What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-02-20 · 223 added, 273 removed, 290 unchanged (63% of the section changed)

Financial Statements.

The Company recently engaged a new independent registered public accounting firm and such firm has not yet completed its review of the unaudited interim consolidated financial statements as of, and for the three and nine months ended December 31, 2023 presented in this Quarterly Report on Form 10-Q, in accordance with Public Company Accounting Oversight Board Auditing Standard 4105, Reviews of Interim Financial Information.

Accordingly, this Quarterly Report on Form 10-Q is considered substantially deficient and the Company is no longer considered to be timely or current in its filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Once the registered public accounting firm has completed its review of the financial statements in this Quarterly Report on Form 10-Q, the Company plans to remediate the deficiency by filing an appropriate amendment to this Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”).

While this Quarterly Report on Form 10-Q does not comply with the requirements of Regulation S-X, and should not be interpreted to be a substitute for the review that would normally occur by the Company’s independent registered public accounting firm, the Company’s management believes that the interim financial information presented herein fairly presents, in all material respects, the financial condition and results of operations of the Company as of the end of and for the referenced periods.

Except for the absence of this review of the unaudited interim financial information discussed above, this Quarterly Report on Form 10-Q fully complies with the requirements of the Exchange Act and the Company believes it is prudent to file this Quarterly Report on Form 10-Q with the SEC in spite of the current circumstances to provide the financial and other information set forth therein to its stockholders and other interested parties.

EMERSON RADIO CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended December 31,

Nine Months Ended December 31,

(Not Reviewed)

Three months ended June 30,

Net revenues:

Net product sales

$ 2,129 $ 1,732

Licensing revenue

Royalty income

Costs and expenses:

1 unchanged sentence

Selling, general and administrative expenses

Total costs and expenses

Total cost of sales and SG&A

Operating loss

( 1,222 ) ( 859 )

Other income:

Settlement of litigation

Interest income, net

Income from governmental assistance programs

Income (loss) before income taxes

Loss before income taxes

( 959 ) ( 565 )

Provision for income tax expense

Net income (loss)

Basic income (loss) per share

Diluted income (loss) per share

( 962 ) ( 565 )

Basic loss per share

$ ( 0.05 ) $ ( 0.03 )

Diluted loss per share

$ ( 0.05 ) $ ( 0.03 )

Weighted average shares outstanding

The accompanying notes are an integral part of the consolidated financial statements.

21,042,652 21,042,652

The accompanying notes are an integral part of the condensed consolidated financial statements.

EMERSON RADIO CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

December 31, 2023

June 30, 2024

March 31, 2024

(Not Reviewed)

Current Assets:

21 unchanged sentences

Income tax payable, current portion

Advanced deposits

Deferred revenue

3 unchanged sentences

Long-term finance lease liability

Income tax payable

Income tax payable-deferred

Total Non-Current Liabilities

6 unchanged sentences

Common shares — $ 0.01 par value, 75,000,000 shares authorized;

52,965,797 shares issued at December 31, 2023 and March 31, 2023, respectively;

21,042,652 shares outstanding at December 31, 2023 and March 31, 2023, respectively

52,965,797 shares issued at June 30, 2024 and March 31, 2024, respectively;

21,042,652 shares outstanding at June 30, 2024 and March 31, 2024, respectively

Additional paid-in capital

2 unchanged sentences

( 25,167 ) ( 24,205 )

Treasury stock, at cost ( 31,923,145 shares at December 31, 2023 and March 31, 2023, respectively)

Treasury stock, at cost ( 31,923,145 shares at June 30, 2024 and March 31, 2024, respectively)

( 33,201 ) ( 33,201 )

3 unchanged sentences

$ 28,458 $ 29,065

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

EMERSON RADIO CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended December 31,

Three months ended June 30,

(In thousands)

Cash Flows from Operating Activities:

(Not Reviewed)

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used) by operating activities:

Amortization of right-of-use assets

$ ( 962 ) $ ( 565 )

Adjustments to reconcile net loss to net cash (used) by operating activities:

Non-cash lease expense

Depreciation and amortization

Asset valuation allowance

Changes in assets and liabilities:

Accounts receivable

( 382 ) ( 24 )

Licensing receivable

Prepaid purchases

( 357 ) ( 117 )

Prepaid expenses and other current assets

Accounts payable and other current liabilities

Right of use assets-operating

Short term lease liabilities

Long term lease liabilities

Due to affiliate

( 11 ) ( 37 )

Income taxes payable

1 unchanged sentence

Deferred revenue

Net cash (used) provided by operating activities

( 21 ) ( 149 )

Net cash (used) by operating activities

( 840 ) ( 547 )

Cash Flows From Investing Activities:

Purchases of investments

Purchases of short-term investments

Additions to property and equipment

Disposals of property and equipment

( 180 ) ( 50 )

Net cash (used) by investing activities

( 16,215 ) ( 50 )

Cash Flows from Financing Activities:

Short term finance liability

Long term finance liability

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

Net (decrease) in cash and cash equivalents

( 17,048 ) ( 597 )

Cash and cash equivalents at beginning of the period

19,890 25,268

Cash and cash equivalents at end of the period

$ 2,842 $ 24,671

Supplemental disclosure of non-cash investing and financing activities:

Right-of-use assets obtained in exchange for new finance lease liabilities

Supplemental disclosures:

Cash paid for:

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the condensed consolidated financial statements.

EMERSON RADIO CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY

(In thousands)

Preferred Stock

Shareholders’

Balance — March 31, 2024

Balance — December 31, 2023

(Not Reviewed)

3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 24,205 ) $ ( 33,201 ) $ 26,225

— — — — — ( 962 ) — ( 962 )

Balance — June 30, 2024

3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 25,167 ) $ ( 33,201 ) $ 25,263

Preferred Stock

Shareholders’

Balance — March 31, 2023

Balance — December 31, 2022

(Not Reviewed)

The accompanying notes are an integral part of the consolidated financial statements.

3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 24,971 ) $ ( 33,201 ) $ 25,459

— — — — — ( 565 ) — ( 565 )

Balance — June 30, 2023

3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 25,536 ) $ ( 33,201 ) $ 24,894

The accompanying notes are an integral part of the condensed consolidated financial statements.

EMERSON RADIO CORP.

AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and Not Reviewed)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Emerson Radio Corp.

The condensed consolidated financial statements include the accounts of Emerson Radio Corp.

and its subsidiaries (“Emerson” or the “Company”).

The Company designs, sources, imports and markets certain houseware and consumer electronic products, and licenses the Company’s trademarks for a variety of products.

The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of December 31, 2023 and the results of operations for the three and nine month periods ended December 31, 2023 and December 31, 2022 .

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included.

The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s condensed consolidated financial position as of June 30, 2024 and the results of operations for the three month periods ended June 30, 2024 and June 30, 2023 .

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the condensed consolidated financial statements not misleading have been included.

