EMERSON RADIO CORP 10-Q

Item 1. Financial Statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Net revenues: Net product sales $ 3,892 $ 2,599 $ 8,691 $ 6,745 Licensing revenue 111 23 248 124 Net revenues 4,003 2,622 8,939 6,869 Costs and expenses: Cost of sales 3,512 2,144 7,982 5,654 Selling, general and administrative expenses 1,224 1,202 4,029 3,464 Total cost of sales and SG&A 4,736 3,346 12,011 9,118 Operating loss ( 733 ) ( 724 ) ( 3,072 ) ( 2,249 ) Other income: Settlement of litigation — — — 3,100 Interest income, net 206 289 705 872 (Loss) income before income taxes ( 527 ) ( 435 ) ( 2,367 ) 1,723 (Benefit) provision for income tax expense — ( 14 ) 3 74 Net (loss) income ( 527 ) ( 421 ) ( 2,370 ) 1,649 Basic (loss) income per share $ ( 0.03 ) $ ( 0.02 ) $ ( 0.11 ) $ 0.08 Diluted (loss) income per share $ ( 0.03 ) $ ( 0.02 ) $ ( 0.11 ) $ 0.08 Weighted average shares outstanding Basic 21,042,652 21,042,652 21,042,652 21,042,652 Diluted 21,042,652 21,042,652 21,042,652 21,042,652 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 Table of Contents EMERSON RADIO CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands except share data) December 31, 2024 March 31, 2024 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 689 $ 19,890 Short term investments 15,756 — Accounts receivable, net of allowances for credit losses of $ 313,000 and $ 257,000 as of December 31, 2024 and March 31, 2024, respectively 3,512 1,343 Licensing receivable 29 37 Inventory 5,157 6,953 Prepaid purchases 139 107 Prepaid expenses and other current assets 281 274 Total Current Assets 25,563 28,604 Non-Current Assets: Property and equipment, net 232 95 Right-of-use asset-operating leases 476 282 Right-of-use asset-finance leases 6 — Other assets 77 84 Total Non-Current Assets 791 461 Total Assets $ 26,354 $ 29,065 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable and other current liabilities 1,205 1,158 Due to affiliate 1 1 Short-term operating lease liability 132 93 Short-term finance lease liability 1 — Income tax payable, current portion 668 531 Deferred revenue 127 191 Total Current Liabilities 2,134 1,974 Non-Current Liabilities: Long-term operating lease liability 360 198 Long-term finance lease liability 5 — Income tax payable-deferred — 668 Total Non-Current Liabilities 365 866 Total Liabilities $ 2,499 $ 2,840 Shareholders’ Equity: Series A Preferred shares — 10,000,000 shares authorized; 3,677 shares issued and outstanding; liquidation preference of $ 3,677,000 3,310 3,310 Common shares — $ 0.01 par value, 75,000,000 shares authorized; 52,965,797 shares issued at December 31, 2024 and March 31, 2024, respectively; 21,042,652 shares outstanding at December 31, 2024 and March 31, 2024, respectively 529 529 Additional paid-in capital 79,792 79,792 Accumulated deficit ( 26,575 ) ( 24,205 ) Treasury stock, at cost ( 31,923,145 shares at December 31, 2024 and March 31, 2024, respectively) ( 33,201 ) ( 33,201 ) Total Shareholders’ Equity 23,855 26,225 Total Liabilities and Shareholders’ Equity $ 26,354 $ 29,065 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 Table of Contents EMERSON RADIO CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended December 31, 2024 2023 (In thousands) Cash Flows from Operating Activities: Net (loss) income $ ( 2,370 ) $ 1,649 Adjustments to reconcile net loss to net cash (used) by operating activities: Non-cash lease expense 119 121 Depreciation and amortization 58 17 Changes in assets and liabilities: Accounts receivable ( 2,169 ) 78 Licensing receivable 8 17 Inventory 1,796 ( 1,948 ) Prepaid purchases ( 32 ) 110 Prepaid expenses and other current assets ( 7 ) ( 7 ) Other assets 7 ( 10 ) Accounts payable and other current liabilities 47 646 Right of use assets-operating ( 313 ) ( 248 ) Right of use assets-finance ( 6 ) — Short term lease liabilities 39 ( 11 ) Long term lease liabilities 162 146 Income taxes payable ( 531 ) ( 326 ) Advanced deposits — ( 3,316 ) Deferred revenue ( 64 ) 63 Net cash (used) by operating activities ( 3,256 ) ( 3,019 ) Cash Flows From Investing Activities: Proceeds from sale of short-term investments 521 — Purchases of short-term investments ( 16,277 ) ( 18,505 ) Additions to property and equipment ( 195 ) ( 107 ) Net cash (used) by investing activities ( 15,951 ) ( 18,612 ) Cash Flows from Financing Activities: Short term finance liability 1 — Long term finance liability 5 — Net cash provided by financing activities 6 — Net (decrease) in cash and cash equivalents ( 19,201 ) ( 21,631 ) Cash and cash equivalents at beginning of the period 19,890 25,268 Cash and cash equivalents at end of the period $ 689 $ 3,637 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for new operating lease liabilities $ 313 248 Right-of-use assets obtained in exchange for new finance lease liabilities $ 6 — Supplemental disclosures: Cash paid for: Interest $ 6 $ 4 Income taxes $ 535 $ 401 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 Table of Contents EMERSON RADIO CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS ’ EQUITY (Unaudited) (In thousands) Preferred Stock Common Stock Additional Total Number Preferred Number Par Paid-In Accumulated Treasury Shareholders’ of Shares Value of Shares Value Capital Deficit