What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 56 added, 33 removed, 120 unchanged (43% of the section changed)

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Results of Operations

The following table summarizes certain financial information for the three month period ended June 30, 2021 (fiscal 2022) and June 30, 2020 (fiscal 2021) (in thousands):

Three Months Ended June 30,

The following table summarizes certain financial information for the three and six month periods ended September 30, 2021 (fiscal 2022) and September 30, 2020 (fiscal 2021) (in thousands):

Three Months Ended

September 30,

Six Months Ended

September 30,

Net product sales

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Interest income, net

Income from governmental assistance programs

Loss before income taxes

Provision for income taxes

Net product sales — Net product sales for the first quarter of fiscal 2022 were $2.0 million as compared to $1.2 million for the first quarter of fiscal 2021, an increase of $0.8 million, or 61.0%.

The improvement in net product sales during the first quarter of fiscal 2022 came from increased consumer demand for certain of the Company’s products, in particular clock radios and microwave ovens as consumers spent more time at home and shopped online, and the Company’s ability to continue to sell products under difficult economic conditions.

The Company’s sales during the first quarter of fiscal 2022 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – where net product sales comprised approximately 84% of the Company’s total net product sales .

The Company’s sales during the first quarter of fiscal 2021 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Kroger – where net product sales comprised approximately 80% of the Company’s total net product sales .

Provision (benefit) for income taxes

Net product sales — Net product sales for the second quarter of fiscal 2022 were $1.8 million as compared to $2.2 million for the second quarter of fiscal 2021, a decrease of $0.4 million, or 18.9%.

The Company’s sales during the second quarter of fiscal 2022 and fiscal 2021 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – where net product sales comprised approximately 93% and 79%, respectively, of the Company’s total net product sales .

Net product sales for the six month period ended September 30, 2021 were $3.8 million as compared to $3.4 million for the six month period ended September 30, 2020, an increase of $0.4 million, or 9.8%.

The Company’s sales during such periods were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – where net product sales comprised approximately 89% and 79%, respectively, of the Company’s total net product sales.

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 nil and $4,000 for

the first quarters of fiscal 2022 and fiscal 2021, respectively.

In the aggregate, these adjustments had the effect of increasing net product sales and operating income by approximately $6,000 and $39,000 for the second quarters of fiscal 2022 and fiscal 2021, respectively, and approximately $6,000 and $43,000 for the six month periods ended September 30, 2021 and September 30, 2020, respectively .

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

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Houseware products:

Net sales increased $0.3 million, or 54.5%, to $0.8 million in the first quarter of fiscal 2022 as compared to $0.5 million in the first quarter of fiscal 2021, driven by an increase in year-over-year sales of microwave ovens.

Net sales decreased $0.6 million, or 55.5%, to $0.5 million in the second quarter of fiscal 2022 as compared to $1.1 million in the second quarter of fiscal 2021, driven by a decrease in year-over-year sales of microwave ovens.

For the six month period ended September 30, 2021 , houseware net product sales were $1.3 million, a decrease of $0.3 million, or 20.1%, from $1.6 million for the six month period ended September 30, 2020, driven by a decrease in year-over-year sales of microwave ovens.

Audio products:

Net sales increased $0.5 million, or 65.6%, to $1.2 million in the first quarter of fiscal 2022 as compared to $0.7 million in the first quarter of fiscal 2021, resulting from increased net sales of clock radios.

Net sales increased $0.2 million, or 15.1%, to $1.3 million in the second quarter of fiscal 2022 as compared to $1.1 million in the second quarter of fiscal 2021, resulting from increased net sales of clock radios.

For the six month period ended September 30, 2021 , audio product net sales were $2.5 million, an increase of $0.6 million or 34.8%, from $1.9 million in the six month period ended September 30, 2020 resulting from increased net sales of clock radios.