All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes;

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes;

actual results could materially differ from those estimates.

The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and accordingly do not include all of the disclosures normally made in the Company’s annual consolidated financial statements.

Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2023 (“fiscal 2023” ), included in the Company’s Annual Report on Form 10 -K, as amended, for fiscal 2023.

The results of operations for the three and nine month periods ended December 31, 2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the full year ending March 31, 2024 (“fiscal 2024” ).

Whenever necessary, reclassifications are made to conform the prior year’s consolidated financial statements to the current year’s presentation.

Recently Issued Accounting Pronouncements

The following Accounting Standards Updates (“ASUs”) were issued by the Financial Accounting Standards Board (“FASB”) which relate to or could relate to the Company as concerns the Company’s normal ongoing operations or the industry in which the Company operates.

Accounting Standards Update 2019 - 12 “ Income Taxes (Topic 740 ) – Simplifying the Accounting for Income Taxes ” (Issued December 2019)

In December 2019, the FASB issued ASU 2019 - 12, “Income Taxes (Topic 740 ) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

ASU 2019 - 12 is effective for fiscal years beginning after December 15, 2020.

This standard took effect in the first quarter ( June 2021) of the Company’s fiscal year ending March 31, 2022.

The adoption of ASU 2019 - 12 had no material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Standards Update 2016 - 13 “ Financial Instruments – Credit Losses ” (Issued June 2016)

In June 2016, the FASB issued ASU 2016 - 13 “Financial Instruments - Credit Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope.

ASU 2016 - 13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

In addition, ASU 2016 - 13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU 2016 - 13 is effective for fiscal years and interim periods beginning after December 15, 2022.

The adoption of ASU 2016 - 13 had no material impacts on the Company's financial statements.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and accordingly do not include all of the disclosures normally made in the Company’s annual condensed consolidated financial statements.

Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto for the fiscal year ended March 31, 2024 (“fiscal 2024” ), included in the Company’s Annual Report on Form 10 -K for fiscal 2024.

The results of operations for the three month period ended June 30, 2024 are not necessarily indicative of the results of operations that may be expected for any other condensed period or for the full year ending March 31, 2025 (“fiscal 2025” ).

Recent Accounting Pronouncement

The following Accounting Standards Update (“ASU”) was issued by the Financial Accounting Standards Board (“FASB”) which relate to or could relate to the Company as concerns the Company’s normal ongoing operations or the industry in which the Company operates.

Accounting Standards Update 2023 - 07 Segment Reporting (Topic 280 ):

"Improvements to Reportable Segment Disclosures ” (Issued October 2023 )

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

"Improvements to Reportable Segment Disclosures" ("ASU 2023 - 07" ) to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the condensed consolidated financial statements.

We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

Revenue Recognition

Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer.

The Company recognizes revenue at the time title passes to the customer as this is when the Company satisfies its performance obligation under the contracts with its customers.

Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good.

2 unchanged sentences

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.

R evenue 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.

11 unchanged sentences

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.

Such warranties typically consist of a one year period for microwaves and refrigerators and a 90 day period for audio products, under which the Company pays for labor and parts, or offers a new or similar unit in exchange for a non-performing unit.

The Company estimates its warranty reserve based on sales and its historical warranty claim rates.

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 (a) 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 (b) a minimum guaranteed royalty amount.

3 unchanged sentences

In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.

As of June 30, 2024, the Company recorded deferred revenue of approximately $ 170,000 as compared to approximately $ 191,000 as of March 31, 2024 on its condensed consolidated balance sheets.

All of the deferred revenue for both periods presented are related to licensing revenue.

Disaggregation of Revenue

Three months ended June 30,

Disaggregation of revenue (in 000's)

Net revenues by type:

Net product sales

$ 2,129 $ 1,732

Licensing revenue

Net revenues by customers:

NOTE 2 — EARNINGS PER SHARE

1 unchanged sentence

Weighted average shares includes the impact of shares held in treasury.

Three Months Ended December 31,

Nine Months Ended December 31,

Net income (loss)

Three Months Ended June 30,

$ ( 962 ) $ ( 565 )

Denominator for basic and diluted income (loss) per share — weighted average shares

Denominator for basic and diluted loss per share — weighted average shares

21,042,652 21,042,652

Net income (loss) per share:

Basic and diluted income (loss) per share

Net loss per share:

Basic and diluted loss per share

$ ( 0.05 ) $ ( 0.03 )

NOTE 3 — SHAREHOLDERS ’ EQUITY

Outstanding capital stock at December 31, 2023 consisted of common stock and Series A preferred stock.

Outstanding capital stock at June 30, 2024 consisted of common stock and Series A preferred stock.

The Series A preferred stock is non-voting, has no dividend preferences and has not been convertible since March 31, 2002;

however, it retains a liquidation preference.

At December 31, 2023 , the Company had no options, warrants or other potentially dilutive securities outstanding.

At June 30, 2024 , the Company had no options, warrants or other potentially dilutive securities outstanding.

NOTE 4 — INVENTORY

1 unchanged sentence

Cost is determined using the first -in, first -out method.

As of December 31, 2023 and March 31, 2023 , inventories consisted of the following (in thousands):

December 31, 2023

As of June 30, 2024 and March 31, 2024 , inventories consisted of the following (in thousands):

June 30, 2024

March 31, 2024

2 unchanged sentences

NOTE 5 — INCOME TAXES

At December 31, 2023 , the Company had $ 14.0 million of U.S.

At June 30, 2024 , the Company had $ 15.7 million of U.S.

federal net operating loss (“NOL”) carry forwards.

These losses do not expire but are limited to utilization of 80 % of taxable income in any one year.

At December 31, 2023 , the Company had approximately $ 16.1 million of U.S.

At June 30, 2024 , the Company had approximately $ 15.8 million of U.S.

state NOL carry forwards.

The tax benefits related to these state NOL 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 $ 293,000 for the three month period ended December 31, 2023 as compared to income of foreign subsidiaries before taxes of $ 247,000 for the three month period ended December 31, 2022 .

The income of foreign subsidiaries before taxes was $ 892,000 for the nine month period ended December 31, 2023 as compared to income of foreign subsidiaries before taxes of $ 489,000 for the nine month period ended December 31, 2022 .

The Company analyzed the future reasonability of recognizing its deferred tax assets at December 31, 2023 .

The income of foreign subsidiaries before taxes was $ 272,000 for the three month period ended June 30, 2024 as compared to income of foreign subsidiaries before taxes of $ 302,000 for the three month period ended June 30, 2023 .

The Company analyzed the future reasonability of recognizing its deferred tax assets at June 30, 2024 .

As a result, the Company concluded that a 100 % valuation allowance of approximately $ 4,597,000 would be recorded against the assets.

The Company recorded an income tax benefit of $ 14,000 and income tax expense of $ 74,000 , respectively, during the three and nine month periods ended December 31, 2023 .