Stock Equity Balance — March 31, 2024 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 24,205 ) $ ( 33,201 ) $ 26,225 Net loss — — — — — ( 962 ) — ( 962 ) Balance — June 30, 2024 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 25,167 ) $ ( 33,201 ) $ 25,263 Net loss — — — — — ( 881 ) — ( 881 ) Balance — September 30, 2024 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 26,048 ) $ ( 33,201 ) $ 24,382 Net loss — — — — — ( 527 ) — ( 527 ) Balance — December 31, 2024 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 26,575 ) $ ( 33,201 ) $ 23,855 Preferred Stock Common Stock Additional Total Number Preferred Number Par Paid-In Accumulated Treasury Shareholders’ of Shares Value of Shares Value Capital Deficit Stock Equity Balance — March 31, 2023 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 24,971 ) $ ( 33,201 ) $ 25,459 Net loss — — — — — ( 565 ) — ( 565 ) Balance — June 30, 2023 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 25,536 ) $ ( 33,201 ) $ 24,894 Net income — — — — — 2,635 — 2,635 Balance — September 30, 2023 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 22,901 ) $ ( 33,201 ) $ 27,529 Net loss — — — — — ( 421 ) — ( 421 ) Balance — December 31, 2023 3,677 $ 3,310 52,965,797 $ 529 $ 79,792 $ ( 23,322 ) $ ( 33,201 ) $ 27,108 The accompanying notes are an integral part of the condensed consolidated financial statements. 6 Table of Contents EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION 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 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 December 31, 2024 and the results of operations for the three and nine month periods ended December 31, 2024 and December 31, 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 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 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 and nine month periods ended December 31, 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 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 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. The adoption of this guidance did not have any impact on the Company's segment reporting. Accounting Standards Update 2024 - 03 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220 - 40 ): "Disaggregation of Income Statement Expenses ” (Issued November 2024 ) In November 2024, the FASB issued ASU No. 2024 - 03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses.” This ASU requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Entities are permitted to apply either the prospective or retrospective transition methods. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements. Segment Reporting The Company operates as one reportable segment under Accounting Standards Codification "(ASC)" 280, Segment Reporting . The chief operating decision maker regularly reviews the financial information of the Company at a consolidated level in determining how to allocate resources and in assessing performance. 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. Under the Direct Import Program, title passes in the country of origin when the goods are passed over the rail of the customer’s vessel. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for future expected returns are based upon historical return rates and netted against revenues. 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. When the Company offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for the Company’s products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve. 7 Table of Contents Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 606, “Revenue from Contracts with Customers” (“ASC 606” ). At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC 606, (i) sales incentives offered to customers that meet the criteria for accrual and (ii) an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers, which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items, because that percentage of shipped revenue fails to meet the collectability criteria within ASC 606. If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered. 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 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. Licensing : In addition to the distribution of products, the Company grants licenses for the right to access the Company’s intellectual property, specifically the Company’s trademarks, for a stated term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either (i) a non-refundable minimum guaranteed royalty or, (ii) the greater of (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. In the case of the foregoing clause (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of the foregoing clause (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above. As of December 31, 2024 , the Company recorded deferred revenue of approximately $ 127,000 as compared to approximately $ 191,000 as of March 31, 2024 on its condensed consolidated balance sheets. As of December 31, 2023 , the Company recorded deferred revenue of $ 212,000 as compared to approximately $ 149,000 as of March 31, 2023 on its condensed consolidated balance sheets. All of the deferred revenue for the periods presented are related to licensing revenue. Disaggregation of Revenue Three Months Ended December 31, Nine Months Ended December 31, Disaggregation of revenue (in 000's) 2024 2023 2024 2023 Net revenues by type: Net product sales $ 3,892 $ 2,599 $ 8,691 $ 6,745 Licensing revenue 111 23 248 124 Total: 4,003 2,622 8,939 6,869 Net revenues by customers: (over 10%) Amazon.com $ 1,714 $ 509 $ 3,406 $ 1,458 Walmart 1,013 1,692 2,945 3,951 Big Lots 957 — 957 — Fred Meyer — — — 718 Total: 3,684 2,201 7,308 6,127 NOTE 2 — EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts). Weighted average shares includes the impact of shares held in treasury. Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Numerator: Net (loss) income $ ( 527 ) $ ( 421 ) $ ( 2,370 ) $ 1,649 Denominator: Denominator for basic and diluted loss/income per share — weighted average shares 21,042,652 21,042,652 21,042,652 21,042,652 Net (loss) income per share: Basic and diluted (loss) income per share $ ( 0.03 ) $ ( 0.02 ) $ ( 0.11 ) $ 0.08 8 Table of Contents NOTE 3 — SHAREHOLDERS ’ EQUITY Outstanding capital stock at December 31, 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, 2024 , the Company had no options, warrants or other potentially dilutive securities outstanding. NOTE 4 — INVENTORY Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value. Cost is determined using the first -in, first -out method. As of December 31, 2024 and March 31, 2024 , inventories consisted of the following (in thousands): December 31, 2024 March 31, 2024 Finished goods $ 5,157 $ 6,953 NOTE 5 — INCOME TAXES At December 31, 2024 , the Com pany had $ 17.4 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, 2024 , the Company had approximately $ 17.9 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 Company analyzed the future reasonability of recognizing its deferred tax assets at December 31, 2024 . As a result, the Company concluded that a 100% valuation allowance of approximately $ 4,975,000 would be recorded against the assets. The income of foreign subsidiaries before taxes was $ 218,000 for the three month period ended December 31, 2024 as compared to income of foreign subsidiaries before taxes of $ 293,000 for the three month period ended December 31, 2023 . The income of foreign subsidiaries before taxes was $ 738,000 for the nine month period ended December 31, 2024 as compared to income of foreign subsidiaries before taxes of $ 892,000 for the nine month period ended December 31, 2023 . Although the Company generated a net operating loss, it recorded income tax expense of approximately nil and $ 3,000 during the three and nine month periods ended December 31, 2024 , respectively, primarily resulting from state income taxes. During the three and nine month periods ended December 31, 2023 , the Company generated net income and recorded an income tax benefit of approximately $ 14,000 and income tax expense of approximately $ 74,000 , respectively. 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, 2024 , the Company’s open tax years for examination for U.S. federal tax are 2017 - 2024, and for U.S. states’ tax are 2015 - 2024. Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense. As of December 31, 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; the long-term and short-term financial requirements in the U.S. and in each foreign jurisdiction; and the tax consequences of any decision to repatriate earnings of foreign subsidiaries to the U.S. As of December 31, 2024 and March 31, 2024 , the Company had a federal tax liability of approximately $ 668,000 and $ 1,202,000 , 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, 2024 and March 31, 2024 , the Company’s short term portion was approximately $ 668,000 and $ 534,000 , respectively, and the long term portion was nil and approximately $ 668,000 , respectively. The liability is payable over 8 years. The first five installments were each e qual to 8 %, the sixth was equal to 15 %, the seventh was equal to 20 % and the final installment is equal to 25 % of the liability. As of December 31, 2024 , the Company has paid seven of the eight installments. Each installment must be remitted on or before July 15 th of the year in which such installment is due. NOTE 6 — RELATED PARTY TRANSACTIONS From time to time, Emerson engages in business transactions with its controlling shareholder, Nimble Holdings Company Limited (“Nimble”), formerly known as The Grande Holdings Limited (“Grande”), and one or more of Nimble’s direct and indirect subsidiaries, or with entities related to the Company’s Chief Executive Officer. Set forth below is a summary of such transactions. Controlling Shareholder S&T International Distribution Limited (“S&T”), which is a wholly owned subsidiary of Grande N.A.K.S. Ltd., which is a wholly owned subsidiary of Nimble, collectively have, based on a Schedule 13D/A filed with the 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, 2024 . Accordingly, the Company is a “controlled company” as defined in Section 801 (a) of the NYSE American Company Guide. 9 Table of Contents Related Party Transactions Charges of rental and utility fees on office space in Hong Kong During the three and nine month periods ended December 31, 2024 , the Company was billed approximately $ 26,000 and $ 101,000 , 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 ("Chairman"). As of December 31, 2024 the Company owed approximately $ 1,000 to VACL related to these charges. 