MSN 10-Q
Emerson Radio Corp (MSN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
|
|
|
|
(Address of principal executive offices) |
|
(Zip code) |
(
(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 |
|
|
|
|
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. ☒
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). ☒
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 |
|
☐ |
|
|
|
|
|
|||
|
|
|
☒ |
|
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).
Indicate the number of shares outstanding of common stock as of November 12, 2021:
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 September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
|
|
|
|
|
||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Licensing revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from governmental assistance programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Provision (benefit) for income tax expense |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
September 30, 2021 |
|
|
March 31, 2021 |
|
||
|
|
|
|
|
|||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Short term investments |
|
|
— |
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
Prepaid purchases |
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
|
|
|
|
|
|
|
Non-Current Assets: |
|
|
|
|
|
|
|
|
|
Right-of-use asset-operating leases |
|
|
|
|
|
|
|
|
|
Right-of-use asset-finance leases |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Total Non-Current Assets |
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
|
|
|
$ |
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
|
|
|
|
|
|
|
|
Paycheck Protection Program loan |
|
|
— |
|
|
|
|
|
|
Due to affiliate |
|
|
|
|
|
|
|
|
|
Short-term operating lease liability |
|
|
|
|
|
|
|
|
|
Short-term finance lease liability |
|
|
|
|
|
|
|
|
|
Income tax payable, current portion |
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
|
|
|
|
|
|
|
Non-Current Liabilities: |
|
|
|
|
|
|
|
|
|
Long-term operating lease liability |
|
|
|
|
|
|
|
|
|
Long-term finance lease liability |
|
|
|
|
|
|
|
|
|
Income tax payable |
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities |
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
$ |
|
|
|
$ |
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
|
Series A Preferred shares — and outstanding; liquidation preference of $ |
|
|
|
|
|
|
|
|
|
Common shares — $ shares issued at September 30, 2021 and March 31, 2021, respectively; shares outstanding at September 30, 2021 and March 31, 2021, respectively |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
|
Treasury stock, at cost ( and March 31, 2021, respectively) |
|
|
( |
) |
|
|
( |
) |
|
Total Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity |
|
$ |
|
|
|
$ |
|
|
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)
|
|
|
Six Months Ended September 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash (used) by operating activities: |
|
|
|
|
|
|
|
|
|
Loan forgiveness from Paycheck Protection Program |
|
|
( |
) |
|
|
— |
|
|
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
— |
|
|
|
|
|
|
Asset allowances and reserves |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Inventory |
|
|
( |
) |
|
|
( |
) |
|
Prepaid purchases |
|
|
( |
) |
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable and other current liabilities |
|
|
( |
) |
|
|
|
|
|
Right of use assets-operating |
|
|
( |
) |
|
|
— |
|
|
Short term lease liabilities |
|
|
|
|
|
|
( |
) |
|
Long term lease liabilities |
|
|
|
|
|
|
( |
) |
|
Income taxes payable |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used) by operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
Net proceeds (purchases) of short-term investments |
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
Proceeds from Paycheck Protection Program loan |
|
|
— |
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
— |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021 |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance — September 30, 2021 |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|||||||
|
|
|
Preferred |
|
|
Number |
|
|
Par |
|
|
Paid-In |
|
|
Accumulated |
|
|
Treasury |
|
|
Shareholders’ |
|
|||||||
|
|
|
Stock |
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
|||||||
|
Balance — March 31, 2020 |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance — September 30, 2020 |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
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 September 30, 2021 and the results of operations for the three and six month periods ended September 30, 2021 and September 30, 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, 2021 (“fiscal 2021”), included in the Company’s annual report on Form 10-K, as amended, for fiscal 2021.
The results of operations for the three and six month periods ended September 30, 2021 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, 2022 (“fiscal 2022”).
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 “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 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 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 “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 period 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.
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.
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.
