UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
Form 10-K
FORM10-K/A
(Amendment No. 1)
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year ended March 31, 2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number 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 Number) | ||
|
| ||
(Address of principal executive offices) | (Zip Code) | ||
Registrant’s telephone number, including area code:
(973) 428-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of | Name of | |
Common Stock, par value $.01 per share | NYSE American |
Securities registered pursuant to Section 12(g) of the Act:
None. None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒ NO.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act). ☐ YES ☒ NO.
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 requirement for the past 90 days. ☒ YES ☐ NO.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). files.) ☒ YES ☐ NO. NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§ 232.405)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ||||||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | 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 Rule12b-2 of the Act). ☐ YES ☒ NO.
Aggregate market value of the voting andnon-voting common equity of the registrant held bynon-affiliates of the registrant at September 30, 2017 (computed by reference to the last reported sale price of the Common Stock on the NYSE American (formerly NYSE MKT) on such date): $12,501,554.
Number of Common Shares outstanding at June 15, 2018: 22,571,951
DOCUMENTS INCORPORATED BY REFERENCE:
None
|
|
|
|
2
Forward-Looking Information
This report contains forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under 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 its 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. You can identify these forward-looking statements through the 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 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;
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 including, but not limited to the recently enacted U.S. Tax Cuts and Jobs Act of 2017;
the level of the Company’s stock repurchase activity;
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 this Annual Report on Form 10-K and other filings with the SEC.
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 annual report or the date of the
3
document incorporated by reference into this annual 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 the Company believes they have a reasonable basis. However, the Company cannot assure the reader that its expectations, beliefs or projections will result or be achieved or accomplished.
The Company — OverviewEXPLANATORY NOTE
Unless the context otherwise requires, the term “the Company” and “Emerson,” refers to Emerson Radio Corp. and its subsidiaries.
Emerson Radio Corp. was incorporated in Delaware in 1994. The Company designs, sources, imports and markets a variety of houseware and consumer electronic products, and licenses its trademarks to othersThis Amendment No. 1 on a worldwide basis for a variety of products.
General
The Company, directly and through several subsidiaries, designs, sources, imports, markets, sells and licenses to certain licensees a variety of houseware and consumer electronic products, both domestically and internationally, under the Emerson® brand name.
The Company believes its competitive advantages include a combination of:
|
|
the Company’s distribution base and established customer relations;
the Company’s sourcing expertise and established vendor relations;
an infrastructure with personnel experienced in servicing and providing logistical support to the domestic mass merchant distribution channel, or supervising third-party logistics providers in providing same; and
the Company’s extensive experience in establishing license and distribution agreementsAnnual Report on a global basis for a varietyForm10-K (the “Annual Report”) of products.
The Company intends to continue leveraging its core competencies to offer a variety of current and new houseware and consumer electronic products to customers. In addition, the Company intends to continue entering into licenses for the use of its trade names and trademarks by third parties. See “Licensing Activities.”
The Company’s core business consists of selling, distributing, and licensing various low and moderately priced houseware and consumer electronic products in various categories. All of the Company’s marketing and sales efforts are currently concentrated in the United States.
For additional disclosures regarding the Company’s major customers, as well as financial information about geographical areas of the Company’s operations, see Item 8 – “Financial Statements and Supplementary Data” and Note 13 “Geographic Information”.
Products
The Company’s current product and branded categories consist primarily of the following:
|
|
| ||
|
|
| ||
|
| |||
|
| |||
|
| |||
4
The Company markets its products exclusively in the United States, primarily through mass merchandisers and online marketplaces.
In fiscal 2018, Walmart accounted for approximately 62%, Amazon.com accounted for approximately 11%, and Fred Meyer accounted for approximately 11% of the Company’s net revenues. In fiscal 2017, Walmart accounted for approximately 53% and Fred Meyer accounted for approximately 17% of the Company’s net revenues. No other customer accounted for more than 10% of net revenues in either period. As a percent of the Company’s total trade accounts receivable, net of specific reserves, Walmart and Amazon.com accounted for 64% and 21% as of March 31, 2018, respectively. As a percent of the Company’s total trade accounts receivable, net of specific reserves, Walmart and Fred Meyer accounted for 91% and nil as of March 31, 2017, respectively. Management believes that a loss, or a significant reduction, of sales to any of its key customers would have a material adverse effect on the Company’s business and results of operations.
Approximately 31% and 25% of the Company’s net revenues in fiscal 2018 and 2017, respectively, were made through third-party sales representative organizations that receive sales commissions and work in conjunction with the Company’s own sales personnel. With the Company’s permission, third-party sales representative organizations may sell competitive products in addition to the Company’s products. In most instances, either party may terminate a sales representative relationship on 30 days prior notice by the Company and 90 days prior notice by the sales representative organization in accordance with customary industry practice. In fiscal 2018, the Company utilized 5 sales representative organizations, including one which represented approximately 26% of its net revenues. In fiscal 2017, the Company utilized 7 sales representative organizations, including one which represented approximately 23% of its net revenues. No other sales representative organization accounted for more than 10% of net revenues in fiscal 2018 or fiscal 2017. The remainder of the Company’s sales is to customers that are serviced by its sales personnel. Although sales and operating results could be negatively impacted, management does not believe that the loss of one or more sales representative organizations would have a material adverse effect on its business and results of operations, as the Company believes that new sales representative organizations could be identified if needed, although that could be a time consuming process.
The Company primarily sells product to customers from its United States warehoused inventory, which is referred to as the Domestic Program. Under the Domestic Program, title for product typically passes at the time of shipment. The Company’s Direct Import Program allows its customers to import and receive product directly from an export port in the country of manufacture outside the United States. Under the Direct Import Program, title for the Company’s product passes to the customer in the country of origin when the product is shipped by the Company’s subsidiary in China. Under both programs, the Company recognizes revenues at the time title passes to the customer. See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” During fiscal 2018, less than 1% of the Company’s net product sales were sold under the Direct Import Program. During fiscal 2017, none of the Company’s net product sales were sold under the Direct Import Program.
During fiscal 2017, the Company initiated sales through third party online marketplaces to broaden its brand reach. The Company’s website also serves as a sales channel for products, and provides search capability, detailed product information, online merchant availability, demo videos and downloadable product specification sheets. Sales through Amazon.com accounted for approximately 11% and 3% of the Company’s net revenues in fiscal 2018 and 2017, respectively. The Company expects sales through online marketplaces to continue to be a growth initiative for its business.
The Company has an integrated system to coordinate the purchasing, sales and distribution aspects of its operations. The Company receives orders from its major customers via electronic data interface, facsimile, telephone or mail. The Company does not have long-term contracts with any of its customers, but rather receives orders on an ongoing basis. Products imported by the Company for the Domestic Program, generally from factories in Asia, are shipped by ocean and/or inland freight and then stored in the Company’s outsourced warehouse facilities for shipment to customers. The Company monitors its inventory levels and goods in transit through the use of an electronic inventory system. When a purchase order under the Domestic Program is received, it is filled from the Company’s inventory and the warehoused product is labeled and prepared for outbound shipment to the customer by common, contract or small package carrier.
Licensing Activities
The Company is party to two license agreements with a third party licensee that allow the licensee to manufacture and/or sell various products bearing the Company’s trademarks into defined geographic areas. Such activities have had a positive impact on operating results by generating income with minimal incremental costs and without any working capital requirements, and the Company intends to continue pursuing additional licensing opportunities. The Company protects its brand through careful license and product selection and control processes.
5
See Item 1A — “Risk Factors — Business Related Risks — “The failure to obtain new licensees and distribution relationships or to maintain relationships with its existing licensees and distributors could materially and adversely affect the Company’s revenues, earnings and business.”
Design and Manufacturing
The Company’s products are manufactured by original equipment manufacturers in accordance with the Company’s specifications. During fiscal 2018 and 2017, 100% of the Company’s purchases consisted of finished goods from foreign manufacturers located in People’s Republic of China.
The Company’s design team is responsible for product development and works closely with suppliers and determines the cosmetic and other features for new products. Accordingly, the exterior designs and operating features of the products reflect the Company’s judgment, or that of its customers, of current styles and consumer preferences.
The following summarizes the Company’s purchases from its major suppliers that provided more than 10% of the Company’s total purchases in fiscal 2018 and 2017:
|
| Fiscal Year |
| |||||
Supplier |
| 2018 |
|
| 2017 |
| ||
Midea |
|
| 59 | % |
|
| 75 | % |
Itoma |
|
| 34 | % |
|
| 16 | % |
Total |
|
| 93 | % |
|
| 91 | % |
* All other suppliers were less than 10% |
|
|
|
|
|
|
|
|
The Company considers its relationships with its suppliers to be satisfactory and believes that, barring any unusual material or part shortages or economic, fiscal or monetary conditions, the Company could develop alternative suppliers. No assurance can be given that ample supply of product would be available at current prices and on current credit terms if the Company were required to seek alternative sources of supply without adequate notice by a supplier or a reasonable opportunity to seek alternate production facilities and component parts (See Item 1A — “Risk Factors — Business Related Risks — The Company depends on a limited number of suppliers for its products. If its relationships with such suppliers terminate or are otherwise impaired, the Company would likely experience increased costs, disruptions in the manufacture and shipment of its products and a material loss of net sales.” and Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.)
Warranties
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 compact refrigerators 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.
Returned Products
The Company’s customers return product for a variety of reasons, including:
retailer return policies which allow customer returns for no reason concerning the quality of the product itself;
damage to goods in transit and cosmetic imperfections; and
mechanical failures.
Backlog
The Company does not believe that backlog is a significant factor. The ability of management to correctly anticipate and provide for inventory requirements is essential to the successful operation of the Company’s business.
6
The Company owns the following principal trademarks for certain consumer electronic products in the United States, Canada, Mexico and various other countries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s trademark registrations must be renewed at various times. The Company intends to renew all trademarks necessary for the conduct of its business. The Company considers the Emerson® trademark to be of material importance to its business and, to a lesser degree, the remaining trademarks. The Company licenses the Emerson® and certain of its other trademarks to third parties, the scope of which is on a limited product and geographic basis and for a period of time. See “Licensing Activities.”
Competition
The Company primarily competes in the low-to-medium-priced sector of the housewares and consumer electronics market. Management estimates that the Company has several dozen competitors that are manufacturers and/or distributors, many of which are much larger and have greater financial resources than the Company. The Company competes primarily on the basis of:
brand recognition;
reliability;
quality;
price;
design;
consumer acceptance of the Company’s products; and
the quality of service and support provided to retailers and their customers.
The Company also competes at the retail level for shelf space and promotional displays, all of which have an impact on its success in established and proposed distribution channels.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and regulations promulgated there under, the United States government charges tariff duties, excess charges, assessments and penalties on many imports. These regulations are subject to continuous change and revision by government agencies and by action of the United States Trade Representative. As all of the Company’s products are currently manufactured by suppliers in China, the enactment of new legislation or the administration of current international trade regulations or executive action affecting trade agreements, or changes in sourcing patterns could adversely affect the Company’s operations. See Item 1A — “Risk Factors — Business Related Risks — Foreign regulations and changes in the political, social and economic conditions in the United States and the foreign countries in which the Company operates its business could affect the Company’s revenues and earnings materially and adversely.” A number of states have adopted statutes regulating the manner of determining the amount of payments to independent service centers performing warranty service on products such as those sold by the Company. Additional Federal legislation and regulations regarding the importation of consumer electronics products, including the products marketed by the Company, have been proposed from time to time and, if enacted into law, could adversely affect the Company’s financial condition and results of operations.
7
Product Liability and Insurance
Because of the nature of the products it sells, the Company is periodically subject to product liability claims resulting from personal injuries. The Company may also become involved in various lawsuits incidental to its business.
Although the Company maintains product liability insurance coverage, there can be no assurance that the Company’s coverage limits will be sufficient to cover any successful product liability claims made against it in the future. In management’s opinion, any ultimate liability arising out of currently pending product liability claims will not have a material adverse effect on the Company’s financial condition or results of operations. However, any claims substantially in excess of the Company’s insurance coverage, or any substantial claim not covered by insurance, could have a material adverse effect on the Company’s financial condition and results of operations.
Employees
As of June 20, 2018, the Company had 27 employees, comprised of 12 in the United States and 15 in China. None of the Company’s employees are represented by unions, and the Company believes its labor relations are good.
Available Information
The Company files reports and other information with the SEC pursuant to the information requirements of the Securities Exchange Act of 1934. Readers may read and copy any document the Company files at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operations of the public reference room. The Company’s filings with the SEC are also available to the public from commercial document retrieval services and at the SEC’s website at www.sec.gov.
The Company makes available through its internet website free of charge its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by the Company with the SEC, as soon as practicable after the Company electronically files such reports and filings with the SEC. The Company’s website address is www.emersonradio.com. The information contained in the Company’s website is not incorporated by reference in this report.
The reader should carefully consider these risk factors in addition to those set forth in the Company’s financial statements or the notes thereto. Additional risks about which the Company is not yet aware or that the Company currently believes to be immaterial also may adversely affect the Company’s business operations. If any of the following occur, the Company’s business, financial condition or operating results may be adversely affected. In that case, the price of the Company’s common stock may decline.
Business Related Risks
The Company relies on a small number of key customers for the majority of its business, and the loss or significant reduction in business with any of these key customers would materially and adversely affect the Company’s revenues and earnings.
Certain customers have historically made up a significant percentage of the Company’s product sales and net revenues. For the fiscal year ended March 31, 2018 Walmart, Amazon.com(“Fiscal 2018”), filed with the Securities and Fred Meyer accountedExchange Commission (the “SEC”) on June 28, 2018, is filed solely for approximately 62%, 11% and 11%, respectively,the purpose of including information that was to be incorporated by reference from the Company’s definitive proxy statement pursuant to Regulation 14A of the Company’s net revenues. For theSecurities Exchange Act of 1934, as amended (the “Exchange Act”). The Company will not file its proxy statement for its annual meeting of stockholders within 120 days of its fiscal year ended March 31, 2017 Wal-Mart2018, and Fred Meyer accounted for approximately 53%is therefore amending and 17%restating in their entirety Items 10, 11, 12, 13 and 14 of Part III of the Company’s net revenues, respectively. The Company expects that its online marketplaces will increasingly represent a significant portion of the Company’s product sales going forward. No other customer accounted for more than 10% of the Company’s net revenues during these periods. All customer purchases are made through purchase orders and the Company does not have any long-term contracts with its customers. Accordingly, sales from customers that have accounted for a significant portion of the Company’s net product sales and net revenues in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period, which has happened in the past and could happen in the future. Some of the Company’s key customers may also experience economic difficulties or otherwise default on their obligations to the Company. The complete loss of, or significant reduction in business from, or a material adverse change in the financial condition of, any of the Company’s key customers would cause a material and adverse change in the Company’s revenues and operating results.