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

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

These impacts on the Company’s supply chain have and may continue to impact the Company’s ability to meet product demand, which could result in additional costs, customer dissatisfaction in the event of inventory shortages or may otherwise adversely impact the Company’s business and results of operations.

These impacts on the Company’s supply chain have and may continue to impact the

Company’s ability to meet product demand, which could result in additional costs, customer dissatisfaction in the event of inventory shortages or may otherwise adversely impact the Company’s business and results of operations.

In light of the adverse effects of the COVID-19 pandemic on macroeconomic conditions domestically and internationally, along with the uncertainty associated with a potential recovery, the Company has implemented certain cost-reduction actions intended to reduce expenditures in light of the effects of the COVID-19 pandemic to the business.

However, the environment remains highly uncertain and demand for the Company’s products remains difficult to assess due to many factors including the pace of economic recovery around the world, the status of various government stimulus programs, competitive intensity and retailer actions to continue carefully managing inventory.

severity of COVID-19 cases in areas in which the Company operates and the availability and distribution of effective vaccines, such impact may be material.

As a result, the Company is unable at this time to predict the full impact of the COVID-19 pandemic on its operations and financial results, and, depending on the magnitude and duration of the pandemic, including the further spread and severity of COVID-19 cases in areas in which the Company operates and the availability and distribution of effective vaccines, such impact may be material.

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

For more information on risks associated with the Company’s operations, including tariffs, please see the risk factors within Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2021.

Licensing revenue — Licensing revenue in the first quarter of fiscal 2022 was $65,000 as compared to $60,000 in the first quarter of fiscal 2021, an increase of $5,000, or 8.3%.

Licensing revenue — Licensing revenue in the second quarter of fiscal 2022 was $65,000 as compared to $60,000 in the second quarter of fiscal 2021, an increase of $5,000, or 8.3%.

The year-over-year increase can be attributed to the escalation in the annual minimum royalty earned by the Company from its licensee.

Net revenues — As a result of the foregoing factors, the Company’s net revenues were $2.1 million in the first quarter of fiscal 2022 as compared to $1.3 million in the first quarter of fiscal 2021, an increase of $0.8 million, or 58.6%,

Cost of sales — In absolute terms, cost of sales increased $0.6 million, or 58.1%, to $1.6 million in the first quarter of fiscal 2022 as compared to $1.0 million in the first quarter of fiscal 2021.

The increase in absolute terms for the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021 was primarily related to increased net product sales and higher year-over-year gross cost of sales as a percentage of gross sales.

Licensing revenue for the six month period ended September 30, 2021 was $130,000 as compared to $120,000 for the six month period ended September 30, 2020, an increase of $10,000, or 8.3%.

The year-over-year increase can be attributed to the escalation in the annual minimum royalty earned by the Company from its licensee.

Net revenues — As a result of the foregoing factors, the Company’s net revenues were $1.9 million in the second quarter of fiscal 2022 as compared to $2.3 million in the second quarter of fiscal 2021, a decrease of $0.4 million, or 18.1%, and $3.9 million for the six month period ended September 30, 2021 as compared to $3.6 million for the six month period ended September 30, 2020, an increase of $0.3 million, or 9.7%

Cost of sales — In absolute terms, cost of sales decreased $0.4 million, or 22.7%, to $1.4 million in the second quarter of fiscal 2022 as compared to $1.8 million in the second quarter of fiscal 2021.

The decrease in absolute terms for the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021 was primarily related to a decrease in net product sales and lower year-over-year gross cost of sales as a percentage of gross sales.

In absolute terms, cost of sales increased $0.2 million, or 7.0%, to $2.9 million for the six month period ended September 30, 2021 as compared to $2.7 million for the six month period ended September 30, 2020.

The increase in absolute terms for the six month period ended September 30, 2021 as compared to the six month period ended September 30, 2020 was primarily related to an increase in net product sales partially offset by lower year-over-year gross cost of sales as a percentage of gross sales.