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 September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
|
|
|
|
|
||||||||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted loss per share — weighted average shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 3 — SHAREHOLDERS’ EQUITY
Outstanding capital stock at September 30, 2021 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 September 30, 2021, the Company had
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-out method.
|
|
|
September 30, 2021 |
|
|
March 31, 2021 |
|
||
|
Finished goods |
|
$ |
|
|
|
$ |
|
|
8
NOTE 5 — INCOME TAXES
The income of foreign subsidiaries before taxes was $
The Company analyzed the future reasonability of recognizing its deferred tax assets at September 30, 2021. As a result, the Company concluded that a
During the three months ended September 30, 2021 and September 30, 2020, the Company recorded income tax expense of approximately and an income tax benefit of $
The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of September 30, 2021, the Company’s open tax years for examination for U.S. federal tax are
As of September 30, 2021 the Company is asserting under ASC 740-30 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 September 30, 2021, the Company had a federal tax liability of approximately $
As of March 31, 2021, the Company had a federal tax liability of approximately $
The liability is payable over
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. 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
9
Related Party Transactions
Charges of rental and utility fees on office space in Hong Kong
During the three and six months ended September 30, 2021, the Company was billed approximately $
During the three and six months ended September 30, 2021, the Company was billed approximately $
NOTE 7 — SHORT TERM INVESTMENTS
At September 30, 2021 and March 31, 2021, the Company held short term investments in deposits totaling and $
NOTE 8 — CONCENTRATION RISK
Customer Concentration
For the three months ended September 30, 2021, the Company’s three largest customers accounted for approximately
For the six months ended September 30, 2021, the Company’s three largest customers accounted for approximately
For the three months ended September 30, 2020, the Company’s three largest customers accounted for approximately
For the six months ended September 30, 2020, the Company’s three largest customers accounted for approximately
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 six months ended September 30, 2021, 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
For the three and six months ended September 30, 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
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
10
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 September 30, 2021 and March 31, 2021 were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Supplier Concentration
During each of the three and six months ended September 30, 2021, the Company procured
11
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
As of September 30, 2021, the Company’s current operating and finance lease liabilities were $
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 September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
|
Lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing cash flows from finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information relating to the lease term and discount rate are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in months) |
|
As of September 30, 2021 |
|
|
As of September 30, 2020 |
|
||
|
Operating leases |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
% |
|
|
|
% |
|
Finance leases |
|
|
|
% |
|
|
|
% |
12
|
As of September 30, 2021 the maturities of lease liabilities were as follows: |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Operating Leases |
|
|
Finance Leases |
|
||
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
$ |
|
|
|
$ |
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
Total lease payments |
|
$ |
|
|
|
$ |
|
|
|
Less: Imputed interest |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
NOTE 10 — PAYCHECK PROTECTION PROGRAM AND EMPLOYMENT SUPPORT SCHEME
On July 5, 2021, the Company’s Paycheck Protection Program (”PPP”) loan of approximately $
During the quarter ended September 30, 2020, the Company’s Hong Kong subsidiary applied for and was granted approximately $
13
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 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; |
14
|
|
• |
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 Form 10-K, as amended, for the fiscal year ended March 31, 2021 and other filings with the SEC. |
Furthermore, the situation surrounding the COVID-19 pandemic remains fluid and the potential for a material 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 its business, results of operations or financial position. The extent of any impact 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 six month periods ended September 30, 2021 (fiscal 2022) and September 30, 2020 (fiscal 2021) (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net product sales |
|
$ |
1,794 |
|
|
$ |
2,211 |
|
|
$ |
3,781 |
|
|
$ |
3,445 |
|
|
Licensing revenue |
|
|
65 |
|
|
|
60 |
|
|
|
130 |
|
|
|
120 |
|
|
Net revenues |
|
|
1,859 |
|
|
|
2,271 |
|
|
|
3,911 |
|
|
|
3,565 |
|
|
Cost of sales |
|
|
1,351 |
|
|
|
1,747 |
|
|
|
2,960 |
|
|
|
2,765 |
|
|
Selling, general and administrative expenses |
|
|
1,363 |
|
|
|
1,564 |
|
|
|
2,727 |
|
|
|
3,041 |
|
|
Operating loss |
|
|
(855 |
) |
|
|
(1,040 |
) |
|
|
(1,776 |
) |
|
|
(2,241 |
) |
|
Interest income, net |
|
|
16 |
|
|
|
28 |
|
|
|
33 |
|
|
|
110 |
|
|
Income from governmental assistance programs |
|
|
207 |
|
|
|
55 |
|
|
|
207 |
|
|
|
55 |
|
|
Loss before income taxes |
|
|
(632 |
) |
|
|
(957 |
) |
|
|
(1,536 |
) |
|
|
(2,076 |
) |
|
Provision (benefit) for income taxes |
|
|
- |
|
|
|
(1 |
) |
|
|
11 |
|
|
|
5 |
|
|
Net loss |
|
$ |
(632 |
) |
|
$ |
(956 |
) |
|
$ |
(1,547 |
) |
|
$ |
(2,081 |
) |
Net product sales — Net product sales for the second quarter of fiscal 2022 were $1.8 million as compared to $2.2 million for the second quarter of fiscal 2021, a decrease of $0.4 million, or 18.9%. The Company’s sales during the second quarter of fiscal 2022 and fiscal 2021 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – where net product sales comprised approximately 93% and 79%, respectively, of the Company’s total net product sales.