The Company is dependent on a limited number of products for its sales.
We derive a substantial portion of our product revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our product revenues in the near term. For the twelve months ended March 31, 2018, the Company’s gross product sales were comprised of four product types within two categories — housewares products and audio
8
products, and two of these product types, namely microwave ovens and compact refrigerators — both within the housewares category — generated approximately 69% of the Company’s gross product sales, with microwave ovens generating approximately 63% of the total and compact refrigerators generating approximately 6% of the total. Audio products generated approximately 30% of the Company’s gross product sales during fiscal 2018. For the twelve months ended March 31, 2017, the Company’s gross product sales were comprised of the same four product types within the same two categories — housewares products and audio products, and two of these product types, namely microwave ovens and compact refrigerators — both within the housewares category — generated approximately 82% of the Company’s gross product sales, with microwave ovens generating approximately 71% of the total and compact refrigerators generating approximately 11% of the total. Audio products generated approximately 18% of the Company’s gross product sales during fiscal 2017. Because the market for these product types and categories is characterized by periodic new product introductions, the Company’s future financial performance will depend, in part, on the successful and timely development and customer acceptance of new and enhanced versions of these product types and other products distributed by the Company. There can be no assurance that the Company will continue to be successful in marketing these products types within these categories or any other new or enhanced products. For example, certain of the Company’s key customers perform periodic line reviews to assess their product offerings, which have in the past and may in the future lead to loss of business and pricing pressures. As a result of this dependence, a significant decline in pricing of, or market acceptance of these product types and categories, either in general or specifically as marketed by the Company, would have a material adverse effect on the Company’s business, financial condition and results of operation.
The loss or reduction of business of one or a combination of our houseware and audio product lines could materially adversely affect our revenues, financial condition and results of operations.
If the Company’s third party sales representatives fail to adequately promote, market and sell the Company’s products, the Company’s revenues could significantly decrease.
A significant portion of the Company’s product sales are made through third party sales representative organizations, whose members are not employees of the Company. The Company’s level of sales depends on the effectiveness of these organizations, as well as the effectiveness of its own employees. Some of these third party representatives may sell (and do sell), with the Company’s permission, competitive products of third parties as well as the Company’s products. During the Company’s fiscal years ended March 31, 2018 and March 31, 2017, these organizations were responsible for approximately 31% and 25%, respectively, of its net revenues during such periods.Annual Report. In addition, one of these representative organizations was responsible for a significant portion of these revenues. If any ofpursuant to Rule13a-14(a) under the Company’s third party sales representative organizations engaged by the Company, especially the Company’s largest, fails to adequately promote, market and sell its products, the Company’s revenues could be significantly decreased until a replacement organization or distributor could be retained by the Company, which has happened in the past and could happen in the future. The loss or reduction of product sales made through third party sales representative organizations could have a material adverse effect on the Company’s business and results of operations. Finding replacement organizations and distributors could be a time consuming process during which the Company’s revenues could be negatively impacted.
The concentration of product sales among a limited number of retailers and the trend toward private label brands could materially reduce revenues and profitability.
With the concentration of the Company’s product sales among a limited number of retailers,Exchange Act, the Company is dependent upon a small numberamending Item 15 of customers whose bargaining strength is growing. These retailers generally purchase a limited selection of houseware and consumer electronic products. As a result, there is significant competition for retail shelf space. In addition, certainPart IV of the Company’s key customers use their own private label brands that compete directly with someAnnual Report to update the exhibit list and to include certain currently dated certifications. Except as described above, no other amendments are being made to the Annual Report. This Form10-K/A does not reflect events occurring after the filing of the Company’s products. AsAnnual Report on June 28, 2018 or modify or update the retailersdisclosure contained in the housewareAnnual Report in any way other than as required to reflect the amendments discussed above and consumer electronic industry become more concentrated, competition for sales to these retailers may increase, which could materially reduce the Company's revenues and profitability.reflected below.
Item | Page | |||
| 4 | ||||
| 4 | ||||
| 8 | ||||
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 10 | |||
13. Certain Relationships and Related Transactions and Director Independence | 11 | |||
| 12 | ||||
| 12 | ||||
| 12 | ||||
| 15 | ||||
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The houseware and consumer electronic industry is consolidating, which could reducefollowing table sets forth certain information regarding the Company’s ability to successfully secure product placements at key customers and limit its ability to sustain a cost competitive position in the industry.
Over the past several years, the houseware and consumer electronic industry has undergone substantial consolidation, and further consolidation is likely. As a resultcurrent directors of this consolidation, the houseware and consumer electronic industry primarily consists of a limited number of large retailers and distributors. The Company’s ability to gain or maintain share of sales in the houseware and consumer electronic industry or maintain or enhance its relationships with key customers may be limited as a result of actions by competitorsEmerson Radio Corp. (“Emerson,” “us” or the retailers’ increasing use“Company”) as of private label brands.July 27, 2018.
9
Name | Age | Director Since | Principal Occupation or Employment | |||
| Christopher Ho | 67 | 2016 | Christopher Ho, a director of the Company and the Chairman of the Board since June 2016, brings his extensive knowledge of the Company and experience in consumer electronics, international trade and corporate finance to the Board of Directors. Mr. Ho served as the Company’s Chairman of the Board from July 2006 through November 2013 and he currently serves as Chairman of Lafe Corporation Limited, a company listed on the Singapore Exchange. Since May 2018, Mr. Ho. has served as a director of S&T International Distribution Ltd. and Grande N.A.K.S. Ltd., which are wholly owned subsidiaries of Nimble Holdings Company Limited. Mr. Ho previously was a director of The Grande Holdings Limited (now known as Nimble Holdings Company Limited), a Hong Kong-based group of companies engaged principally in the licensing of trademarks and distribution of consumer electronics products, from October 1991 to February 2016. Mr. Ho graduated from the University of Toronto in 1974. He is a Chartered Professional Accountant, Chartered Accountant and Chartered Management Accountant of Canada. He is also a Certified Public Accountant in Hong Kong and a member of the Hong Kong Institute of Certified Public Accountants. He was a partner in an international accounting firm before joining The Grande Holdings Limited and has extensive experience in distribution, licensing, manufacturing, international trade and corporate finance. | |||
| Based on Mr. Ho’s experience in consumer electronics, international trade and corporate finance, the Board of Directors believes that he is well qualified to serve as a director of the Company. | ||||||
| Duncan Hon | 57 | 2009 | Duncan Hon, a director of the Company since February 2009, has been the Company’s Chief Executive Officer since August 2011 and, prior to that, was the Company’s Deputy Chief Executive Officer since November 2009. From June 2016 to July 2017, Mr. Hon also served as the Company’s Secretary. Since May 2016, Mr. Hon has served as a director of S&T International Distribution Ltd. and Grande N.A.K.S. Ltd., which are wholly owned subsidiaries of Nimble Holdings Company Limited. From May 2016 to December 2017, Mr. Hon served as the Chief Executive Officer and an executive director of The Grande Holdings Limited (now known as Nimble Holdings Company Limited), and since 2010 he has also served as a director and Vice Chairman of the Board of Sansui Electric Co. Ltd., a Japanese manufacturer of audio and video equipment and part of the Nimble group. Mr. Hon also served as a director of The Grande Holdings Limited from January 2011 until March 2013. In addition to his employment with the Company, Mr. Hon is also an employee of a subsidiary of Nimble which is engaged in trademark licensing. He is a member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
Based on Mr. Hon’s role as Chief Executive Officer of the Company and his experience in consumer electronics, management and accounting, the Board believes that he is well qualified to serve as a director of the Company. | |||
Name Age Director Since Principal Occupation or Employment Mr. Yuen, a director of the Company since June 2016, brings extensive experience in corporate finance, financial planning, public company reporting and management to the Board of Directors. Since April 2016, Mr. Yuen has served as an independentnon-executive director of Lafe Corporation Limited, a company listed on the Singapore Exchange engaged in real property development. Since 2004, Mr. Yuen has also served as an independentnon-executive director of Huayi Tencent Entertainment Co. Ltd., a company listed on the Stock Exchange of Hong Kong Limited and engaged in entertainment and media businesses. In September 2017, Mr. Yuen was appointed an executive director of Culturecom Holdings Limited, a company listed on the Hong Kong Stock Exchange and engaged in publishing businesses. From 2009 to 2014, Mr. Yuen was the Chief Financial Officer and an Executive Director of Varitronix International Ltd., a Hong Kong-listed company and manufacturer of LCD and related products. Mr. Yuen holds a Master of Business Administration degree from the University of Toronto, Canada. He is a Chartered Professional Accountant in Canada and he is a fellow member of the Hong Kong Institute of Certified Public Accountants, and of the Association of Chartered Certified Accountants. Based on Mr. Yuen’s experience in corporate finance, financial planning, public company reporting and management, the Board of Directors believes that he is well qualified to serve as a director of the Company.The failure to obtain new licensees Michael Binney 59 2016 Michael Binney, the Chief Financial Officer of the Company since March 2017 and the Company’s Secretary since July 2017, has also served as a director of the Company since June 2016, bringing extensive public company accounting experience in addition to his knowledge of the Company to the Board of Directors. Since August 2016, Mr. Binney has served as a director of S&T International Distribution Ltd. and Grande N.A.K.S. Ltd., which are wholly owned subsidiaries of Nimble Holdings Company Limited. From November 2016 to December 2017, Mr. Binney served as an Executive Director and Group Chief Financial Officer of The Grande Holdings Limited (now known as Nimble Holdings Company Limited). He is a fellow member of the Institute of Chartered Accountants in England and Wales, a fellow member of the Association of Chartered Certified Accountants and a fellow member of the Hong Kong Institute of Certified Public Accountants. From June 2016 through November 2016, Mr. Binney served as Deputy Chief Executive Officer (Finance Accounting & Company Secretarial) of The Grande Holdings Limited. From 2010 to March 2016, Mr. Binney served as an Executive Director and Chief Financial Officer of the Vinarco International Group of Companies, an upstream supplier to the oil and gas industry in the Asia-Pacific region. Mr. Binney previously served as anon-executive director of The Grande Holdings Limited from 2009 to 2010, and as an Executive Director of The Grande Holdings Limited from 2001 to 2009. He also was a member of the Board of Directors of Lafe Corporation Limited, a company listed on the Singapore Exchange, as anon-executive director from 2009 to 2010 and as Executive Director from 2001 until 2009. Mr. Binney was a member of the Board of Directors of the Company from 2005 to 2008. Previous to the above appointments, Mr. Binney worked for over 10 years at major international accounting firms including KPMG and PricewaterhouseCoopers. Based on Mr. Binney’s role as a consultant and his experience in management and accounting, the Board believes that he is well qualified to serve as a director of the Company. Kareem E. Sethi (1) 41 2007 Kareem E. Sethi has been a director since December 2007. Mr. Sethi has served as Managing Director of Streetwise Capital Partners, Inc. since 2003. From 1999 until 2003, Mr. Sethi was Manager, Business Recovery Services for PricewaterhouseCoopers LLP. Based on Mr. Sethi’s experience in accounting, corporate finance and portfolio management, the Board believes that he is well qualified to serve as a director of the Company. Kin Yuen (1) 63 2016 (1) Member of the Audit Committee
Board of Directors and distribution relationships or to maintain relationships with its existing licensees and distributors could materially and adversely affect the Company’s revenues, earnings and business.
The Company maintains agreements that allow licensees to use the Company’s trademarks for the manufacture and sale of specific consumer electronics and other products into defined geographic areas. These agreements typically are for a limited period of time and, upon expiration, the Company cannot assure that its agreements with its licensees will be renewed in the future or that the Company’s relationships with its licensees or distributors will be maintained on satisfactory terms or at all. For example, as previously disclosed, the Company’s relationship with Funai, historically the Company’s most significant licensee, terminated in December 2016. For the fiscal year ended March 31, 2017, Funai accounted for approximately 78% of the Company’s total licensing revenue. Funai also contributed substantial product volume and market presence through its manufacture and distribution of products utilizing the Emerson® brand name in the United States. If the Company is unable to maintain its relationships with its licensees and distributors on terms satisfactory to the Company, or if it fails to obtain new licensees or distribution relationships or the Company’s licensees fail to protect the integrity and reputation of the Company’s trademarks, the value of the Emerson brand and the Company’s licensing revenues and earnings could be materially and adversely affected.
The Company depends on a limited number of suppliers for its products. If its relationships with such suppliers terminate or are otherwise impaired, the Company would likely experience increased costs, disruptions in the manufacture and shipment of its products and a material loss of net sales.
Although there are multiple potential suppliers for each of the Company’s products, the Company relies and is dependent on a limited number of suppliers for its main products, all of which are located outside of the United States.
The Company does not have any long-term or exclusive purchase commitments with any of its suppliers. Midea was the Company’s largest supplier and accounted for 59% of the Company’s purchases of products during fiscal 2018. The Company’s failure to maintain existing relationships with its suppliers or to establish new relationships on similar pricing and credit terms in the future could negatively affect the Company’s ability to obtain products in a timely manner. If the Company is unable to obtain an ample supply of product from its existing suppliers or secure alternative sources of supply, it may be unable to satisfy its customers’ orders, which could materially and adversely affect the Company’s revenues and relationships with its customers. Finding replacement suppliers could be a time consuming process during which the Company’s revenues and liquidity could be negatively impacted.
Increases in costs of products may materially reduce the Company’s profitability.
Factors that are largely beyond the Company’s control, such as the cost, quality and availability of the raw materials and components needed by suppliers of the Company’s products, may affect the cost of such products, and the Company may not be able to pass those costs on to its customers. As an example, when the prices of petroleum increase significantly, the Company’s profitability may be negatively impacted.
If the Company is unable to deliver products in the required amounts and in a timely fashion, the Company could experience delays or reductions in shipments to its customers, which could materially and adversely affect the Company’s revenues and relationships with its customers.Committees
The Company’s ability to provide high quality customer service, processBoard of Directors presently consists of five directors. The Board of Directors has determined that two of the directors, Messrs. Sethi and fulfill orders, and manage inventory depends on the efficient and uninterrupted operation and timely and uninterrupted performance of its suppliers. The Company can provide no assurances that it will not experience operational difficulties with its suppliers, including reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines, increases in manufacturing costs and increased lead times. If the Company is unable to obtain products from these factories in the required quantities and quality and in a timely fashion, the Company could experience delays or reductions in product shipments to its customers, which could negatively affect the Company’s ability toYuen, meet the requirementsdefinition of its customers,independence as well as its relationships with its customers, which in turn could materially and adversely affect the Company’s revenues and operating results.