During the three and nine month periods ended December 31, 2022 , the Company recorded income tax expense of nil and $ 10,950 , respectively, primarily resulting from state income taxes.

Although the Company generated a net operating loss, it recorded income tax expense of approximately $ 9,000 during the three month period ended June 30, 2024 , primarily resulting from state income taxes.

During the three month period ended June 30, 2023 , the Company recorded income tax expense of approximately $ 9,000 , primarily resulting from state income taxes.

After the adoption of ASU 2019 - 12 “Income Taxes (Topic 740 ) – Simplifying the Accounting for Income Taxes” during fiscal 2022, these non-income based state taxes are now reported within selling, general and administrative expenses.

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions.

As of December 31, 2023 , the Company’s open tax years for examination for U.S.

As of June 30, 2024 , the Company’s open tax years for examination for U.S.

federal tax are 2017 - 2024, and for U.S.

2 unchanged sentences

As a result, the Company may be subject to additional tax expense.

As of December 31, 2023 , the Company is asserting under ASC 740 - 30 that all of the unremitted earnings of its foreign subsidiaries are indefinitely invested.

As of June 30, 2024 , the Company is asserting under ASC 740 - 30 that all of the unremitted earnings of its foreign subsidiaries are indefinitely invested.

The Company evaluates this assertion each period based on a number of factors, including the operating plans, budgets, and forecasts for both the Company and its foreign subsidiaries;

2 unchanged sentences

and the tax consequences of any decision to repatriate earnings of foreign subsidiaries to the U.S.

As of December 31, 2023 and March 31, 2023 , the Company had a federal tax liability of approximately $ 1,202,000 and $ 1,603,000 , respectively, related to the repatriation of the Company’s undistributed earnings of its foreign subsidiaries as required by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

As of December 31, 2023 and March 31, 2023, the Company’s short term portion was approximately $ 534,000 and $ 401,000 , respectively, and the long term portion was approximately $ 668,000 and $ 1,202,000 , respectively.

As of June 30, 2024 and March 31, 2024 , the Company had a federal tax liability of approximately $ 1,202,000 related to the repatriation of the Company’s undistributed earnings of its foreign subsidiaries as required by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

As of June 30, 2024 and March 31, 2024, the Company’s short term portion was approximately $ 534,000 and the long term portion was approximately $ 668,000 .

The liability is payable over 8 years.

The first five installments are each equal to 8 %, the sixth is equal to 15 %, the seventh is equal to 20 % and the final installment is equal to 25 % of the liability.

As of December 31, 2023 , the Company has paid six of the eight installments.

The first five installments were each equal to 8 %, the sixth is equal to 15 %, the seventh is equal to 20 % and the final installment is equal to 25 % of the liability.

As of June 30, 2024 , the Company has paid six of the eight installments.

Each installment must be remitted on or before July 15 th of the year in which such installment is due.

On July 12, 2023, the Company paid its sixth installment of approximately $ 401,000 .

In addition to the federal tax liabilities recorded under the Tax Act mentioned above, the Company incurred approximately $ 74,000 of additional federal tax liabilities resulting from the net income generated during the nine months ended December 31, 2023.

Under the Tax Act, the Company was limited to 80% utilization of NOLs against taxable income in any one year.

This limitation generated the additional $ 74,000 of federal tax liabilities as of December 31, 2023.

NOTE 6 — RELATED PARTY TRANSACTIONS

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S&T International Distribution Limited (“S&T”), which is a wholly owned subsidiary of Grande N.A.K.S.

Ltd., which is a wholly owned subsidiary of Nimble, collectively have, based on a Schedule 13D/A filed with the SEC on February 15, 2019, the shared power to vote and direct the disposition of 15,243,283 shares, or approximately 72.4 %, of the Company’s outstanding common stock as of December 31, 2023 .

Accordingly, the Company is a “controlled company” as defined in Section 801 (a) of the NYSE American Company Guide.

1 unchanged sentence

Charges of rental and utility fees on office space in Hong Kong

During the three and nine month periods ended December 31, 2023 , the Company was billed approximately $ 40,000 and $ 119,000 , respectively, 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 of Directors.

As of December 31, 2023 the Company owed approximately $ 1,000 to VACL related to these charges.

During the three month period ended June 30, 2024 , the Company was billed approximately $ 40,000 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 of Directors ("Chairman").

As of June 30, 2024 the Company owed approximately $ 1,000 to VACL related to these charges.

During the three month period ended June 30, 2023, the Company was billed approximately $ 40,000 for rental and utility fees from VACL, which is a company related to the Company's Chairman.

As of June 30, 2023 the Company owed approximately $ 800 to VACL related to these charges.

Charges for promotional items

During the three month period ended June 30, 2024 , the Company purchased approximately $ 30,000 of promotional items from The Whisky Capital Pte Ltd ("TWCPL"), which is a company related to the Company's Chairman.

As of June 30, 2024 the Company owed nil to TWCPL related to these charges.

During the three month period ended June 30, 2023, the Company had no transactions with TWCPL.

NOTE 7 — SHORT TERM DEPOSITS AND INVESTMENTS

As of December 31, 2023 and March 31, 2023 , the Company held $ 2.7 million and $ 23.1 million, respectively, in term deposits.

As of June 30, 2024 and March 31, 2024 , the Company held $ 2.2 million and $ 19.1 million, respectively, in term deposits.

Such term deposits had maturity dates of 90 days or less and, as a result, were classified as cash equivalents.

As of December 31, 2023 and March 31, 2023 , the Company held $ 18.5 million and nil, respectively, in short term investments which had maturity dates greater than 90 days.

As of June 30, 2024 and March 31, 2024 , the Company held $ 16.0 million and nil, respectively, in short term investments which had maturity dates greater than 90 days.

NOTE 8 — CONCENTRATION RISK

Customer Concentration

For the three month period ended December 31, 2023 , the Company’s two largest customers accounted for approximately 84 % of the Company’s net revenues, of which Walmart accounted for approximately 65 % and Amazon accounted for approximately 19 %.

No other customer accounted for greater than 10% of the Company's net revenues during the period.

For the nine month period ended December 31, 2023 , the Company’s three largest customers accounted for approximately 89 % of the Company’s net revenues, of which Walmart accounted for approximately 58 %, Amazon accounted for approximately 21 % and Fred Meyer accounted for approximately 10 %.

No other customer accounted for greater than 10% of the Company's net revenues during the period.

For the three month period ended December 31, 2022 , the Company’s two largest customers accounted for approximately 84 % of the Company’s net revenues, of which Walmart accounted for approximately 50 % and Amazon accounted for approximately 34 %.

For the three month period ended June 30, 2024 , the Company’s three largest customers accounted for approximately 86 % of the Company’s net revenues, of which Amazon.com ("Amazon") accounted for approximately 38 %, Walmart Inc.

