UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(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, 2019
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-07731
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
22-3285224 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
|
|
|
|
|
35 Waterview Blvd, Suite 140, Parsippany, NJ |
|
07054 |
|
(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 Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
|
Common Stock, par value $.01 per share |
MSN |
NYSE American |
Securities registered pursuant to Section 12(g) of the Act:
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☒ |
|
|
|
|
|
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ YES ☒ NO.
Aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates of the registrant at September 30, 2018 (computed by reference to the last reported sale price of the Common Stock on the NYSE American on such date): $10,317,373.
Number of Common Shares outstanding at June 26, 2019: 21,042,652
DOCUMENTS INCORPORATED BY REFERENCE:
|
Document |
Part of the Form 10-K |
|
Proxy Statement for Annual Meeting of Stockholders for the fiscal year ended March 31, 2019, or an amendment to this Annual Report on Form 10-K |
Part III |
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 U.S. Tax Cuts and Jobs Act of 2017; |
|
|
• |
changes in U.S. and foreign trade regulations and tariffs, including potential increases of tariffs on goods imported into the U.S., and uncertainty regarding the same; |
|
|
• |
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. |
3
All forward-looking statements are expressly qualified in their e ntirety 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 document incorporated by reference into this annual report. T he 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, belief s 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 — Overview
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 others 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:
|
|
• |
recognition of the Emerson ® brand; |
|
|
• |
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 agreements on a global basis for a variety 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 categories, which include licensed products, consist primarily of the following:
|
Houseware Products |
|
Audio Products |
|
Other |
|
|
|
|
|
|
|
Microwave Ovens |
|
Clock Radios |
|
Massagers |
|
|
|
|
|
|
|
Compact Refrigerators |
|
Bluetooth Speakers |
|
Toothbrushes |
|
|
|
|
|
|
|
Toaster Ovens |
|
Wireless Charging |
|
Security Products |
|
|
|
|
|
|
|
Wine Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
Sales and Distribution
The Company markets its products exclusively in the United States, primarily through mass merchandisers and online marketplaces.
In fiscal 2019, Walmart accounted for approximately 50%, Amazon.com accounted for approximately 16%, and Fred Meyer accounted for approximately 13% of the Company’s net revenues. 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. 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 47% and 29% as of March 31, 2019, respectively. 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. 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 96% and 31% of the Company’s net revenues in fiscal 2019 and 2018, 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 2019, the Company utilized 6 sales representative organizations, including one which represented approximately 55% of its net revenues and another which represented 32% of its net revenues. In fiscal 2018, the Company utilized 5 sales representative organizations, including one which represented approximately 26% of its net revenues. No other sales representative organization accounted for more than 10% of net revenues in fiscal 2019 or fiscal 2018. The remainder of the Company’s sales is to customers that are serviced by its sales personnel. 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 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 as this is when the Company satisfies its performance obligation under the contracts with its customers. See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” During fiscal 2019 and 2018, less than 1% of the Company’s net product sales were sold under the Direct Import Program.
During fiscal 2018, 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 16% and 11% of the Company’s net revenues in fiscal 2019 and 2018, 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 currently party to one license agreement with a third party licensee that allows 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. The Company has engaged Leveraged Marketing Corporation of America (“LMCA”) as an agent to assist in identifying and procuring 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 n ew 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 2019 and 2018, 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 2019 and 2018:
|
|
|
Fiscal Year |
|
|||||
|
Supplier |
|
2019 |
|
|
2018 |
|
||
|
Itoma |
|
|
71 |
% |
|
|
34 |
% |
|
Midea |
|
|
19 |
% |
|
|
59 |
% |
|
Total |
|
|
90 |
% |
|
|
93 |
% |
|
* 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 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:
|
|
• |
Emerson ® |
|
|
• |
Emerson Research ® |
|
|
• |
H.H. Scott ® |
|
|
• |
iDEA ® |
|
|
• |
IDIVA ® |
|
|
• |
Ölevia ® |
|
|
• |
Scott ® |
|
|
• |
SmartSet ® |
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, changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements 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 trade policies and 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 6, 2019, the Company had 23 employees, comprised of 11 in the United States and 12 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’s corporate website is located at www.emersonradio.com. The Company files reports and other information with the SEC pursuant to the information requirements of the Securities Exchange Act of 1934. The Company makes available free of charge, on or through its website, the Company’s annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information contained on the Company’s website is not part of this Annual Report on Form 10-K or any other report filed with the SEC. Readers may also read and copy any document the Company files at the SEC’s website at www.sec.gov .
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, 2019, Walmart, Amazon.com and Fred Meyer accounted for approximately 50%, 16% and 13%, respectively, of the Company’s net revenues. For the fiscal year ended March 31, 2018, Walmart, Amazon.com and Fred Meyer accounted for approximately 62%, 11% and 11%, respectively, of the Company’s net revenues. 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, 2019, the Company’s gross product sales were comprised principally of four product types within two categories — housewares products and audio products, and two of these product types, namely microwave ovens and toaster ovens — both within the housewares category — generated approximately 40% of the Company’s gross product sales, with microwave ovens generating approximately 39% of the total and toaster ovens generating approximately 1% of the total. Audio products generated approximately 30% of the Company’s gross product sales during fiscal 2019. For the twelve months ended March 31, 2018, the Company’s gross product sales were comprised
8
principally of the same four product types within the same two ca tegories — 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 ove ns 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. 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 acceptan ce 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, 2019 and March 31, 2018, these organizations were responsible for approximately 96% and 31%, respectively, of its net revenues during such periods. In addition, one of these representative organizations was responsible for a significant portion of these revenues. If any of 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, the Company is dependent upon a small number 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, certain of the Company’s key customers use their own private label brands that compete directly with some of the Company’s products. As the retailers in the houseware 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.
The houseware and consumer electronic industry is consolidating, which could reduce 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 result 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 competitors or the retailers’ increasing use of private label brands.
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 .
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. Although the Company has engaged LMCA as an agent to assist the Company in identifying and procuring licensing opportunities, there can be no assurance that
9
the Company will find and secure suitable licensees or distribution relationships. 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. Itoma was the Company’s largest supplier and accounted for 71% of the Company’s purchases of products during fiscal 2019. 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.
The Company’s ability to provide high quality customer service, process 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 to meet the requirements of its customers, 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; |
|
|
• |
restrictions on transfers of funds; |
|
|
• |
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; |
10
|
|
• |
regula tory 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 stored 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, 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 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 rights could materially and adversely affect the license of its trade names, trademarks and other proprietary rights 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
11
licenses would be available or, if available, that such licenses could b e 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 cos ts 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 Itoma, 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.