All the Company’s suppliers are based in China and as a result the Company is subject to risks associated with international operations and global manufacturing and sourcing including, among others:
currency fluctuations;
labor disputes and union actions that can disrupt our ability to ship products to customers;
potential political, economic and social instability;
inclement weather and natural disasters;
possible acts of terrorism;
10
changes in import and export duties and quotas;
changes in domestic and international customs and tariffs;
uncertainties involving the costs to transport products;
disruptions in the global transportation network;
unexpected changes in regulatory environments;
regulatory issues involved in dealing with foreign suppliers and in exporting and importing products;
protection of intellectual property;
difficulty in complying with a variety of foreign laws;
difficulty in obtaining distribution and support; and
potentially adverse tax consequences.
Furthermore, any material disruption, slowdown or shutdown of the operation of the Company’s principal logistics providers and shippers, including without limitation as a result of labor disputes, inclement weather, natural disasters, possible acts of terrorism, availability of shipping containers and increased security restrictions, could cause delays in the Company’s ability to receive, process and fulfill customer orders and may cause orders to be canceled, lost or delivered late, goods to be returned or receipt of goods to be refused. As a result, the Company’s relationships with its customers, revenues and operating results could be materially and adversely affected.
The Company relies on a third-party logistics provider for the storage and distribution of its products in the United States and, if such third party logistics provider incurs any damage to the facilities where the Company’s products are stored or is unable to distribute its products as needed, it could have a material adverse effect on the Company’s results of operations and business.
The Company relies on a third-party logistics provider for the storage and distribution of its products. The facilities where the Company’s products are storedestablished by such provider may also be harmed or rendered inoperable by natural or man-made disasters, including earthquakes, power outages, communications failure or terrorism. Any material damage to the facilities where the Company’s products are stored could adversely affect its inventory and the ability of such third-party logistics provider to meet the needs of its customers. In addition, an inability to maintain the Company’s contracts with such third-party logistics providers or a disruption or slowdown in the operations of such third-party logistics providers, including as a result of damage to the facilities of such providers or a strike by such providers, could cause delays in the Company’s ability to fulfill customer orders and may cause orders to be canceled, lost or delivered late, the Company’s products to be returned or receipt of products to be refused, any of which could adversely affect the Company’s business and results of operations. The Company’s contract with its third-party logistics provider is terminable upon written notice by either party for convenience without cause. If the Company is unable to maintain its contract with its third-party logistics provider, the Company would be required to retain a new third party logistics provider and the Company may be unable to retain such third party at a cost that is acceptable to the Company. If the Company’s shipping costs were to increase as a result of an increase by such third-party logistics providers or as a result of obtaining a new third-party logistics provider and if the Company is unable to pass on these higher costs to its customers, it could have a material adverse effect on the Company’s results of operations and business.
The Company’s business could be materially and adversely affected if it cannot protect its intellectual property rights or if it infringes on the intellectual property rights of others.
The Company’s ability to compete effectively depends on its ability to maintain and protect its proprietary rights. The Company owns the Emerson® and other trademarks, which are materially important to its business, as well as other trademarks, patents, licenses and proprietary rights that are used for certain of the products that it markets and sells. The Company’s trademarks are registered throughout the world, including the United States and other countries. The Company also has two patents in the United States on its SmartSet® technology, both of which expire in September 2018. However, based on the Company’s current product mix, the Company does not expect any material loss of revenues to occur as a result of the expiration of these patents. The laws of some foreign countries in which the Company operates may not protect the Company’s proprietary rights to the same extent as do laws in the United States. The protections afforded by the laws of such countries may not be adequate to protect the Company’s intellectual property rights.
Third parties may seek to challenge, invalidate, circumvent or render unenforceable any trademarks, patents or proprietary rights owned by or licensed to the Company. In addition, in the event third party licensees fail to protect the integrity of the Company’s trademarks, the value of these marks could be materially and adversely affected. The Company’s inability to protect its proprietary
11
rights could materially and adversely affect the license of its trade names, trademarks and patents to third parties as well as its ability to sell its products. Litigation has been and may in the future be necessary to enforce the Company’s intellectual property rights, protect the Company’s trade secrets; and determine the scope and validity of such intellectual property rights. Any such litigation, whether or not successful, could result in substantial costs and diversion of resources and management’s attention from the operation of the Company’s business.
The Company may receive notices of claims of infringement of other parties’ proprietary rights. Such actions could result in litigation and the Company could incur significant costs and diversion of resources in defending such claims. The party making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief. Such relief could effectively block the Company’s ability to make, use, sell, distribute or market its products and services in such jurisdiction. The Company may also be required to seek licenses to such intellectual property. The Company cannot predict, however, whether such licenses would be available or, if available, that such licenses could be obtained on terms that are commercially reasonable and acceptable to the Company. The failure to obtain the necessary licenses or other rights could delay or preclude the sale, manufacture or distribution of its products and could result in increased costs to the Company.
The Company’s revenues and earnings could be materially and adversely affected if it cannot anticipate market trends or enhance existing products or achieve market acceptance of new products.
The Company’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. In addition, to increase the Company’s penetration of current markets and gain footholds in new markets for its products, the Company must maintain its existing products and integrate them with new products. The Company may not be successful in sourcing, marketing and releasing new products that respond to technological developments or changing customer needs and preferences. The Company may also experience difficulties that could delay or prevent the successful development, introduction and sale of these new products. These new products may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market acceptance. If release dates of any future products or enhancements to the Company’s products are delayed, or if these products or enhancements fail to achieve market acceptance when released, the Company’s sales volume may decline and earnings could be materially and adversely affected. In addition, new products or enhancements by the Company’s competitors may cause customers to defer or forgo purchases of the Company’s products, which could also materially and adversely affect the Company’s revenues and earnings.
Cash generated by operating activities represents the Company’s principal source of funding and therefore the Company depends on its ability to successfully manage its operating cash flows to fund its operations.
The Company does not maintain any credit facilities (other than, from time to time, certain letters of credit) in connection with the operation of its business. The Company has relied on, and continues to rely on, its cash on hand and cash generated by operations to manage its business. Certain of the Company’s major factory suppliers, including Midea, extend credit lines to the Company in amounts based on various factors, including the amounts of the Company’s purchases and their internal credit criteria, and in the past have reduced the maximum amount of open credit lines available to the Company. The loss of, or reduction in, credit lines from the Company’s principal suppliers could reduce the Company’s liquidity, increase its working capital needs or limit its ability to purchase products which could adversely affect its financial condition or results of operations. If the Company is unable to generate sufficient cash from operations, the Company may need to secure alternative means of financing or reorganize its operations to continue to maintain the current business.
12
Foreign regulations and changes in the political, social and economic conditions in the United States and the foreign countries in which the Company operates its business could affect the Company’s revenues and earnings materially and adversely.
The Company has operations in China and derives a significant portion of its revenue from sales of products manufactured by third parties located in China. In addition, third parties located in China and other countries located in the same region produce and supply many of the components and raw materials used in the Company’s products. Conducting an international business inherently involves a number of difficulties and risks that could materially and adversely affect the Company’s ability to generate revenues and could subject the Company to increased costs. For example, the current U.S. administration has publicly supported potential trade proposals, including import tariffs and other tariffs, including the U.S. administration’s recent introduction of tariffs on China and China’s retaliatory tariffs on certain products from the United States, as well as modifications to international trade policy and other changes that may affect U.S. trade relations with other countries. As all of the Company’s products are currently manufactured by suppliers in China, any tariffs or other trade restrictions affecting the import of these products from China could have a material adverse effect on the Company’s results of operations. The Company’s dependency on its overseas suppliers could exacerbate these and other risks. Among the factors that may adversely affect the Company’s revenues and increase its costs are:
currency fluctuations which could cause an increase in the price of the components and raw materials used in the Company’s products and a decrease in its profits;
Chinese labor laws;
labor shortages affecting the Company’s facilities and its suppliers’ manufacturing facilities located in China;
the elimination or reduction of value-added tax refunds to Chinese factories that manufacture products for export;
the rise of inflation and substantial economic growth in China;
more stringent export restrictions in the countries in which the Company operates which could adversely affect its ability to deliver its products to its customers;
tariffs and other trade barriers which could make it more expensive for the Company to obtain and deliver its products to its customers;
political instability and economic downturns in these countries which could adversely affect the Company’s ability to obtain its products from its manufacturers or deliver its products to its customers in a timely fashion;
new restrictions on the sale of electronic products containing certain hazardous substances; and
the laws of China are likely to govern many of the Company’s supplier agreements.
Any of the factors described above may materially and adversely affect the Company’s revenues and/or increase its operating expenses.
The Company is subject to intense competition in the industry in which it operates, which could cause material changes in the selling price of its products or losses of its market share.
The housewares and consumer electronics industry is highly competitive, especially with respect to pricing and the introduction of new products and features. The Company’s products compete in the low to medium-priced sector of the housewares and consumer electronics market and compete primarily on the basis of reliability, brand recognition, quality, price, design, consumer acceptance of the Emerson® trademark and quality service and support to retailers and its customers. The Company and many of its competitors are subject to factory cost increases, and the Company expects these pressures to continue. If these pressures are not mitigated by increases in selling price or cost reductions from the Company’s suppliers or changes in product mix, or if the consumers of the Company’s products change their buying habits as a result of the Company’s actions, the Company’s revenues and profits could be substantially reduced. In addition, the Company recently expanded its marketing plan to include sales through online marketplaces, including Amazon.com, and the success of this plan depends on the Company’s ability to increase its visibility and continue to distribute its products through these online marketplaces. As compared to the Company, many of its competitors have significantly greater managerial, financial, marketing, technical and other competitive resources and greater brand recognition. As a result, the Company’s competitors may be able to (i) adapt more quickly to new or emerging technologies and changes in customer requirements; (ii) devote greater resources to the promotion and sale of their products and services; and (iii) respond more effectively to pricing pressures. Competition could increase if new companies enter the market, existing competitors expand their product mix or the Company expands into new markets. An increase in competition could result in material price reductions or loss of the Company’s market share.
In addition, the industry in which the Company competes generally has low barriers to entry that allow the introduction of new products or new competitors at a fast pace. Some retailers have begun to introduce their own private label products, which could reduce the volume of product they buy from the Company, as well as decrease the shelf space they allocate to the Company’s
13
products. If the Company is unable to protect the Company’s brand image and authenticity, the Company may be unable to effectively compete with these new market entrants or new products.
Changes in consumer spending and economic conditions may cause the Company’s operating results to fluctuate and cause its stock price to decline.
The Company’s net revenue and operating results may vary significantly from year to year, which may adversely affect its results of operations and the market price for its common stock. Factors that may cause these fluctuations include:
changes in market and economic conditions;
the discretionary nature of consumers’ demands and spending patterns;
variations in the sales of the Company’s products to its significant customers;
variations in manufacturing and supplier relationships;
if the Company is unable to correctly anticipate and provide for inventory requirements, it may not have sufficient inventory to deliver its products to its customers in a timely fashion or the Company may have excess inventory that it is unable to sell;
new product developments or introductions;
product reviews and other media coverage;
competition, including competitive price pressures; and
political instability, war, acts of terrorism or other disasters.
The Company could be exposed to product liability or other claims for which its product liability or other insurance may be inadequate.
A failure of any of the products marketed by the Company may subject it to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of its products. Although the Company currently maintains product liability insurance in amounts which the Company considers adequate, the Company cannot assure that:
its insurance will provide adequate coverage against potential liabilities;
adequate product liability insurance will continue to be available in the future; or
its insurance can be maintained on acceptable terms.
To the extent product liability or other litigation losses are beyond the limits or scope of the Company’s insurance coverage, the Company’s expenses could materially increase.
An information systems interruption or breach in security, including as a result of cyber-attacks, could adversely affect the Company’s business, results of operations and reputation.
In the ordinary course of business, the Company electronically maintains sensitive data, including intellectual property, its proprietary business information and that of its customers and suppliers, and some personally identifiable information of employees, in its facilities and on its networks. In addition, the Company sells its products through online marketplaces, including Amazon.com, which rely upon third-party online payment platform service providers that maintain personal information collected from customers. The secure processing, maintenance and transmission of this information is important to the Company’s operations. A breach of the Company’s security systems and procedures or those of its vendors could result in significant data losses or theft of the Company’s customers’ or the Company’s employees’ intellectual property, proprietary business information or personally identifiable information. A cybersecurity breach could negatively affect the Company’s reputation.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, the Company may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software or applications the Company procures from third parties or uses in its online marketplaces may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to the Company’s systems or facilities through fraud, trickery or other forms of deceiving its employees. Accordingly, the Company may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, or if such measures are implemented, and even with appropriate training conducted in support of such measures, human errors may still occur. It is virtually impossible for the Company to entirely mitigate this risk. A
14
party, whether internal or external, who is able to circumvent the Company’s security measures or those of its vendors could misappropriate information.
If the Company or the online payment platforms it uses fail to reasonably maintain the security of confidential information, the Company may suffer significant reputational and financial losses and the Company’s results of operations, cash flows, financial condition, and liquidity may be adversely affected. In addition, a system breach could result in other negative consequences, including disruption of internal operations, and may subject the Company to private litigation, government investigations, enforcement actions, and cause the Company to incur potentially significant liability, damages, or remediation costs.
Fluctuations in the Company’s tax obligations and effective tax rate and realization of deferred tax assets, including net operating loss carryforwards, may result in volatility of the Company’s operating results.
The Company is subject to income taxes in various U.S. and certain foreign jurisdictions. The Company records tax expense based on its estimates of future payments, which may include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss carryforwards. In addition, tax laws in certain jurisdictions may limit the ability to use net operating loss carryforwards upon a change in control. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. In addition, the Company’s effective tax rate in a given financial statement period may be materially affected by a variety of factors including but not limited to changes in the mix and level of revenues, varying tax rates in the different jurisdictions in which the Company operates, fluctuations in the valuation allowance, timing of the utilization of net operating loss carryforwards, or by changes to existing accounting rules or regulations. Further, tax legislation or changes in tax rules and regulations or the interpretations thereof, including but not limited to the recently enacted U.S. Tax Cuts and Jobs Act of 2017, may be enacted in the future which could negatively affect the Company’s current or future tax structure and effective tax rates.