Net product sales for the six month period ended September 30, 2021 were $3.8 million as compared to $3.4 million for the six month period ended September 30, 2020, an increase of $0.4 million, or 9.8%. The Company’s sales during such periods were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – where net product sales comprised approximately 89% and 79%, respectively, of the Company’s total net product sales.
15
Net product sales may be periodically impacted by adjustments made to the Company’s sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period. In the aggregate, these adjustments had the effect of increasing net product sales and operating income by approximately $6,000 and $39,000 for the second quarters of fiscal 2022 and fiscal 2021, respectively, and approximately $6,000 and $43,000 for the six month periods ended September 30, 2021 and September 30, 2020, respectively. Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name. The major elements which contributed to the overall increase in net product sales were as follows:
|
|
i) |
Houseware products: Net sales decreased $0.6 million, or 55.5%, to $0.5 million in the second quarter of fiscal 2022 as compared to $1.1 million in the second quarter of fiscal 2021, driven by a decrease in year-over-year sales of microwave ovens. For the six month period ended September 30, 2021, houseware net product sales were $1.3 million, a decrease of $0.3 million, or 20.1%, from $1.6 million for the six month period ended September 30, 2020, driven by a decrease in year-over-year sales of microwave ovens. |
|
|
ii) |
Audio products: Net sales increased $0.2 million, or 15.1%, to $1.3 million in the second quarter of fiscal 2022 as compared to $1.1 million in the second quarter of fiscal 2021, resulting from increased net sales of clock radios. For the six month period ended September 30, 2021, audio product net sales were $2.5 million, an increase of $0.6 million or 34.8%, from $1.9 million in the six month period ended September 30, 2020 resulting from increased net sales of clock radios. |
Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products with retailers in the U.S. The Company is also continuing to invest in products and marketing activities to expand its sales through internet and ecommerce channels. These efforts require investments in appropriate human resources, media marketing and development of products in various categories in addition to the traditional home appliances and audio products on which the Company has historically focused. The Company also is continuing its efforts to identify strategic courses of action related to its licensing activities, including seeking new licensing relationships. The Company has engaged LMCA 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
16
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. 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 trends
For more information on risks associated with the Company’s operations, including tariffs, please see the risk factors within Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2021.
Licensing revenue — Licensing revenue in the second quarter of fiscal 2022 was $65,000 as compared to $60,000 in the second quarter of fiscal 2021, an increase of $5,000, 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.
Licensing revenue for the six month period ended September 30, 2021 was $130,000 as compared to $120,000 for the six month period ended September 30, 2020, an increase of $10,000, 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 $1.9 million in the second quarter of fiscal 2022 as compared to $2.3 million in the second quarter of fiscal 2021, a decrease of $0.4 million, or 18.1%, and $3.9 million for the six month period ended September 30, 2021 as compared to $3.6 million for the six month period ended September 30, 2020, an increase of $0.3 million, or 9.7%
Cost of sales — In absolute terms, cost of sales decreased $0.4 million, or 22.7%, to $1.4 million in the second quarter of fiscal 2022 as compared to $1.8 million in the second quarter of fiscal 2021. The decrease in absolute terms for the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021 was primarily related to a decrease in net product sales and lower year-over-year gross cost of sales as a percentage of gross sales.
In absolute terms, cost of sales increased $0.2 million, or 7.0%, to $2.9 million for the six month period ended September 30, 2021 as compared to $2.7 million for the six month period ended September 30, 2020. The increase in absolute terms for the six month period ended September 30, 2021 as compared to the six month period ended September 30, 2020 was primarily related to an increase in net product sales partially offset by lower 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. For both second quarters of fiscal 2022 and fiscal 2021, the Company purchased 100% of its goods from its two largest suppliers. For each of the six month periods ended September 30, 2021 and September 30, 2020, the Company purchased 100% of its goods from its two largest suppliers.