Foreign regulations and changes in trade policies and 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 trade proposals, including recently implemented tariffs on certain goods imported from China and other proposed tariffs, as well as modifications to international trade policy and other changes that have and may further affect U.S. trade relations with other countries. In addition, during 2018, the United States and China each imposed new tariffs, and announced further proposed tariffs, on various products imported from China and the United States, respectively. Between July 2018 and September 2018, the Office of the United States Trade Representative (“USTR”) imposed tariffs of 10% and 25% on three product lists totaling approximately $250 billion worth of imports from China. In particular, in September 2018, the USTR imposed its third round of 10% tariffs on more than 5,700 categories of products imported from China with a value of approximately $200 billion, including categories of products the Company imports, and in May 2019 the USTR increased the rate on these categories of products from 10% to 25%. In addition, the USTR is considering 25% tariffs on an additional 3,805 categories of imports from China with a value of approximately $300 billion. If this proposal is accepted, all imports from China with the exception of certain pharmaceuticals, medical products, rare earth metals and minerals will be subject to a 25% additional tariff. In response, many U.S. trading partners, including China, have imposed or proposed new or higher tariffs on U.S. exports.
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 or any retaliatory trade measures taken by China in response to existing or future tariffs could have a material adverse effect on the Company’s results of operations going forward. The Company’s dependency on its overseas suppliers could exacerbate these and other risks, and any tariffs on the categories of products the Company imports to the United States could negatively affect the demand for such products, increase the cost of components, delay production or affect the
12
Company’s ability to compete against competitors who do not manufacture in China or otherwise are not subject to such tariffs. Although the Company is monitoring the trade env ironment and working to mitigate the possible effect of tariffs through pricing and sourcing strategies, the Company cannot be certain how its customers and competitors will react to the actions taken, and some costs may be passed through to the Company’s customers as product price increases in the future. Among the other 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’s expanded marketing plan includes 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 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 .
13
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 party, whether internal or external, who is able to circumvent the Company’s security measures or those of its vendors could misappropriate information.
14
If the Company or the online payment plat forms 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 adversel y 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 i ncur 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, has experienced, and may experience in the future, significant price and volume fluctuations, which could adversely affect the market price of the Company’s common stock. The market price of 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; |
|
|
• |
loss 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 level of the Company’s stock repurchase activity; |
|
|
• |
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 of the NYSE American rules and, as a result, qualifies for, and relies on, exemptions from certain corporate governance requirements. As a result, 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 72.4% of the Company’s outstanding common stock as of June 26, 2019. As a result, the Company is a “controlled company” within the meaning of the NYSE American Company Guide. Under the NYSE American rules, a 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; |
|
|
• |
the Company has a nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
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 Board of Directors acts as 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 requirements of the NYSE American.
The controlling ownership of the Company’s common stock by an indirect subsidiary of Nimble substantially reduces the influence of other stockholders, and the interests of Nimble may conflict with the interests of the Company’s other stockholders.
Nimble, through one of its indirect subsidiaries, is the beneficial owner of approximately 72.4% of the Company’s outstanding common stock as of June 26, 2019. As a result, Nimble will be able to exert significant influence over 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. In addition, several provisions of 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 following table sets forth the material properties leased by the Company:
|
Facility Purpose |
|
Approximate Square Footage |
|
|
Location |
|
Lease Expires |
|
|
Corporate headquarters |
|
|
5,693 |
|
|
Parsippany, NJ |
|
January 2023 |
|
Hong Kong office |
|
|
2,900 |
|
|
Hong Kong, China |
|
August 2021 |
The Company presently relies on warehouse space from its third party logistics provider.
The Company believes that the properties used for its operations are in satisfactory condition and adequate for its present and anticipated future operations. The Company does not currently own any of the properties it occupies.
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.
Not applicable
16
|
Item 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES |
(a) Market Information
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.
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 3, 2019, there were 180 stockholders of the Company’s common stock whose shares were registered with 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 of 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.
Not applicable.
17
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):
|
|
|
|
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Net product sales |
|
$ |
8,577 |
|
|
$ |
14,363 |
|
|
Licensing revenue |
|
|
405 |
|
|
|
659 |
|
|
Net revenues |
|
|
8,982 |
|
|
|
15,022 |
|
|
Cost of sales |
|
|
8,760 |
|
|
|
13,921 |
|
|
Other operating costs and expenses |
|
|
27 |
|
|
|
60 |
|
|
Selling, general and administrative expenses |
|
|
3,843 |
|
|
|
4,923 |
|
|
Operating (loss) |
|
|
(3,648 |
) |
|
|
(3,882 |
) |
|
Interest income, net |
|
|
859 |
|
|
|
492 |
|
|
(Loss) before income taxes |
|
|
(2,789 |
) |
|
|
(3,390 |
) |
|
(Benefit) provision for income taxes |
|
|
(352 |
) |
|
|
3,461 |
|
|
Net (loss) |
|
$ |
(2,437 |
) |
|
$ |
(6,851 |
) |
Results of Operations — Fiscal 2019 compared with Fiscal 2018
Net product sales — Net product sales for fiscal 2019 were $8.6 million as compared to $14.4 million for fiscal 2018, a decrease of $5.8 million, or 40.3% as detailed below. The Company’s sales were highly concentrated among three customers - Walmart, Amazon.com and Fred Meyer, where gross product sales to these customers were approximately 84.2% and 87.9% of the Company’s total gross product sales in fiscal 2019 and fiscal 2018, 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 approximately $16,000 and $195,000 for fiscal 2019 and fiscal 2018, respectively. Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson ® brand name. The major elements which contributed to the overall decrease in net product sales were as follows:
|
|
i) |
Houseware product net sales decreased $6.5 million, or 64.5%, to $3.6 million in fiscal 2019 as compared to $10.1 million in fiscal 2018, principally driven by a decrease in sales of microwave ovens, compact refrigerators and wine products partially offset by an increase in toaster ovens. The year-over-year decreases were driven by lower year-over-year retail sell through on existing models and competitive pricing activity. |
|
|
ii) |
Audio product net sales were $5.0 million in fiscal 2019 compared to $4.3 million in fiscal 2018, an increase of $0.7 million, or 16.8%, resulting from increased net sales of clock radios. |
Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products to regain shelf spaces with 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 on which the Company has historically focused. The Company also is continuing its efforts to identify strategic courses of action related to its licensing activities, including seeking new licensing relationships. The Company has engaged LMCA as an agent to assist in identifying and procuring potential licensees.