Stock Ownership Risks
There is a limited trading market for the Company’s common stock and the market price of the Company’s common stock is subject to volatility.
The Company’s common stock, which trades on the NYSE American listing standards and applicable SEC rules.
The Board of Directors presently has experienced, and may experienceone standing committee, the Audit Committee, which is a separately-designated standing audit committee established in the future, significant price and volume fluctuations, which could adversely affect the market priceaccordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the “Exchange Act”) andRule 10A-3 thereunder. The Company’s common stock. The market priceAudit Committee currently consists of Mr. Sethi (Chairman) and Mr. Yuen, each of whom the Company’s common stock could fluctuate significantly in response to various factors and events, including:
actual or anticipated variations in operating results and cash flows;
lossBoard has determined meets the definition of a key customer, licensee or supplier;
announcements or events that affect the Company’s products, customers, competitors or markets;
general business conditions in the markets and industry in which the Company competes;
the Company’s stock repurchase program;
concentration of holdings of the Company’s common stock; and
other events or factors, including those listed under this section entitled “Risk Factors.”
In addition, the securities markets have experienced significant price and volume fluctuations over the past several years that have often been unrelated to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of the Company’s common stock.
The Company is a “controlled company” within the meaning ofindependence as established by the NYSE American listing rules and as a result, qualifies for, and relies on, exemptions from certain corporate governance requirements. As a result,SEC rules. Mr. Sethi is currently the Company’s shareholders do not have the same protections afforded to shareholders of companies that are subject to such requirements.
Nimble Holdings Company Limited (“Nimble”), formerly known as The Grande Holdings Limited (“Grande”), through one of its indirect subsidiaries, is the beneficial owner of approximately 67.5%Chairman of the Company’s outstanding common stock as of June 15, 2018. As a result,Audit Committee and the Company is a “controlled company” within the meaning“audit committee financial expert.” Pursuant to Section 803(B)(2)(c) of the NYSE American Company Guide. Under the NYSE American rules,Guide (the “Company Guide”), as a smaller reporting company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain NYSE American corporate governance requirements, including the requirements that:
a majority of the Company’s Board of Directors consist of independent directors;
15
|
|
the Company has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
The Company has elected to use certain of these exemptions and the Company may continue to use all or some of these exemptions in the future for so long as the Company is a controlled company. The Company’s Boardrequired to have an audit committee of Directors actsat least two independent members, as defined by the nominating committee and compensation committee and determines the compensation and benefits of the Company’s executive officers, administers its employee stock and benefit plans, as may be in effect from time to time, and reviews policies relating to the compensation and benefits of its employees. Although all board members have fiduciary obligations in connection with compensation matters, the Company’s lack of an independent compensation committee presents the risk that any executive officers who are also directors may have influence over their personal compensation and benefits levels that may not be commensurate with the Company’s financial performance. Accordingly, shareholders of the Company do not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirementslisting standards of the NYSE American.
The controlling ownershipAudit Committee is empowered by the Board, among other things, to: (i) serve as an independent and objective party to monitor the Company’s financial reporting process, internal control system and disclosure control system; (ii) review and appraise the audit efforts of the Company’s common stock by an indirect subsidiaryindependent accountants; (iii) assume direct responsibility for the appointment, compensation, retention and oversight of Nimble substantially reduces the influencework of other stockholders,the independent accountants and for the resolution of disputes between the independent accountants and the interests of Nimble may conflict withCompany’s management regarding financial reporting issues; and (iv) provide the interestsopportunity for direct communication among the independent accountants, financial and senior management and the Board. During Fiscal 2018, the Audit Committee performed its duties under a written charter approved by the Board. A copy of the Company’s other stockholders.
Nimble, through one of its indirect subsidiaries,Audit Committee Charter is the beneficial owner of approximately 67.5% ofposted on the Company’s outstanding common stock as of June 15, 2018. As a result, Nimble will be able to exert significant influence overwebsite: www.emersonradio.com on the Company’s business and have the ability to control the approval process for actions by the Company that require stockholder approval, including: the election of the Company’s directors and the approval of mergers, sales of assets or other significant corporate transactions or matters submitted for stockholder approval. Nimble may have interests that differ from your interests and may cause the shares in the Company beneficially owned by Nimble to be voted in a way with which you disagree and that may be adverse to your interests. Investor Relations page.
In addition, several provisions ofin March 2013, the Company’s organizational documents and Delaware law may deter or prevent a takeover attempt, including a takeover attempt in which the potential purchaser offers to pay a per share price greater than the current market price of its common stock. Under the terms of the Company’s certificate of incorporation, its board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for the Company’s common stock, including transactions that may be in your best interests.
The Company’s board of directors has formed a Special Committee of independent directors to explore strategic alternatives. However, there can be no assurances that any transaction will occur, or if such a transaction does occur, the value of that transaction to the Company or its shareholders.
The Company’s board of directors formed an ad hoc Special Committee consisting solely of independent directors in March 2013 to evaluate possible strategic alternatives intended to enhance stockholder value. These alternatives could include,The Special Committee currently consists of Mr. Yuen.
Controlled Company
The Company does not maintain a nominating committee or a compensation committee. So long as Nimble Holdings Company Limited (“Nimble”) beneficially holds more than 50% of the outstanding common stock of Emerson, Emerson is a “controlled company” as defined in Section 801(a) of the NYSE American Company Guide (the “Company Guide”). Accordingly, the Company relies on exemptions from certain corporate governance requirements to have (i) a majority of independent directors, (ii) a nominating and corporate governance committee composed entirely of independent directors or (iii) a compensation committee composed entirely of independent directors. The full Board of Directors, among others, possible joint ventures, strategic partnerships, marketing alliances, saleother things, (i) identifies individuals qualified to become members of all or somethe Board of our assets or other possible transactions. However, there can be no assuranceDirectors and selects director nominees for election at the next Annual Meeting of Stockholders, (ii) reviews and monitors matters related to management development and succession, (iii) develops and implements executive compensation policies and pay for performance criteria, and (iv) reviews and approves salaries, bonuses and incentive awards.
Director Qualifications
The Board believes that any such strategic transactionthe Company and its stockholders are best served by having leadership personnel from the Company’s principal stockholder and individuals who have extensive experience in the Company’s industry and knowledge of the Company’s competitive landscape serve on its Board. The Board also believes that the backgrounds and qualifications of its directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will occur. In addition, if such a transaction occurs, there can be no assurances asallow the Board to fulfill its responsibilities. Please refer to the valuebiographies of any such transactioneach of the Company’s directors for a discussion of the specific experience, qualifications, attributes or skills that led to the conclusion that each individual should serve as a director.
No material changes have been made to the procedures by which stockholders may recommend nominees to the Board.
Codes of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers (“Code of Ethics”) that applies to its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and Treasurer. This Code of Ethics was established with the intention of focusing Senior Financial Officers on areas of ethical risk, providing guidance to help them recognize and deal with ethical issues, providing mechanisms to report unethical conduct, fostering a culture of honesty and accountability, deterring wrongdoing and promoting fair and accurate disclosure and financial reporting.
The Company has also adopted a Code of Conduct for Officers, Directors and Employees of Emerson Radio Corp. and its Subsidiaries (“Code of Conduct”). We prepared this Code of Conduct to help all officers, directors and employees understand and comply with the Company’s policies and procedures. Overall, the purpose of the Company’s Code of Conduct is to deter wrongdoing and promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company; (iii) compliance with applicable governmental laws, rules and regulations; (iv) prompt internal reporting of code violations to an appropriate person or persons identified in the Code of Conduct; and (v) accountability for adherence to the Code of Conduct.
The Code of Ethics and the Code of Conduct are posted on the Company’s website:www.emersonradio.com on the Investor Relations page. If the Company makes any substantive amendments to, or grants any waiver (including any implicit waiver) from a provision of the Code of Ethics or the Code of Conduct, and that relates to any element of the Code of Ethics definition enumerated in Item 406 (b) of RegulationS-K, the Company will disclose the nature of such amendment or waiver on its stockholders.website or in a current report on Form8-K.
The following table sets forth certain information regarding the material properties leasedexecutive officers of Emerson as of July 27, 2018:
Name | Age | Position | Year Became Officer | |||
| Duncan Hon | 57 | Chief Executive Officer and Director | 2009 | |||
| Michael Binney | 59 | Executive Vice President, Chief Financial Officer and Director | 2017 |
Duncan Honhas served as the Company’s Chief Executive Officer since August 2011 and a director of the Company since February 2009. Until his appointment as the Company’s Chief Executive Officer, Mr. Hon served as the Company’s Deputy Chief Executive Officer since November 2009. He also served as a Secretary of the Company from June 2016 to July 2017. See Mr. Hon’s biographical information above.
Michael Binneyhas served as the Company’s Executive Vice President and Chief Financial Officer since March 2017 and served as Secretary of the Company since July 2017. He has served as a director of the Company since June 2016. See Mr. Binney’s biographical information above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors, officers, and stockholders who beneficially own more than 10% of any class of its equity securities registered pursuant to Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with respect to the Company’s equity securities with the SEC and the NYSE American. All reporting persons are required to furnish the Company with copies of all reports that such reporting persons file with the SEC pursuant to Section 16(a) of the Exchange Act.
Based solely upon a review of Forms 3 and 4 and amendments to these forms furnished to the Company, and Forms 5, along with amendments thereto, all parties subject to the reporting requirements of Section 16(a) timely filed all such required reports during Fiscal 2018.
Involvement in Certain Legal Proceedings
On March 25, 2013, The Stock Exchange of Hong Kong Limited (“HKEX”) published a news release announcing the censure of Grande and certain of its then-existing and former directors, including Messrs. Ho and Binney, by the Company:Listing Appeals Committee of the HKEX. The censure was related to Grande’s breach of certain disclosure obligations pursuant to Rule 13.09(1) of the HKEX listing rules in 2007-2008 regarding Grande’s 2007 financial performance and the directors for their breach of the director’s undertaking under the HKEX listing rules to use best endeavors to procure Grande’s compliance with Rule 13.09(1). The HKEX required Mr. Ho to undergo training on listing rules compliance, which training requirement was completed in June 2013. Mr. Binney was also directed to attend training on listing rules compliance, which training requirement was completed in September 2016.
ITEM 11 — EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following Summary Compensation Table sets forth information concerning compensation for services rendered in all capacities to the Company and its subsidiaries for Fiscal 2018 and for the fiscal year ended March 31, 2017 (“Fiscal 2017”) which was awarded to, earned by or paid to the Company’s named executive officers at any time during Fiscal 2018.
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($)(1) | All Other Compensation ($) | Total ($) | |||||||||||||||
Duncan Hon | 2018 | $ | 540,000 | $ | — | $ | — | $ | 540,000 | |||||||||||
Chief Executive Officer | 2017 | $ | 485,833 | $ | 237,500 | $ | — | $ | 723,333 | |||||||||||
Michael Binney (2) | 2018 | $ | 148,840 | $ | — | $ | 2,496 | $ | 151,336 | |||||||||||
Chief Financial Officer | 2017 | $ | 9,217 | $ | — | $ | — | $ | 9,217 | |||||||||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
| (2) | Mr. Binney was appointed Executive Vice President and Chief Financial Officer of the Company effective on March 9, 2017. |
Employment Agreements.
During Fiscal 2018, the Company had employment agreements with certain of its named executive officers, each of which is described below.
Duncan Hon.Duncan Hon, the Company’s Chief Executive Officer, entered into an employment agreement, effective April 1, 2011, with a wholly-owned, indirect subsidiary of the Company. Such agreement sets forth the terms and conditions pursuant to which Mr. Hon would serve as the Company’s Deputy Chief Executive Officer and, subsequently, as Chief Executive Officer. The agreement provides for an annual base salary of 2,925,000 Hong Kong Dollars (“HKD”), which was most recently increased to $540,000 in February 2017, and an annual discretionary bonus payable at any time as recommended by the Board. The contract extends until the earlier of the retirement of Mr. Hon on the first day of the following month immediately after his 60th birthday, or the termination of the agreement by either the Company presently reliesor Mr. Hon upon the delivery from one to the other of one month prior written notice. In June 2016, a supplementary agreement was made to change the earlier of the retirement of Mr. Hon to the first day of the following month immediately after his 65th birthday.
Michael Binney. Michael Binney, the Company’s Executive Vice President and Chief Financial Officer, entered into an employment agreement, effective March 9, 2017, with a wholly-owned, indirect subsidiary of the Company. The agreement provides for an annual base salary of $150,000 and an annual discretionary bonus payable at any time as recommended by the Board. The contract extends until the earlier of the retirement of Mr. Binney and the first day of the following month immediately after his 65th birthday, or the termination of the agreement by either the Company or Mr. Binney upon the delivery from one to the other of one month prior written notice.
Outstanding Equity Awards at Fiscal Year End
None of the Company’s named executive officers held any outstanding equity awards at March 31, 2018.
Compensation of Directors
During Fiscal 2017, the Company’s directors who were not employees (“Outside Directors”) were compensated for serving on warehouse space fromthe Board and on its third party logistics provider.
The Company believes thatvarious committees during the properties used for its operations are in satisfactory condition and adequate for its present and anticipated future operations.period. The Company does not currently own anycompensate directors who are employees of the properties it occupies.Company for their services as directors.
16
Outside Directors are each paid an annual director’s fee of $50,000. The Outside Director serving as the Chairman of the Board receives an additional annual fee of $20,000. Each Outside Director serving on the audit committee of the Board receives an additional fee of $15,000 per annum with no additional fee for serving as chairman of the audit committee. Each Outside Director serving on the special committee of the Board receives an additional fee of $5,000 per month with no additional fee for serving as chairman of the special committee. The Company isdoes not currentlypay any additional fees for attendance at meetings of the Board or the committees. Audit committee fees and, since June 2017, special committee fees are paid in four equal quarterly installments per annum. Prior to June 2017, special committee fees were paid in monthly installments. Audit committee and special committee fees arepro-rated in situations where an Outside Director serves less than a party to any legal proceedings other than litigation matters, in most cases involving ordinary and routine claims incidental to its business. Management cannot estimate with certaintyfull one year or periodic term.
Additionally, the Company’s ultimate legal and financial liabilitydirectors are reimbursed their expenses for attendance at meetings.
The following table provides certain information with respect to such pending litigation matters. However, management believes, based on its examination of such matters, thatthe compensation earned or paid to the Company’s ultimate liability will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.Outside Directors during Fiscal 2018.
