# Emerson Radio Corp: Form 10-Q for the period ended Dec 31, 2023

- Company: [Emerson Radio Corp](/companies/msn.md) (CIK 32621)
- Form: 10-Q
- Filed: 2024-02-20
- Accepted by EDGAR: Feb 20, 2024, 16:05 ET
- Period: 2023-12-31
- Accession: 0001437749-24-004822
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/32621/000143774924004822/msn20231231_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/32621/000143774924004822/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $2.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-04-01 to 2023-12-31 | $6.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-10-01 to 2023-12-31 | $2.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-04-01 to 2023-12-31 | $5.7m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-10-01 to 2023-12-31 | $1.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-04-01 to 2023-12-31 | $3.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | −$724.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-04-01 to 2023-12-31 | −$2.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | −$14.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-04-01 to 2023-12-31 | $74.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | −$421.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-04-01 to 2023-12-31 | $1.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-04-01 to 2023-12-31 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-04-01 to 2023-12-31 | $0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 21,042,652 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-04-01 to 2023-12-31 | 21,042,652 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-04-01 to 2023-12-31 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-04-01 to 2023-12-31 | $107.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-12-31 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-12-31 | $29.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $30.2m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $2.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-12-31 | $3.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $27.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,233 characters.

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

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 such 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 and 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 potential increases of tariffs on goods imported into the U.S., and uncertainty regarding the same;
- 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, 2023 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, 2023 (fiscal 2024) and December 31, 2022 (fiscal 2023) (in thousands):

|  | Three Months Ended December 31, 2023 | 2022 | Nine Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net product sales | $2,599 | $1,704 | $6,745 | $4,335 |
| Licensing revenue | 23 | 123 | 124 | 271 |
| Royalty income | — | 105 | — | 700 |
| **Net revenues** | **2,622** | **1,932** | **6,869** | **5,306** |
| Cost of sales | 2,144 | 1,361 | 5,654 | 3,549 |
| Selling, general and administrative expenses | 1,202 | 1,051 | 3,464 | 3,686 |
| **Operating loss** | **(724)** | **(480)** | **(2,249)** | **(1,929)** |
| Settlement of litigation | — | — | 3,100 | — |
| Interest income, net | 289 | 235 | 872 | 424 |
| Income from governmental assistance programs | — | 4 | — | 34 |
| **Income (loss) before income taxes** | **(435)** | **(241)** | **1,723** | **(1,471)** |
| Provision for income taxes | (14) | — | 74 | — |
| **Net income (loss)** | $(421) | $(241) | $1,649 | $(1,471) |

***Net product sales —*** Net product sales for the three month period ended December 31, 2023 were $2.6 million as compared to $1.7 million for the three month period ended December 31, 2022, an increase of $0.9 million, or 52.5%. The Company’s sales during the three month periods ended December 31, 2023 and December 31, 2022 were highly concentrated among the Company’s two largest customers – Wal-Mart and Amazon – comprising in the aggregate approximately 85% and 95%, respectively, of the Company’s total net product sales for such periods.

Net product sales for the nine month period ended December 31, 2023 were $6.7 million as compared to $4.3 million for the nine month period ended December 31, 2022, an increase of $2.4 million, or 55.6%. The Company’s sales during the nine month periods ended December 31, 2023 and December 31, 2022 were highly concentrated among the Company’s three largest customers – Wal-Mart, Amazon and Fred Meyer – comprising in the aggregate approximately 91% of the Company’s total net product sales for both periods.

Net product sales 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 approximately $3,000 and $10,000 for the three month periods ended December 31, 2023 and December 31, 2022, respectively, and by approximately $9,000 and $15,000 for the nine month periods ended December 31, 2023 and December 31, 2022, respectively. The major elements which contributed to the overall increase in net product sales were as follows:

i) Houseware products: Net sales increased $0.4 million, or 313.4%, to $0.6 million for the three month period ended December 31, 2023 as compared to $0.2 million for the three month period ended December 31, 2022, driven by increased net sales of microwave ovens and refrigerators. Net sales increased $0.9 million, or 89.9%, to $2.0 million for the nine month period ended December 31, 2023 as compared to $1.1 million for the nine month period ended December 31, 2022, driven by increased net sales of microwave ovens and refrigerators.

ii) Audio products: Net sales increased $0.4 million, or 27.4%, to $2.0 million for the three month period ended December 31, 2023 as compared to $1.6 million for the three month period ended December 31, 2022, resulting from increased net sales of clock radios. Net sales increased $1.4 million, or 44.4%, to $4.7 million for the nine month period ended December 31, 2023 as compared to $3.3 million for the nine month period ended December 31, 2022, resulting from increased net sales of clock radios.

***Business operations —*** The Company expects to continue to expand its existing distribution channels and to develop and promote new products with retailers in the U.S. 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 Licensing Services Pte Limited as an agent to assist in identifying and procuring potential licensees.