Emerson’s success is dependent on its ability to anticipate and respond to changing consumer demands and trends in a timely manner, as well as expanding into new markets and sourcing new products that are profitable to the Company. Geo-political factors
18
may also affect demand for the Company’s products, which are subject to customs requirements and to tariffs and quotas set by governments through mutual agr eements and bilateral actions. The Company expects that the recently announced U.S. tariffs on certain imported goods from China, which tariffs were increased from 10% to 25% in May 2019, and the current U.S. administration’s public support for additional tariffs on imported goods from China, and China’s retaliatory tariffs on certain goods imported from the United States, as well as modifications to international trade policy, may affect its product costs going forward, which could require the Company to t ake pricing action to offset the increasing costs; however, at this time the Company is unable to quantify this possible effect on its costs. Although the Company is monitoring the trade environment and working to mitigate the possible effect of tariffs th rough pricing and sourcing strategies, including drawing down inventory built up in advance of the recent tariff increase, the Company cannot be certain how its customers and competitors will react to the actions taken, and some costs may be passed through to the Company’s customers as product price increases in the future. For more information on risks associated with the Company’s operations, including tariffs, please see the risk factors within Part I, Item 1A, “Risk Factors” in this Annual Report on For m 10-K.
Emerson has taken active steps to further streamline its operations to reduce and control its operating costs. The operating costs for fiscal 2019 were reduced to $3.8 million, which included $346,000 in legal fees related to a trademark infringement suit initiated by the Company, as compared to $4.9 million for fiscal 2018 which included $489,000 in legal fees related to a trademark infringement suit initiated by the Company .
Licensing revenue — Licensing revenue in fiscal 2019 was $0.4 million as compared to $0.7 million for fiscal 2018, a decrease of $0.3 million, or 38.5%, driven by lower year-over-year sales by the Company’s licensees of Emerson ® branded product. One of the Company’s licensees chose not renew its agreement when it expired on December 31, 2018.
Net revenues — As a result of the foregoing factors, the Company’s net revenues were $9.0 million for fiscal 2019 as compared to $15.0 million for fiscal 2018, a decrease of $6.0 million, or 40.2%.
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 $5.1 million, or 37.1%, to $8.8 million in fiscal 2019 as compared to $13.9 million in fiscal 2018. The decrease in absolute terms for fiscal 2019 as compared to fiscal 2018 was primarily related to the reduced net product sales 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 were 0.3% in fiscal 2019 and 0.4% in fiscal 2018. In absolute terms, other operating costs and expenses were $27,000 in fiscal 2019 as compared to $60,000 in fiscal 2018.
Selling, general and administrative expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, was 42.8% in fiscal 2019 as compared to 32.8% in fiscal 2018. Fiscal 2019 S,G&A, in absolute terms, was $3.8 million and fiscal 2018 S,G&A, in absolute terms, was $4.9 million, a decrease of $1.1 million, or 21.9%. The decrease in S,G&A was due to reductions in compensation costs, legal fees and directors fees.
Interest income, net — Interest income, net, was $859,000 in fiscal 2019 as compared to $492,000 in fiscal 2018, resulting from an increase in interest rates earned on investments in Certificates of Deposit during fiscal 2019.
(Benefit) provision for income tax expense — The Company recorded an income tax benefit of $0.4 million in fiscal 2019 as compared to income tax expense of $3.5 million in 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. See Note 5 “Income Taxes” of the Notes to the Consolidated Financial Statements.
Net (loss) — As a result of the foregoing factors, the Company recorded a net loss of $2.4 million for fiscal 2019 as compared to a net loss of $6.9 million for fiscal 2018.
Liquidity and Capital Resources
General
As of March 31, 2019, the Company had cash and cash equivalents of approximately $7.9 million as compared to approximately $25.1 million at March 31, 2018. Working capital decreased to $40.3 million at March 31, 2019 as compared to $46.0 million at March 31, 2018. The decrease in cash and cash equivalents of approximately $17.2 million is set out in “Cash Flows” below.
Cash Flows
19
Net cash used by operating activities was approximately $2.2 million for fiscal 2019 resulting from a $2.4 million loss generat ed during the period, a $0.7 million decrease in income taxes payable, a $0.4 million increase in inventory, a $0.3 million decrease in accounts payable and other current liabilities, a $0.2 million increase in asset allowances partially offset by a $1.5 m illion decrease in accounts receivable, a $0.1 million increase in deferred revenue, a $0.1 million decrease in deferred tax assets and a $0.1 million decrease in prepaid expenses and other current assets.
Net cash used by investing activities was $12.4 million primarily due to an increase of investments in short term certificates of deposit.
Net cash used by financing activities was approximately $2.6 million resulting from treasury stock purchases made during fiscal 2019 under the Company’s $10.0 million stock repurchase program authorized by the Company’s Board of Directors. The repurchase program expired on December 31, 2018.
Credit Arrangements
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, 2019 and March 31, 2018, the Company had no letters of credit outstanding.
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 by the Company to its customers can significantly benefit the Company’s liquidity because this inventory does not need to be financed by the Company. In fiscal 2019, there were approximately $41,000 of product sales imported directly to the Company’s customers due to changes in the Company’s key customers.
As of March 31, 2019, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product.
Off-Balance Sheet Arrangements
As of March 31, 2019, the 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 prepared 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 : Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Under both programs, the Company recognizes revenues at the time title passes to the customer as this is when the Company satisfies its performance obligation under the contracts with its customers. Estimates for future expected returns are based upon historical return rates and netted against revenues.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Revenue is recorded net of customer discounts, promotional allowances, volume rebates and similar charges. When the Company offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.
Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for the Company’s products when evaluating the
20
adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves i n 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, w hich were used to establish the reserve.
The Company adopted ASC topic 606 effective April 1, 2018. 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. Prior to the adoption of ASC topic 606, the Company followed the provisions of ASC topic 605 in prior periods. The adoption of ASC topic 606 did not have a material impact on revenue recognition as compared to revenue recognition provided under ASC topic 605.
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.
Inventories. Inventories are stated at the lower of cost or net realizable value. 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 net realizable 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 606, “Revenue from Contracts with Customers”.
