Company Quick10K Filing
Emerson Radio
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 21 $21
10-Q 2020-02-14 Quarter: 2019-12-31
10-Q 2019-11-14 Quarter: 2019-09-30
10-Q 2019-08-14 Quarter: 2019-06-30
10-K 2019-06-26 Annual: 2019-03-31
10-Q 2019-02-14 Quarter: 2018-12-31
10-Q 2018-11-14 Quarter: 2018-09-30
10-Q 2018-08-14 Quarter: 2018-06-30
10-K 2018-06-28 Annual: 2018-03-31
10-Q 2018-02-14 Quarter: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-K 2017-06-26 Annual: 2017-03-31
10-Q 2017-02-14 Quarter: 2016-12-31
10-Q 2016-11-09 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-K 2016-06-29 Annual: 2016-03-31
10-Q 2016-02-16 Quarter: 2015-12-31
10-Q 2015-11-17 Quarter: 2015-09-30
10-Q 2015-08-14 Quarter: 2015-06-30
10-K 2015-07-14 Annual: 2015-03-31
10-Q 2015-02-17 Quarter: 2014-12-31
10-Q 2014-11-14 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-K 2014-06-25 Annual: 2014-03-31
10-Q 2014-02-14 Quarter: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-K 2013-07-16 Annual: 2013-03-31
10-Q 2013-02-14 Quarter: 2012-12-31
10-Q 2012-11-19 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-K 2012-07-13 Annual: 2012-03-31
10-Q 2012-02-14 Quarter: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-K 2011-07-14 Annual: 2011-03-31
10-Q 2011-02-14 Quarter: 2010-12-31
10-Q 2010-11-15 Quarter: 2010-09-30
10-Q 2010-08-16 Quarter: 2010-06-30
10-K 2010-07-14 Annual: 2010-03-31
10-Q 2010-02-11 Quarter: 2009-12-31
8-K 2020-03-17 Shareholder Vote
8-K 2019-10-03 Officers
8-K 2019-03-20 Shareholder Vote
8-K 2018-06-27 Other Events, Exhibits
8-K 2018-06-06 Other Events
8-K 2018-03-21 Shareholder Vote
8-K 2018-03-08 Regulation FD
8-K 2018-01-16 Other Events
MSN 2019-12-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Background and Basis of Presentation
Note 2 - Earnings per Share
Note 3 - Shareholders' Equity
Note 4 - Inventory
Note 5 - Income Taxes
Note 6 - Related Party Transactions
Note 7 - Short Term Investments
Note 8 - Concentration Risk
Note 9 - Leases
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosure.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 msn-ex311_9.htm
EX-31.2 msn-ex312_8.htm
EX-32 msn-ex32_7.htm

Emerson Radio Earnings 2019-12-31

MSN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
KN 1,632 1,586 359 845 329 80 192 1,750 39% 9.1 5%
SONO 1,311 644 355 1,240 519 23 27 1,013 42% 37.2 4%
UEIC 576 578 317 731 152 -16 22 526 21% 23.9 -3%
NC 350 399 127 152 42 43 70 259 27% 3.7 11%
ARLO 292 415 212 395 46 -127 -116 195 12% -1.7 -31%
LRAD 91 42 7 33 15 0 2 80 46% 45.4 1%
MSN 21 42 4 8 0 -3 -2 13 0% -5.8 -6%
KOSS 15 23 8 22 7 0 1 13 31% 14.6 2%
VIOT
IMTE

10-Q 1 msn-10q_20191231.htm 10-Q msn-10q_20191231.htm

 

 

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

 

For the quarterly period ended December 31, 2019

Or

 

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., Suite 140, Parsippany, NJ

 

07054

(Address of principal executive offices)

 

(Zip code)

(973) 428-2000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(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

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 14, 2020: 21,042,652.

