EMERSON RADIO CORP 10-K

Item 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Market Information The Company’s common stock began trading on the American Stock Exchange under the symbol MSN on December 22, 1994, and currently trades on the NYSE American under the same symbol. There is no established trading market for the Company’s Series A convertible preferred stock, whose conversion feature expired as of March 31, 2002. (b) Holders At June 14, 2025, there were 142 stockholders of the Company’s common stock whose shares were registered with the Company’s transfer agent. Such number does not include beneficial owners holding the Company’s common stock through nominee names. (c) Dividends The Company has not paid cash dividends on its common stock since an extraordinary dividend paid on September 30, 2014, and does not currently plan to declare dividends on its common stock in the foreseeable future. The payment of dividends, if any, would be at the discretion of the Board and would depend on the Company’s results of operations, capital requirements, financial condition, prospects, contractual arrangements, and other factors that the Board may deem relevant. Item 6. [RESERVED] Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company’s operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under Item 1A – “Risk Factors” and “Forward-Looking Information” and in other parts of this Annual Report on Form 10-K. 20 Table of Contents In the following discussion, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations. Results of Operations: The following table summarizes certain financial information for the fiscal years ended March 31, 2025 and 2024 (in thousands): Twelve Months Ended March 31, 2025 2024 Net product sales $ 10,449 $ 8,677 Licensing revenue 336 218 Royalty income — 175 Net revenues 10,785 9,070 Cost of sales 9,884 7,506 Selling, general and administrative expenses 6,516 4,963 Operating loss (5,615 ) (3,399 ) Settlement of litigation — 3,100 Interest income, net 887 1,155 (Loss) income before income taxes (4,728 ) 856 Provision for income taxes 3 90 Net (loss) income $ (4,731 ) $ 766 Results of Operations — Fiscal 2025 compared with Fiscal 2024 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 for fiscal 2025 were $10.4 million as compared to $8.7 million for fiscal 2024, an increase of $1.7 million, or 20.4%. In fiscal 2025, the Company’s sales were highly concentrated among three customers - Amazon, Walmart and Big Lots - representing in the aggregate approximately 81.2% of the Company’s total gross product sales. In fiscal 2024, the Company’s sales were highly concentrated among three customers - Walmart, Amazon and Fred Meyer - representing in the aggregate approximately 85.8% of the Company’s total gross product sales. The increase in net product sales during fiscal 2025 compared to fiscal 2024 was primarily driven by increased sales of microwave ovens. Net product sales may be periodically impacted by adjustments made to the Company’s sales allowance and marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time period. In the aggregate, these adjustments had the effect of increasing net product sales and operating income by approximately $38,000 and $20,000 for fiscal 2025 and fiscal 2024, respectively. The major elements which contributed to the overall increase in net product sales were as follows: i) Houseware product net sales were $5.6 million in fiscal 2025 compared to $2.9 million in fiscal 2024, an increase of $2.7 million, or 90.5%, principally driven by increased sales of microwave ovens and the re-introduction of refrigerators. ii) Audio product net sales were $4.9 million in fiscal 2025 compared to $5.8 million in fiscal 2024, a decrease of $0.9 million, or 15.3%, primarily resulting from decreased demand for 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, Canada 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 LMCA and GLSL as an agent to assist in identifying and procuring potential licensees. 21 Table of Contents Emerson’s success is dependent on its ability to anticipate and respond to changing consumer demands and trends in a timely manner, as well as expanding into new markets and sourcing new products that are profitable to the Company. Geo-political factors may also affect the Company’s operations and demand for the Company’s products, which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The Company expects that 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. If no mitigation steps are taken, or the mitigation is 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. 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. 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 and 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 this Annual Report on Form 10-K. 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. In addition, in connection with those bankruptcy proceedings, the Chapter 7 trustee of Home Easy has filed a complaint seeking the return of the $4.1 million of advanced deposits previously paid to the Company and the outcome of such litigation remains uncertain. 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 in fiscal 2025 was approximately $336,000 as compared to approximately $218,000 in fiscal 2024, an increase of $118,000, or 54.1%. The increase was primarily due to one of the Company's licensees exceeding their guaranteed minimum royalties. Also contributing was the license revenue generated from a license agreement signed in fiscal 2024. 