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 606, “Revenue from Contracts with Customers.” (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 606 (ii) under SAB’s 101 and 104, an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
Recently Adopted Accounting Pronouncements
21
Accounting Standards Update 2014-09 “Revenue from Contracts wi th Customers” (Issued May 2014)
In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers", subsequently amended and collectively Topic 606. The standard replaced almost all existing revenue recognition guidance in U.S. GAAP, with the intention to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASC 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASC 606 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which became effective for the Company beginning April 1, 2018. The Company adopted ASC 606 in the first quarter of fiscal 2019 on a modified retrospective basis with no changes recognized in the prior year comparative financial statements. The adoption of this standard did not have a material impact on the Company’s financial statements. The Company has enhanced its disclosures of revenue to comply with the new guidance.
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, 2019 or during the interim period between March 31, 2019 and June 26, 2019 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”, which requires lease assets and liabilities to be recorded on the balance sheet. This update is effective for public entities in fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years, and certain qualitative and quantitative disclosures are also required. The Company will adopt this ASU and related amendments as of the beginning of the first quarter of the year ending March 31, 2020 on a modified retrospective basis. Early adoption is permitted. The Company will apply the modified retrospective approach by recording a cumulative effect adjustment as of the date of adoption, whereby prior comparative periods will not be retrospectively presented in the consolidated financial statements. The Company will also be electing certain practical expedients permitted under the transition guidance, including to retain the historical lease classification as well as relief from reviewing expired or existing contracts to determine if they contain leases. The Company will be exempting leases with an initial term of twelve months or less from balance sheet recognition and will not separate lease and non-lease components.
The Company estimates recognizing total lease liabilities ranging from $625,000 to $764,000 and corresponding right-of-use assets ranging from $585,000 to $715,000, all of which is associated with leased office space. The difference between the right-of-use asset and lease liability is due to the existing deferred balance, resulting from historical straight-lining of operating leases that will be reclassified upon adoption to reduce the measurement of the right-of-use assets. The Company’s Consolidated Statements of Income and Consolidated Statements of Cash Flows will not be materially impacted. The Company is currently finalizing its calculations of the adoption impacts as well as policies, processes and internal controls to align with the Topic 842.
Not applicable.
22
Index to Consolidated Financial Statements
23
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") as of March 31, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of their operations and their cash flows for each of the years in the two-year period ended March 31, 2019, in conformity with accounting principles generally accepted in the United States of America
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 26, 2019
24
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2019 and 2018
(In thousands, except per share data)
|
|
|
|
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
Net product sales |
|
$ |
8,577 |
|
|
$ |
14,363 |
|
|
Licensing revenue |
|
|
405 |
|
|
|
659 |
|
|
Net revenues |
|
|
8,982 |
|
|
|
15,022 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
8,760 |
|
|
|
13,921 |
|
|
Other operating costs and expenses |
|
|
27 |
|
|
|
60 |
|
|
Selling, general and administrative expenses |
|
|
3,843 |
|
|
|
4,923 |
|
|
|
|
|
12,630 |
|
|
|
18,904 |
|
|
Operating (loss) |
|
|
(3,648 |
) |
|
|
(3,882 |
) |
|
Other income: |
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
859 |
|
|
|
492 |
|
|
(Loss) before income taxes |
|
|
(2,789 |
) |
|
|
(3,390 |
) |
|
(Benefit) provision for income tax expense |
|
|
(352 |
) |
|
|
3,461 |
|
|
Net (loss) |
|
|
(2,437 |
) |
|
|
(6,851 |
) |
|
Basic (loss) per share |
|
$ |
(0.11 |
) |
|
$ |
(0.27 |
) |
|
Diluted (loss) per share |
|
$ |
(0.11 |
) |
|
$ |
(0.27 |
) |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
Basic |
|
|
21,931 |
|
|
|
25,282 |
|
|
Diluted |
|
|
21,931 |
|
|
|
25,282 |
|
The accompanying notes are an integral part of the consolidated financial statements.
25
EMERSON RADIO CORP. AND SUBSIDIARIES
As of March 31, 2019 and 2018
(In thousands)
The accompanying notes are an integral part of the consolidated financial statements.
26
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For The Years Ended March 31, 2019 and 2018
(In thousands)
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|||||||
|
|
|
Preferred |
|
|
Number |
|
|
Par |
|
|
Paid-In |
|
|
Accumulated |
|
|
Treasury |
|
|
Shareholders’ |
|
|||||||
|
|
|
Stock |
|
|
of Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
|||||||
|
Balance — March 31, 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 |
|
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,618 |
) |
|
|
(2,618 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,437 |
) |
|
|
— |
|
|
|
(2,437 |
) |
|
Balance — March 31, 2019 |
|
$ |
3,310 |
|
|
|
52,965,797 |
|
|
$ |
529 |
|
|
$ |
79,792 |
|
|
$ |
(11,702 |
) |
|
$ |
(33,201 |
) |
|
$ |
38,728 |
|
The accompanying notes are an integral part of the consolidated financial statements
27
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended March 31, 2019 and 2018
|
|
|
|
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(2,437 |
) |
|
$ |
(6,851 |
) |
|
Adjustments to reconcile net loss to net cash (used) provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
5 |
|
|
|
8 |
|
|
Loss on disposal of assets |
|
|
3 |
|
|
|
— |
|
|
Deferred tax assets |
|
|
80 |
|
|
|
263 |
|
|
Asset allowances and reserves |
|
|
(196 |
) |
|
|
(166 |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,476 |
|
|
|
(510 |
) |
|
Royalty receivable |
|
|
60 |
|
|
|
36 |
|
|
Inventory |
|
|
(356 |
) |
|
|
(2,326 |
) |
|
Prepaid purchases |
|
|
(57 |
) |
|
|
390 |
|
|
Prepaid expenses and other current assets |
|
|
76 |
|
|
|
997 |
|
|
Other assets |
|
|
(3 |
) |
|
|
(50 |
) |
|
Accounts payable and other current liabilities |
|
|
(258 |
) |
|
|
47 |
|
|
Deferred revenue |
|
|
115 |
|
|
|
50 |
|
|
Income taxes payable |
|
|
(698 |
) |
|
|
2,956 |
|
|
Net cash (used) by operating activities |
|
|
(2,190 |
) |
|
|
(5,156 |
) |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of short term investments |
|
|
44,110 |
|
|
|
70,136 |
|
|
Purchases of short term investments |
|
|
(56,481 |
) |
|
|
(61,058 |
) |
|
Additions to property, plant and equipment |
|
|
— |
|
|
|
(4 |
) |
|
Net cash (used) provided by investing activities |
|
|
(12,371 |
) |
|
|
9,074 |
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(2,618 |
) |
|
|
(6,293 |
) |
|
Net cash (used) by financing activities |
|
|
(2,618 |
) |
|
|
(6,293 |
) |
|
Net (decrease) in cash and cash equivalents |
|
|
(17,179 |
) |
|
|
(2,375 |
) |
|
Cash and cash equivalents at beginning of the period |
|
|
25,096 |
|
|
|
27,471 |
|
|
Cash and cash equivalents at end of the period |
|
$ |
7,917 |
|
|
$ |
25,096 |
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
— |
|
|
$ |
4 |
|
|
Income taxes |
|
$ |
277 |
|
|
$ |
320 |
|
The accompanying notes are an integral part of the consolidated financial statements
28
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES:
Description of the Business
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.