("Walmart") accounted for approximately 36 % and Grupo Comercial Chedraui SAB de CV ("Chedraui") accounted for approximately 12 %.

No other customer accounted for greater than 10% of the Company's net revenues during the period.

For the nine month period ended December 31, 2022 , the Company’s three largest customers accounted for approximately 74 % of the Company’s net revenues, of which Walmart accounted for approximately 42 %, Amazon accounted for approximately 21 % and Fred Meyer accounted for approximately 11 %.

For the three month period ended June 30, 2023 , the Company’s three largest customers accounted for approximately 88 % of the Company’s net revenues, of which Walmart accounted for approximately 43 %, Amazon accounted for approximately 28 % and Fred Meyer accounted for approximately 17 %.

No other customer accounted for greater than 10% of the Company's net revenues during the period.

1 unchanged sentence

Product Concentration

For the three and nine month periods ended December 31, 2023 , the Company’s gross product sales included microwave ovens, which generated approximately 22 % and 28 %, respectively, of the Company’s gross product sales and audio products, which generated approximately 76 % and 70 %, respectively, of the Company’s gross product sales.

For the three month period ended June 30, 2024 , the Company’s gross product sales included microwave ovens, which generated approximately 48 %, of the Company’s gross product sales and audio products, which generated approximately 48 % of the Company’s gross product sales.

No other products accounted for greater than 10% of the Company's gross product sales during the period.

For the three and nine month periods ended December 31, 2022 , the Company’s gross product sales included microwave ovens, which generated approximately 9 % and 24 %, respectively, of the Company’s gross product sales and audio products, which generated approximately 91 % and 75 %, respectively, of the Company’s gross product sales.

For the three month period ended June 30, 2023 , the Company’s gross product sales included microwave ovens, which generated approximately 39 % of the Company’s gross product sales and audio products, which generated approximately 60 % of the Company’s gross product sales.

No other products accounted for greater than 10% of the Company's gross product sales during the period.

Concentrations of Credit Risk

As a percentage of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top three customers accounted for approximately 48 %, 20 % and 15 %, respectively, as of December 31, 2023 .

As a percentage of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top three customers accounted for approximately 50 %, 21 % and 20 %, respectively, as of June 30, 2024 .

No other customers accounted for greater than 10% of the Company's total trade accounts receivable, net of specific reserves, as of such date.

5 unchanged sentences

and foreign financial institutions.

The Company’s cash and restricted cash balances on deposit in the U.S.

as of December 31, 2023 and March 31, 2023 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 $ 3.4 million and approximately $ 25.0 million at December 31, 2023 and March 31, 2023 , respectively.

The Company’s cash balances on deposit in the U.S.

as of June 30, 2024 and March 31, 2024 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 $ 2.5 million and approximately $ 19.6 million at June 30, 2024 and March 31, 2024 , respectively.

Supplier Concentration

During the three month period ended December 31, 2023 , the Company procured approximately 86 % of its products for resale from its three largest factory suppliers, of which approximately 37 % was supplied by its largest supplier and approximately 28 % and 21 %, respectively, by the other two suppliers.

During the three month period ended December 31, 2022 , the Company procured approximately 95 % of its products for resale from its two largest factory suppliers, of which approximately 74 % was supplied by its largest supplier and approximately 21 % by another supplier.

No other suppliers accounted for greater than 10% for either three month periods ended December 31, 2023 or December 31, 2022 .

During the nine month period ended December 31, 2023 , the Company procured approximately 93 % of its products for resale from its four largest factory suppliers, of which approximately 29 % was supplied by its largest supplier and approximately 26 %, 23 % and 15 %, respectively, by the other three suppliers.

During the nine month period ended December 31, 2022 , the Company procured approximately 99 % of its products for resale from its two largest factory suppliers, of which approximately 71 % was supplied by its largest supplier and approximately 28 % by another supplier.

No other suppliers accounted for greater than 10% for either nine month periods ended December 31, 2023 or December 31, 2022 .

During the three month period ended June 30, 2024 , the Company procured 100 % of its products for resale from its four largest factory suppliers, of which approximately 33 % was supplied by its largest supplier and approximately 31 %, 21 % and 15 %, respectively, was supplied by the other three suppliers.

During the three month period ended June 30, 2023 , the Company procured 100 % of its products for resale from its three largest factory suppliers, of which approximately 57 % was supplied by its largest supplier and approximately 22 % and 21 %, respectively, was supplied by the other two suppliers.

No other suppliers accounted for greater than 10% for either three month periods ended June 30, 2024 or June 30, 2023 .

NOTE 9 — LEASES

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and in Hong Kong as well as a copier in the U.S.

These leases have remaining non-cancellable lease terms of six to sixty months.

These leases have remaining non-cancellable lease terms of two to sixty months.

The Company has elected not to separate lease and non-lease components for all leased assets.

The Company did not identify any events or conditions during the quarter ended December 31, 2023 to indicate that a reassessment or re-measurement of the Company’s existing leases was required.

As of December 31, 2023 , the Company’s current operating lease liabilities and finance lease liabilities were $ 128,000 and $ 1,000 , respectively and its non-current operating lease liabili ties and finance lease liabilities were $ 208,000 and nil, respectively.

The Company did not identify any events or conditions during the quarter ended June 30, 2024 to indicate that a reassessment or re-measurement of the Company’s existing leases was required.

As of June 30, 2024 , the Company’s current operating lease liabilities and finance lease liabilities were $ 58,000 and $ 1,000 , respectively and its non-current operating lease liabilities and finance lease liabilities were $ 187,000 and $ 6,000 , respectively.

The Company’s operating and finance lease right-of-use asset balances are presented in non-current assets.

The net balance of the Company’s operating and finance lease right-of-use assets as of December 31, 2023 was $ 327,000 and $ 1,000 , r espectively.

The net balance of the Company’s operating and finance lease right-of-use assets as of June 30, 2024 was $ 236,000 and $ 6,000 , respectively.

As disclosed in "Note 6 - Related Party Transactions", the Company's Hong Kong office space is being leased from VACL, which is a company related to the Company's Chairman.

As of June 30, 2024 , the current operating liability of this lease is approximately $ 25,000 and its non-current liability is nil.

Its right-of-use asset value is approximately $ 25,000 , as of June 30, 2024 .

During the quarter ended June 30, 2024 , the Company took possession of a new copier with a lease term of sixty-two months.

The right-of-use asset value of this finance lease is approximately $ 6,000 .

