EMERSON RADIO CORP

PART I**—** FINANCIAL INFORMATION**

Item 1. Financial Statements.

The Company recently engaged a new independent registered public accounting firm and such firm has not yet completed its review of the unaudited interim consolidated financial statements as of, and for the three and nine months ended December 31, 2023 presented in this Quarterly Report on Form 10-Q, in accordance with Public Company Accounting Oversight Board Auditing Standard 4105,*Reviews of Interim Financial Information.*Accordingly, this Quarterly Report on Form 10-Q is considered substantially deficient and the Company is no longer considered to be timely or current in its filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Once the registered public accounting firm has completed its review of the financial statements in this Quarterly Report on Form 10-Q, the Company plans to remediate the deficiency by filing an appropriate amendment to this Quarterly Report on Form 10-Q with the Securities and Exchange Commission (“SEC”).

While this Quarterly Report on Form 10-Q does not comply with the requirements of Regulation S-X, and should not be interpreted to be a substitute for the review that would normally occur by the Company’s independent registered public accounting firm, the Company’s management believes that the interim financial information presented herein fairly presents, in all material respects, the financial condition and results of operations of the Company as of the end of and for the referenced periods. Except for the absence of this review of the unaudited interim financial information discussed above, this Quarterly Report on Form 10-Q fully complies with the requirements of the Exchange Act and the Company believes it is prudent to file this Quarterly Report on Form 10-Q with the SEC in spite of the current circumstances to provide the financial and other information set forth therein to its stockholders and other interested parties.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

EMERSON RADIO CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’** EQUITY**

(In thousands)

(Not Reviewed)

(Not Reviewed)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and Not Reviewed)

NOTE1 — BACKGROUND AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Emerson Radio Corp. and its subsidiaries (“Emerson” or the “Company”). The Company designs, sources, imports and markets certain houseware and consumer electronic products, and licenses the Company’s trademarks for a variety of products.

The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company’s consolidated financial position as of* December 31, 2023* and the results of operations for thethree andnine month periods ended* December 31, 2023and December 31, 2022*. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statementsnot misleading have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes; actual results could materially differ from those estimates. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and accordingly donot include all of the disclosures normally made in the Company’s annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended* March 31, 2023* (“fiscal2023”), included in the Company’s Annual Report on Form10-K, as amended, for fiscal2023.

The results of operations for thethree andnine month periods ended* December 31, 2023* arenot necessarily indicative of the results of operations that* maybe expected for any other interim period or for the full year ending March**31,* 2024 (“fiscal2024”).

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

Recently Issued Accounting Pronouncements

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

Accounting Standards Update2019-12 **“**Income Taxes (Topic740*)– Simplifying the Accounting for Income Taxes**”** (Issued* December 2019)****

In* December 2019,the FASB issued ASU2019*-12, “Income Taxes (Topic740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU2019-12 removes certain exceptions to the general principles in Topic740 and also clarifies and amends existing guidance to improve consistent application. ASU2019-12 is effective for fiscal years beginning after* December 15, 2020.This standard took effect in thefirst* quarter (* June 2021)of the Company’s fiscal year ending March 31, 2022.The adoption of ASU2019*-12 hadno material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Standards Update2016-13 “Financial Instruments– Credit Losses*”** (Issued* June 2016)****

In* June 2016,the FASB issued ASU2016*-13 “Financial Instruments - Credit Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU2016-13 is effective for fiscal years and interim periods beginning after* December 15, 2022.The adoption of ASU2016*-13 hadno material impacts on the Company's financial statements.

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

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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.

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 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 topic606, “Revenue from Contracts with Customers” (“ASC606”).

At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as required by ASC606, (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 doesnot 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 ASC606.

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 aone year period for microwaves and a 90 day period for audio products, under which the Company pays for labor and parts, or offers a new or similar unit in exchange for a non-performing unit.

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 arenot 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.

NOTE2 — 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.

NOTE3 — SHAREHOLDERS’** EQUITY**

Outstanding capital stock at* December 31, 2023* consisted of common stock and Series A preferred stock. The Series A preferred stock is non-voting, hasno dividend preferences and hasnot been convertible since* March**31,* 2002; however, it retains a liquidation preference.

At* December 31, 2023*, the Company hadno options, warrants or other potentially dilutive securities outstanding.

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NOTE4 — INVENTORY

Inventories, which consist primarily of finished goods, are stated at the lower of cost or net realizable value. Cost is determined using thefirst-in,first-out method. As of* December 31, 2023* and* March 31, 2023*, inventories consisted of the following (in thousands):

NOTE5 — INCOME TAXES

At* December 31, 2023*, the Company had $14.0 million of U.S. federal net operating loss (“NOL”) carry forwards. These losses donot expire but are limited to utilization of 80% of taxable income in anyone year. At* December 31, 2023*, the Company had approximately $16.1 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 thannot that such benefits will be realized.