Basis of Presentation
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, 2019, the Company had approximately $6,000 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, 2019, 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
29
charged to expense as incurred. Significant renewals and betterments are capitalized and depreciated over the remaining estimated useful lives of the related assets. At time of disposal, the cost and rel ated 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:
|
• Computer, Equipment and Software |
|
Three years to seven years |
|
• Furniture & Fixtures |
|
Seven years |
|
• Leasehold Improvements |
|
Straight-line basis over the shorter of the useful life of the improvement or the term of the lease |
Revenue Recognition
Distribution of products
Revenue recognition : Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for future expected returns are based upon historical return rates and netted against revenues.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Revenue is recorded net of customer discounts, promotional allowances, volume rebates and similar charges. When the Company offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue.
Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for the Company’s products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
The Company adopted ASC topic 606 effective April 1, 2018. 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. Prior to the adoption of ASC topic 606, the Company followed the provisions of ASC topic 605 in prior periods. The adoption of ASC topic 606 did not have a material impact on revenue recognition as compared to revenue recognition provided under ASC topic 605.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
The Company offers limited warranties for its consumer electronics, comparable to those offered to consumers by the Company’s competitors in the United States. Such warranties typically consist of a one year period for microwaves and a 90 day period for audio products, under which the Company pays for labor and parts, or offers a new or similar unit in exchange for a non-performing unit.
Licensing
In addition to the distribution of products, the Company grants licenses for the right to access the Company’s intellectual property, specifically the Company’s trademarks, for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either i) a non-refundable minimum guaranteed royalty or, ii) the greater of 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
30
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 net realizable value. 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 net realizable 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.
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. Credit is extended for periods between 10 and 90 days, on a net basis. 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. Receivables are written off once they are considered uncollectible. The allowance for doubtful accounts receivable decreased $4,200 for the year ended March 31, 2019 and increased by $2,100 for the year ended March 31, 2018.
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 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. The sales return reserves decreased $159,200 for the year ended March 31, 2019 and increased $12,500 for the year ended March 31, 2018.
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.
31
The Company genera lly 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, 2019 or March 31, 2018.
Advertising Expenses
Advertising expenses are charged against earnings as incurred and are included in selling, general and administrative expenses. The Company incurred $121,000 of advertising expenses during fiscal 2019 and $17,000 during fiscal 2018.
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 606, “Revenue from Contracts with Customers” 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 606, “Revenue from Contracts with Customers” (i) sales incentives offered to customers that meet the criteria for accrual under ASC topic 606 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 2019 and fiscal 2018 was as follows (in thousands):
|
Balance at March 31, 2017 |
|
$ |
294 |
|
|
additions |
|
|
611 |
|
|
usages |
|
|
(593 |
) |
|
adjustments |
|
|
(195 |
) |
|
Balance at March 31, 2018 |
|
$ |
117 |
|
|
additions |
|
|
416 |
|
|
usages |
|
|
(433 |
) |
|
adjustments |
|
|
(16 |
) |
|
Balance at March 31, 2019 |
|
$ |
84 |
|
Interest income, net
The Company records interest income as earned and interest expense as incurred. The net interest income for fiscal 2019 and 2018 consists of:
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Interest expense |
|
$ |
— |
|
|
$ |
(4 |
) |
|
Interest income |
|
|
859 |
|
|
|
496 |
|
|
Interest income, net |
|
$ |
859 |
|
|
$ |
492 |
|
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
32
to which the Company is subject, is recorded as a part of income tax expense. Penalties and interest incurred during fiscal 2019 were approximately $3,000 and nil, respectively, an d approximately $1,000 and $51,000 during fiscal 2018.
Comprehensive Income
Comprehensive income is net income adjusted for foreign currency translation adjustments.
Earnings Per Common Share
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.
Recently Adopted Accounting Pronouncements
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", subsequently amended and collectively Topic 606. The standard replaced almost all existing revenue recognition guidance in U.S. GAAP, with the intention to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASC 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASC 606 allows for adoption either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application, which became effective for the Company beginning April 1, 2018. The Company adopted ASC 606 in the first quarter of fiscal 2019 on a modified retrospective basis with no changes recognized in the prior year comparative financial statements. The adoption of this standard did not have a material impact on the Company’s financial statements. The Company has enhanced its disclosures of revenue to comply with the new guidance.
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”, which requires lease assets and liabilities to be recorded on the balance sheet. This update is effective for public entities in fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years, and certain qualitative and quantitative disclosures are also required. The Company will adopt this ASU and related amendments as of the beginning of the first quarter of the year ending March 31, 2020 on a modified retrospective basis. Early adoption is permitted. The Company will apply the modified retrospective approach by recording a cumulative effect adjustment as of the date of adoption, whereby prior comparative periods will not be retrospectively presented in the consolidated financial statements. The Company will also be electing certain practical expedients permitted under the transition guidance, including to retain the historical lease classification as well as relief from reviewing expired or existing contracts to determine if they contain leases. The Company will be exempting leases with an initial term of twelve months or less from balance sheet recognition and will not separate lease and non-lease components.
The Company estimates recognizing total lease liabilities ranging from $625,000 to $764,000 and corresponding right-of-use assets ranging from $585,000 to $715,000, all of which is associated with leased office space. The difference between the right-of-use asset and lease liability is due to the existing deferred balance, resulting from historical straight-lining of operating leases that will be reclassified upon adoption to reduce the measurement of the right-of-use assets. The Company’s Consolidated Statements of Income
33
and Consolidated Statements of Cash Flows will not be materially impacted. The Company is currently finalizing its calculations of the adoption impacts as well as policies, processes and internal controls to align with the Topic 842.
NOTE 2 — INVENTORIES:
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. As of March 31, 2019 and March 31, 2018, inventories consisted exclusively of purchased finished goods.