The components of lease costs, which were included in operating expenses in the Company’s condensed consolidated statements of operations, were as follows:

Three Months Ended December 31,

Nine Months Ended December 31,

(in thousands)

Three Months Ended June 30,

(in thousands)

Operating lease cost

$ 52 $ 60 $ 141 $ 185

The supplemental cash flow information related to leases are as follows:

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Operating cash flows from operating leases

43 62 123 187

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

Finance leases

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Weighted average remaining lease term (in months)

As of December 31, 2023

As of December 31, 2022

As of June 30, 2024

As of June 30, 2023

Operating leases

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10.50 % 7.50 %

As of December 31, 2023 the maturities of lease liabilities were as follows:

As of June 30, 2024 the maturities of lease liabilities were as follows:

(in thousands)

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Imputed interest

NOTE 10 — GOVERNMENTAL ASSISTANCE PROGRAMS

During the three month periods ended December 31, 2023 and December 31, 2022 , the Company’s Hong Kong subsidiary recorded income of nil and $ 4,000 , respectively, under the governmental program called the Employment Support Scheme (“ESS”).

During the nine month periods ended December 31, 2023 and December 31, 2022 , the Company’s Hong Kong subsidiary recorded income of nil and $ 34,000 , respectively, under the ESS program.

The proceeds were required to be used for payroll expenses and the Company was subject to government-appointed random reviews to verify the information submitted by the applicant.

The income realized from the amount granted under the ESS program is presented as Other Income under the description called “Income from governmental assistance programs” in the Consolidated Statements of Operations.

NOTE 10 — LEGAL PROCEEDINGS

On April 19, 2022, the U.S.

District Court for the District of Delaware (the "District Court") granted judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “Defendants”).

Among other things, the District Court's order included an injunction prohibiting Defendants’ distribution, manufacturing, and sales of EMERSON QUIET KOOL branded products or use of that trademark and directed the U.S.

Patent and Trademark Office to cancel Defendants’ trademark registration for the EMERSON QUIET KOOL trademark and prohibited Defendants from attempting to register that mark or any other confusingly similar mark in the future.

The judgment also awards $ 6.5 million to the Company.

The Defendants, through a third party, made certain payments to the Company, including certain advances towards a portion of their liability.

Those amounts were previously reflected as advanced deposits in the Consolidated Balance Sheets.

The aggregate amount of the payments is $ 4.1 million, which has been reduced by approximately $ 784,000 for legal fees incurred in fiscal 2023 and approximately $ 216,000 for legal fees incurred in fiscal 2024, in pursuit of the advanced deposits.

Separately, on July 11, 2023, the U.S.

Court of Appeals for the Third Circuit affirmed the District Court's judgment against the Defendants.

On September 29, 2023, the District Court granted the Company’s request for final judgement including approximately $ 3.16 million in legal fees and $ 700,000 in enhanced damages, along with the prospect of additional damages due to Defendants’ alleged contempt of court.

The Company is pursuing all available remedies against the Defendants and those acting in concert with them.

There is no guarantee that the Company will be able to collect the entire judgment or that any negotiated resolution regarding these matters will ever be agreed among the parties or, if agreed, how soon the parties might be able to do so.

Due to the legal judgement having been affirmed as stated above, the Company released the balance of the advanced deposits of approximately $ 3,100,000 , to other income during the quarter ended September 30, 2023.

On October 10, 2023, the US District Court for the District of Delaware granted final judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “defendants”).

Among other things, the court order issues an injunction and directs the US Patent and Trademark Office to cancel the defendants’ existing and proposed "Emerson Quiet Kool" trademarks and prohibits defendants from registering or applying to register, or using the same mark or any other mark or name containing the word "Emerson" going forward.

The total judgment awarded to the Company has increased from approximately $ 6.5 million to approximately $ 10.4 million, inclusive of disgorgement of wrongful profits, attorney's fees and enhanced damages.

The aggregate award to the Company also includes the $ 4.1 million of advanced deposits previously paid to the Company.

The $4.1 million of advanced deposits was reduced by approximately $ 1 million of incurred legal fees.

The remaining balance of $ 3.1 million was released by the Company to other income during the quarter ended September 30, 2023.

Like any judgement, there is no guarantee that the Company will be able to collect the entire judgement or if it is able to collect, how soon it will be able to do so.

The defendants have filed separate bankruptcy petitions in the US Bankruptcy Court for the District of New Jersey, and there is no guarantee that those bankruptcy proceedings will not have any effect on the ability of the Company to collect the judgement.

The Company is not currently a party to any other 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 11 — SUBSEQUENT EVENTS

As of the filing date of this Form 10 -Q, there were no subsequent events identified to disclose.

Management ’ s Discussion and Analysis of Results of Operations and Financial Condition.

The following discussion of the Company’s operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

The following discussion of the Company’s operations and financial condition should be read in conjunction with the interim condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

In the following discussions, most percentages and dollar amounts have been rounded to aid presentation.

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Results of Operations

The following table summarizes certain financial information for the three and nine month periods ended December 31, 2023 (fiscal 2024) and December 31, 2022 (fiscal 2023) (in thousands):

Three Months Ended December 31,

Nine Months Ended December 31,

The following table summarizes certain financial information for the three month period ended June 30, 2024 (fiscal 2024) and June 30, 2023 (fiscal 2023) (in thousands):

Three Months Ended June 30,

Net product sales

Licensing revenue

Royalty income

Cost of sales

1 unchanged sentence

Operating loss

Settlement of litigation

Interest income, net

Income from governmental assistance programs

Income (loss) before income taxes

Loss before income taxes

Provision for income taxes

Net income (loss)

Net product sales — Net product sales for the three month period ended December 31, 2023 were $2.6 million as compared to $1.7 million for the three month period ended December 31, 2022 , an increase of $0.9 million, or 52.5%.

The Company’s sales during the three month periods ended December 31, 2023 and December 31, 2022 were highly concentrated among the Company’s two largest customers – Wal-Mart and Amazon – comprising in the aggregate approximately 85% and 95%, respectively, of the Company’s total net product sales for such periods.

Net product sales for the nine month period ended December 31, 2023 were $6.7 million as compared to $4.3 million for the nine month period ended December 31, 2022 , an increase of $2.4 million, or 55.6%.

The Company’s sales during the nine month periods ended December 31, 2023 and December 31, 2022 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – comprising in the aggregate approximately 91% of the Company’s total net product sales for both periods.

Net product sales — Net product sales for the three month period ended June 30, 2024 were approximately $2.1 million as compared to approximately $1.7 million for the three month period ended June 30, 2023 , an increase of $0.4 million, or 22.9%.

The Company’s sales during the three month period ended June 30, 2024 were highly concentrated among its three largest customers – Amazon, Walmart and Chedraui – comprising in the aggregate approximately 89% of the Company’s total net product sales.

The Company’s sales during the three month period ended June 30, 2023 , were highly concentrated among its three largest customers – Walmart, Amazon and Fred Meyer – comprising in the aggregate approximately 92% of the Company’s total net product sales.

Net product sales are comprised primarily of the sales of houseware and audio products which bear the Emerson® brand name.

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 approxim ately $3,000 and $10,000 for the three month periods ended December 31, 2023 and December 31, 2022 , respectively, and by approximately $9,000 and $15,000 for the nine month periods ended December 31, 2023 and December 31, 2022 , respectively.