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 VACL, which is a company related to the Company's Chairman. As of December 31, 2023 the Company owed approximately $ 1,000 to VACL related to these charges. Charges for promotional items During the three and nine month periods ended December 31, 2024 , the Company purchased nil and approximately $ 30,000 , respectively, of promotional items from The Whisky Capital Pte Ltd ("TWCPL"), which is a company related to the Company's Chairman. As of December 31, 2024 the Company owed nil to TWCPL related to these charges. During the three and nine month periods ended December 31, 2023 , the Company had no transactions with TWCPL. NOTE 7 — SHORT TERM DEPOSITS AND INVESTMENTS As of December 31, 2024 and March 31, 2024 , the Company held $ 50,000 and approximately $ 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, 2024 and March 31, 2024 , the Company held approximately $ 15.8 million and nil, respecti vely, 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, 2024 , the Company’s three largest customers accounted for approximately 92 % of the Company’s net revenues, of which Amazon.com ("Amazon") accounted for approximately 43 %, Walmart Inc. ("Walmart") accounted for approximately 25 % and Big Lots Stores, Inc ("Big Lots") accounted for approximately 24 %. 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, 2024 , the Company’s three largest customers accounted for approximately 82 % of the Company’s net revenues, of which Amazon accounted for approximately 38 %, Walmart accounted for approximately 33 % and Big Lots accounted for approximately 11 %. 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, 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. A significant decline in net sales to any of the Company’s key customers would have a material adverse effect on the Company’s business, financial condition and results of operation. Product Concentration For the three and nine month periods ended December 31, 2024 , the Company’s gross product sales included microwave ovens, which generated approximately 53 % and 49 %, respectively, of the Company’s gross product sales and audio products, which generated approximately 46 % and 49 %, respectively, 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, 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 gros s product sales. No other products accounted for greater than 10% of the Company's gross product sales during the period. 10 Table of Contents 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 52 %, 27 % and 10 % respectively, as of December 31, 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. As a percentage of the Company’s total trade accounts receivable, net of specific reserves, the Company’s top three customers accounted for approximately 34 %, 30 % and 25 %, respectively, as of March 31, 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. The Company periodically performs credit evaluations of its customers but generally does not require collateral, and the Company provides for any anticipated credit losses in the financial statements based upon management’s estimates and ongoing reviews of recorded allowances. Due to the high concentration of the Company’s net trade accounts receivables among just two customers, any significant failure by one of these customers to pay the Company the amounts owing against these receivables would result in a material adverse effect on the Company’s business, financial condition and results of operations. The Company maintains its cash accounts with major U.S. and foreign financial institutions. The Company’s cash balances on deposit in the U.S. as of December 31, 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 $ 0.4 million and approximately $ 19.6 million at December 31, 2024 and March 31, 2024 , respectively. Supplier Concentration During the three month period ended December 31, 2024 , the Company procured 94 % of its products for resale from its four largest factory suppliers, of which approximately 46 % was supplied by its largest supplier and approximately 22 %, 15 % and 11 %, respectively, was supplied by the other three suppliers. During the three month period ended December 31, 2023 , the Company procured 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, was supplied by the other two suppliers. No other suppliers accounted for greater than 10% for either the three month period ended December 31, 2024 or December 31, 2023 . During the nine month period ended December 31, 2024 , the Company procured 94 % of its products for resale from its five largest factory suppliers, of which approximately 41 % was supplied by its largest supplier and approximately 19 %, 12 %, 11 % and 11 %, respectively, was supplied by the other four suppliers. During the nine month period ended December 31, 2023 , the Company procured 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, was supplied by the other two suppliers. No other suppliers accounted for greater than 10% for either the nine month period ended December 31, 2024 or December 31, 2023 . 