 

 


 

TABLE OF CONTENTS

 

 

2


 

PART I — FINANCIAL INFORMATION

 

 

Item 1. 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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

2,038

 

 

$

2,421

 

 

$

4,975

 

 

$

7,040

 

Licensing revenue

 

 

56

 

 

 

120

 

 

 

167

 

 

 

350

 

Net revenues

 

 

2,094

 

 

 

2,541

 

 

 

5,142

 

 

 

7,390

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

2,105

 

 

 

2,360

 

 

 

5,404

 

 

 

7,025

 

Selling, general and administrative expenses

 

 

1,152

 

 

 

948

 

 

 

3,208

 

 

 

2,883

 

 

 

 

3,257

 

 

 

3,308

 

 

 

8,612

 

 

 

9,908

 

Operating (loss)

 

 

(1,163

)

 

 

(767

)

 

 

(3,470

)

 

 

(2,518

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

179

 

 

 

240

 

 

 

638

 

 

 

617

 

(Loss) before income taxes

 

 

(984

)

 

 

(527

)

 

 

(2,832

)

 

 

(1,901

)

Provision for income tax expense

 

 

4

 

 

 

2

 

 

 

19

 

 

 

73

 

Net (loss)

 

 

(988

)

 

 

(529

)

 

 

(2,851

)

 

 

(1,974

)

Basic (loss) per share

 

$

(0.05

)

 

$

(0.02

)

 

$

(0.14

)

 

$

(0.09

)

Diluted (loss) per share

 

$

(0.05

)

 

$

(0.02

)

 

$

(0.14

)

 

$

(0.09

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

21,043

 

 

 

21,637

 

 

 

21,043

 

 

 

22,221

 

Diluted

 

 

21,043

 

 

 

21,637

 

 

 

21,043

 

 

 

22,221

 

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, 2019

 

 

March 31, 2019

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,498

 

 

$

7,917

 

Short term investments

 

 

27,964

 

 

 

28,371

 

Accounts receivable, net

 

 

862

 

 

 

604

 

Inventory

 

 

2,587

 

 

 

3,520

 

Prepaid purchases

 

 

89

 

 

 

417

 

Prepaid expenses and other current assets

 

 

416

 

 

 

424

 

Total Current Assets

 

 

38,416

 

 

 

41,253

 

Non-Current Assets:

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

5

 

 

 

6

 

Deferred tax assets, net

 

 

437

 

 

 

448

 

Right-of-use asset-operating leases

 

 

496

 

 

 

 

Right-of-use asset-finance leases

 

 

5

 

 

 

 

Other assets

 

 

94

 

 

 

154

 

Total Non-Current Assets

 

 

1,037

 

 

 

608

 

Total Assets

 

$

39,453

 

 

$

41,861

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

811

 

 

 

545

 

Short-term operating lease liability

 

 

236

 

 

 

 

Short-term finance lease liability

 

 

1

 

 

 

 

Income tax payable, current portion

 

 

195

 

 

 

250

 

Deferred revenue

 

 

 

 

 

165

 

Total Current Liabilities

 

 

1,243

 

 

 

960

 

Non-Current Liabilities:

 

 

 

 

 

 

 

 

Long-term operating lease liability

 

 

296

 

 

 

 

Long-term finance lease liability

 

 

4

 

 

 

 

Income tax payable

 

 

2,033

 

 

 

2,173

 

Total Non-Current Liabilities

 

 

2,333

 

 

 

2,173

 

Total Liabilities

 

$

3,576

 

 

$

3,133

 

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, 2019 and March 31, 2019, respectively; 21,042,652

   shares outstanding at December 31, 2019 and March 31, 2019, respectively

 

 

529

 

 

 

529

 

Additional paid-in capital

 

 

79,792

 

 

 

79,792

 

Accumulated deficit

 

 

(14,553

)

 

 

(11,702

)

Treasury stock, at cost (31,923,145 shares at December 31, 2019

   and March 31, 2019, respectively)

 

 

(33,201

)

 

 

(33,201

)

Total Shareholders’ Equity

 

 

35,877

 

 

 

38,728

 

Total Liabilities and Shareholders’ Equity

 

$

39,453

 

 

$

41,861

 

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,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net (loss)

 

$

(2,851

)

 

$

(1,974

)

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

   activities:

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

 

36

 

 

 

 

Depreciation and amortization

 

 

1

 

 

 