Not applicableDirector Compensation for Fiscal 2018
Name Christopher Ho Kareem E. Sethi Kin Yuen Fees
Earned or
Paid in
Cash ($) Total ($) $ 70,000 $ 70,000 $ 125,000 $ 125,000 $ 125,000 $ 125,000
|
|
(a) Market InformationITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The Company’s common stock began trading on the American Stock Exchange under the symbol MSN on December 22, 1994, and currently trades on the NYSE American under the same symbol, as a result of NYSE Euronext’s acquisition of the American Stock Exchange in 2008. The following table sets forth, the range of high and low sales prices for the Company’s common stock as reported by the NYSE American during the last two fiscal years.
|
| Fiscal 2018 |
|
| Fiscal 2017 |
| ||||||||||
|
| High |
|
| Low |
|
| High |
|
| Low |
| ||||
First Quarter |
| $ | 1.44 |
|
| $ | 1.15 |
|
| $ | 0.87 |
|
| $ | 0.55 |
|
Second Quarter |
|
| 1.43 |
|
|
| 1.07 |
|
|
| 1.10 |
|
|
| 0.58 |
|
Third Quarter |
|
| 1.89 |
|
|
| 1.33 |
|
|
| 1.05 |
|
|
| 0.69 |
|
Fourth Quarter |
|
| 1.60 |
|
|
| 1.25 |
|
|
| 1.40 |
|
|
| 1.00 |
|
There is no established trading market for the Company’s Series A convertible preferred stock, whose conversion feature expired as of March 31, 2002.
(b) Holders
At June 11,15, 2018, there were 188 stockholdersthe beneficial ownership of (i) each current Director; (ii) each of the Company’s common stock whose shares were registered withNamed Executive Officers; (iii) the Company’s transfer agent. The Company believes that the number of beneficial owners is substantially greater than the number of registered shareholders, because a large portion of the Company’s common stock is held of record in broker “street names”.
(c) Dividends
The Company has not paid cash dividends on its common stock since an extraordinary dividend paid on September 30, 2014, and does not currently plan to declare dividends on its common stock in the foreseeable future. The payment of dividends, if any, would be at the discretion of the Company’s Board ofcurrent Directors and would depend on the Company’s results of operations, capital requirements, financial condition, prospects, contractual arrangements, and other factors that the Board of Directors may deem relevant.
17
(d) Issuer Purchases of Equity Securities
The following table reports information regarding repurchases by the Company of its common stock during the three months ended March 31, 2018:
Issuer Purchases of Equity Securities (1)
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||
January 1 through January 31, 2018 |
|
| 44,959 |
|
| $ | 1.46 |
|
|
| 44,959 |
|
| $ | 5,223,956 |
|
February 1 through February 28, 2018 |
|
| 383,893 |
|
| $ | 1.49 |
|
|
| 383,893 |
|
| $ | 4,652,787 |
|
March 1 through March 31, 2018 |
|
| 675,504 |
|
| $ | 1.50 |
|
|
| 675,504 |
|
| $ | 3,640,762 |
|
Total |
|
| 1,104,356 |
|
| $ | 1.49 |
|
|
| 1,104,356 |
|
| $ | 3,640,762 |
|
|
|
Not applicable.
18
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 Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under Item 1A – “Risk Factors” or in other parts of this Annual Report on Form 10-K.
In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations.
Results of Operations:
The following table summarizes certain financial information for the fiscal years ended March 31 (in thousands):
|
|
|
| |||||
|
| 2018 |
|
| 2017 |
| ||
Net product sales |
| $ | 14,363 |
|
| $ | 17,635 |
|
Licensing revenue |
|
| 659 |
|
|
| 3,616 |
|
Net revenues |
|
| 15,022 |
|
|
| 21,251 |
|
Cost of sales |
|
| 13,921 |
|
|
| 16,277 |
|
Other operating costs and expenses |
|
| 60 |
|
|
| 199 |
|
Selling, general and administrative expenses |
|
| 4,923 |
|
|
| 5,101 |
|
Operating (loss) |
|
| (3,882 | ) |
|
| (326 | ) |
Interest income, net |
|
| 492 |
|
|
| 261 |
|
(Loss) before income taxes |
|
| (3,390 | ) |
|
| (65 | ) |
Provision for income taxes |
|
| 3,461 |
|
|
| 172 |
|
Net (loss) |
| $ | (6,851 | ) |
| $ | (237 | ) |
Results of Operations — Fiscal 2018 compared with Fiscal 2017
Net product sales — Net product sales for fiscal 2018 were $14.4 million as compared to $17.6 million for fiscal 2017, a decrease of $3.2 million, or 18.6% as detailed below. The Company’s sales were highly concentrated among three customers - Walmart, Amazon.com and Fred Meyer - in fiscal 2018 and two customers - Walmart and Fred Meyer - in fiscal 2017, where gross product sales to these customers were approximately 87.9% and 85.8% of the Company’s total gross product sales in fiscal 2018 and fiscal 2017, respectively. 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 $0.2 million and $0.3 million for fiscal 2018 and fiscal 2017, respectively. Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name. The major elements which contributed to the overall decrease in net product sales were as follows:
|
|
|
|
Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products to regain shelf spaces in these and other retailers in the USA. The Company is also investing 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 that the Company has offered. The Company also is continuing its efforts to identify strategic courses of action related to its licensing activities, including seeking new licensing relationships.
19
Emerson has taken active steps to further streamline its operations to reduce and control its operating costs. The operating costs for fiscal 2018 were reduced to $4.9 million, which included $489,000 in legal fees related to a trademark infringement suit initiated by the Company, as compared to $5.1 million for fiscal 2017.
Licensing revenue — Licensing revenue in fiscal 2018 was $0.7 million as compared to $3.6 million for fiscal 2017, a decrease of $2.9 million, or 81.8%, driven by lower year-over-year sales by the Company’s licensees of Emerson® branded product.
Historically, the Company’s largest license agreement was with Funai which accounted for $2.8 million, or approximately 78% of the Company’s total fiscal 2017 licensing revenue. As previously disclosed, the Funai licensing agreement was terminated effective as of December 31, 2016.
Net revenues — As a result of the foregoing factors, the Company’s net revenues were $15.0 million for fiscal 2018 as compared to $21.3 million for fiscal 2017, a decrease of $6.3 million, or 29.3%.
Cost of sales — Cost of sales includes those components as described in Note 1 “Cost of Sales” of the Notes to the Consolidated Financial Statements. In absolute terms, cost of sales decreased $2.4 million, or 14.5%, to $13.9 million in fiscal 2018 as compared to $16.3 million in fiscal 2017. Cost of salesExecutive Officers as a percentage of net product sales was 96.9% in fiscal 2018 as compared to 92.3% in fiscal 2017. The decrease in absolute terms for fiscal 2018 as compared to fiscal 2017 was primarily related to the reduced net product salesgroup; and lower year-over-year gross cost of sales as a percentage of gross sales.
Other operating costs and expenses — Other operating costs and expenses include those components as described in Note 1 “Other Operating Costs and Expenses” of the Notes to the Consolidated Financial Statements. Other operating costs and expenses as a percentage of net product sales was 0.4% in fiscal 2018 and 1.1% in fiscal 2017. In absolute terms, other operating costs and expenses was $0.1 million in fiscal 2018 as compared to $0.2 million in fiscal 2017.
Selling, general and administrative expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, was 32.8% in fiscal 2018 as compared to 24.0% in fiscal 2017. Fiscal 2018 S,G&A, in absolute terms, was $4.9 million and fiscal 2017 S,G&A, in absolute terms, was $5.1 million, a decrease of $0.2 million, or 3.5%. The decrease in S,G&A was due to reductions in compensation costs, directors fees, consulting fees, IT costs and tax counsel partially offset by increased legal fees as mentioned above in “Business operations”.
Analysis of S,G&A
Fiscal 2018 S,G&A included approximately $0.5 million in legal fees related to a trademark infringement suit and $88,000 in legal and advisory fees pertaining to work performed for the Special Committee of the Company’s Board of Directors.
Fiscal 2017 S,G&A included approximately $0.2 million in legal and advisory fees pertaining to work performed for the Special Committee of the Company’s Board of Directors.
Excluding the aforementioned items, the fiscal 2018 S,G&A was $4.3 million and the fiscal 2017 S,G&A was $4.9 million, a decrease of $0.6 million, or 12.2%, primarily due to lower year-over-year compensation and corporate costs.
Interest income, net — Interest income, net, was $492,000 in fiscal 2018 as compared to $261,000 in fiscal 2017, resulting from an increase in interest rates earned on its investments in Certificates of Deposit during fiscal 2018.
Provision for income tax expense— In fiscal 2018, the Company recorded income tax expense of $3.5 million, of which approximately $3.1 million was recorded in the fourth quarter of fiscal 2018 resulting from the enactment of the Tax Cuts and Jobs Act and a one-time transition tax on the deemed repatriation of the Company’s undistributed earnings of its foreign subsidiaries. The Company recorded income tax expense of $0.2 million in fiscal 2017. See Note 5 “Income Taxes”.
Net (loss) — As a result of the foregoing factors, the Company recorded a net loss of $6.9 million for fiscal 2018 as compared to a net loss of $0.2 million for fiscal 2017.
Liquidity and Capital Resources
General
As of March 31, 2018, the Company had cash and cash equivalents of approximately $25.1 million as compared to approximately $27.5 million at March 31, 2017. Working capital decreased to $46.0 million at March 31, 2018 as compared to $56.0 million at March 31, 2017. The decrease in cash and cash equivalents of approximately $2.4 million was due to the below factors.
20
Net cash used by operating activities was approximately $5.2 million for fiscal 2018 resulting from a $6.9 million loss generated during the period, a $2.3 million increase in inventory, a $0.5 million increase in accounts receivable, a $0.2 million increase in asset allowances, partially offset by a $3.0 million increase in income taxes payable, a $1.0 million decrease in prepaid expenses and other current assets, a $0.4 million decrease in prepaid purchases and a $0.3 million decrease in deferred tax assets.
Net cash provided by investing activities was $9.1 million primarily due to redemptions of investments in short term certificates of deposit.
Net cash used by financing activities was approximately $6.3 million resulting from treasury stock purchases made during fiscal 2018 under the Company’s $10.0 million stock repurchase program authorized by the Company’s Board of Directors. The current repurchase program is scheduled to expire on June 30, 2018, unless extended further.
Credit Arrangements
Letters of Credit— The Company has utilized Hang Seng Bank in the past to issue letters of credit on behalf of the Company, as needed, on a 100% cash collateralized basis, although no letter of credit agreement is in place between the Company and Hang Seng Bank or any financial institution. The last letter of credit placed with Hang Seng Bank on this basis was in May 2014. At March 31, 2018, the Company had no outstanding letters of credit. In the event that the Company does have outstanding letters of credit with Hang Seng Bank, a like amount of cash is posted by the Company as collateral against such outstanding letters of credit, and is classified as Restricted Cash on the balance sheet.
Short-term Liquidity
The Company’s principal existing sources of cash are generated from operations. The Company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months.
Historically, a significant percentage of the Company’s product sales were made under the Direct Import Program. The direct importation of product(iv) each stockholder known by the Company to its customers can significantly benefitown beneficially more than 5% of the Company’s liquidity because this inventory does not need to be financed byoutstanding shares of common stock. Common stock beneficially owned and percentage ownership as of June 15, 2018, was based on 22,571,951 shares outstanding. Except as otherwise noted, the Company. In fiscal 2018, however, there were no product sales imported directly toaddress of each of the Company’s customers due to changes in the Company’s key customers.following beneficial owners is c/o Emerson Radio Corp., 35 Waterview Blvd., Parsippany, New Jersey 07054.
As of March 31, 2018, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product.
Name and Address of Beneficial Owners | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Christopher Ho | 0 | 0 | % | |||||
Duncan Hon | 0 | 0 | % | |||||
Michael Binney | 0 | 0 | % | |||||
Kareem E. Sethi | 0 | 0 | % | |||||
Kin Yuen | 0 | 0 | % | |||||
All Directors and Executive Officers as a Group (5 persons) | 0 | 0 | % | |||||
5% Shareholders: | ||||||||
S&T International Distribution Ltd. | 15,243,283 | (1) | 67.5 | % | ||||
| (1) | Based, in part, upon disclosures filed on a Schedule 13D/A on June 29, 2018, by S&T International Distribution Ltd. (“S&T”) and on a Schedule 13D/A on June 29, 2018, by Wealth Warrior Global Ltd. (“Wealth Warrior”), these shares are owned directly by S&T, which is a wholly owned subsidiary of Grande N.A.K.S. Ltd. (“N.A.K.S.”), which is a wholly owned subsidiary of Nimble Holdings Company Limited (formerly known as The Grande Holdings Limited) (“Nimble”). As the owners of approximately 73.9% in the aggregate of Nimble, Wealth Warrior, Merchant Link Holdings Limited (“ML”), and Rise Vision Global Limited (“RV”) share the indirect power to vote and dispose of these shares held for the account of S&T. ML is wholly owned by Aurizon Enterprises Limited (“AE”), AE is wholly owned by Omen Charm Limited (“OC”), and OC is wholly owned by Splendid Brilliance (PTC) Limited (“SB”). RV is wholly owned by Ocean Rose Global Limited (“OR”), OR is wholly owned by Praisewise Limited (“PL”), and PL is wholly owned by SB. Mr. Bingzhao Tan is the sole director of each of AE, ML, OR and RV, and the sole director and sole shareholder of Wealth Warrior. Ms. Guichai He is the sole director of OC and PL, and is sole director and sole shareholder of SB. SB holds the shares of OC and PL in trust, and serves as the sole trustee over such shares. Accordingly, AE and OR share the indirect power to vote and dispose of these shares held for the account of S&T. Mr. Tan is the settlor and a discretionary beneficiary of the shares of OC and PL held in trust by SB. Accordingly, Mr. Tan and Ms. He may be deemed to share power to direct the voting and disposition of these shares held for the account of S&T and may be deemed to be a beneficial owner of such shares. The address of Nimble, N.A.K.S. and S&T is 11th Floor, The Grande Building, 398 Kwun Tong Road, Kowloon, Hong Kong. The address of Mr. Tan and Ms. He, and of Wealth Warrior, ML, RV and the above affiliated entities, is Unit C, 32/F., TML Tower, No. 3 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong. |
Equity Compensation Plan Information
Off-Balance Sheet Arrangements
As of March 31, 2018, theThe Company did not have any off-balance sheet arrangements as defined under the rules of the Securities and Exchange Commission.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been preparedequity compensation plans in accordance with accounting principles that are generally accepted within the United States. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade accounts receivables, impairment of long-lived assets, valuation of deferred tax assets, sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each.