The income of foreign subsidiaries before taxes was $293,000 for thethree month period ended* December 31, 2023* as compared to income of foreign subsidiaries before taxes of $247,000 for thethree month period ended* December 31, 2022*. The income of foreign subsidiaries before taxes was $892,000 for thenine month period ended* December 31, 2023* as compared to income of foreign subsidiaries before taxes of $489,000 for thenine month period ended* December 31, 2022*.

The Company analyzed the future reasonability of recognizing its deferred tax assets at* December 31, 2023*. As a result, the Company concluded that a 100% valuation allowance of approximately $4,287,000 would be recorded against the assets.

The Company recorded an income tax benefit of $14,000 and income tax expense of $74,000, respectively, during thethree andnine month periods ended* December 31, 2023*. During thethree andnine month periods ended* December 31, 2022*, the Company recorded income tax expense ofnil and $10,950, respectively, primarily resulting from state income taxes. After the adoption of ASU2019-12 “Income Taxes (Topic740) – Simplifying the Accounting for Income Taxes”**during fiscal2022, these non-income based state taxes are now reported within selling, general and administrative expenses.

The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. As of* December 31, 2023*, the Company’s open tax years for examination for U.S. federal tax are 2018-2023, and for U.S. states’ tax are 2017-2023. 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* maybe 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, 2023*, the Company is asserting under ASC740-30 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, 2023* and* March 31, 2023*, the Company had a federal tax liability of approximately $1,202,000 and $1,603,000, respectively, related to the repatriation of the Company’s undistributed earnings of its foreign subsidiaries as required by the Tax Cuts and Jobs Act of2017 (the “Tax Act”). As of* December 31, 2023* and* March 31, 2023,*the Company’s short term portion was approximately $534,000 and $401,000, respectively, and the long term portion was approximately $668,000 and $1,202,000, respectively.

The liability is payable over 8 years. Thefirst five installments are each equal to 8%, thesixth is equal to 15%, theseventh is equal to 20% and the final installment is equal to 25% of the liability. As of* December 31, 2023*, the Company has paidsix of theeight installments. Each installment must be remitted on or before* July 15th of the year in which such installment is due. On July 12, 2023,the Company paid itssixth* installment of approximately $401,000.

In addition to the federal tax liabilities recorded under the Tax Act mentioned above, the Company incurred approximately $74,000 of additional federal tax liabilities resulting from the net income generated during thenine months ended* December 31, 2023.Under the Tax Act, the Company was limited to80%* utilization of NOLs against taxable income in anyone year. This limitation generated the additional $74,000 of federal tax liabilities as of* December 31, 2023.*

NOTE6 — 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”), andone 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 Schedule13D/A filed with the SEC on* February 15, 2019,the shared power to vote and direct the disposition of 15,243,283 shares, or approximately 72.4%, of the Company’s outstanding common stock as of December 31, 2023*. Accordingly, the Company is a “controlled company” as defined in Section801(a) of the NYSE American Company Guide.

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Related Party Transactions

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

During thethree andnine month periods ended* December 31, 2023*, the Company was billed approximately $40,000 and $119,000, respectively, for rental and utility fees from Vigers Appraisal and Consulting Ltd (“VACL”), which is a company related to the Company’s Chairman of the Board of Directors. As of* December 31, 2023* the Company owed approximately $1,000 to VACL related to these charges.

NOTE7 — SHORT TERM DEPOSITS AND INVESTMENTS

As of* December 31, 2023* and* March 31, 2023*, the Company held $2.7 million and $23.1 million, respectively, in term deposits. Such term deposits had maturity dates of90 days or less and, as a result, were classified as cash equivalents. As of* December 31, 2023* and* March 31, 2023*, the Company held $18.5 million andnil, respectively, in short term investments which had maturity dates greater than90 days.

NOTE8 — CONCENTRATION RISK

Customer Concentration

For thethree month period ended* December 31, 2023*, the Company’stwo 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 than10% of the Company's net revenues during the period.

For thenine month period ended* December 31, 2023*, the Company’sthree 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 than10% of the Company's net revenues during the period.

For thethree month period ended* December 31, 2022*, the Company’stwo largest customers accounted for approximately 84% of the Company’s net revenues, of which Walmart accounted for approximately 50% and Amazon accounted for approximately 34%.No other customer accounted for greater than10% of the Company's net revenues during the period.

For thenine month period ended* December 31, 2022*, the Company’sthree largest customers accounted for approximately 74% of the Company’s net revenues, of which Walmart accounted for approximately 42%, Amazon accounted for approximately 21% and Fred Meyer accounted for approximately 11%.No other customer accounted for greater than10% 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 thethree andnine month periods ended* December 31, 2023*, the Company’s gross product sales included microwave ovens, which generated approximately 22% and 28%, respectively, of the Company’s gross product sales and audio products, which generated approximately 76% and 70%, respectively, of the Company’s gross product sales.No other products accounted for greater than10% of the Company's gross product sales during the period.

For thethree andnine month periods ended* December 31, 2022*, the Company’s gross product sales included microwave ovens, which generated approximately 9% and 24%, respectively, of the Company’s gross product sales and audio products, which generated approximately 91% and 75%, respectively, of the Company’s gross product sales.No other products accounted for greater than10% of the Company's gross product sales during the period.