NOTE 3 — RELATED PARTY TRANSACTIONS:
From time to time, Emerson engages in business transactions with its controlling shareholder, Nimble Holdings Company Limited (“Nimble”), formerly known as The Grande Holdings Limited (“Grande”), and one or more of Nimble’s direct and indirect subsidiaries. Set forth below is a summary of such transactions.
Controlling Shareholder
S&T International Distribution Limited (“S&T”), which is a wholly owned subsidiary of Grande N.A.K.S. Ltd., which is a wholly owned subsidiary of Nimble, collectively have, based on a Schedule 13D/A filed with the Securities and Exchange Commission (“SEC”) on February 15, 2019, the shared power to vote and direct the disposition of 15,243,283 shares, or approximately 72.4%, of the Company’s outstanding common stock as of March 31, 2019. 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
Ancillary Expenses Pertaining to Rented Office Space in Hong Kong
During the twelve months ended March 31, 2019 the Company was billed approximately $5,800, and $13,000 for the twelve months ended March 31, 2018, for utility and service charges from Lafe Strategic Services Limited (“LSSL”) and the Grande Properties Management Limited (“GPML”), both related parties to the Company’s Chairman of the Board, in connection with the Company’s rented office space in Hong Kong. The Company owed nil to both LSSL and GPML related to these charges at March 31, 2019 and March 31, 2018.
Administrative service fees charged to related parties
During the twelve months ended March 31, 2019 and 2018, the Company billed approximately $23,000 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, 2019 and March 31, 2018.
Security deposit and charges of rental and utility fees on new office space in Hong Kong
During the twelve months ended March 31, 2019, the Company was billed approximately $74,000 for rental and utility fees from Vigers Appraisal and Consulting Ltd (“VACL”), which is a company related to the Company’s Chairman of the Board. During the twelve months ended March 31, 2019, a 3 month security deposit of approximately $39,600 was billed from VACL. As of March 31, 2019 the Company owed nil to VACL related to the security deposit and rental charges. The rental terms have been agreed in advance by the Independent Directors of the Company. This agreement did not exist in fiscal 2018.
34
NOTE 4 — PROPERTY, PLANT, AND EQUIPMENT:
As of March 31, 2019 and 2018, property, plant and equipment is comprised of the following:
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Computer equipment and software |
|
|
243 |
|
|
|
323 |
|
|
Furniture and fixtures |
|
|
167 |
|
|
|
190 |
|
|
Leasehold improvements |
|
|
8 |
|
|
|
8 |
|
|
|
|
|
418 |
|
|
|
521 |
|
|
Less accumulated depreciation and amortization |
|
|
(412 |
) |
|
|
(507 |
) |
|
|
|
$ |
6 |
|
|
$ |
14 |
|
Depreciation of property, plant, and equipment amounted to approximately $5,000 and $8,000 for the twelve months ended March 31, 2019 and 2018, respectively. During fiscal 2019, the Company disposed of property, plant and equipment with gross book values totaling approximately $103,000. The Company recognized a total net loss of $2,000 on these disposals in fiscal 2019. 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.
NOTE 5 — INCOME TAXES:
The Company’s provision for income tax expense for fiscal 2019 and fiscal 2018 was as follows:
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(437 |
) |
|
$ |
3,071 |
|
|
Foreign, state and other |
|
|
6 |
|
|
|
8 |
|
|
Prior year federal and state, with interest |
|
|
— |
|
|
|
119 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
69 |
|
|
|
272 |
|
|
Foreign, state and other |
|
|
10 |
|
|
|
(9 |
) |
|
(Benefit) provision for income tax expense |
|
$ |
(352 |
) |
|
$ |
3,461 |
|
The Company files a consolidated federal return and certain state and local income tax returns.
The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory federal rate of 21% to earnings before income taxes for fiscal 2019 and 31% for fiscal 2018 is analyzed below:
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Statutory provision |
|
$ |
(553 |
) |
|
$ |
(1,044 |
) |
|
Foreign subsidiary |
|
|
(36 |
) |
|
|
(80 |
) |
|
State taxes |
|
|
(219 |
) |
|
|
91 |
|
|
Permanent differences |
|
|
39 |
|
|
|
1 |
|
|
Effect of new rate per Tax Act on deferred tax asset |
|
|
— |
|
|
|
325 |
|
|
Adjustment to prior year taxes |
|
|
(449 |
) |
|
|
(106 |
) |
|
Federal taxes on Section 965 |
|
|
— |
|
|
|
3,121 |
|
|
Valuation allowance |
|
|
917 |
|
|
|
160 |
|
|
Utilization of NOL on Section 965 |
|
|
— |
|
|
|
997 |
|
|
NOL Adjustments |
|
|
(51 |
) |
|
|
(4 |
) |
|
(Benefit) provision for income tax expense |
|
$ |
(352 |
) |
|
$ |
3,461 |
|
35
As of March 31, 2019 and March 31, 2018, the significant components of the Company’s deferred tax assets which were classified as non-current, were as follows:
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Accounts receivable reserves |
|
$ |
41 |
|
|
$ |
86 |
|
|
Inventory reserves |
|
|
159 |
|
|
|
125 |
|
|
Accruals |
|
|
21 |
|
|
|
43 |
|
|
Property, plant and equipment and intangible assets |
|
|
227 |
|
|
|
262 |
|
|
Net operating loss and credit carry forwards |
|
|
1,365 |
|
|
|
460 |
|
|
Valuation allowance |
|
|
(1,365 |
) |
|
|
(448 |
) |
|
Total deferred tax assets |
|
$ |
448 |
|
|
$ |
528 |
|
The Company has $3.3 million of U.S. federal net operating loss carry forwards (“NOLs”) as of March 31, 2019.
The Company has $10.5 million of state NOLs as of March 31, 2019 as follows:
|
Loss Year (Fiscal) |
|
Included in DTA |
|
Expiration Year (Fiscal) |
|
|
|
2014 |
|
$2.4 million |
|
|
2034 |
|
|
2017 |
|
$0.9 million |
|
|
2036 |
|
|
2018 |
|
$4.0 million |
|
2037 |
|
|
|
2019 |
|
$3.2 million |
|
2038 |
|
|
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 $419,000 for the fiscal year ended March 31, 2019 as compared to a loss before taxes of $276,000 for the fiscal year ended March 31, 2018, 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, for March 31, 2018 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, 2019. As a result, the Company concluded that a valuation allowance of approximately $1,365,000 would be recorded against the assets.
The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of March 31, 2019, the Company’s open tax years for examination for U.S. federal tax are 2016-2018, and for U.S. states’ tax are 2011-2018. Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense.