In the aggregate, these adjustments had the effect of increasing net product sales and operating income by approxim ately $10,000 and $3,000 for the three month periods ended June 30, 2024 and June 30, 2023 , respectively.

The major elements which contributed to the overall increase in net product sales were as follows:

i) Houseware products:

Net sales increased $0.4 million, or 313.4%, to $0.6 million for the three month period ended December 31, 2023 as compared to $0.2 million for the three month pe riod ended December 31, 2022, driven by increased net sales of microwave ovens and refrigerators.

Net sales increased $0.9 million, or 89.9%, to $2.0 million for the nine month period ended December 31, 2023 as compared to $1.1 million for the nine month period ended December 31, 2022, driven by increased net sales of microwave ovens and refrigerators.

Net sales of houseware products increased approximately $0.4 million, or 62.3%, to approximately $1.1 million for the three month period ended June 30, 2024 as compared to approximately $0.6 million for the three month period ended June 30, 2023 , driven by increased net sales of newly introduced microwave ovens and refrigerators to the market.

ii) Audio products:

Net sales increased $0.4 million, or 27.4%, to $2.0 million for the three month period ended December 31, 2023 as compared to $1.6 million for the three month period ended December 31, 2022, resulting from increased net sales of clock radios.

Net sales increased $1.4 million, or 44.4%, to $4.7 million for the nine month period ended December 31, 2023 as compared to $3.3 million for the nine month period ended December 31, 2022, resulting from increased net sales of clock radios.

Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products with retailers in the U.S.

Net sales of audio products were essentially flat at approximately $1.0 million for the three month period ended June 30, 2024 as compared to approximately $1.0 million for the three month period ended June 30, 2023 .

Business operations — The Company expects to continue to expand its existing distribution channels and to develop and promote new products with retailers in the U.S and Mexico.

The Company is also continuing to invest in products and marketing activities to expand its sales through internet and ecommerce channels.

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However, if the Company is unable to successfully pass through the additional costs or otherwise mitigate the effects of these tariffs, or if the higher prices reduce demand for the Company’s products, it will have a negative effect on the Company’s product sales and gross margins.

Starting in the fourth quarter of fiscal 2020, the global COVID-19 pandemic has presented significant challenges and impacted the Company’s business and operating results, and the operations and production capabilities of the Company’s suppliers in China.

The pandemic has directly and indirectly disrupted certain sales and supply chain activities.

Global component shortages, in particular semiconductor chips, arising from changes in consumer demand and reduced manufacturing capacity related to the COVID-19 pandemic may cause price fluctuations and longer lead times in the supply of these components.

Although the Company is seeking alternate suppliers for these components, developing alternate sources of supply will be time consuming, difficult and costly, and may require the re-tooling of products to accommodate components from different suppliers.

In addition to increasing cost trends, the Company’s suppliers are not equipped to hold meaningful amounts of inventory and could pause manufacturing, which could ultimately impact the Company’s ability to fulfill customer orders on a timely basis.

These impacts on the Company’s supply chain may continue to impact the 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 macroeconomic conditions domestically and internationally, the Company has implemented certain cost-reduction actions intended to reduce expenditures.

However, the environment remains uncertain.

Demand for the Company’s products remains competitive and retailers continue to carefully manage inventory.

Accordingly, the current results and financial condition discussed herein may not be indicative of future operating results and trends.

For more information on risks associated with the Company’s operations, including tariffs, please see the risk factors within Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2023.

Legal Proceedings — On April 19, 2022, the U.S.

Among other things, the District Court’s order included an injunction prohibiting Defendants’ distribution, manufacturing, and sales of EMERSON QUIET KOOL branded products or use of that trademark and directed the U.S.

The judgment also awards $6.5 million to the Company.

The Defendants, through a third party, made certain payments to the Company, including certain advances towards a portion of their liability.

Those amounts were previously reflected as advanced deposits in the Consolidated Balance Sheets.

The aggregate amount of the payments is $4.1 million, which has been reduced by approximately $784,000 for legal fees incurred in fiscal 2023 and approximately $216,000 for legal fees incurred in fiscal 2024, in pursuit of the advanced deposits.

Separately, on July 11, 2023, the U.S.

Court of Appeals for the Third Circuit affirmed the District Court's judgment against the Defendants.

On September 29, 2023, the District court granted the Company’s request for final judgement including approximately $3.16 million in legal fees and $700,000 in enhanced damages, along with the prospect of additional damages due to Defendants’ alleged contempt of court.

The Company is pursuing all available remedies against the Defendants and those acting in concert with them.

Due to the legal judgement having been affirmed as stated above, the Company has released the balance of the advanced deposits of approximately $3,100,000, to other income during the quarter ended September 30, 2023.

Licensing revenue — Licensing revenue for the three month period ended December 31, 2023 was $23,000 as compared to $123,000 for the three month period ended December 31, 2022 , a decrease of $100,000, or 81.0%.

Licensing revenue for the nine month period ended December 31, 2023 was $124,000 as compared to $271,000 for the nine month period ended December 31, 2022 , a decrease of $147,000, or 54.2%.

The decreases for the three and nine month periods ended December 31, 2023 were a result of an expiring license agreement on December 31, 2022.

Royalty income — Royalty income for the three month periods ended December 31, 2023 and December 31, 2022 were nil and $105,000, respectively.

Royalty income for the nine month periods ended December 31, 2023 and December 31, 2022 were nil and $700,000, respectively.

The royalty income in the three and nine month periods ended December 31, 2022 was derived from sell-off agreements made with customers of Emerson Quiet Kool, which did not repeat during the three and nine month periods ended December 31, 2023 .

Net revenues — Net revenues were $2.6 million for the three month period ended December 31, 2023 as compared to $1.9 million for the three month period ended December 31, 2022 , an increase of $0.7 million, or 35.7%.

The increase in net revenues can be attributed to the introduction of new models to the marketplace as well as increased demand from the Company's key customers.

Net revenues were $6.9 million for the nine month period ended December 31, 2023 as compared to $5.3 million for the nine month period ended December 31, 2022 , an increase of $1.6 million, or 29.5%.

The increase in net revenues can be attributed to the introduction of new models to the marketplace as well as increased demand from the Company's key customers.

Cost of sales — Cost of sales increased $0.8 million, or 57.5% to $2.1 million for the three month period ended December 31, 2023 as compared to $1.3 million for the three month period ended December 31, 2022 .

The increase in absolute terms for the three month period ended December 31, 2023 as compared to the three month period ended December 31, 2022 was primarily related to an increase in net product sales and by higher year-over-year gross cost of sales as a percentage of gross sales.

Cost of sales increased $2.1 million, or 59.3% to $5.7 million for the nine month period ended December 31, 2023 as compared to $3.6 million for the nine month period ended December 31, 2022 .