11 Table of Contents NOTE 9 — LEASES The Company leases office space in the U.S. and in Hong Kong as well as a copier in the U.S. These leases have remaining non-cancellable lease terms of thirty-two to fifty-four 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, 2024 to indicate that a reassessment or re-measurement of the Company’s existing leases was required. As of December 31, 2024 , the Company’s current operating lease liabilities and finance lease liabilities were $ 132,000 and $ 1,000 , respectively and its non-current operating lease liabilities and finance lease liabilities were $ 360,000 and $ 5,000 , 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, 2024 was $ 476,000 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 December 31, 2024 , the current operating liability of this lease is approximately $ 97,000 and its non-current liability is $ 186,000 . Its right-of-use asset value is approximately $ 283,000 , as of December 31, 2024 . 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, 2024 2023 2024 2023 (in thousands) (in thousands) Lease cost Operating lease cost $ 45 $ 52 $ 145 $ 141 The supplemental cash flow information related to leases are as follows: Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 46 43 141 123 Right-of-use assets obtained in exchange for lease obligations: Operating leases — — 313 248 Finance leases — — 6 — Information relating to the lease term and discount rate are as follows: Weighted average remaining lease term (in months) As of December 31, 2024 As of December 31, 2023 Operating leases 38.4 44.7 Finance leases 53.2 5.2 Weighted average discount rate Operating leases 10.39 % 9.58 % Finance leases 10.50 % 7.50 % As of December 31, 2024 the maturities of lease liabilities were as follows: (in thousands) Operating Leases Finance Leases 2025 $ 46 $ 1 2026 175 2 2027 187 2 2028 118 2 2029 52 1 Thereafter — — Total lease payments $ 578 $ 8 Less: Imputed interest ( 86 ) ( 2 ) Total $ 492 $ 6 12 Table of Contents NOTE 10 — 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”). 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. 13 Table of Contents Item 2. 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 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. 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 (the “Exchange Act”). 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 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 suc h 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 a nd 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 the impact of labor disputes, public health threats and social unrest, if any; ● evolving cybersecurity threats to the Company’s information technology systems or those of its customers or suppliers; ● changes in foreign laws and regulations and changes in the political and economic conditions in the foreign countries in which the Company operates; ● changes in accounting policies, rules and practices; ● changes in tax rules and regulations or interpretations; ● changes in U.S. and foreign trade regulations and tariffs, including recent and potential future increases of tariffs on goods imported into the U.S., and uncertainty regarding the same; 14 Table of Contents ● limited access to financing or increased cost of financing; ● the effects of currency fluctuations between the U.S. dollar and Chinese renminbi and increases in costs of production in China; and ● the other factors listed under “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 2024 and other filings with the SEC. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The reader is cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this 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 nine month periods ended December 31, 2024 (fiscal 2025) and December 31, 2023 (fiscal 2024) (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2024 2023 2024 2023 Net product sales $ 3,892 $ 2,599 $ 8,691 $ 6,745 Licensing revenue 111 23 248 124 Net revenues 4,003 2,622 8,939 6,869 Cost of sales 3,512 2,144 7,982 5,654 Selling, general and administrative expenses 1,224 1,202 4,029 3,464 Operating loss (733 ) (724 ) (3,072 ) (2,249 ) Settlement of litigation — — — 3,100 Interest income, net 206 289 705 872 (Loss) income before income taxes (527 ) (435 ) (2,367 ) 1,723 (Benefit) provision for income taxes — (14 ) 3 74 Net (loss) income $ (527 ) $ (421 ) $ (2,370 ) $ 1,649 Net product sales — Net product sales for the three month period ended December 31, 2024 were approximately $3.9 million as compared to approximately $2.6 million for the three month period ended December 31, 2023, an increase of approximately $1.3 million, or 49.8%. The Company’s sales during the three month period ended December 31, 2024 were highly concentrated among its three largest customers – Amazon, Walmart and Big Lots – comprising in the aggregate approximately 95% of the Company’s total net product sales during the period. The Company’s sales during the three month period ended December 31, 2023, were highly concentrated among its two largest customers – Walmart and Amazon – comprising in the aggregate approximately 85% of the Company’s total net product sales. Net product sales for the nine month period ended December 31, 2024 were