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 had recorded tax expense of $3.1 million in the year ended March 31, 2018 as a provisional estimate of its US federal transition tax liability. Final regulations were issued regarding the one-time transition tax prior to the filing of the March 31, 2018 tax return in January, 2019. The final regulations made changes that resulted in the one-time transition tax being reduced by $342,000. The Company also discovered after filing the March 31, 2018 tax return that the estimated intercompany charges were not removed prior to filing the federal return. The Company is in the process of amending that return which will result in a further reduction of the one-time transition tax of $107,000.
36
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.
For the year ended March 31, 2018, the Company estimated 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, 2019, the Company completed its evaluation and its impact is reflected in the financial statements as of March 31, 2019.
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. As of March 31, 2019 the Company has remitted its prior earnings of its foreign subsidiaries.
The TCJA establishes new tax rules designed to tax U.S. companies on global intangible low-taxed income (GILTI) earned by foreign subsidiaries. The Company has evaluated this provision of the TCJA and the application of ASC 740 and its impact is reflected in the financial statements as of March 31, 2019.
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 |
|
|
|
2019 |
|
|
269 |
|
|
2020 |
|
|
245 |
|
|
2021 |
|
|
150 |
|
|
2022 |
|
|
68 |
|
|
Thereafter |
|
|
— |
|
|
Total |
|
$ |
732 |
|
Rent expense resulting from leases with non-affiliated companies aggregated $107,000 and $109,000, respectively, for fiscal 2019 and 2018.
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, 2019 and March 31, 2018, the Company had no letters of credit outstanding.
Capital Expenditure and Other Commitments:
As of March 31, 2019, 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 2019 and 2018 were $25,000 and $32,000, respectively, and were charged against earnings for the periods presented.
37
NOTE 7 — SHAREHOLDERS’ EQUITY:
Common Shares:
Authorized common shares total 75,000,000 with a par value $0.01 per share, of which, 21,042,652 were outstanding as of March 31, 2019 and 22,799,088 as of March 31, 2018. Shares held in treasury at March 31, 2019 were 31,923,145 and at March 31, 2018 were 30,166,709.
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, as of which date the program expired. Under the program, repurchases were funded from available working capital and all repurchased shares are held in the treasury as authorized and issued shares available for general corporate purposes. During the twelve months ended March 31, 2019, the Company repurchased 1,756,436 shares for $2,617,858. During the twelve months ended March 31, 2018, the Company repurchased 4,266,764 shares for $6,292,620. In aggregate, the Company repurchased 6,087,180 shares for $8,977,096 under the program.
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, 2019. 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, 2019 and March 31, 2018, the Company held short-term investments in certificates of deposit totaling $28.4 million and $16.0 million, respectively.
The Company held $2.0 million in certificates of deposit which were classified as cash equivalents as of March 31, 2019 and $5.0 million as of March 31, 2018. The $2.0 million in certificates of deposit classified as cash equivalents, have subsequently matured and have been re-invested into certificates of deposit.
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, 2019 and March 31, 2018:
|
|
|
|
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(2,437 |
) |
|
$ |
(6,851 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share — weighted average shares |
|
|
21,931 |
|
|
|
25,282 |
|
|
Net (loss) per share: |
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) per share |
|
$ |
(0.11 |
) |
|
$ |
(0.27 |
) |
For the year ended March 31, 2019, there were no outstanding instruments which were potentially dilutive.
38
The Company is currently party to one license agreement that allows the licensee to access the Company’s trademarks for the manufacture and/or the sale of consumer electronics and other products. The license agreement (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.
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, 2019, the Company’s three largest customers, accounted for approximately 79% of the Company’s net revenues, with Walmart accounting for 50%, Amazon.com accounting for 16% and Fred Meyer accounting for 13%. For the 12 months ended March 31, 2018 the Company’s three largest customers, accounted for approximately 84% of the Company’s net revenue with Walmart accounting for 62%, Amazon.com accounting for 11% and Fred Meyer accounting for 11%.
Product Concentration
For the twelve months ended March 31, 2019, 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 toaster ovens — both within the housewares category — generated approximately 40% of the Company’s gross product sales, with microwave ovens generating approximately 39% of the total and toaster ovens generating approximately 1% of the total. Audio products generated approximately 57% of the Company’s gross product sales during fiscal 2019.
For the twelve months ended March 31, 2018, 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 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.
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 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 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.
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 47% and 29% as of March 31, 2019, respectively. 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. 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 $2,000 at March 31, 2019 and approximately $6,000 at March 31, 2018. 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
39
owing against these receivables would result in a m aterial 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, 2019 and March 31, 2018 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 $7.6 million and approximately $24.8 million at March 31, 2019 and March 31, 2018, respectively.
Supplier Concentration
During the twelve months ended March 31, 2019, the Company procured approximately 90% of its products for resale from its two largest factory suppliers, both of which are located in China, and of these, the Company procured approximately 71% of these products from one of them and 19% from another. 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.
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 Company for the fiscal years ended March 31, 2019 and March 31, 2018 are summarized below by geographic area (in thousands). Net revenues are attributed to geographic area based on the location of the customer.
|
|
|
Year Ended March 31, 2019 |
|
|||||||||
|
|
|
U.S. |
|
|
Foreign |
|
|
Consolidated |
|
|||
|
Net revenues |
|
$ |
8,982 |
|
|
$ |
— |
|
|
$ |
8,982 |
|
|
Long-lived assets |
|
$ |
41 |
|
|
$ |
119 |
|
|
$ |
160 |
|
|
|
|
Year Ended March 31, 2018 |
|
|||||||||
|
|
|
U.S. |
|
|
Foreign |
|
|
Consolidated |
|
|||
|
Net revenues |
|
$ |
15,022 |
|
|
$ |
— |
|
|
$ |
15,022 |
|
|
Long-lived assets |
|
$ |
25 |
|
|
$ |
90 |
|
|
$ |
115 |
|
40
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, 2019 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
41
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 29, 2019.
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 29, 2019.
|
Item 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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 29, 2019.
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 29, 2019.
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 29, 2019.
(a) List of Financial Statements, Financial Statement Schedules, and 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, 2019 and 2018
Consolidated Balance Sheets as of March 31, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended March 31, 2019 and 2018
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.