The Company purchases the products it sells from a limited number of factory suppliers.

For both first quarters of fiscal 2022 and fiscal 2021, the Company purchased 100% of its goods from its two largest suppliers.

Selling, general and administrative expenses (“S,G&A”) — S,G&A, in absolute terms, was $1.4 million in the first quarter of fiscal 2022 as compared to $1.5 million in fiscal 2021, a decrease of $0.1 million or 7.7%.

S,G&A, as a percentage of net revenues, was 66.7% in the first quarter of fiscal 2022 as compared to 114.1% in the first quarter of fiscal 2021.

For both second quarters of fiscal 2022 and fiscal 2021, the Company purchased 100% of its goods from its two largest suppliers.

For each of the six month periods ended September 30, 2021 and September 30, 2020, the Company purchased 100% of its goods from its two largest suppliers.

Selling, general and administrative expenses (“S,G&A”) — S,G&A, in absolute terms, was $1.4 million in the second quarter of fiscal 2022 as compared to $1.6 million in fiscal 2021, a decrease of $0.2 million or 12.9%.

S,G&A, as a percentage of net revenues, was 73.3% in the second quarter of fiscal 2022 as compared to 68.9% in the second quarter of fiscal 2021.

The decrease in S,G&A was primarily attributed to a decrease in legal fees of approximately $125,000.

Legal fees for the first quarter of fiscal 2022 were $273,000 as compared to $403,000 for the first quarter of fiscal 2021.

Legal fees for the second quarter of fiscal 2022 were $325,000 as compared to $450,000 for the second quarter of fiscal 2021.

The majority of the decrease in legal fees concerned the protection of the Emerson® trademark.

Interest income, net — Interest income, net, was $17,000 in the first quarter of fiscal 2022 as compared to $82,000 in the first quarter of fiscal 2021, a decrease of $65,000.

S,G&A, in absolute terms, was $2.7 million for the six month period ended September 30, 2021 as compared to $3.0 million for the six month period ended September 30, 2020, a decrease of $0.3 million, or 10.3%.

S,G&A, as a percentage of net revenues, was 69.7% for the six month period ended September 30, 2021 as compared to 85.3% for the six month period ended September 30, 2020.

The decrease in S,G&A was primarily attributed to a decrease in legal fees of approximately $257,000.

Legal fees for the six month period ended September 30, 2021 were $597,000 as compared to $854,000 for the six month period ended September 30, 2020.

The majority of the decrease in legal fees concerned the protection of the Emerson® trademark.

Interest income, net — Interest income, net, was $16,000 in the second quarter of fiscal 2022 as compared to $28,000 in the second quarter of fiscal 2021, a decrease of $12,000.

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

Provision for income taxes — In the first quarter of fiscal 2022, the Company recorded income tax expense of $11,000 as compared to income tax expense of $6,300 in the first quarter of fiscal 2021.

Interest income, net, was $33,000 for the six month period ended September 30, 2021 as compared to $110,000 for the six month period ended September 30, 2020, a decrease of $77,000.

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

Income from governmental assistance programs — For both the three and six month periods ended September 30, 2021, the Company recorded income of approximately $207,000 related to its PPP loan forgiveness.

For both the three and six month periods ended September 30, 2020, the Company recorded income of approximately $55,000 related to assistance received from the Hong Kong government under the ESS program.

See “Note 10 - Paycheck Protection Program and Employment Support Scheme”.

Provision (benefit) for income taxes — In the second quarter of fiscal 2022, the Company recorded income tax expense of nil as compared to an income tax benefit of $1,000 in the second quarter of fiscal 2021.

See “Note 5 – Income Taxes”.

For the six month period ended September 30, 2021, the Company recorded income tax expense of $11,000 as compared to income tax expense of $5,300 for the six month period ended September 30, 2020.

Although the Company generated net losses during fiscal 2022 and fiscal 2021, it was unable to realize an income tax benefit due to valuation allowances recorded against its deferred tax assets.