approximately $8.7 million as compared to approximately $6.7 million for the nine month period ended December 31, 2023, an increase of approximately $2.0 million, or 28.9%. The Company’s sales during the nine month period ended December 31, 2024 were highly concentrated among its three largest customers – Amazon, Walmart and Big Lots – comprising in the aggregate approximately 84% of the Company’s total net product sales. The Company’s sales during the nine month period ended December 31, 2023, were highly concentrated among its three largest customers – Walmart, Amazon and Fred Meyer – comprising in the aggregate approximately 91% 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 $11,000 and $3,000 for the three month periods ended December 31, 2024 and December 31, 2023, respectively, and by approximately $32,000 and $9,000 for the nine month periods ended December 31, 2024 and December 31, 2023, respectively. The major elements which contributed to the overall increase in net product sales were as follows: i) Houseware products: Net sales of houseware products increased approximately $1.5 million, or 239.8%, to approximately $2.1 million for the three month period ended December 31, 2024 as compared to approximately $0.6 million for the three month period ended December 31, 2023, driven by increased net sales of newly introduced microwave ovens to the market. Net sales of houseware products increased approximately $2.4 million, or 118.9%, to approximately $4.4 million for the nine month period ended December 31, 2024 as compared to approximately $2.0 million for the nine month period ended December 31, 2023, driven by increased net sales of newly introduced microwave ovens and refrigerators to the market. ii) Audio products: Net sales of audio products decreased approximately $0.2 million, or 9.9%, to approximately $1.8 million for the three month period ended December 31, 2024 as compared to approximately $2.0 million for the three month period ended December 31, 2023. Net sales of audio products decreased approximately $0.5 million, or 9.7%, to $4.2 million for the nine month period ended December 31, 2024 as compared to approximately $4.7 million for the nine month period ended December 31, 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. These efforts require investments in appropriate human resources, media marketing and development of products in various categories in addition to the traditional home appliances and audio products on which the Company has historically focused. The Company also is continuing its efforts to identify strategic courses of action related to its licensing activities, including seeking new licensing relationships. The Company has engaged each of Leveraged Marketing Corporation of America and Global Licensi ng Services Pte Limited as an agent to assist in identifying and procuring potential licensees. 15 Table of Contents Emerson’s success is dependent on its ability to anticipate and res pond 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 U.S. tariffs on categories of products that the Company imports from China, and China’s retaliatory tariffs on certain goods imported from the United States, as well as modifications to international trade policy, will continue to affect its product costs going forward. Although the Company is monitoring the trade and political environment and working to mitigate the possible effect of tariffs with its suppliers as well as its customers through pricing and sourcing strategies, the Company cannot be certain how its customers and competitors will react to the actions taken. If the Company's mitigation efforts are unsuccessful, the combination of tariffs will result in significantly increased annualized costs to the Company as all of the Company’s products are currently manufactured by suppliers in China. In addition, heightened tensions between the United States and China over Hong Kong and any resulting retaliatory policies may affect our operations in Hong Kong. At this time the Company is unable to quantify possible effects on its costs arising from the new tariffs, which are expected to increase the Company’s inventory costs and associated costs of sales as tariffs are incurred, and some costs may be passed through to the Company’s customers as product price increases in the future. 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. 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 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”). 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 advanc ed 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. Licensing revenue — Licensing revenue for the three month period ended December 31, 2024 was approximately $111,000 as compared to approximately $23,000 for the three month period ended December 31, 2023, an increase of approximately $88,000, or 382.6%. The increase for the three month period ended December 31, 2024, was the result of one of the Company's licensees exceeding their annual guaranteed minimum royalties and the revenue earned from a new licensee. Licensing revenue for the nine month period ended December 31, 2024 was approximately $248,000 as compared to approximately $124,000 for the nine month period ended December 31, 2023, an increase of approximately $124,000, or 100%. The year-over-year increase was the result of one of its licensees exceeding their annual guaranteed minimum royalties and the revenue earned from a new licensee, partially offset by lost revenue from a terminated licensee in June 2023. Net revenues — Net revenues were approximately $4.0 million for the three month period ended December 31, 2024 as compared to approximately $2.6 million for the three month period ended December 31, 2023, an increase of approximately $1.4 million, or 52.7%. 