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Concentrations of Credit Risk

As a percentage of the Company’s total trade accounts receivable, net of specific reserves, the Company’s topthree customers accounted for approximately 48%,20% and 15%, respectively, as of* December 31, 2023*.No other customers accounted for greater than10% 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 topthree customers accounted for approximately 43%,35% and 11%, respectively, as of* March 31, 2023*.No other customers accounted for greater than10% 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 doesnot 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 justtwo customers, any significant failure byone 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 and restricted cash balances on deposit in the U.S. as of* December 31, 2023* and* March 31, 2023* were insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per qualifying bank account in accordance with FDIC rules. The Company’s cash, cash equivalents and restricted cash balances in excess of these FDIC-insured limits were approximately $3.4 million and approximately $25.0 million at* December 31, 2023* and* March 31, 2023*, respectively.

Supplier Concentration

During thethree month period ended* December 31, 2023*, the Company procured approximately 86% of its products for resale from itsthree largest factory suppliers, of which approximately 37% was supplied by its largest supplier and approximately 28% and 21%, respectively, by the othertwo suppliers. During thethree month period ended* December 31, 2022*, the Company procured approximately 95% of its products for resale from itstwo largest factory suppliers, of which approximately 74% was supplied by its largest supplier and approximately 21% by another supplier.No other suppliers accounted for greater than10% for eitherthree month periods ended* December 31, 2023* or* December 31, 2022*.

During thenine month period ended* December 31, 2023*, the Company procured approximately 93% of its products for resale from itsfour largest factory suppliers, of which approximately 29% was supplied by its largest supplier and approximately 26%,23% and 15%, respectively, by the otherthree suppliers. During thenine month period ended* December 31, 2022*, the Company procured approximately 99% of its products for resale from itstwo largest factory suppliers, of which approximately 71% was supplied by its largest supplier and approximately 28% by another supplier.No other suppliers accounted for greater than10% for eithernine month periods ended* December 31, 2023* or* December 31, 2022*.

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NOTE9 — 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 ofsix tosixty months. The Company has electednot to separate lease and non-lease components for all leased assets. The Company didnot identify any events or conditions during the quarter ended* December 31, 2023* to indicate that a reassessment or re-measurement of the Company’s existing leases was required.

As of* December 31, 2023*, the Company’s current operating lease liabilities and finance lease liabilities were $128,000 and $1,000, respectively and its non-current operating lease liabili ties and finance lease liabilities were $208,000 andnil, respectively. The Company’s operating and finance lease right-of-use asset balances are presented in non-current assets. The net balance of the Company’s operating and finance lease right-of-use assets as of* December 31, 2023* was $327,000 and $1,000, respectively.

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

Information relating to the lease term and discount rate are as follows:

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

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NOTE10 — GOVERNMENTAL ASSISTANCE PROGRAMS

During thethree month periods ended* December 31, 2023* and* December 31, 2022*, the Company’s Hong Kong subsidiary recorded income ofnil and $4,000, respectively, under the governmental program called the Employment Support Scheme (“ESS”). During thenine month periods ended* December 31, 2023* and* December 31, 2022*, the Company’s Hong Kong subsidiary recorded income ofnil and $34,000, respectively, under the ESS program. The proceeds were required to be used for payroll expenses and the Company was subject to government-appointed random reviews to verify the information submitted by the applicant.

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

NOTE11 — LEGAL PROCEEDINGS

On* April 19, 2022,the U.S. District Court for the District of Delaware (the "District Court") granted judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “Defendants”). Among other things, the District Court's order included an injunction prohibiting Defendants’ distribution, manufacturing, and sales of EMERSON QUIET KOOL branded products or use of that trademark and directed the U.S. Patent and Trademark Office to cancel Defendants’ trademark registration for the EMERSON QUIET KOOL trademark and prohibited Defendants from attempting to register that mark or any other confusingly similar mark in the future. The judgment also awards $6.5 million to the Company. The Defendants, through athird* party, made certain payments to the Company, including certain advances towards a portion of their liability. Those amounts were previously reflected as advanced deposits in the Consolidated Balance Sheets. The aggregate amount of the payments is $4.1 million, which has been reduced by approximately $784,000 for legal fees incurred in fiscal2023 and approximately $216,000 for legal fees incurred in fiscal2024, in pursuit of the advanced deposits. Separately, on* July 11, 2023,the U.S. Court of Appeals for the Third Circuit affirmed the District Court's judgment against the Defendants. On September 29, 2023,the District Court granted the Company’s request for final judgement including approximately $3.16 million in legal fees and $700,000 in enhanced damages, along with the prospect of additional damages due to Defendants’ alleged contempt of court. The Company is pursuing all available remedies against the Defendants and those acting in concert with them. There isno* guarantee that the Company will be able to collect the entire judgment or that any negotiated resolution regarding these matters will ever be agreed among the parties or, if agreed, how soon the parties might be able to do so. Due to the legal judgement having been affirmed as stated above, the Company released the balance of the advanced deposits of approximately $3,100,000, to other income during the quarter ended* September 30, 2023.*

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