Revenue Recognition. Revenues from product distribution are recognized at the time title passes 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 possible returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific arrangements to the contrary, returns are not permitted unless the goods are defective.
In addition to the distribution of products, the Company grants licenses for the right to use the Company’s trademarks for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either i) a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not
21
recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. The Company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.
Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer’s financial condition and provides for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer’s ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.
Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it is determined that all or part of a net deferred tax asset will likely not be realized in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
Sales Return Reserves. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 605, “Revenue Recognition”, subtopic 50 “Customer Payments and Incentives” and Securities and Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue Recognition, corrected copy” (“SAB’s 101 and 104”).
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 605, “Revenue Recognition.”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
22
Recently-Issued Financial Accounting Pronouncements
The following Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board during the twelve months ended March 31, 2018 or during the interim period between March 31, 2018 and June 28, 2018 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, the 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, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material impact on its financial statements.
Accounting Standards Update 2016-02 “Leases” (Issued February 2016)
In February 2016, the FASB issued ASU 2016-02 "Leases" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 creates a new Accounting Standards Codification Topic 842 "Leases" to replace the previous Topic 840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the previous model, but updated to align with certain changes to the lessee model and also the new revenue recognition provisions contained in ASU 2014-09 (see above). ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is assessing the standard to determine if ASU 2016-02 will have a material impact on its financial statements.
Accounting Standards Update 2014-09 “Revenue from Contracts with Customers” (Issued May 2014)
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers" in order to ensure that revenue recognition requirements are the same under both US GAAP and International Financial Reporting Standards ("IFRS"). ASU 2014-09 removes inconsistencies and provides a more robust framework for addressing revenue issues. ASU 2014-09 was effective for reporting periods and interim periods beginning on or after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 "Deferral of the Effective Date" to delay the implementation of ASU 2014-09 by one year, in response to feedback from preparers, practitioners and users of financial statements. Accordingly, ASU 2014-09 is now effective for reporting periods and interim periods beginning on or after December 15, 2017. Early adoption is permitted for reporting and interim periods beginning on or after December 15, 2016. The Company has elected to adopt the amendments in ASU 2014-09 on a modified retrospective basis; whereas any cumulative effect of adopting this guidance will be recognized as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company does not expect these amendments to have a material impact on its financial statements, as it is primarily a seller of tangible personal property whose contracts with customers and the related transaction prices and performance obligations will be minimally affected by the amendments.
Not applicable.
23
Index to Consolidated Financial Statements
| ||||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
|
| ||
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: the Board of Directors and Stockholders
of Emerson Radio Corp. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Emerson Radio Corp. and Subsidiaries (the "Company")existence as of March 31, 2018 and 2017, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the two-year period ended March 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2018 and 2017, and the results of their operations and their cash flows for each of the years in the two-year period ended March 31, 2018, in conformity with accounting principles generally accepted in the United States of America2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MSPC
Certified Public Accountants and Advisors,
A Professional Corporation
We have served as the Company’s auditor since 2005.
New York, New York
June 28, 2018
25
EMERSON RADIO CORP.ITEM 13 — CERTAIN RELATIONSHIPS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2018 and 2017
|
|
|
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands, except per share data) |
| |||||
Net revenues: |
|
|
|
|
|
|
|
|
Net product sales |
| $ | 14,363 |
|
| $ | 17,635 |
|
Licensing revenue |
|
| 659 |
|
|
| 3,616 |
|
Net revenues |
|
| 15,022 |
|
|
| 21,251 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of sales |
|
| 13,921 |
|
|
| 16,277 |
|
Other operating costs and expenses |
|
| 60 |
|
|
| 199 |
|
Selling, general and administrative expenses |
|
| 4,923 |
|
|
| 5,101 |
|
|
|
| 18,904 |
|
|
| 21,577 |
|
Operating (loss) |
|
| (3,882 | ) |
|
| (326 | ) |
Other income: |
|
|
|
|
|
|
|
|
Interest income, net |
|
| 492 |
|
|
| 261 |
|
(Loss) before income taxes |
|
| (3,390 | ) |
|
| (65 | ) |
Provision for income tax expense |
|
| 3,461 |
|
|
| 172 |
|
Net (loss) |
|
| (6,851 | ) |
|
| (237 | ) |
Basic (loss) per share |
| $ | (0.27 | ) |
| $ | (0.01 | ) |
Diluted (loss) per share |
| $ | (0.27 | ) |
| $ | (0.01 | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
| 25,282 |
|
|
| 27,115 |
|
Diluted |
|
| 25,282 |
|
|
| 27,115 |
|
The accompanying notes are an integral part of the consolidated financial statements.
26
EMERSON RADIO CORP.RELATED TRANSACTIONS AND SUBSIDIARIES
As of March 31, 2018 and 2017
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands, except share data) |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 25,096 |
|
| $ | 27,471 |
|
Short term investments |
|
| 16,000 |
|
|
| 25,078 |
|
Accounts receivable, net |
|
| 1,884 |
|
|
| 1,208 |
|
Royalty receivable |
|
| 63 |
|
|
| 99 |
|
Inventory |
|
| 3,164 |
|
|
| 838 |
|
Prepaid purchases |
|
| 360 |
|
|
| 750 |
|
Prepaid expenses and other current assets |
|
| 497 |
|
|
| 1,494 |
|
Total Current Assets |
|
| 47,064 |
|
|
| 56,938 |
|
Property, plant, and equipment, net |
|
| 14 |
|
|
| 18 |
|
Deferred tax assets, net |
|
| 528 |
|
|
| 791 |
|
Other assets |
|
| 151 |
|
|
| 101 |
|
Total Non-current Assets |
|
| 693 |
|
|
| 910 |
|
Total Assets |
| $ | 47,757 |
|
| $ | 57,848 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities |
|
| 803 |
|
|
| 756 |
|
Income tax payable |
|
| 250 |
|
|
| 165 |
|
Deferred revenue |
|
| 50 |
|
|
| — |
|
Total Current Liabilities |
|
| 1,103 |
|
|
| 921 |
|
Non-Current Liabilities: |
|
|
|
|
|
|
|
|
Federal tax payable |
|
| 2,871 |
|
|
| — |
|
Total Non-current Liabilities |
|
| 2,871 |
|
|
| — |
|
Total Liabilities |
| $ | 3,974 |
|
| $ | 921 |
|
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 March 31, 2018 and March 31, 2017, respectively; 22,799,088 and 27,065,852 shares outstanding at March 31, 2018 and March 31, 2017, respectively |
|
| 529 |
|
|
| 529 |
|
Additional paid-in capital |
|
| 79,792 |
|
|
| 79,792 |
|
Accumulated deficit |
|
| (9,265 | ) |
|
| (2,414 | ) |
Treasury stock, at cost (30,166,709 and 25,899,945 shares at March 31, 2018 and March 31, 2017, respectively) |
|
| (30,583 | ) |
|
| (24,290 | ) |
Total Shareholders’ Equity |
|
| 43,783 |
|
|
| 56,927 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 47,757 |
|
| $ | 57,848 |
|
The accompanying notes are an integral part of the consolidated financial statements.
27
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For The Years Ended March 31, 2018 and 2017
|
|
|
|
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| |||||||
|
| Preferred |
|
| Number |
|
| Par |
|
| Paid-In |
|
| Accumulated |
|
| Treasury |
|
| Shareholders’ |
| |||||||
|
| Stock |
|
| of Shares |
|
| Value |
|
| Capital |
|
| Deficit |
|
| Stock |
|
| Equity |
| |||||||
Balance — March 31, 2016 |
| $ | 3,310 |
|
|
| 52,965,797 |
|
| $ | 529 |
|
| $ | 79,792 |
|
| $ | (2,177 | ) |
| $ | (24,224 | ) |
| $ | 57,230 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (66 | ) |
| $ | (66 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (237 | ) |
|
|
|
|
| $ | (237 | ) |
Balance — March 31, 2017 |
| $ | 3,310 |
|
|
| 52,965,797 |
|
| $ | 529 |
|
| $ | 79,792 |
|
| $ | (2,414 | ) |
| $ | (24,290 | ) |
| $ | 56,927 |
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (6,293 | ) |
| $ | (6,293 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (6,851 | ) |
|
|
|
|
| $ | (6,851 | ) |
Balance — March 31, 2018 |
| $ | 3,310 |
|
|
| 52,965,797 |
|
| $ | 529 |
|
| $ | 79,792 |
|
| $ | (9,265 | ) |
| $ | (30,583 | ) |
| $ | 43,783 |
|
The accompanying notes are an integral part of the consolidated financial statements
28
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended March 31, 2018 and 2017
|
|
|
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net (loss) |
| $ | (6,851 | ) |
| $ | (237 | ) |
Adjustments to reconcile net loss to net cash (used) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 8 |
|
|
| 16 |
|
Deferred tax assets |
|
| 263 |
|
|
| 610 |
|
Asset allowances and reserves |
|
| (166 | ) |
|
| (554 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (510 | ) |
|
| 2,146 |
|
Royalty receivable |
|
| 36 |
|
|
| 1,193 |
|
Inventory |
|
| (2,326 | ) |
|
| 1,218 |
|
Prepaid purchases |
|
| 390 |
|
|
| 121 |
|
Prepaid expenses and other current assets |
|
| 997 |
|
|
| (938 | ) |
Other assets |
|
| (50 | ) |
|
| 31 |
|
Accounts payable and other current liabilities |
|
| 47 |
|
|
| (935 | ) |
Due to affiliates |
|
| — |
|
|
| (512 | ) |
Deferred revenue |
|
| 50 |
|
|
| — |
|
Income taxes payable |
|
| 2,956 |
|
|
| (290 | ) |
Net cash (used) provided by operating activities |
|
| (5,156 | ) |
|
| 1,869 |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of short term investments |
|
| 70,136 |
|
|
| 33,209 |
|
Purchases of short term investments |
|
| (61,058 | ) |
|
| (38,132 | ) |
Proceeds from restricted cash |
|
| — |
|
|
| 500 |
|
Additions to property, plant and equipment |
|
| (4 | ) |
|
| (5 | ) |
Net cash provided (used) by investing activities |
|
| 9,074 |
|
|
| (4,428 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
| (6,293 | ) |
|
| (66 | ) |
Net cash (used) by financing activities |
|
| (6,293 | ) |
|
| (66 | ) |
Net (decrease) in cash and cash equivalents |
|
| (2,375 | ) |
|
| (2,625 | ) |
Cash and cash equivalents at beginning of the year |
|
| 27,471 |
|
|
| 30,096 |
|
Cash and cash equivalents at end of the year |
| $ | 25,096 |
|
| $ | 27,471 |
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 4 |
|
| $ | 2 |
|
Income taxes |
| $ | 320 |
|
| $ | 1,524 |
|
The accompanying notes are an integral part of the consolidated financial statements
29
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES:
Background and Basis of Presentation
The consolidated financial statements include the accounts of Emerson Radio Corp. (“Emerson”, consolidated — the “Company”), and its subsidiaries. The Company designs, sources, imports and markets a variety of houseware and consumer electronic products, and licenses the Emerson trademark for a variety of products domestically and internationally.
It is the Company’s policy to prepare its financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation.
Certain items in prior year financials were reclassified to conform to current year presentation.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Highly liquid investments with original maturities of three months or less at the time of purchase are considered to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts for cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term maturity of these financial instruments.
Investments
The Company determines the appropriate classifications of securities at the time of purchase and evaluates the continuing appropriateness of that classification thereafter. Realized gains and losses are determined on a specific identification basis and are reported separately as a component of income. Decreases and increases in the fair value of securities deemed to be other than temporary are included in earnings.
Long-Lived Assets
The Company’s long-lived assets include property, plant and equipment. At March 31, 2018, the Company had approximately $14,000 of property, plant and equipment, net of accumulated depreciation. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Topics 350 “Intangibles” and 360 “Property, Plant and Equipment”. The recoverability of assets held and used is measured by a comparison of the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Future events could cause the Company to conclude that impairment indicators exist and that long-lived assets may be impaired. If impairment is deemed to exist, the asset will be written down to fair value. Any such impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. As of March 31, 2018, management expects the carrying value of its long-lived assets to be fully recoverable.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets being depreciated. The cost of maintenance and repairs is charged to expense as incurred. Significant renewals and betterments are capitalized and depreciated over the remaining estimated
30
useful lives of the related assets. At time of disposal, the cost and related accumulated depreciation are removed from the Company’s records and the difference between net carrying value of the asset and the sale proceeds is recorded as a gain or loss.
Depreciation of property, plant and equipment is provided by the straight-line method as follows:
|
| |
|
| |
|
|
Revenue Recognition
Distribution of products
Revenues from product distribution are recognized at the time title passes 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.
Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for the Company’s products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 605, “Revenue Recognition”, subtopic 50 “Customer Payments and Incentives” and Securities and Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue Recognition, corrected copy” (“SAB’s 101 and 104”).
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 605, “Revenue Recognition”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
Licensing
In addition to the distribution of products, the Company grants licenses for the right to use the Company’s trademarks for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either i) a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
31
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. The Company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.
Trade Accounts Receivable
The Company extends credit based upon evaluations of a customer’s financial condition and provides for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer’s ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.
Cost of Sales
Cost of sales includes actual product cost, quality control costs, change in inventory reserves, duty, buying costs, the cost of transportation to the Company’s third party logistics providers’ warehouse from its manufacturers, warehousing costs, and an allocation of those selling, general and administrative expenses that are directly related to these activities.
Other Operating Costs and Expenses
Other operating costs and expenses include costs associated with returned products received from retailers, warranty costs, warehouse supply expenses, and an allocation of those selling, general and administrative expenses that are directly related to these activities. Because other operating costs and expenses are not included in cost of sales, the reported gross margin may not be comparable to those of other distributors that may include all costs related to the cost of product to their cost of sales and in the calculation of gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs of the Company that are not directly related to the cost of procuring product or costs not included in other operating costs and expenses.
Sales Return Reserves
Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Foreign Currency
The assets and liabilities of foreign subsidiaries have been translated at current exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the year. Related translation adjustments are reported as a separate component of shareholders’ equity. Losses and gains resulting from foreign currency transactions are included in the results of operations.
The Company generally does not enter into foreign currency exchange contracts to hedge its exposures related to foreign currency fluctuations and there were no foreign exchange forward contracts held by the Company at March 31, 2018 or March 31, 2017.
Advertising Expenses
Advertising expenses are charged against earnings as incurred and are included in selling, general and administrative expenses. The Company incurred $17,000 of advertising expenses during fiscal 2018 and nil during fiscal 2017.
