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 Quarterly Report.
In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. Accordingly, all amounts are approximations.
Forward-Looking Information
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond the Company's control, and which may cause the Company's actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking statements. The reader can identify these forward-looking statements through the Company's use of words such as "may," "will," "can," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "seek," "estimate," "continue," "plan," "project," "predict," "could," "intend," "target," "potential," and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
• the ongoing effects of the coronavirus (COVID-19) pandemic-related
business disruption and economic uncertainty on both the Company's
projected customer demand and supply chain, as well as its operations and
financial performance;
• the Company's ability to generate sufficient revenue to achieve and
maintain profitability;
• the Company's ability to obtain new customers and retain key existing
customers, including the Company's ability to maintain purchase volumes of
the Company's products by its key customers;
• the Company's ability to obtain new licensees and distribution
relationships and maintain relationships with its existing licensees and
distributors;
• the Company's ability to resist price increases from its suppliers or pass
through such increases to its customers;
• changes in consumer spending for retail products, such as the Company's
products, and in consumer practices, including sales over the Internet;
• the Company's ability to maintain effective internal controls or
compliance by its personnel with such internal controls;
• the Company's ability to successfully manage its operating cash flows to
fund its operations;
• the Company's ability to anticipate market trends, enhance existing
products or achieve market acceptance of new products;
• the Company's ability to accurately forecast consumer demand and
adequately manage inventory;
• the Company's dependence on a limited number of suppliers for its
components and raw materials;
• the Company's dependence on third party manufacturers to manufacture and
deliver its products;
• increases in shipping costs for the Company's products or other service
issues with the Company's third-party shippers;
• the Company's dependence on a third party logistics provider for the
storage and distribution of its products in the United States ;
• the ability of third party sales representatives to adequately promote,
market and sell the Company's products;
• the Company's ability to maintain, protect and enhance its intellectual
property;
• the effects of competition;
• the Company's ability to distribute its products in a timely fashion,
including as a result of labor disputes and public health threats and
social unrest;
• evolving cybersecurity threats to the Company's information technology
systems or those of its customers or suppliers;
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• changes in foreign laws and regulations and changes in the political and
economic conditions in the foreign countries in which the Company
operates;
• changes in accounting policies, rules and practices;
• changes in tax rules and regulations or interpretations;
• changes in U.S. and foreign trade regulations and tariffs, including
potential increases of tariffs on goods imported into the U.S. , and
uncertainty regarding the same;
• limited access to financing or increased cost of financing;
• the effects of currency fluctuations between the U.S. dollar and Chinese
renminbi relative to the dollar and increases in costs of production in
China ; and
• the other factors listed under "Risk Factors" in the Company's Form 10-K,
as amended, for the fiscal year ended March 31, 2021 and other filings
with the SEC .
Furthermore, the situation surrounding the COVID-19 pandemic remains fluid and
the potential for a material impact on the Company's results of operations and
financial condition increases the longer the COVID-19 pandemic affects activity
levels in
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The reader is cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. The Company has no obligation, and expressly disclaims any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. The Company has expressed its expectations, beliefs and projections in good faith and it believes it has a reasonable basis for them. However, the Company cannot assure the reader that its expectations, beliefs or projections will result or be achieved or accomplished.
Results of Operations
The following table summarizes certain financial information for the three and six month periods endedSeptember 30, 2021 (fiscal 2022) andSeptember 30, 2020 (fiscal 2021) (in thousands): Three Months Ended Six Months Ended September 30, September 30, 2021 2020 2021 2020 Net product sales$ 1,794 $ 2,211 $ 3,781 $ 3,445 Licensing revenue 65 60 130 120 Net revenues 1,859 2,271 3,911 3,565 Cost of sales 1,351 1,747 2,960 2,765 Selling, general and administrative expenses 1,363 1,564 2,727 3,041 Operating loss (855 ) (1,040 ) (1,776 ) (2,241 ) Interest income, net 16 28 33 110 Income from governmental assistance programs 207 55 207 55 Loss before income taxes (632 ) (957 ) (1,536 ) (2,076 ) Provision (benefit) for income taxes - (1 ) 11 5 Net loss$ (632 ) $ (956 ) $ (1,547 ) $ (2,081 )
Net product sales - Net product sales for the second quarter of fiscal 2022 were
Net product sales for the six month period ended
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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
i) Houseware products: Net sales decreased $0.6 million , or 55.5%, to $0.5
million in the second quarter of fiscal 2022 as compared to $1.1 million
in the second quarter of fiscal 2021, driven by a decrease in
year-over-year sales of microwave ovens. For the six month period ended
September 30, 2021 , houseware net product sales were $1.3 million , a
decrease of $0.3 million , or 20.1%, from $1.6 million for the six month
period ended September 30, 2020 , driven by a decrease in year-over-year
sales of microwave ovens.