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.

Starting in the fourth quarter of fiscal 2020, the global COVID-19 pandemic has presented significant challenges and impacted the Company’s business and operating results, and the operations and production capabilities of the Company’s suppliers in China. The pandemic has directly and indirectly disrupted certain sales and supply chain activities. Global component shortages, in particular semiconductor chips, arising from changes in consumer demand and reduced manufacturing capacity related to the COVID-19 pandemic may cause price fluctuations and longer lead times in the supply of these components. Although the Company is seeking alternate suppliers for these components, developing alternate sources of supply will be time consuming, difficult and costly, and may require the re-tooling of products to accommodate components from different suppliers. In addition to increasing cost trends, the Company’s suppliers are not equipped to hold meaningful amounts of inventory and could pause manufacturing, which could ultimately impact the Company’s ability to fulfill customer orders on a timely basis. These impacts on the Company’s supply chain may continue to impact the Company’s ability to meet product demand, which could result in additional costs, customer dissatisfaction in the event of inventory shortages or may otherwise adversely impact the Company’s business and results of operations.

In light of the adverse macroeconomic conditions domestically and internationally, the Company has implemented certain cost-reduction actions intended to reduce expenditures. However, the environment remains uncertain. Demand for the Company’s products remains competitive and retailers continue to carefully manage inventory. Accordingly, the current results and financial condition discussed herein may not be indicative of future operating results and trends.

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

***Legal Proceedings —*** On April 19, 2022, the U.S. District Court for the District of Delaware (the "District Court") granted judgment in favor of the Company in its trademark infringement lawsuit against air conditioning and heating products provider Emerson Quiet Kool and wholesaler Home Easy (the “Defendants”). Among other things, the District Court’s order included an injunction prohibiting Defendants’ distribution, manufacturing, and sales of EMERSON QUIET KOOL branded products or use of that trademark and directed the U.S. Patent and Trademark Office to cancel Defendants’ trademark registration for the EMERSON QUIET KOOL trademark and prohibited Defendants from attempting to register that mark or any other confusingly similar mark in the future. The judgment also awards $6.5 million to the Company. The Defendants, through a third party, made certain payments to the Company, including certain advances towards a portion of their liability. Those amounts were previously reflected as advanced deposits in the Consolidated Balance Sheets. The aggregate amount of the payments is $4.1 million, which has been reduced by approximately $784,000 for legal fees incurred in fiscal 2023 and approximately $216,000 for legal fees incurred in fiscal 2024, in pursuit of the advanced deposits. Separately, on July 11, 2023, the U.S. Court of Appeals for the Third Circuit affirmed the District Court's judgment against the Defendants. On September 29, 2023, the District court granted the Company’s request for final judgement including approximately $3.16 million in legal fees and $700,000 in enhanced damages, along with the prospect of additional damages due to Defendants’ alleged contempt of court. The Company is pursuing all available remedies against the Defendants and those acting in concert with them. There is no guarantee that the Company will be able to collect the entire judgment or that any negotiated resolution regarding these matters will ever be agreed among the parties or, if agreed, how soon the parties might be able to do so. Due to the legal judgement having been affirmed as stated above, the Company has released the balance of the advanced deposits of approximately $3,100,000, to other income during the quarter ended September 30, 2023.

***Licensing revenue —*** Licensing revenue for the three month period ended December 31, 2023 was $23,000 as compared to $123,000 for the three month period ended December 31, 2022, a decrease of $100,000, or 81.0%. Licensing revenue for the nine month period ended December 31, 2023 was $124,000 as compared to $271,000 for the nine month period ended December 31, 2022, a decrease of $147,000, or 54.2%. The decreases for the three and nine month periods ended December 31, 2023 were a result of an expiring license agreement on December 31, 2022.

***Royalty income —*** Royalty income for the three month periods ended December 31, 2023 and December 31, 2022 were nil and $105,000, respectively. Royalty income for the nine month periods ended December 31, 2023 and December 31, 2022 were nil and $700,000, respectively. The royalty income in the three and nine month periods ended December 31, 2022 was derived from sell-off agreements made with customers of Emerson Quiet Kool, which did not repeat during the three and nine month periods ended December 31, 2023.

***Net revenues —*** Net revenues were $2.6 million for the three month period ended December 31, 2023 as compared to $1.9 million for the three month period ended December 31, 2022, an increase of $0.7 million, or 35.7%. The increase in net revenues can be attributed to the introduction of new models to the marketplace as well as increased demand from the Company's key customers.

Net revenues were $6.9 million for the nine month period ended December 31, 2023 as compared to $5.3 million for the nine month period ended December 31, 2022, an increase of $1.6 million, or 29.5%. The increase in net revenues can be attributed to the introduction of new models to the marketplace as well as increased demand from the Company's key customers.