The increase in absolute terms for the nine month period ended December 31, 2023 as compared to the nine month period ended December 31, 2022 was primarily related to an increase in net product sales and by higher year-over-year gross cost of sales as a percentage of gross sales.

Selling, general and administrative expenses ( “ S,G&A ” ) — S,G&A was $1.2 million for the three month period ended December 31, 2023 as compared to $1.1 million for the three month period ended December 31, 2022 , an increase of $0.1 million or 14.4%.

S,G&A, as a percentage of net revenues, was 45.8% for the three month period ended December 31, 2023 as compared to 54.4% for the three month period ended December 31, 2022 .

Compensation costs increased by $69,000, legal fees increased by $68,000 and audit fees increased by $28,000 for the three month period ended December 31, 2023 as compared to the three month period ended December 31, 2022.

Compensation costs for the three month period ended December 31, 2023 were $558,000 as compared to $489,000 for the three month period ended December 31, 2022 .

Legal fees for the three month period ended December 31, 2023 were $236,000 as compared to $168,000 for the three month period ended December 31, 2022 .

Audit fees for the three month period ended December 31, 2023 were $53,000 as compared to $25,000 for the three month period ended December 31, 2022 .

S,G&A was $3.5 million for the nine month period ended December 31, 2023 as compared to $3.7 million for the nine month period ended December 31, 2022 , a decrease of $0.2 million or 6.0%.

S,G&A, as a percentage of net revenues, was 50.4% for the nine month period ended December 31, 2023 as compared to 69.5% for the nine month period ended December 31, 2022 .

The Company benefitted from a decrease in legal fees of $546,000, a decrease in insurance expense of $31,000 and a decrease in rent expense of $32,000 for the nine month period ended December 31, 2023 as compared to the nine month period ended December 31, 2022.

These reductions were offset by an increase in compensation costs of $156,000, additional advertising costs of $50,000, travel and entertainment fees of $21,000, auditing fees of $28,000 and bad debt expense of $73,000 for the nine month period ended December 31, 2023 .

as compared to the nine month period ended December 31, 2022 .

Legal fees for the nine month period ended December 31, 2023 were $461,000 as compared to $1,007,000 for the nine month period ended December 31, 2022 .

Insurance expense for the nine month period ended December 31, 2023 was $357,000 as compared to $388,000 for the nine month period ended December 31, 2022 .

Rent expense for the nine month period ended December 31, 2023 was $142,000 as compared to $174,000 for the nine month period ended December 31, 2022 .

Compensation costs for the nine month period ended December 31, 2023 were $1,680,000 as compared to $1,524,000 for the nine month period ended December 31, 2022 .

Settlement of litigation — Based on a judgement affirmation by the U.S.

Court of Appeals for the Third Circuit , the Company recorded income of $3.1 million, which was the remaining balance of the advanced deposits as of September 30, 2023.

See "Note 11 - Legal Proceedings".

Interest income, net — Interest income, net, was $289,000 for the three month period ended December 31, 2023 as compared to $235,000 for the three month period ended December 31, 2022 , an increase of $54,000.

The increase was primarily due to higher average interest rates earned on the Company’s short term investments.

Interest income, net, was $872,000 for the nine month period ended December 31, 2023 as compared to $424,000 for the nine month period ended December 31, 2022 , an increase of $448,000.

The increase was primarily due to higher average interest rates earned on the Company’s short term investments.

Income from governmental assistance programs — For the three month periods ended December 31, 2023 and December 31, 2022 , the Company recorded income of nil and approximately $4,000, respectively, under the ESS program.

See “Note 10 – Governmental Assistance Programs”.

For the nine month periods ended December 31, 2023 and December 31, 2022 , the Company recorded income of nil and approximately $34,000, respectively, under the ESS program.

See “Note 10 – Governmental Assistance Programs”.

(Benefit) provision for income taxes — For the three and nine month periods ended December 31, 2023 , the Company recorded an income benefit of $14,000 and income tax expense of $74,000, respectively.

For the quarter ended September 30, 2023, the Company estimated its income tax expense to be approximately $88,000 based on the income generated during that period.

That estimate has been reduced by $14,000 and is now estimated to be $74,000 for the nine months ended December 31, 2023.

T he Company under the adoption of ASU 2019-12 “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” incurred non-income based state taxes of nil for both of the three month periods ended December 31, 2023 and December 31, 2022 .

For the nine month periods ended December 31, 2023 and December 31, 2022 , the Company incurred non-income based state taxes of $8,650 and $10,950, respectively, which are now reported as S,G &A.

Demand for the Company’s products remains competitive and requires actions to continue carefully managing inventory.

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, please see the risk factors within Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 .

Legal Proceedings — On October 10, 2023, the US District Court for the District of Delaware granted final judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “defendants”).

The total judgment awarded to the Company has increased from approximately $6.5 million to approximately $10.4 million, inclusive of disgorgement of wrongful profits, attorney's fees and enhanced damages.

The aggregate award to the Company also includes the $4.1 million of advanced deposits previously paid to the Company.

The $4.1 million of advanced deposits was reduced by approximately $1 million of incurred legal fees.

The remaining balance of $3.1 million was released by the Company to other income during the quarter ended September 30, 2023.

Like any judgement, there is no guarantee that the Company will be able to collect the entire judgement or if it is able to collect, how soon it will be able to do so.

The Company is not currently a party to any other 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.

Licensing revenue — Licensing revenue for the three month period ended June 30, 2024 was approximately $69,000 as compared to approximately $77,000 for the three month period ended June 30, 2023 , a decrease of approximately $8,000, or 10.4%.

The year-over-year decrease was the result of lost revenue from a terminated licensee in June 2023 of approximately $54,000, partially offset by the increase in revenue from a new licensee of approximately $25,000 and from an existing licensee of approximately $21,000.

Net revenues — Net revenues were approximately $2.2 million for the three month period ended June 30, 2024 as compared to approximately $1.8 million for the three month period ended June 30, 2023 , an increase of approximately $0.4 million, or 21.5%.

The increase in net revenues can be attributed primarily to the introduction of new models of the Company's houseware products to the marketplace as well as increased demand from the Company's key customers.

Cost of sales — Cost of sales increased approximately $0.5 million, or 36.3% to approximately $2.0 million for the three month period ended June 30, 2024 as compared to approximately $1.5 million for the three month period ended June 30, 2023 .

The increase in absolute terms for the three month period ended June 30, 2024 as compared to the three month period ended June 30, 2023 was primarily related to an increase in net product sales, increased carrying costs of inventory and the product mix of sales in the current quarter.

Selling, general and administrative expenses ( “ S,G&A ” ) — S,G&A was approximately $1.4 million for the three month period ended June 30, 2024 as compared to approximately $1.2 million for the three month period ended June 30, 2023 , an increase of approximately $0.2 million or 18.2%.