ii) Audio products: Net sales increased $0.2 million , or 15.1%, to $1.3
million in the second quarter of fiscal 2022 as compared to $1.1 million
in the second quarter of fiscal 2021, resulting from increased net sales
of clock radios. For the six month period ended September 30, 2021 , audio
product net sales were $2.5 million , an increase of $0.6 million or 34.8%,
from $1.9 million in the six month period ended September 30, 2020
resulting from increased net sales of clock radios.
Business operations - The Company expects to continue to expand its existing
distribution channels and to develop and promote new products with retailers in
the
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
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
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Company's ability to meet product demand, which could result in additional costs, customer dissatisfaction in the event of inventory shortages or may otherwise adversely impact the Company's business and results of operations.
In light of the adverse effects of the COVID-19 pandemic on macroeconomic conditions domestically and internationally, along with the uncertainty associated with a potential recovery, the Company has implemented certain cost-reduction actions intended to reduce expenditures in light of the effects of the COVID-19 pandemic to the business. However, the environment remains highly uncertain and demand for the Company's products remains difficult to assess due to many factors including the pace of economic recovery around the world, the status of various government stimulus programs, competitive intensity and retailer actions to continue carefully managing inventory. As a result, the Company is unable at this time to predict the full impact of the COVID-19 pandemic on its operations and financial results, and, depending on the magnitude and duration of the pandemic, including the further spread and severity of COVID-19 cases in areas in which the Company operates and the availability and distribution of effective vaccines, such impact may be material. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends
For more information on risks associated with the Company's operations,
including tariffs, please see the risk factors within Part I, Item 1A, "Risk
Factors" in the Company's Annual Report on Form 10-K, as amended, for the year
ended
Licensing revenue - Licensing revenue in the second quarter of fiscal 2022 was
Licensing revenue for the six month period ended
Net revenues - As a result of the foregoing factors, the Company's net revenues
were
Cost of sales - In absolute terms, cost of sales decreased
In absolute terms, cost of sales increased
The Company purchases the products it sells from a limited number of factory
suppliers. For both second quarters of fiscal 2022 and fiscal 2021, the Company
purchased 100% of its goods from its two largest suppliers. For each of the six
month periods ended
Selling, general and administrative expenses ("S,G&A") - S,G&A, in absolute
terms, was
S,G&A, in absolute terms, was
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Interest income, net - Interest income, net, was
Interest income, net, was
Income from governmental assistance programs - For both the three and six month
periods ended
Provision (benefit) for income taxes - In the second quarter of fiscal 2022, the
Company recorded income tax expense of nil as compared to an income tax benefit
of
For the six month period ended
Although the Company generated net losses during fiscal 2022 and fiscal 2021, it was unable to realize an income tax benefit due to valuation allowances recorded against its deferred tax assets.
Net (loss) - As a result of the foregoing factors, the Company realized a net
loss of
For the six month period ended
Liquidity and Capital Resources
As of
Cash Flows
Net cash used by operating activities was approximately
Net cash provided by investing activities was approximately
Net cash used by financing activities was nil for the six months ended
Sources and Uses of Funds
The Company's principal existing sources of cash are generated from operations and its existing short-term investments. The Company believes that its existing cash balance and sources of cash will be sufficient to support existing operations over the next 12 months.
Paycheck Protection Program Loan
In April and May of 2020, the Company applied for and received aggregate loan
proceeds of approximately
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Off-Balance Sheet Arrangements
As of
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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