Net (loss) — As a result of the foregoing factors, the Company realized a net loss of $915,000 in the first quarter of fiscal 2022 as compared to a net loss of $1,125,000 in the first quarter of fiscal 2021.

Net (loss) — As a result of the foregoing factors, the Company realized a net loss of $632,000 in the second quarter of fiscal 2022 as compared to a net loss of $956,000 in the second quarter of fiscal 2021.

For the six month period ended September 30, 2021, the Company realized a net loss of $1,547,000 as compared to a net loss of $2,081,000 for the six month period ended September 30, 2020.

Liquidity and Capital Resources

As of June 30, 2021, the Company had cash and cash equivalents of approximately $4.4 million as compared to approximately $5.2 million at March 31, 2021.

Working capital decreased to $31.2 million at June 30, 2021 as compared to $32.1 million at March 31, 2021.

The decrease in cash and cash equivalents of approximately $0.8 million was due to the net loss generated during the period of $0.9 million, an increase in accounts receivable of $0.4 million, an increase in prepaid purchases of $0.4 million and a decrease in deferred revenue of $0.1 million partially offset by a decrease in short term investments of $1.0 million.

Net cash used by operating activities was approximately $1.8 million for the three months ended June 30, 2021, resulting from a $0.9 million net loss generated during the period, an increase in accounts receivable of $0.4 million, an increase in prepaid purchases of $0.4 million and a decrease in deferred revenue of $0.1 million

Net cash provided by investing activities was approximately $1.0 million for the three months ended June 30, 2021 due to a decrease in short term deposits.

Net cash provided by financing activities was nil for the three months ended June 30, 2021.

As of September 30, 2021, the Company had cash and cash equivalents of approximately $26.0 million as compared to approximately $5.2 million at March 31, 2021.

Working capital decreased to $30.2 million at September 30, 2021 as compared to $32.1 million at March 31, 2021.

The increase in cash and cash equivalents of approximately $20.8 million was due to the decrease in short term investments of $25.0 million and the increase in long term lease liabilities offset by the net loss generated during the period of $1.5 million, an increase in inventory of $0.9 million, an increase in accounts receivable of $0.8 million, an increase in right of use assets of $0.3 million, an increase in prepaid expenses of $0.3 million, a decrease in federal taxes payable of $0.2 million and a decrease in PPP loan payable of $0.2 million.

Net cash used by operating activities was approximately $4.3 million for the six months ended September 30, 2021, resulting from a $1.5 million net loss generated during the period, an increase in inventory of $0.9 million, an increase in accounts receivable of $0.8 million, an increase in right of use assets of $0.4 million, an increase in prepaid expenses of $0.3 million, the impact of the PPP loan forgiveness of $0.2 million and a decrease in federal taxes payable of $0.2 million.

Net cash provided by investing activities was approximately $25.0 million for the six months ended September 30, 2021 due to a decrease in short term deposits.

Net cash used by financing activities was nil for the six months ended September 30, 2021.

Sources and Uses of Funds

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In April and May of 2020, the Company applied for and received aggregate loan proceeds of approximately $0.2 million under the PPP.

The PPP loan accrues interest at 1% and matures two years from the date of issuance, with a deferral of payments for the first six months.

The PPP loan accrued interest at 1% and matures two years from the date of issuance, with a deferral of payments for the first six months.

The Company used all of the PPP loan proceeds for qualifying expenses in accordance with terms of the CARES Act and applied for forgiveness of the loan to the extent applicable.

On July 5, 2021, the Company’s PPP loan was completely forgiven by the Small Business Administration.

See Note 10 of the Notes to the Interim Consolidated Financial Statements.

Off-Balance Sheet Arrangements

As of June 30, 2021, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC.

As of September 30, 2021, the Company did not have any off-balance sheet arrangements as defined under the rules of the SEC.

Recently Adopted Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis