUs were issued by the 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.

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

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 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, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The Company does not expect these amendments to have a material impact on its financial statements.

 

Item3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

 

Item4. Controls and Procedures.

(a) Disclosure controls and procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d — 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.


The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2021,2022, are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

 

 

Item1. Legal Proceedings.

The Company is, not currently a partyand from time to anytime may become, involved in legal proceedings, other than litigation matters, in most cases involving ordinary and routine claims incidental to its business. Management cannot estimate with certainty the Company’s ultimate legal and financial liability with respect to any such pending litigation matters. However, management believes, based on its examination of such matters, that the Company’s ultimate liability willCompany is not currently involved in any legal proceedings that, if determined adversely to the Company, would have a material adverse effect on the Company’s financial position, results of operations or cash flows. Information relating to our ongoing legal proceedings is described in Note 11 to our condensed consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q.

Item1A. Risk Factors.

There have been no material changes to the risk factors contained in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2021.2022.

 

Item2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

 

Item3. Defaults Upon Senior Securities.

(a) None

(b) None

 

 

Item4. Mine Safety Disclosure.

Not applicable.

 

 

Item5. Other Information.

None

 

 

Item6. Exhibits.

 

31.1

Certification of the Company’sCompany’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

Certification of the Company’sCompany’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32

Certification of the Company’sCompany’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.*

101.SCH

Inline XBRL Taxonomy Extension Schema Document.*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.*

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)


*

Cover Page Interactive Data File (embedded within the Inline XBRL document)filed herewith

**

furnished herewith

 

*

filed herewith

19

**

furnished herewith

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

EMERSON RADIO CORP.

(Registrant)

/s/ Christopher W. Ho

Date: February 14, 2022

2023

Christopher W. Ho

Chief Executive Officer

(Principal Executive Officer)

/s/ Richard Li

Date: February 14, 2022

2023

Richard Li

Chief Financial Officer

(Principal Financial and Accounting Officer)

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

22

20