32
Sales Allowance and Marketing Support Expenses
Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 605, “Revenue Recognition”, subtopic 50 “Customer Payments and Incentives” and Securities and Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue Recognition, corrected copy” (“SAB’s 101 and 104”).
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 605, “Revenue Recognition”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
The sales and marketing support accrual activity for fiscal 2018 and fiscal 2017 was as follows (in thousands):
Balance at March 31, 2016 |
| $ | 473 |
|
additions |
|
| 492 |
|
usages |
|
| (395 | ) |
adjustments |
|
| (276 | ) |
Balance at March 31, 2017 |
| $ | 294 |
|
additions |
|
| 611 |
|
usages |
|
| (593 | ) |
adjustments |
|
| (195 | ) |
Balance at March 31, 2018 |
| $ | 117 |
|
Interest income, net
The Company records interest as incurred. The net interest income for fiscal 2018 and 2017 consists of:
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Interest expense |
| $ | (4 | ) |
| $ | (2 | ) |
Interest income |
|
| 496 |
|
|
| 263 |
|
Interest income, net |
| $ | 492 |
|
| $ | 261 |
|
Income Taxes
Deferred income taxes are recorded to account for the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets have been recorded net of an appropriate valuation allowance, to the extent management believes it is more likely than not that such assets will be realized. (See Note 5 “Income Taxes”). Any tax penalties are recorded as part of selling, general and administrative expenses and any interest to which the Company is subject, is recorded as a part of income tax expense. Penalties and interest incurred during fiscal 2018 were approximately $1,000 and $51,000, respectively, and approximately $14,000 and $86,000 during fiscal 2017.
Comprehensive Income
Comprehensive income is net income adjusted for foreign currency translation adjustments.
33
Earnings per common share are based upon the weighted average number of common and common equivalent shares outstanding. Outstanding stock options and warrants are treated as common stock equivalents when dilution results from their assumed exercise.
Recent Accounting Pronouncements
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, the 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, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material impact on its financial statements.
Accounting Standards Update 2016-02 “Leases” (Issued February 2016)
In February 2016, the FASB issued ASU 2016-02 "Leases" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 creates a new Accounting Standards Codification Topic 842 "Leases" to replace the previous Topic 840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the previous model, but updated to align with certain changes to the lessee model and also the new revenue recognition provisions contained in ASU 2014-09 (see above). ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is assessing the standard to determine if ASU 2016-02 will have a material impact on its financial statements.
Accounting Standards Update 2014-09 “Revenue from Contracts with Customers” (Issued May 2014)
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers" in order to ensure that revenue recognition requirements are the same under both US GAAP and International Financial Reporting Standards ("IFRS"). ASU 2014-09 removes inconsistencies and provides a more robust framework for addressing revenue issues. ASU 2014-09 was effective for reporting periods and interim periods beginning on or after December 15, 2016. In August 2015, the FASB issued ASU 2015-14 "Deferral of the Effective Date" to delay the implementation of ASU 2014-09 by one year, in response to feedback from preparers, practitioners and users of financial statements. Accordingly, ASU 2014-09 is now effective for reporting periods and interim periods beginning on or after December 15, 2017. Early adoption is permitted for reporting and interim periods beginning on or after December 15, 2016. The Company has elected to adopt the amendments in ASU 2014-09 on a modified retrospective basis; whereas any cumulative effect of adopting this guidance will be recognized as an adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company does not expect these amendments to have a material impact on its financial statements, as it is primarily a seller of tangible personal property whose contracts with customers and the related transaction prices and performance obligations will be minimally affected by the amendments.
NOTE 2 — INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. As of March 31, 2018 and March 31, 2017, inventories consisted exclusively of purchased finished goods.
34
NOTE 3 — RELATED PARTY TRANSACTIONS:DIRECTOR INDEPENDENCE
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 LimitedLtd. (“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 Securities and Exchange Commission (“SEC”) on February 28, 2018, the shared power to vote and direct the disposition of 15,243,283 shares, or approximately 66.9%67.5%, of the Company’s outstanding common stock as of March 31,June 15, 2018. Accordingly, the Company is a “controlled company” as defined in Section 801(a) of the NYSE American Company Guide.
On September 26, 2017, Wealth Warrior Global Limited (“Wealth Warrior”) acquired approximately 65.9% of the outstanding share capital of Nimble from Sino Bright Enterprises Co., Ltd., a company related to the Company’s Chairman of the Board. Based upon disclosures filed by Wealth Warrior on a Schedule 13D on October 10, 2017, as subsequently amended, Wealth Warrior, together with its affiliates, collectively held 73.9% of the outstanding share capital of Nimble as of October 10, 2017. Accordingly, a change of control of the Company was deemed to have occurred as Wealth Warrior may be deemed to be a controlling person of Nimble, and as a result may be deemed to share the power to vote or direct the vote of (and to share the power to dispose or direct the disposition of) the shares of the Company held for the account of S&T.
Related Party Transactions
Return of Pledged Collateral to S&T
In April 2016, the Company, upon a request made by S&T, considered and agreed to return to S&T the $500,000 of collateral which S&T had paid to the Company in September 2014 as part of the indemnification agreement between S&T, Grande and the Company pertaining to an Internal Revenue Service challenge of the Company’s March 31, 2010 earnings and profits calculations underlying the taxability of a dividend paid during March 2010 to all of it stockholders, net of the $79,000 in expenses incurred by the Company in defending the IRS challenge. On April 29, 2016, the Company paid $421,000 to S&T to effectuate the release of the collateral net of the aforementioned expenses incurred by the Company. From September 30, 2014 through March 31, 2016, this pledged collateral had been recorded by the Company as restricted cash on its balance sheet.
Ancillary Expenses Pertaining to Rented Office Space in Hong KongIndemnification of Officers and Directors
During the twelve months ended March 31, 2018The Company enters into indemnification agreements with each of its directors and officers. These agreements require the Company was billed approximately $13,000,to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company, and $14,000 forto advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also intends to enter into indemnification agreements with its future directors and officers.
Review and Approval of Transactions with Related Parties
It is the twelve months ended March 31, 2017, for utilitypolicy of the Company that any proposed transaction between the Company and service charges from the Grande Properties Management Limited (“GPML”) and Lafe Strategic Services Limited (“LSSL”), both related parties, as defined by the Financial Accounting Standard Board’s Accounting Standards Codification Topic 850 (ASC 850) (“RPT Transactions”), that will or may reasonably be expected to involve an aggregate amount that exceeds $120,000 in a fiscal year must bepre-approved by the audit committee prior to any action in furtherance of such potential transaction being taken by the Board or any executive officer. In reviewing and approving proposed transactions between the Company and related parties, the audit committee will determine whether the proposed transaction is entirely fair to the Company and in the Company’s Chairmanbest interest. For purposes of the Board,policy, related parties are as defined within ASC 850, generally, but not limited, meaning (i) an officer or director of the Company or the member of the immediate family of any of them or (ii) any other corporation, partnership, association, limited liability company, limited liability partnership, trust or other entity or organization in connection withwhich one or more of the Company’s rented office space in Hong Kong. The Company owed nil to both GPML and LSSL related to these charges at March 31, 2018 and March 31, 2017.officers or directors are (a) directors, officers, trustees or other fiduciaries or (b) have a financial interest.
Administrative service fees charged to related parties
During the twelve months ended March 31, 2018 the Company billed approximately $23,000, and nil for the twelve months ended March 31, 2017, for administrative fees to Phenomenon Agents Ltd (“PAL”), Sansui Acoustics Research Corporation (“SARC”) and TWD Industrial Co. Ltd. (“TICL"), which are subsidiaries of Nimble. The Company was owed nil from PAL, SARC and TICL related to these charges at March 31, 2018 and March 31, 2017.
35
NOTE 4 — PROPERTY, PLANT, AND EQUIPMENT:
As of March 31, 2018 and 2017, property, plant and equipment is comprised of the following:
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Computer equipment and software |
|
| 323 |
|
|
| 323 |
|
Furniture and fixtures |
|
| 190 |
|
|
| 193 |
|
Leasehold improvements |
|
| 8 |
|
|
| 8 |
|
|
|
| 521 |
|
|
| 524 |
|
Less accumulated depreciation and amortization |
|
| (507 | ) |
|
| (506 | ) |
|
| $ | 14 |
|
| $ | 18 |
|
Depreciation of property, plant, and equipment amounted to approximately $8,000 and $16,000 for the twelve months ended March 31, 2018 and 2017, respectively. During fiscal 2018, the Company disposed of property, plant and equipment with gross book values totaling approximately $3,000. The Company recognized a total net loss of nil on these disposals in fiscal 2018. During fiscal 2017, the Company disposed of property, plant and equipment with gross book values totaling approximately $19,000. The Company recognized a total net loss of nil on these disposals in fiscal 2017.
NOTE 5 — INCOME TAXES:Director Independence
The Company’s provision for income tax expense for fiscal 2018Board presently consists of five directors — Messrs. Ho, Hon, Binney, Sethi and fiscal 2017 wasYuen. The Board has determined that two of the five current directors, Messrs. Sethi and Yuen, meet the definition of independence as follows:
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Current: |
|
|
|
|
|
|
|
|
Federal |
| $ | 3,071 |
|
| $ | (596 | ) |
Foreign, state and other |
|
| 8 |
|
|
| 5 |
|
Prior year federal and state, with interest |
|
| 119 |
|
|
| 154 |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
| 272 |
|
|
| 540 |
|
Foreign, state and other |
|
| (9 | ) |
|
| 69 |
|
Provision for income tax expense |
| $ | 3,461 |
|
| $ | 172 |
|
established by the NYSE American listing standards and applicable SEC rules.
The Company files a consolidated federal returnCompany’s Audit Committee currently consists of Messrs. Sethi (Chairman) and certain state and local income tax returns.Yuen.
The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory federal rate of 34% to earnings before income taxes for fiscal March 2018 and fiscal 2017 is analyzed below:
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Statutory provision |
| $ | (1,044 | ) |
| $ | (40 | ) |
Foreign subsidiary |
|
| (80 | ) |
|
| (71 | ) |
State taxes |
|
| 91 |
|
|
| (51 | ) |
Permanent differences |
|
| 1 |
|
|
| 112 |
|
Effect of new rate per Tax Act on deferred tax asset |
|
| 325 |
|
|
| — |
|
True up to prior year taxes |
|
| (106 | ) |
|
| (63 | ) |
Federal taxes on Section 965 |
|
| 3,121 |
|
|
| — |
|
Valuation allowance |
|
| 160 |
|
|
| 288 |
|
Utilization of NOL on Section 965 |
|
| 997 |
|
|
| — |
|
NOL Adjustments |
|
| (4 | ) |
|
| (3 | ) |
Provision for income tax expense |
| $ | 3,461 |
|
| $ | 172 |
|
36
As of March 31, 2018 and March 31, 2017, the significant components of the Company’s deferred tax assets which were classified as non-current, were as follows:
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands) |
| |||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accounts receivable reserves |
| $ | 86 |
|
| $ | 123 |
|
Inventory reserves |
|
| 125 |
|
|
| 201 |
|
Accruals |
|
| 43 |
|
|
| 17 |
|
Property, plant and equipment and intangible assets |
|
| 262 |
|
|
| 438 |
|
Net operating loss and credit carry forwards |
|
| 460 |
|
|
| 300 |
|
Valuation allowance |
|
| (448 | ) |
|
| (288 | ) |
Total deferred tax assets |
| $ | 528 |
|
| $ | 791 |
|
The Company has no U.S. federal net operating loss carry forwards (“NOLs”) as of March 31, 2018.
The Company has $7.0 million of state NOLs as of March 31, 2018 as follows (in millions $):
Loss Year (Fiscal) |
| Included in DTA |
| Expiration Year (Fiscal) |
| |
2014 |
| $2.4 million |
|
| 2034 |
|
2017 |
| $0.5 million |
|
| 2036 |
|
2018 |
| $3.6 million |
| 2037 |
| |
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 $276,000 for the fiscal year ended March 31, 2018 as compared to a loss before taxes of $220,000 for the fiscal year ended March 31, 2017, respectively.
Except for the accrual of the one-time transition tax on the deemed repatriation of the Company’s undistributed earnings of its foreign subsidiaries, as detailed below, no provision was made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will be reinvested but could become subject to additional tax if they were loaned to the Company or a domestic affiliate, or if the Company should sell its stock in the foreign subsidiaries.
The Company analyzed the future reasonability of recognizing its deferred tax assets at March 31, 2018. As a result, the Company concluded that a valuation allowance of approximately $448,000 would be recorded against the assets.
The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of March 31, 2018, the Company’s open tax years for examination for U.S. federal tax are 2014-2017, and for U.S. states’ tax are 2011-2017. 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.
In December 2017, President Trump signed into law H.R.1, commonly known as the Tax Cuts and Jobs Act (“TCJA”), which makes significant changes to the Internal Revenue Code. Subsequent to enactment of the TCJA in December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance regarding accounting for the TCJA’s impact. SAB 118 requires companies to recognize those tax items for which accounting can be completed. For items whose accounting has not been completed, companies must recognize provisional amounts to the extent they are reasonably estimable, with subsequent adjustments over a measurement period as more information is available and calculations are finalized.
Enactment of the TCJA resulted in a one-time transition tax on the deemed repatriation of the Company’s undistributed earnings of its foreign subsidiaries. The Company has estimated that it will have a gross transition tax liability of $4.6 million which will be reduced by $1.5 million due to net operating losses of $4.7 million. Thus the Company has recorded tax expense of $3.1 million in the year ended March 31, 2018 as a provisional estimate of its US federal and state transition tax liability.
The TCJA lowered the Company’s US statutory federal tax rate from 34% to 21% effective January 1, 2018. The Company recorded a tax expense of $0.3 million in the year ended March 31, 2018 as a provisional estimate of the reduction in its US deferred tax assets resulting from the rate change.
37
While the Company has recognized the provisional tax effect of the transition tax on deemed repatriation and the revaluation of deferred tax assets and liabilities in its financial statements for the year ended March 31, 2018, the ultimate tax impact could differ from these provisional amounts. The Company will continue to analyze the impact of the TCJA, including any additional regulatory guidance issued by the U.S. tax authorities, and expects to complete its accounting in 2018.
Prior to March 2018, the Company had asserted under ASC 740-30 that all of the unremitted earnings of its foreign subsidiaries were 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.