5

 

Deferred tax assets

 

 

11

 

 

 

80

 

Asset allowances and reserves

 

 

18

 

 

 

(177

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(276

)

 

 

1,312

 

Royalty receivable

 

 

3

 

 

 

(100

)

Due to affiliates

 

 

 

 

 

5

 

Inventory

 

 

933

 

 

 

(1,454

)

Prepaid purchases

 

 

328

 

 

 

324

 

Prepaid expenses and other current assets

 

 

5

 

 

 

(75

)

Other assets

 

 

60

 

 

 

(6

)

Accounts payable and other current liabilities

 

 

266

 

 

 

(167

)

Income taxes payable

 

 

(195

)

 

 

(250

)

Deferred revenue

 

 

(165

)

 

 

(50

)

Net cash (used) by operating activities

 

 

(1,826

)

 

 

(2,527

)

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from sale of short-term investments

 

 

1,850

 

 

 

30,079

 

Purchases of short-term investments

 

 

(1,443

)

 

 

(28,110

)

Disposals of property, plant and equipment

 

 

 

 

 

1

 

Net cash provided by investing activities

 

 

407

 

 

 

1,970

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Purchases of treasury stock

 

 

 

 

 

(2,611

)

Net cash (used) by financing activities

 

 

 

 

 

(2,611

)

Net (decrease) in cash and cash equivalents

 

 

(1,419

)

 

 

(3,168

)

Cash and cash equivalents at beginning of the period

 

 

7,917

 

 

 

25,096

 

Cash and cash equivalents at end of the period

 

$

6,498

 

 

$

21,928

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

 

Income taxes

 

$

199

 

 

$

277

 

 

 

 

 

 

 

 

 

 

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

 

 


5


 

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN 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, 2019

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(11,702

)

 

$

(33,201

)

 

$

38,728

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,851

)

 

 

 

 

 

(2,851

)

Balance — December 31, 2019

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(14,553

)

 

$

(33,201

)

 

$

35,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred

 

 

Number

 

 

Par

 

 

Paid-In

 

 

Accumulated

 

 

Treasury

 

 

Shareholders’

 

 

 

Stock

 

 

of Shares

 

 

Value

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance — March 31, 2018

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(9,265

)

 

$

(30,583

)

 

$

43,783

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,611

)

 

 

(2,611

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,974

)

 

 

 

 

 

(1,974

)

Balance — December 31, 2018

 

$

3,310

 

 

 

52,965,797

 

 

$

529

 

 

$

79,792

 

 

$

(11,239

)

 

$

(33,194

)

 

$

39,198

 

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, 2019 and the results of operations for the three and nine month periods ended December 31, 2019 and December 31, 2018. 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, 2019 (“fiscal 2019”), included in the Company’s annual report on Form 10-K, as amended, for fiscal 2019.

The results of operations for the three and nine month periods ended December 31, 2019 are not necessarily indicative of the results of operations that may be expected for any other interim periods or for the full year ending March 31, 2020 (“fiscal 2020”).

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

Unless otherwise disclosed in the notes to these consolidated financial statements, the estimated fair value of the financial assets and liabilities approximates the carrying value.

 

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires lease assets and liabilities to be recorded on the balance sheet.  This update is effective for public entities in fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years, and certain qualitative and quantitative disclosures are also required.  Early adoption was permitted.  The Company has adopted this ASU and related amendments as of April 1, 2019 on a modified retrospective basis. The Company has applied the modified retrospective approach by recording a cumulative effect adjustment as of the date of adoption, whereby prior comparative periods will not be retrospectively presented in the consolidated financial statements. The Company has also elected certain practical expedients permitted under the transition guidance, including to retain the historical lease classification as well as relief from reviewing expired or existing contracts to determine if they contain leases.  The Company will be exempting leases with an initial term of twelve months or less from balance sheet recognition and will not separate lease and non-lease components.