S,G&A, as a percentage of net revenues, was approximately 64.4% for the three month period ended June 30, 2024 as compared to approximately 66.2% for the three month period ended June 30, 2023 .

Compensation costs increased by approximately $136,000, legal fees increased by approximately $71,000 and audit fees increased by approximately $42,000 for the three month period ended June 30, 2024 as compared to the three month period ended June 30, 2023 .

Compensation costs for the three month period ended June 30, 2024 were approximately $695,000 as compared to approximately $559,000 for the three month period ended June 30, 2023 .

Legal fees for the three month period ended June 30, 2024 were approximately $184,000 as compared to approximately $113,000 for the three month period ended June 30, 2023 .

Audit fees for the three month period ended June 30, 2024 were approximately $66,000 as compared to approximately $24,000 for the three month period ended June 30, 2023 .

Interest income, net — Interest income, net, was approximately $263,000 for the three month period ended June 30, 2024 as compared to approximately $294,000 for the three month period ended June 30, 2023 , a decrease of approximately $31,000.

The decrease was primarily due to lower levels of cash invested on the Company’s short term investments.

Provision for income taxes — For the three month period ended June 30, 2024 , the Company recorded income tax expense of approximately $3,000 as compared to nil for the three month period ended June 30, 2023 .

The Company under the adoption of ASU 2019-12 “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes” incurred non-income based state taxes of approximately $9,000 for both of the three month periods ended June 30, 2024 and June 30, 2023 , which are now reported as S,G &A.

See “Note 5 – Income Taxes”.

Although the Company generated net income during the nine months ended December 31, 2023 , it has yet to demonstrate the ability to generate net income on a sustained basis in order to realize its deferred tax assets.

Although the Company generated net income during the three months ended June 30, 2024 , it has yet to demonstrate the ability to generate net income on a sustained basis in order to realize its deferred tax assets.

Therefore, the Company is obligated to record a 100% valuation allowance against the deferred tax assets.

Net (loss) income — As a result of the foregoing factors, the Company realized a net loss of $421,000 for the three month period ended December 31, 2023 as compared to a net loss of $241,000 for the three month period ended December 31, 2022.

The Company realized net income of $1,649,000 for the nine month period ended December 31, 2023 as compared to a net loss of $1,471,000 for the nine month period ended December 31, 2022.

Net loss — As a result of the foregoing factors, the Company realized a net loss of approximately $962,000 for the three month period ended June 30, 2024 as compared to a net loss of approximately $565,000 for the three month period ended June 30, 2023.

Liquidity and Capital Resources

As of December 31, 2023, the Company had cash and cash equivalents of approximately $3.6 million as compared to approximat ely $25.3 million at March 31, 2023 .

Cash and cash equivalents includes short term investments in deposits which were classified as cash equivalents of $2.7 million as of December 31, 2023 compared to $23.1 million of such deposits as of March 31, 2023 .

Working capital increased to $27.5 million at December 31, 2023 as compared to $26.4 million at March 31, 2023 .

The decrease in cash and cash equivalents of approximately $21.6 million was due to an increase in short term deposits of $18.5 million, a decrease in advanced deposits of $3.3 million, an increase in inventory of $1.9 million and a decrease in long-term federal taxes payable of $0.5 million partially offset by the net income generated during the period of $1.6 million, an increase in accounts payable and other current liabilities of $0.6 million, an increase in short-term federal income taxes payable of $0.2 million and an increase in long-term operating lease liabilities of $0.2 million.

Net cash used by operatin g activities was approximately $3.0 million for the nine month period ended December 31, 2023 , resulting from a decrease in advanced deposits of $3.3 million, an increase in inventory of $1.9 million and a decrease in federal taxes payable of $0.3 million partially offset by the net income generated during the period of $1.6 million, an increase in accounts payable and other current liabilities of $0.6 million, an increase in long-term operating lease liabilities of $0.2 million and an increase in right-of-use assets of $0.1 million.

Net cash used by investing activities was $18.6 million for the nine month period ended December 31, 2023 due to purchases of short-term investments of $18.5 million and additions to property and equipment of $0.1 million.

Net cash used by financing activities was nil f or the nine month period ended December 31, 2023.

As of June 30, 2024 , the Company had cash and cash equivalents of approximately $2.8 million as compared to approximately $19.9 million at March 31, 2024 .

Cash and cash equivalents includes short term investments in deposits which were classified as cash equivalents of approximately $2.2 million as of June 30, 2024 compared to approximately $19.1 million of such deposits as of March 31, 2024 .

Working capital decreased to approximately $25.5 million at June 30, 2024 as compared to approximately $26.6 million at March 31, 2024 .

The decrease in cash and cash equivalents of approximately $17.0 million was due to an increase in short term deposits of approximately $16.0 million, the net loss generated during the period of approximately $0.9 million, an increase in prepaid expenses and other current assets of approximately $0.4 million, an increase in accounts receivable of approximately $0.4 million, an increase in prepaid purchases of approximately $0.3 million and an increase in property and equipment of approximately $0.2 million, partially offset by a decrease in inventory of approximately $0.8 million and an increase in accounts payable and other current liabilities of approximately $0.4 million.

Net cash used by operating activities was approximately $0.8 million for the three month period ended June 30, 2024 , resulting from the loss generated during the period of approximately $0.9 million, an increase in prepaid and other current assets of approximately $0.4 million, an increase in accounts receivable of approximately $0.4 million, and an increase in prepaid purchases of approximately $0.3 million, partially offset by a decrease in inventory of approximately $0.8 million and an increase in accounts payable and other current liabilities of approximately $0.4 million.

Net cash used by investing activities was approximately $16.2 million for the three month period ended June 30, 2024 due to purchases of short-term investments of approximately $16.0 million and additions to property and equipment of approximately $0.2 million.

Net cash provided by financing activities was approximately $7,000 for the three month period ended June 30, 2024 due to a new copier lease.

Sources and Uses of Funds

The Company’s principal existing sources of cash are generated from operations and its existing short-term deposits.

The Company’s principal existing sources of cash are generated from operations and its existing short-term deposits and 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.

Off-Balance Sheet Arrangements

As of December 31, 2023, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC.

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 2019-12 “ Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes ” (Issued December 2019)

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020.

This standard took effect in the first quarter (June 2021) of the Company’s fiscal year ending March 31, 2022.

The adoption of ASU 2019-12 had no material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Standards Update 2016-13 “ Financial Instruments – Credit Losses ” (Issued June 2016)

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope.

ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2022.

The adoption of ASU 2016-13 had no material impacts on the Company's financial statements.

As of June 30, 2024, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC.

Recent Accounting Pronouncement

The following ASU was 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 2023-07 Segment Reporting (Topic 280):

"Improvements to Reportable Segment Disclosures ” (Issued October 2023)

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

"Improvements to Reportable Segment Disclosures" ("ASU 2023-07") to update reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

This update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the condensed consolidated financial statements.

We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-Q

Item 1. Financial Statements