Because of the transition tax on deemed repatriation required by the TCJA, the Company has been subject to tax in 2017 on the entire amount of its previously undistributed earnings from foreign subsidiaries. Beginning in 2018, the TCJA will generally provide a 100% deduction for U.S. federal tax purposes of dividends received by the Company from its foreign subsidiaries. However, the Company is currently evaluating the potential foreign and U.S. state tax liabilities that would result from future repatriations, if any, and how the TCJA will affect the Company's existing accounting position with regard to the indefinite reinvestment of undistributed foreign earnings. The Company expects to complete this evaluation and determine the impact which the legislation may have on its indefinite reinvestment assertion within the measurement period provided by SAB 118.
The TCJA establishes new tax rules designed to tax U.S. companies on global intangible low-taxed income (GILTI) earned by foreign subsidiaries. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Therefore, the Company has not made any adjustments related to potential GILTI tax in its March 31, 2018 financial statements.
NOTE 6 — COMMITMENTS AND CONTINGENCIES:
Leases:
The Company leases warehouse and office space from non-affiliated companies, with annual commitments as follows (in thousands). Also included are commitments to the Company’s ERP software provider:
Fiscal Years |
| Amount |
| |
2018 |
|
| 286 |
|
2019 |
|
| 162 |
|
2020 |
|
| 86 |
|
2021 |
|
| 81 |
|
Thereafter |
|
| 68 |
|
Total |
| $ | 683 |
|
Rent expense resulting from leases with non-affiliated companies aggregated $261,000 and $264,000, respectively, for fiscal 2018 and 2017.
Letters of Credit:
The Company utilizes the services of one of its banks to issue secured letters of credit on behalf of the Company, as needed, on a 100% cash collateralized basis. At March 31, 2018 and March 31, 2017, the Company had no letters of credit outstanding.
Capital Expenditure and Other Commitments:
As of March 31, 2018, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product.
Employee Benefit Plan:
The Company currently sponsors a defined contribution 401(k) retirement plan which is subject to the provisions of the Employee Retirement Income Security Act. The Company matches a percentage of the participants’ contributions up to a specified amount. These contributions to the plan for fiscal 2018 and 2017 were $32,000 and $42,000, respectively, and were charged against earnings for the periods presented.
NOTE 7 — SHAREHOLDERS’ EQUITY:
Common Shares:
Authorized common shares total 75,000,000 with a par value $0.01 per share, of which, 22,799,088 were outstanding as of March 31, 2018 and 27,065,852 as of March 31, 2017. Shares held in treasury at March 31, 2018 were 30,166,709 and at March 31, 2017 were 25,899,945.
Common Stock Repurchase Program:
In December 2016, the Company publicly announced the approval by the Board of Directors of the repurchase of up to $5 million of its common stock, that the repurchases may be effected from time to time at prevailing market prices, through open market or in privately negotiated transactions, which may include, in whole or in part, the establishment of a purchase program pursuant to the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, through block purchases or through accelerated or forward or similar stock purchases.
In September 2017, the Company’s Board of Directors approved an additional $5 million, bringing the total authorized stock repurchases under the program to $10 million and in June 2018 extended the program to December 31, 2018. Under the program, repurchases will be funded from available working capital and any repurchased shares will be held in the treasury as authorized and issued shares available for general corporate purposes. During the twelve months ended March 31, 2018, 4,266,764 shares for $6,292,620 were repurchased. As of March 31, 2018, the Company had repurchased 4,330,744 shares for $6,359,238 under this program. The remaining balance of the program is $3,640,762 as of March 31, 2018.
Series A Preferred Stock:
The Company has issued and outstanding 3,677 shares of Series A Preferred Stock, $.01 par value (“Preferred Stock”), with a face value of $3,677,000, which had no determinable market value as of March 31, 2018. The Preferred Stock is non-voting, has no dividend preferences and has not been convertible since March 31, 2002; however, it retains a liquidation preference.
NOTE 8 — SHORT TERM INVESTMENTS:
At March 31, 2018 and March 31, 2017, the Company held short-term investments in certificates of deposit totaling $16.0 million and $25.1 million, respectively.
The Company held $5.0 million in certificates of deposit which were classified as cash equivalents as of March 31, 2018 and $3.0 million as of March 31, 2017. Of the $5.0 million in certificates of deposit classified as cash equivalents, $2.0 million matured on April 26, 2018 and have not been re-invested into certificates of deposit. The remaining $3.0 million matured on May 23, 2018 and were re-invested.
NOTE 9 — NET EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per share for the years ended March 31, 2018 and March 31, 2017:
|
|
|
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
| (In thousands, except per share data) |
| |||||
Numerator: |
|
|
|
|
|
|
|
|
Net (loss) |
| $ | (6,851 | ) |
| $ | (237 | ) |
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share — weighted average shares |
|
| 25,282 |
|
|
| 27,115 |
|
Net (loss) per share: |
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share |
| $ | (0.27 | ) |
| $ | (0.01 | ) |
For the year ended March 31, 2018, there were no outstanding instruments which were potentially dilutive.
39
The Company is currently party to two license agreements that allow the licensee to use its trademarks for the manufacture and/or the sale of consumer electronics and other products. Each of these license agreements (i) allows the licensee to use the Company’s trademarks for a specific product category, or for sales within specific geographic areas, or for sales to a specific customer base, or any combination of the above, or any other category that might be defined in applicable license agreement and (ii) may be subject to renewal at the initial expiration of applicable agreement and is governed by the laws of the United States.
Historically, the Company’s largest license agreement was with Funai which accounted for $2.8 million, or approximately 78% of the Company’s total fiscal 2017 licensing revenue. As previously disclosed, the Funai licensing agreement was terminated effective as of December 31, 2016.
As previously disclosed, on December 16, 2015, the Company received written notice from Funai stating its intention to terminate the agreement, with termination to be effective on December 31, 2016. In accordance with the agreement, in June 2016 Funai paid to the Company the full balancerequirements of the contracted non-refundable minimum annual royalty throughSarbanes-Oxley Act of 2002 and the December 31, 2016 termination date in the amount of $2.8 million. This licensing relationship contributed substantial product volumeAudit Committee’s charter, all audit and market presence through Funai’s manufactureaudit-related work and distribution of products bearing the Emerson® brand name in the United States and its loss has materially and adversely affectedallnon-audit work performed by the Company’s revenue, earningsindependent accountants, MSPC Certified Public Accountants and business. The CompanyAdvisors, A Professional Corporation (“MSPC”), is analyzing the impacts of the Funai termination to its business and is identifying strategic courses of action for consideration, including seeking new licensing relationships. There can be no assurance that the Company will be able to secure a new licensee or distribution relationship to replace the licensing revenue, product volume and market presence of Emerson-branded productsapproved in the United States, which had been provided through the license agreement with Funai.
NOTE 11 — 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 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.
NOTE 12 — RISKS AND UNCERTAINTIES:
Customer and Licensee Concentration
For the twelve months ended March 31, 2018, the Company’s three largest customers, accounted for approximately 84% of the Company’s net revenues, with Walmart accounting for 62%, Amazon.com accounting for 11%, Fred Meyer accounting for 11%. For the 12 months ended March 31, 2017 the Company’s two largest customers, and largest licensee, accounted for approximately 83% of the Company’s net revenue with Walmart accounting for 53%, Fred Meyer accounting for 17% and Funai accounting for 13%. A significant decline in net sales to any of the Company’s key customers would have a material adverse effect on the Company’s business, financial condition and results of operation. The termination of the Funai license agreement has had a material adverse effect on the Company’s business, financial condition and results of operation.
Product Concentration
For the twelve months ended March 31, 2018, the Company’s gross product sales were comprised of four product types within two categories — housewares products and audio products, and two of these product types, namely microwave ovens and compact refrigerators — both within the housewares category — generated approximately 69% of the Company’s gross product sales, with microwave ovens generating approximately 63% of the total and compact refrigerators generating approximately 6% of the total. Audio products generated approximately 30% of the Company’s gross product sales during fiscal 2018.
For the twelve months ended March 31, 2017, the Company’s gross product sales were comprised of the same four product types within the same two categories — housewares products and audio products, and two of these product types, namely microwave ovens and compact refrigerators — both within the housewares category — generated approximately 82% of the Company’s gross product sales, with microwave ovens generating approximately 71% of the total and compact refrigerators generating approximately 11% of the total. Audio products generated approximately 18% of the Company’s gross product sales during fiscal 2017.
As a result of this dependence, a significant decline in pricing of, or market acceptance of these product types and categories, either in general or specifically as marketedadvance by the Company, would have a material adverse effect onAudit Committee, including the Company’s business, financial condition and resultsproposed fees for such work. The Audit Committee is informed of operations. Because the market for these product types and categories is characterized by periodic new product introductions, the Company’s future financial performance will depend, in part, on the successful and timely
40
development and customer acceptance of new and enhanced versions of these product types and other products distributedeach service actually rendered. All fees described below were approved by the Company. There can be no assurance that the Company will continue to be successful in marketing these products types within these categories or any other new or enhanced products.
Concentrations of Credit Risk
As a percent of the Company’s total trade accounts receivable, net of specific reserves, Walmart and Amazon.com accounted for 64% and 21% as of March 31, 2018, respectively. As a percent of the Company’s total trade accounts receivable, net of specific reserves, Walmart and Fred Meyer accounted for 91% and nil as of March 31, 2017, 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. The accounts receivable allowance for doubtful accounts on the Company’s total trade accounts receivable balances was approximately $6,000 at March 31, 2018 and approximately $4,000 at March 31, 2017. Due to the high concentration of the Company’s net trade accounts receivables among just two customers, any significant failure by one of these customers to pay the Company the amounts owing against these receivables would result in a material adverse effect on the Company’s business, financial condition and results of operations.
The Company maintains its cash accounts with major U.S. and foreign financial institutions. The Company’s cash and restricted cash balances on deposit in the U.S. as of March 31, 2018 and March 31, 2017 were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per qualifying bank account in accordance with FDIC rules. The Company’s cash, cash equivalents and restricted cash balances in excess of these FDIC-insured limits were approximately $24.5 million and approximately $27.0 million at March 31, 2018 and March 31, 2017, respectively.
Supplier Concentration
During the twelve months ended March 31, 2018, the Company procured approximately 93% of its products for resale from its two largest factory suppliers, and of these, the Company procured approximately 59% of these products from one of them and 34% from another. During the twelve months ended March 31, 2017, the Company procured approximately 91% of its products for resale from its two largest factory suppliers, and of these, the Company procured approximately 75% of these products from one of them and 16% from another.
No assurance can be given that ample supply of product would be available at current prices and on current credit terms if the Company were required to seek alternative sources of supply without adequate notice by a supplier or a reasonable opportunity to seek alternate production facilities and component parts and any resulting significant shortage of product supply would have a material adverse effect on the Company’s business, financial condition and results of operation.
NOTE 13 — GEOGRAPHIC INFORMATION:
Net revenues and long-lived assets of the CompanyAudit Committee for the fiscal years ended March 31, 2018 and March 31, 2017, are summarized below by geographic area (in thousands). Net revenues are attributed to geographic area based on the location of the customer.respectively.
|
| Year Ended March 31, 2018 |
| |||||||||
|
| U.S. |
|
| Foreign |
|
| Consolidated |
| |||
Net revenues |
| $ | 15,022 |
|
| $ | — |
|
| $ | 15,022 |
|
Long-lived assets |
| $ | 25 |
|
| $ | 90 |
|
| $ | 115 |
|
| • | Audit Fees.Audit fees billed to the Company by MSPC for the audit of the financial statements included in the Company’s Annual Reports on Form10-K, and reviews by MSPC of the financial statements included in the Company’s Quarterly Reports on Form10-Q, for the fiscal years ended March 31, 2018 and 2017 totaled approximately $100,000 and $112,000, respectively. |
|
| Year Ended March 31, 2017 |
| |||||||||
|
| U.S. |
|
| Foreign |
|
| Consolidated |
| |||
Net revenues |
| $ | 21,251 |
|
| $ | — |
|
| $ | 21,251 |
|
Long-lived assets |
| $ | 26 |
|
| $ | 93 |
|
| $ | 119 |
|
| • | Audit-Related Fees. The Company was not billed for any audit-related fees by MSPC for the fiscal years ended March 31, 2018 or 2017, respectively. |
| • | Tax Fees.The Company was not billed by MSPC for tax services for the fiscal years ended March 31, 2018 or 2017, respectively. |
41
None.
Evaluation of 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 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’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. 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. The Company’s controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.
As a result of its internal assessment, the Company’s management 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 the end of the period covered by this Annual Report on Form 10-K, are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to ensure that such information is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’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.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, management concluded that the Company’s internal control over financial reporting was effective.
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission for smaller reporting companies that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended March 31, 2018 there were no changes in the Company’s internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None
42
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 30, 2018.
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 30, 2018.
|
|
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 30, 2018.
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 30, 2018.
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 30, 2018.IV.
(a) List of Financial Statements,ITEM 15 — Exhibits, Financial Statement Schedules and
(a)(3) Exhibits.
1. Financial Statements. The following financial statements of Emerson Radio Corp. are included in Item 8 of Part II of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended March 31, 2018 and 2017
Consolidated Balance Sheets as of March 31, 2018 and 2017
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended March 31, 2018 and 2017
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. All financial statement schedules are omitted from this Annual Report on Form 10-K, as they are not required or applicable or the required information is included in the financial statements or notes thereto.
43
3. Exhibits. The following exhibits are filed with this Amendment No. 1 on Form10-K/A to the Annual Report on Form 10-K or are incorporated herein by reference, as indicated.
44
Exhibit Number | ||
| ||
| 101.4+ | XBRL Taxonomy Extension Definition Linkbase Document. * | |
101.5+ | XBRL Taxonomy Extension Label Linkbase Document. * | |
101.6+ | XBRL Taxonomy Extension Presentation Linkbase Document. * | |
* | Filed with Emerson’s Annual Report on Form10-K for the year ended March 31, 2018, filed with the Securities and Exchange Commission on June 28, 2018. |
| ** | Filed herewith. |
** * | Furnished |
† | Management contract or compensatory plan or arrangement. |
None.
45
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this reportAmendment No. 1 on Form10-K/A to the Registrant’s Annual Report on Form10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
| EMERSON RADIO CORP. | |||
By: | /s/ Duncan Hon | ||
Duncan Hon | |||
Chief Executive Officer | |||
Principal Executive Officer | |||
|
| ||
| |||
| |||
| |||
Dated: June 28,July 27, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
| ||
| ||||
|
|
| ||
| ||||
|
|
| ||
| ||||
|
|
| ||
| ||||
|
|
| ||
|
4615