 

Upon adoption, the Company recognized total lease liabilities of $695,000, and corresponding right-of-use assets of $650,000, all of which is associated with leased office space. The difference between the right-of-use asset and lease liability is due to the existing deferred balance, resulting from historical straight-lining of operating leases that was reclassified upon adoption to reduce the measurement of the right-of-use assets. The Company’s Consolidated Statements of Income and Consolidated Statements of Cash Flows were not materially impacted. See Note 9, “Leases” for further details.

 

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.

 

 

7


 

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

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in the Company’s first quarter (June 2021) of our fiscal year ending March 31, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

Accounting Standards Update 2016-13 “Financial Instruments – Credit 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.

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. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for future expected returns are based upon historical return rates and netted against revenues.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Revenue is recorded net of customer discounts, promotional allowances, volume rebates and similar charges. When the Company offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.

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

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.

 

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

$

(988

)

 

$

(529

)

 

$

(2,851

)

 

$

(1,974

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic and diluted earnings per share —

   weighted average shares

 

 

21,043

 

 

 

21,637

 

 

 

21,043

 

 

 

22,221

 

Net (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted (loss) per share

 

$

(0.05

)

 

$

(0.02

)

 

$

(0.14

)

 

$

(0.09

)

8


 

 

 

NOTE 3 — SHAREHOLDERS’ EQUITY

Outstanding capital stock at December 31, 2019 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, 2019, the Company had no options, warrants or other potentially dilutive securities outstanding.            

 

 

NOTE 4 — INVENTORY

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. As of December 31, 2019 and March 31, 2019, inventories consisted of the following (in thousands):

 

 

 

December 31, 2019

 

 

March 31, 2019

 

Finished goods

 

$

2,587

 

 

$

3,520

 

 

 

NOTE 5 — INCOME TAXES

At December 31, 2019, the Company had $5.9 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, 2019, the Company had approximately $13.2 million of U.S. state net operating loss carry forwards. The tax benefits related to these state net operating loss 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 $393,000 for the quarter ended December 31, 2019 as compared to income before taxes of $215,000 for the quarter ended December 31, 2018.       

The Company analyzed the future reasonability of recognizing its deferred tax assets at December 31, 2019. As a result, the Company concluded that a valuation allowance of approximately $2,100,000 would be recorded against the assets.

Although the Company generated a net operating loss, it recorded income tax expense of approximately $4,000 during the three months ended December 31, 2019, primarily resulting from state income taxes. During the three months ended December 31, 2018, the Company recorded income tax expense of $2,000. During the nine months ended December 31, 2019, the Company recorded income tax expense of $19,000 and for the nine months ended December 31, 2018, the Company recorded income tax expense of $73,000.    

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of December 31, 2019, the Company’s open tax years for examination for U.S. federal tax are 2016-2018, and for U.S. states’ tax are 2015-2018. 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.

                  

 

 

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. 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, 2019. Accordingly, the Company is a “controlled company” as defined in Section 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 months ended December 31, 2019, the Company was billed approximately $44,000 and $131,000 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.  As of December 31, 2019 the Company owed nil to VACL related to these charges.

During both the three and nine months ended December 31, 2019, the Company was billed approximately $6,000 for its share of installation charges related to an air conditioning system from Lafe Strategic Services Ltd (“LSSL”), which is a company related to the Company’s Chairman of the Board. As of December 31, 2019 the Company owed nil to LSSL related to these charges.

 

NOTE 7 — SHORT TERM INVESTMENTS

At December 31, 2019 and March 31, 2019, the Company held short term investments totaling $28.0 million and $28.4 million, respectively. These investments were comprised of bank certificates of deposit, which bear an interest rate of approximately 1.93% and will mature in March 2020.

NOTE 8 — CONCENTRATION RISK

Customer Concentration

For the three months ended December 31, 2019, the Company’s three largest customers accounted for approximately 88% of the Company’s net revenues, of which Walmart accounted for 45%, Amazon accounted for 30% and Fred Meyer accounted for 13%.

For the nine months ended December 31, 2019, the Company’s three largest customers accounted for approximately 80% of the Company’s net revenues, of which Walmart accounted for 44%, Amazon accounted for 24% and Fred Meyer accounted for 12%.  