42
3. Exhibits . The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference, as indicated.
|
Exhibit Number
|
|
|
|
|
|
3.1 |
Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson’s Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994) (filed in paper format). |
|
|
|
|
3.4 |
Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson’s Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994) (filed in paper format). |
|
|
|
|
3.5 |
|
|
|
|
|
3.6 |
|
|
|
|
|
3.7 |
|
|
|
|
|
3.8 |
|
|
|
|
|
3.9 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.30 |
|
|
|
|
|
10.34 |
|
|
|
|
|
10.35 |
|
|
|
|
|
21.1 |
Principal Subsidiaries of the Company as of March 31, 2019 .* |
|
|
|
|
23.1 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32 |
|
|
|
|
|
101.1+ |
XBRL Instance Document. * |
|
|
|
|
101.2+ |
XBRL Taxonomy Extension Schema Document. * |
|
|
|
|
101.3+ |
XBRL Taxonomy Extension Calculation Linkbase Document. * |
|
|
|
|
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 herewith. |
|
** |
Furnished herewith. |
43
None.
44
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 report 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 |
|
|
|
|
|
By: |
|
/s/ Michael Binney |
|
|
|
Michael Binney |
|
|
|
Chief Financial Officer |
|
|
|
Principal Financial and Accounting Officer |
Dated: June 26, 2019
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.
|
/s/ Christopher W. Ho |
|
Chairman of the Board and Director |
|
June 26, 2019 |
|
Christopher W. Ho |
|
|
|
|
|
|
|
|
|
|
|
/s/ Duncan Hon |
|
Chief Executive Officer and Director |
|
June 26, 2019 |
|
Duncan Hon |
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael Binney |
|
Chief Financial Officer and Director |
|
June 26, 2019 |
|
Michael Binney |
|
|
|
|
|
|
|
|
|
|
|
/s/ Kareem E. Sethi |
|
Director |
|
June 26, 2019 |
|
Kareem E. Sethi |
|
|
|
|
|
|
|
|
|
|
|
/s/ Kin Yuen |
|
Director |
|
June 26, 2019 |
|
Kin Yuen |
|
|
|
|
45
Exhibit 4.1
DESCRIPTION OF COMMON STOCK
General
The following description is a summary that is not complete and is qualified in its entirety by reference to the certificate of incorporation, as amended (the “Certificate of Incorporation”), and the bylaws, as amended (the “Bylaws”), of Emerson Radio Corp., a Delaware corporation (the “Company”), each of which has been filed with the Securities and Exchange Commission. Additionally, the following description of certain provisions of Delaware law is not complete and is qualified by reference to the Delaware General Corporation Law (“DGCL”).
The authorized capital stock of the Company consists of 75,000,000 shares of common stock, $0.01 par value per share (the “Common Stock”), and 10,000,000 shares of undesignated preferred stock, $0.01 par value per share (the “Preferred Stock”), of which 10,000 shares of Preferred Stock have been designated Series A Preferred Stock. The rights, powers, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock that the Company may designate and issue in the future.
Common Stock
Each share of Common Stock has one vote on all matters to which stockholders are entitled or permitted to vote upon, including the election of directors. There are no cumulative voting rights. Shares of Common Stock would participate ratably in any distribution of assets in a liquidation, dissolution or winding up of the Company subject to prior distribution rights of any shares of Preferred Stock then outstanding. The Common Stock has no preemptive rights or conversion rights nor are there any redemption or sinking fund provisions applicable to the Common Stock. Subject to the rights of the holders of the Series A Preferred Stock, holders of Common Stock are entitled to participate in dividends if and when declared by the Company’s Board of Directors out of funds legally available therefor.
The transfer agent and registrar for the Common Stock is American Stock Transfer & Trust Company.
The Common Stock is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, and is listed on the NYSE American under the symbol “MSN.”
Potential Anti-Takeover Implications of Certain Provisions of Governing Documents
The Company’s Certificate of Incorporation contains an express election not to be governed by Section 203 of the DGCL. Section 203 provides generally that a corporation may not engage in certain transactions with an “interested stockholder” (as defined) within a period of three years after the interested stockholder becomes such, unless certain conditions are met.
In addition, certain provisions of the Company’s Certificate of Incorporation and Bylaws, including provisions (i) authorizing the Board of Directors to create new series of Preferred Stock, (ii) providing that any action requiring stockholder consent must be effected at a meeting as opposed to by consent in writing and (iii) setting forth that directors may only be removed for cause, upon the affirmative vote of at least 80% of the voting securities then outstanding, voting together as a single class, may make it more difficult for a third party to make, or may discourage a third party from making, an acquisition proposal for the Company or initiating a proxy contest and may thereby inhibit a change in control of the Company or the removal of incumbent management or directors.
Exhibit 21.1
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
PRINCIPAL SUBSIDIARIES OF THE REGISTRANT
|
Name of Subsidiary |
|
Jurisdiction of Incorporation |
|
Percentage of Ownership |
|
|
|
Emerson Global Limited |
|
British Virgin Islands |
|
|
100.0 |
% |
|
Emerson Radio (Hong Kong) Limited |
|
Hong Kong |
|
|
100.0 |
% |
|
H.H. Scott, Inc. |
|
New Jersey, USA |
|
|
100.0 |
% |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Emerson Radio Corp. and Subsidiaries
Hackensack, New Jersey
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-63515, 333-132812 and 333-132815) of Emerson Radio Corp. of our report dated June 26, 2019, relating to the consolidated financial statements of Emerson Radio Corp. and Subsidiaries as of March 31, 2019 and 2018 and for each of the two years in the period ended March 31, 2019, which appear in this Form 10-K.
|
/s/ MSPC. |
|
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS |
|
A PROFESSIONAL CORPORATION |
New York, New York
June 26, 2019
Exhibit 31.1
Certifications
Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
I, Duncan Hon, certify that:
1. I have reviewed this report on Form 10-K of Emerson Radio Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Duncan Hon |
|
Duncan Hon |
|
Chief Executive Officer |
Date: June 26, 2019
A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
Certifications
Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
I, Michael Binney, certify that:
1. I have reviewed this report on Form 10-K of Emerson Radio Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Michael Binney |
|
Michael Binney |
|
Chief Financial Officer |
Date: June 26, 2019
A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Emerson Radio Corp., (the “Company”) on Form 10-K for the period ended March 31, 2019, filed with the Securities and Exchange Commission (the “Report”), Duncan Hon, Chief Executive Officer, and Michael Binney, Chief Financial Officer, of the Company each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated results of operations of the Company for the periods presented.
|
By: |
|
/s/ Duncan Hon |
|
|
|
Duncan Hon |
|
|
|
Chief Executive Officer |
|
|
|
|
|
By: |
|
/s/ Michael Binney |
|
|
|
Michael Binney |
|
|
|
Chief Financial Officer |
Dated: June 26, 2019
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.