22 Table of Contents Royalty income —The Company recorded royalty income in fiscal 2025 of nil as compared to $175,000 in fiscal 2024. The Company's royalty income in fiscal 2024 was derived from inventory sell-off agreements made with customers of Emerson Quiet Kool. Net revenues —The Company’s net revenues were approximately $10.8 million for fiscal 2025 as compared to $9.1 million for fiscal 2024, an increase of $1.7 million, or 18.9%, which was driven primarily by an increase in houseware product sales and an increase in licensing revenue partially offset by decreases in audio product sales and royalty income. Cost of sales — Cost of sales includes the components described in Note "1 - Significant Accounting Policies-“ Cost of Sales ” in the Notes to the Consolidated Financial Statements. In absolute terms, cost of sales increased approximately $2.4 million, or 31.7%, to $9.9 million in fiscal 2025 as compared to $7.5 million in fiscal 2024. The increase in absolute terms for fiscal 2025 as compared to fiscal 2024 was primarily related to the increase in net product sales partially offset by lower year-over-year gross cost of sales as a percentage of gross sales. The increase in gross cost of sales as a percentage of gross sales for fiscal 2025 as compared to fiscal 2024 was primarily related to the change in the product mix of audio products compared to houseware products. Selling, general and administrative expenses ( “ SG&A ” ) — SG&A, as a percentage of net revenues, was 60.4% in fiscal 2025 as compared to 54.7% in fiscal 2024. In fiscal 2025 SG&A, in absolute terms, was approximately $6.5 million and in fiscal 2024 SG&A, in absolute terms, was approximately $5.0 million, an increase of $1.5 million, or 31.3%. In fiscal 2025 and fiscal 2024, the Company identified approximately nil and $216,000, respectively, in legal fees incurred in the pursuit of $4.1 million in advanced deposits from Emerson Quiet Kool. The Company applied those legal fees against the advanced deposit of $4.1 million which was reduced to $3.1 million. In September 2023, the remaining balance of $3.1 million was taken to income after a judgement affirmation by the U.S. Court of Appeals for the Third Circuit. See "Settlement of litigation" below and "Note 11 - Legal Proceedings" in the Notes to the Consolidated Financial Statements. Legal fees during fiscal 2025 were approximately $312,000 as compared to approximately $729,000 during fiscal 2024. The Company incurred an increase in bad debt expense of approximately $1,033,000, an increase in compensation costs of approximately $683,000, an increase of commission expense of approximately $79,000, an increase in advertising costs of approximately $43,000, an increase in auditing fees of approximately $39,000 and an increase in travel and entertainment expense of approximately $39,000. 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" in the Notes to the Consolidated Financial Statements. Interest income, net — Interest income, net, was approximately $887,000 in fiscal 2025 as compared to approximately $1,155,000 in fiscal 2024, resulting from reduced amounts deposited and a decrease in interest rates earned on the Company’s term deposits during fiscal 2025. Provision for income tax expense — The Company recorded approximately $3,000 of income tax expense during fiscal 2025 and recorded its non-income based state taxes of approximately $8,000 to S,G&A according to ASU 2019-12. In fiscal 2024, the Company recorded $90,000 income tax expense and recorded its non-income based state taxes of approximately $9,000 to S,G&A according to ASU 2019-12. See Note 5 “Income Taxes” in the Notes to the Consolidated Financial Statements. Net income (loss) — As a result of the foregoing factors, the Company recorded a net loss of approximately $4,731,000 for fiscal 2025 as compared to net income of approximately $766,000 for fiscal 2024. Liquidity and Capital Resources General As of March 31, 2025, the Company had cash and cash equivalents of approximately $1.2 million as compared to approximately $19.9 million at March 31, 2024. Working capital decreased to $21.1 million at March 31, 2025 as compared to $26.6 million at March 31, 2024. The decrease in cash and cash equivalents of approximately $18.7 million is detailed further in “Cash Flows” below. Cash Flows Net cash used by operating activities was approximately $3.6 million for fiscal 2025, compared to approximately $5.3 million for fiscal 2024, resulting from the $4.7 million loss generated during the period, an increase of $1.2 million in accounts receivable, a decrease of $0.5 million in income taxes payable, a decrease of $0.3 million in accounts payable and other current liabilities and a decrease of $0.3 million in right-of-use assets, partially offset by a decrease of $2.1 million in inventory, an increase of $1.1 million in asset valuation allowances and a decrease of $0.1 million in long term operating lease liabilities. Net cash used by investing activities was approximately $15.1 million for fiscal 2025, compared to $119,000 for fiscal 2024, due to purchases of investments of $16.3 million and additions to property and equipment of $195,000, partially offset from proceeds of investments of $1.4 million. Net cash used by financing activities was approximately $6,000 for fiscal 2025 compared to net cash provided of approximately $1,000 for fiscal 2024 due to additions to the Company's finance lease liabilities. 