EMERSON RADIO CORP. 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" and "Forward-Looking Information" and in other parts of this Annual Report on Form 10-K.
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In the following discussion, 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
Twelve Months Ended March 31,
2022 2021
Net product sales $ 7,941 $ 7,200
Licensing revenue 265 245
Net revenues 8,206 7,445
Cost of sales 6,237 5,749
Selling, general and administrative expenses 5,409 5,906
Operating loss (3,440 ) (4,210 )
Loss on settlement of litigation (450 ) -
Interest income, net 57 151
Income from governmental assistance programs 207 83
Loss before income taxes (3,626 ) (3,976 )
Provision for income taxes - -
Net loss $ (3,626 ) $ (3,976 ) Results of Operations - Fiscal 2022 compared with Fiscal 2021
Net product sales - Net product sales for fiscal 2022 were
i) Houseware product net sales decreased $0.9 million , or 35.9%, to
$1.7 million in fiscal 2022 as compared to $2.6 million in fiscal
2021, principally driven by a decrease in sales of microwave ovens
and by a decrease in sales of toaster ovens.
ii) Audio product net sales were $6.3 million in fiscal 2022 compared to
$4.6 million in fiscal 2021, an increase of $1.7 million , or 36.4%,
resulting from increased net sales of clock radios. The Company
benefitted from the introduction of new clock radios into the
marketplace during fiscal 2022.
Business operations - The Company expects to continue to expand its existing
distribution channels and to develop and promote new products with retailers in
the
Emerson's success is dependent on its ability to anticipate and respond to
changing consumer demands and trends in a timely manner, as well as expanding
into new markets and sourcing new products that are profitable to the Company.
Geo-political factors may also affect the Company's operations and demand for
the Company's products, which are subject to customs requirements and to tariffs
and quotas set by governments through mutual agreements and bilateral actions.
The Company expects that current and proposed
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imported from
Starting in the fourth quarter of fiscal 2020, the global COVID-19 pandemic has
presented significant challenges and impacted the Company's business and
operating results, and the operations and production capabilities of the
Company's suppliers in
In light of the adverse effects of the COVID-19 pandemic on macroeconomic conditions domestically and internationally, along with the uncertainty associated with a potential recovery, the Company has implemented certain cost-reduction actions intended to reduce expenditures in light of the effects of the COVID-19 pandemic to the business. However, the environment remains highly uncertain and demand for the Company's products remains difficult to assess due to many factors including the pace of economic recovery around the world, the status of various government stimulus programs, competitive intensity and retailer actions to continue carefully managing inventory. As a result, the Company is unable at this time to predict the full impact of the COVID-19 pandemic on its operations and financial results, and, depending on the magnitude and duration of the pandemic, including the further spread and severity of COVID-19 cases in areas in which the Company operates and the availability and distribution of effective vaccines, such impact may be material. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends.
For more information on risks associated with the Company's operations, including tariffs and the COVID-19 pandemic, please see the risk factors within Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.
Recent Developments - On
Licensing revenue - Licensing revenue in fiscal 2022 was approximately
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Net revenues -The Company's net revenues were
Cost of sales - Cost of sales includes the components described in Note 1 "Cost
of Sales" of the Notes to the Consolidated Financial Statements. In absolute
terms, cost of sales increased
Selling, general and administrative expenses ("S,G&A") - S,G&A, as a percentage
of net revenues, was 65.8% in fiscal 2022 as compared to 79.1% in fiscal 2021.
Fiscal 2022 S,G&A, in absolute terms, was
Loss on settlement of litigation - On
Interest income, net - Interest income, net, was
Income from governmental assistance programs - During fiscal 2022, the
Company recorded income of approximately
Provision for income tax expense - The Company adopted ASU 2019-12 during fiscal
2022 and recorded its non-income based state taxes of approximately
Net (loss) - As a result of the foregoing factors, the Company recorded a net
loss of
Liquidity and Capital Resources
General
As of
Cash Flows
Net cash used by operating activities was approximately
Net cash provided by investing activities was
Net cash provided by financing activities was nil for fiscal 2022 for fiscal
2022, compared to
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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
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 2022, approximately 9% of the Company's product sales were imported directly to the Company's customers. In fiscal 2021, less than 1% of the Company's product sales were imported directly to the Company's customers.
As of
In April and May of 2020, the Company applied for and received aggregate PPP
loan proceeds of approximately
Off-Balance Sheet Arrangements
As of
Legal Matters
The Company is subject to various legal proceedings, the outcomes of which are inherently uncertain. The Company records any potential gains related to legal proceedings only after cash is collected. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with management's expectations could have a material impact on our financial condition and operating results. See Note 11 in the Notes to the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
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
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.
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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.
The Company adopted ASC topic 606 effective
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.
Inventory. Inventory is valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out basis and includes inventory purchase costs and allocated overhead. The Company records valuation adjustments for the excess cost of inventory over the estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated on an individual product basis based on physical inspection of the product in connection with a physical inventory, review of slow-moving products, forecasted sales, and consideration of active marketing programs.
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 the Company's products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Sales 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 and (ii) an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers, which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items, because that percentage of shipped revenue fails to meet the collectability criteria within ASC topic 606.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company's products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
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Recently Adopted Accounting Pronouncements
Accounting Standards Update 2019-12 "Income Taxes (Topic 740) - Simplifying the
Accounting for Income Taxes" (Issued
In
Recently Issued Accounting Pronouncements
The following ASUs were issued by the FASB which relate to or could relate to the Company as concerns the Company's normal ongoing operations or the industry in which the Company operates.
Accounting Standards Update 2016-13 "Financial Instruments - Credit Losses"
(Issued
In
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