For the three months ended December 31, 2018, the Company’s three largest customers accounted for approximately 89% of the Company’s net revenues, of which Walmart accounted for 51%, Amazon accounted for 23% and Fred Meyer accounted for 15%.

For the nine months ended December 31, 2018, the Company’s three largest customers accounted for approximately 80% of the Company’s net revenues, of which Walmart accounted for 49%, Amazon accounted for 17% and Fred Meyer accounted for 14%.

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 months ended December 31, 2019, the Company’s gross product sales were comprised of two product types within two categories — housewares products and audio products, of which microwave ovens generated approximately 28% and 36%, respectively, of the Company’s gross product sales. Audio products generated approximately 64% and 59%, respectively, of the Company’s gross product sales.

For the three and nine months ended December 31, 2018, 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 28% and 39%, respectively, of the Company’s gross product sales. Audio products generated approximately 67% and 56%, 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 47% and 30% as of December 31, 2019, respectively. As a percent of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top two customers accounted for 47% and 29% as of March 31, 2019, respectively. 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.

10


 

Supplier Concentration

During the three and nine months ended December 31, 2019, the Company procured approximately 90% and 86% of its products for resale from its two largest factory suppliers, of which 48% and 52%, respectively, was supplied by its largest supplier. During the three and nine months ended December 31, 2018, the Company procured approximately 96% and 90% of its products for resale from its two largest factory suppliers, of which 86% and 72%, respectively, was supplied by its largest supplier.

NOTE 9 — LEASES

The Company leases office space in the U.S. and in Hong Kong as well as a copier in the U.S. These leases have remaining non-cancellable lease terms of three to five years. 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, 2019 to indicate that a reassessment or re-measurement of our existing leases was required. There were also no impairment indicators identified during the quarter ended December 31, 2019 that required an impairment test for the Company’s right-of-use assets or other long-lived assets in accordance with ASC 360-10.

As of December 31, 2019, the Company’s current operating and finance lease liabilities were $236,000 and $1,000, respectively and its non-current operating and finance lease liabilities were $296,000 and $4,000, 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, 2019 was $496,000 and $5,000, respectively.

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

 

(in thousands)

 

Lease cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

63

 

 

$

 

 

$

190

 

 

$

 

Finance lease cost

 

 

 

 

 

 

 

 

 

 

 

 

     Amortization of right-of-use assets

 

 

 

 

 

 

 

 

 

 

 

 

     Interest on lease liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Variable lease costs

 

 

 

 

 

 

 

 

 

 

 

 

Total lease cost

 

 

63

 

 

 

 

 

 

190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

66

 

 

 

 

 

 

197

 

 

 

 

Operating cash flows from finance leases

 

 

 

 

 

 

 

 

 

 

 

 

Financing cash flows from finance leases

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

 

650

 

 

 

 

Finance leases

 

 

 

 

 

 

 

 

5

 

 

 

 

 

11


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in months)

 

As of December 31, 2019

 

 

As of December 31, 2018

 

Operating leases

 

 

28.6

 

 

 

 

Finance leases

 

 

53.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

 

 

 

 

Operating leases

 

 

7.50

%

 

 

 

Finance leases

 

 

7.50

%

 

 

 

 

As of December 31, 2019 the maturities of lease liabilities were as follows:

 

 

 

 

 

 

 

 

(in thousands)

 

Operating Leases

 

 

Finance Leases

 

 

 

 

 

 

 

 

 

 

2019 (excluding the 3 months ended March 31, 2019)

 

$

67

 

 

$

-

 

2020

 

 

266

 

 

 

1

 

2021

 

 

162

 

 

 

1

 

2022

 

 

84

 

 

 

1

 

2023

 

 

 

 

 

1

 

Thereafter

 

 

 

 

 

1

 

Total lease payments

 

$

579

 

 

$

5

 

Less: Imputed interest

 

 

(47

)

 

 

 

Total

 

$

532

 

 

$

5

 

 

12


 

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

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

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

Forward-Looking Information

This report contains forward-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.

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 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;

 

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;

 

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;

13


 

 

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 Form 10-K, as amended, for the fiscal year ended March 31, 2019 and other filings with the SEC.