23 Table of Contents Credit Arrangements Letters of Credit — The Company may occasionally utilize the services of one of its banks to issue secured letters of credit on behalf of the Company, as needed, on a 100% cash collateralized basis. At March 31, 2025 and March 31, 2024, the Company had no letters of credit outstanding. Short-term Liquidity The Company’s principal existing sources of cash are generated from operations. The Company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months. Historically, a significant percentage of the Company’s product sales were made under the Direct Import Program. The direct importation of product by the Company to its customers can significantly benefit the Company’s liquidity because this inventory does not need to be financed by the Company. In fiscal 2025, approximately 11% of the Company’s product sales were imported directly to the Company’s customers. In fiscal 2024, approximately 12% of the Company’s product sales were imported directly to the Company’s customers. As of March 31, 2025, there were no capital expenditure or other commitments other than the normal purchase orders used to secure product. Off-Balance Sheet Arrangements As of March 31, 2025, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC. Legal Matters The Company is subject to various legal proceedings, the outcomes of which are inherently uncertain. The Company records any potential gains related to legal proceedings only after cash is collected. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. See "Note 11 - Legal Proceedings" in the Notes to the Consolidated Financial Statements. Critical Accounting Policies and Estimates The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted within the United States. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade accounts receivables, impairment of long-lived assets, valuation of deferred tax assets, sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each. Revenue recognition : Sales to customers and related cost of sales are primarily recognized at the point in time when control of goods transfers to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Under both programs, the Company recognizes revenues at the time title passes to the customer as this is when the Company satisfies its performance obligation under the contracts with its customers. Estimates for future expected returns are based upon historical return rates and netted against revenues. 24 Table of Contents Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Revenue is recorded net of customer discounts, promotional allowances, volume rebates and similar charges. When the Company offers the right to return product, historical experience is utilized to establish a liability for the estimate of expected returns. Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. The Company adopted ASC topic 606 effective April 1, 2018. Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized. If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered. Inventory. Inventory is valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out basis and includes inventory purchase costs and allocated overhead. The Company records valuation adjustments for the excess cost of inventory over the estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated on an individual product basis based on physical inspection of the product in connection with a physical inventory, review of slow-moving products, forecasted sales, and consideration of active marketing programs. Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer’s financial condition and provides for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer’s ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements. Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it is determined that all or part of a net deferred tax asset will likely not be realized in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Sales Return Reserves. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for the Company’s products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve. Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized in accordance with ASC topic 606, “Revenue from Contracts with Customers”. At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC topic 606, “Revenue from Contracts with Customers,” (i) sales incentives offered to customers that meet the criteria for accrual and (ii) an estimated amount to recognize additional non-offered deductions it anticipates and can reasonably estimate will be taken by customers, which it does not expect to recover. Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items, because that percentage of shipped revenue fails to meet the collectability criteria within ASC topic 606. If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered. 25 Table of Contents Fair Value Measurements . The Company reports financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis in accordance with ASC Topic 820 Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. The U.S. GAAP established a hierarchy framework to classify the fair value based on the observability of significant inputs to the measurement. The levels of the fair value hierarchy are as follows: Level 1: Quoted price in an active market for identical assets or liabilities. Level 2: Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Level 3: Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions) The carrying amounts of the Company’s financial instruments, such as cash, short term investments accounts receivable and accounts payable approximate fair values due to the short-term nature of these instruments. 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. Accounting Standards Update 2023-09 Income Taxes (Topic 740) : "Improvements to Income Tax Disclosures" Income Statement Expenses " (Issued December 2023) In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 26 Table of Contents