Selling, general and administrative expenses (“S,G&A”) — S,G&A, in absolute terms, was $1.4 million in the second quarter of fiscal 2022 as compared to $1.6 million in fiscal 2021, a decrease of $0.2 million or 12.9%. S,G&A, as a percentage of net revenues, was 73.3% in the second quarter of fiscal 2022 as compared to 68.9% in the second quarter of fiscal 2021. The decrease in S,G&A was primarily attributed to a decrease in legal fees of approximately $125,000. Legal fees for the second quarter of fiscal 2022 were $325,000 as compared to $450,000 for the second quarter of fiscal 2021. The majority of the decrease in legal fees concerned the protection of the Emerson® trademark.
S,G&A, in absolute terms, was $2.7 million for the six month period ended September 30, 2021 as compared to $3.0 million for the six month period ended September 30, 2020, a decrease of $0.3 million, or 10.3%. S,G&A, as a percentage of net revenues, was 69.7% for the six month period ended September 30, 2021 as compared to 85.3% for the six month period ended September 30, 2020. The decrease in S,G&A was primarily attributed to a decrease in legal fees of approximately $257,000. Legal fees for the six month period ended September 30, 2021 were $597,000 as compared to $854,000 for the six month period ended September 30, 2020. The majority of the decrease in legal fees concerned the protection of the Emerson® trademark.
17
Interest income, net — Interest income, net, was $16,000 in the second quarter of fiscal 2022 as compared to $28,000 in the second quarter of fiscal 2021, a decrease of $12,000. The decrease was primarily due to lower average interest rates earned on the Company’s short term investments.
Interest income, net, was $33,000 for the six month period ended September 30, 2021 as compared to $110,000 for the six month period ended September 30, 2020, a decrease of $77,000. The decrease was primarily due to lower average interest rates earned on the Company’s short term investments.
Income from governmental assistance programs — For both the three and six month periods ended September 30, 2021, the Company recorded income of approximately $207,000 related to its PPP loan forgiveness. For both the three and six month periods ended September 30, 2020, the Company recorded income of approximately $55,000 related to assistance received from the Hong Kong government under the ESS program. See “Note 10 - Paycheck Protection Program and Employment Support Scheme”.
Provision (benefit) for income taxes — In the second quarter of fiscal 2022, the Company recorded income tax expense of nil as compared to an income tax benefit of $1,000 in the second quarter of fiscal 2021. See “Note 5 – Income Taxes”.
For the six month period ended September 30, 2021, the Company recorded income tax expense of $11,000 as compared to income tax expense of $5,300 for the six month period ended September 30, 2020.
Although the Company generated net losses during fiscal 2022 and fiscal 2021, 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 $632,000 in the second quarter of fiscal 2022 as compared to a net loss of $956,000 in the second quarter of fiscal 2021.
For the six month period ended September 30, 2021, the Company realized a net loss of $1,547,000 as compared to a net loss of $2,081,000 for the six month period ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, the Company had cash and cash equivalents of approximately $26.0 million as compared to approximately $5.2 million at March 31, 2021. Working capital decreased to $30.2 million at September 30, 2021 as compared to $32.1 million at March 31, 2021. The increase in cash and cash equivalents of approximately $20.8 million was due to the decrease in short term investments of $25.0 million and the increase in long term lease liabilities offset by the net loss generated during the period of $1.5 million, an increase in inventory of $0.9 million, an increase in accounts receivable of $0.8 million, an increase in right of use assets of $0.3 million, an increase in prepaid expenses of $0.3 million, a decrease in federal taxes payable of $0.2 million and a decrease in PPP loan payable of $0.2 million.
Cash Flows
Net cash used by operating activities was approximately $4.3 million for the six months ended September 30, 2021, resulting from a $1.5 million net loss generated during the period, an increase in inventory of $0.9 million, an increase in accounts receivable of $0.8 million, an increase in right of use assets of $0.4 million, an increase in prepaid expenses of $0.3 million, the impact of the PPP loan forgiveness of $0.2 million and a decrease in federal taxes payable of $0.2 million.
Net cash provided by investing activities was approximately $25.0 million for the six months ended September 30, 2021 due to a decrease in short term deposits.
Net cash used by financing activities was nil for the six months ended September 30, 2021.
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.
18
Off-Balance Sheet Arrangements
As of September 30, 2021, 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 “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 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 “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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. 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”)) 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 September 30, 2021, 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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
19
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently a party to any 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 will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Item 1A. 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 for the year ended March 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
(a) None
(b) None
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
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) |
|
* |
filed herewith |
|
** |
furnished herewith |
20
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: November 15, 2021 |
|
|
|
Christopher W. Ho |
|
|
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
||
|
|
|
|
|
/s/ Michael Binney |
|
Date: November 15, 2021 |
|
|
|
Michael Binney |
|
|
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
21