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. Net revenues were approximately $8.9 million for the nine month period ended December 31, 2024 as compared to approximately $6.9 million for the nine month period ended December 31, 2023, an increase of approximately $2.0 million, or 30.1%. 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 $1.4 million, or 63.8% to approximately $3.5 million for the three month period ended December 31, 2024 as compared to approximately $2.1 million for the three month period ended December 31, 2023. The increase in absolute terms for the three month period ended December 31, 2024 as compared to the three month period ended December 31, 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. Cost of sales increased approximately $2.3 million, or 41.2% to approximately $8.0 million for the nine month period ended December 31, 2024 as compared to approximately $5.7 million for the nine month period ended December 31, 2023. The increase in absolute terms for the nine month period ende d December 31, 2024 as compared to the nine month period ended December 31, 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 nine month period. 16 Table of Contents Selling, general and administrative expenses ( “ S,G&A ” ) — S,G&A was approximately $1.2 million for both three month periods ended December 31, 2024 and December 31, 2023. S,G&A, as a percentage of net revenues, was approximately 30.6% for the three month period ended December 31, 2024 as compared to approximately 45.8% for the three month period ended December 31, 2023. The changes in S,G&A for the three month period ended December 31, 2024 as compared to the three month period ended December 31, 2023 was driven primarily by increased compensation costs of approximately $178,000, increased commission expense of approximately $49,000 and increases in trade expenses of approximately $35,000, partially offset by a decrease in legal fees of approximately $274,000. Compensation costs for the three month period ended December 31, 2024 were approximately $737,000 as compared to approximately $558,000 for the three month period ended December 31, 2023. Commission expense fees for the three month period ended December 31, 2024 were approximately $72,000 as compared to approximately $23,000 for the three month period ended December 31, 2023. Trade expenses for the three month period ended December 31, 2024 were approximately $73,000 as compared to approximately $38,000 for the three month period ended December 31, 2023. Legal fees for the three month period ended December 31, 2024 generated a benefit of approximately $37,000 as compared to expense of approximately $236,000 for the three month period ended December 31, 2023. S,G&A was approximately $4.0 million for the nine month period ended December 31, 2024 as compared to approximately $3.5 million for the nine month period ended December 31, 2023, an increase of approximately $0.5 million or 16.3%. S,G&A, as a percentage of net revenues, was approximately 45.1% for the nine month period ended December 31, 2024 as compared to approximately 50.4% for the nine month period ended December 31, 2023. The increase in S,G&A for the nine month period ended December 31, 2024 as compared to the nine month period ended December 31, 2023 was driven primarily by increased compensation costs of approximately $573,000, increased trade expenses of $90,000, increased audit fees of approximately $73,000 and increased depreciation expense of approximately $41,000 partially offset by a decrease in legal fees of approximately $260,000. Compensation costs for the nine month period ended December 31, 2024 were approximately $2,253,000 as compared to approximately $1,680,000 for the nine month period ended December 31, 2023. Trade expenses for the nine month period ended December 31, 2024 were approximately $210,000 as compared to approximately $120,000 for the nine month period ended December 31, 2023. Audit fees for the nine month period ended December 31, 2024 were approximately $176,000 as compared to approximately $103,000 for the nine month period ended December 31, 2023. Depreciation expense for the nine month period ended December 31, 2024 were approximately $57,000 as compared to approximately $16,000 for the nine month period ended December 31, 2023. Legal fees for the nine month period ended December 31, 2024 were approximately $201,000 as compared to approximately $461,000 for the nine month period ended December 31, 2023. Settlement of litigation — Based on a judgement affirmation by the U.S. Court of Appeals for the Third Circuit in September 2023, the Company recorded income of $3.1 million for the three month period ended September 30, 2023, which was the remaining balance of the advanced deposits. See "Note 10 - Legal Proceedings" in the Notes to the Consolidated Financial Statements. Interest income, net — Interest income, net, was approximately $206,000 for the three month period ended December 31, 2024 as compared to approximately $289,000 for the three month period ended December 31, 2023 , a decrease of approximately $83,000. The decrease was primarily due to lower levels of cash invested on the Company’s short term investments. Interest income, net, was approximately $705,000 for the nine month period ended December 31, 2024 as compared to approximately $872,000 for the nine month period ended December 31, 2023 , a decrease of approximately $167,000. The decrease was primarily due to lower levels of cash invested on the Company’s short term investments. (Benefit) provision for income taxes — For the three month period ended December 31, 2024, the Company recorded income tax expense of nil as compared to an income tax benefit of approximately $14,000 for the three month period ended December 31, 2023. For the nine month period ended December 31, 2024, the Company recorded income tax expense of approximately $3,000 as compared to $74,000 for the nine month period ended December 31, 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 nine month periods ended December 31, 2024 and December 31, 2023, which are now reported as S,G&A. See “Note 5 – Income Taxes”. Although the Company generated a net loss during the three and nine months ended December 31, 2024, it is unable to realize an income tax benefit until the Company can demonstrate the ability to generate net income on a sustained basis. 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 approximately $527,000 for the three month period ended December 31, 2024 as compared to a net loss of approximately $421,000 for the three month period ended December 31, 2023. As a result of the foregoing factors, the Company realized a net loss of approximately $2,370,000 for the nine month period ended December 31, 2024 as compared to net income of approximately $1,649,000 for the nine month period ended December 31, 2023. 17 Table of Contents Liquidity and Capital Resources As of December 31, 2024, the Company had cash and cash equivalents of approximately $0.7 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 $0.1 million as of December 31, 2024 compared to approximately $19.1 million of such deposits as of March 31, 2024. Working capital decreased to approximately $23.4 million at December 31, 2024 as compared to approximately $26.6 million at March 31, 2024. The decrease in cash and cash equivalents of approximately $19.2 million was due to an increase in short term deposits of approximately $15.7 million, the net loss generated during the period of approximately $2.4 million, an increase in accounts receivable of approximately $2.2 million, a decrease in long-term taxes payable of approximately $0.7 million, a decrease in right of use assets of approximately $0.2 million and an increase in property and equipment of approximately $0.1 million, partially offset by a decrease in inventory of approxima tely $1.8 million, an increase in long term operating lease liabilities of approximately $0.2 million and an increase in short-term taxes payable of approximately $0.1 million. Cash Flows Net cash used by operating activities was approxim ately $3.3 million for the nine month period ended December 31, 2024, resulting from the loss generated during the period of approximately $2.4 million, an increase in accounts receivable of approximately $2.2 million, a decrease in income taxes payable of approximately $0.5 million and an increase in right of use assets of approximately $0.3 million, partially offset by a decrease in inventory of approximately $1.8 million, an increase in long term lease liabilities of approximately $0.2 million and an increase in accounts payab le and other current liabilities of approximately $0.1 million. Net cash used by investing activities was approximately $16.0 million for the nine month period ended December 31, 2024 due to net purchases of short-term investments of approximately $15.8 million and additions to property and equipment of approximately $0.2 million. Net cash provided by financing activities was approximately $6,000 for the nine month period ended December 31, 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 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, 2024, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC. Recent 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 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. The adoption of this guidance did not have any impact on the Company's segment reporting. Accounting Standards Update 2024-03 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): "Disaggregation of Income Statement Expenses ” (Issued November 2024) In November 2024, the FASB issued ASU No. 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Entities are permitted to apply either the prospective or retrospective transition methods. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements. 18 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.