***Cost of sales —*** Cost of sales increased $0.8 million, or 57.5% to $2.1 million for the three month period ended December 31, 2023 as compared to $1.3 million for the three month period ended December 31, 2022. The increase in absolute terms for the three month period ended December 31, 2023 as compared to the three month period ended December 31, 2022 was primarily related to an increase in net product sales and by higher year-over-year gross cost of sales as a percentage of gross sales.

Cost of sales increased $2.1 million, or 59.3% to $5.7 million for the nine month period ended December 31, 2023 as compared to $3.6 million for the nine month period ended December 31, 2022. The increase in absolute terms for the nine month period ended December 31, 2023 as compared to the nine month period ended December 31, 2022 was primarily related to an increase in net product sales and by higher year-over-year gross cost of sales as a percentage of gross sales.

***Selling, general and administrative expenses (“S,G&A”) —*** S,G&A was $1.2 million for the three month period ended December 31, 2023 as compared to $1.1 million for the three month period ended December 31, 2022, an increase of $0.1 million or 14.4%. S,G&A, as a percentage of net revenues, was 45.8% for the three month period ended December 31, 2023 as compared to 54.4% for the three month period ended December 31, 2022. Compensation costs increased by $69,000, legal fees increased by $68,000 and audit fees increased by $28,000 for the three month period ended December 31, 2023 as compared to the three month period ended December 31, 2022. Compensation costs for the three month period ended December 31, 2023 were $558,000 as compared to $489,000 for the three month period ended December 31, 2022. Legal fees for the three month period ended December 31, 2023 were $236,000 as compared to $168,000 for the three month period ended December 31, 2022. Audit fees for the three month period ended December 31, 2023 were $53,000 as compared to $25,000 for the three month period ended December 31, 2022.

S,G&A was $3.5 million for the nine month period ended December 31, 2023 as compared to $3.7 million for the nine month period ended December 31, 2022, a decrease of $0.2 million or 6.0%. S,G&A, as a percentage of net revenues, was 50.4% for the nine month period ended December 31, 2023 as compared to 69.5% for the nine month period ended December 31, 2022. The Company benefitted from a decrease in legal fees of $546,000, a decrease in insurance expense of $31,000 and a decrease in rent expense of $32,000 for the nine month period ended December 31, 2023 as compared to the nine month period ended December 31, 2022. These reductions were offset by an increase in compensation costs of $156,000, additional advertising costs of $50,000, travel and entertainment fees of $21,000, auditing fees of $28,000 and bad debt expense of $73,000 for the nine month period ended December 31, 2023. as compared to the nine month period ended December 31, 2022. Legal fees for the nine month period ended December 31, 2023 were $461,000 as compared to $1,007,000 for the nine month period ended December 31, 2022. Insurance expense for the nine month period ended December 31, 2023 was $357,000 as compared to $388,000 for the nine month period ended December 31, 2022. Rent expense for the nine month period ended December 31, 2023 was $142,000 as compared to $174,000 for the nine month period ended December 31, 2022. Compensation costs for the nine month period ended December 31, 2023 were $1,680,000 as compared to $1,524,000 for the nine month period ended December 31, 2022.

***Settlement of litigation —*** Based on a judgement affirmation by the U.S. Court of Appeals for the Third Circuit, the Company recorded income of $3.1 million, which was the remaining balance of the advanced deposits as of September 30, 2023. See "Note 11 - Legal Proceedings".

***Interest income, net —*** Interest income, net, was $289,000 for the three month period ended December 31, 2023 as compared to $235,000 for the three month period ended December 31, 2022, an increase of $54,000. The increase was primarily due to higher average interest rates earned on the Company’s short term investments.

Interest income, net, was $872,000 for the nine month period ended December 31, 2023 as compared to $424,000 for the nine month period ended December 31, 2022, an increase of $448,000. The increase was primarily due to higher average interest rates earned on the Company’s short term investments.

***Income from governmental assistance programs —*** For the three month periods ended December 31, 2023 and December 31, 2022, the Company recorded income of nil and approximately $4,000, respectively, under the ESS program. See “Note 10 – Governmental Assistance Programs”.

For the nine month periods ended December 31, 2023 and December 31, 2022, the Company recorded income of nil and approximately $34,000, respectively, under the ESS program. See “Note 10 – Governmental Assistance Programs”.

***(Benefit) provision for income taxes —*** For the three and nine month periods ended December 31, 2023, the Company recorded an income benefit of $14,000 and income tax expense of $74,000, respectively. For the quarter ended September 30, 2023, the Company estimated its income tax expense to be approximately $88,000 based on the income generated during that period. That estimate has been reduced by $14,000 and is now estimated to be $74,000 for the nine months ended December 31, 2023. 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 nil for both of the three month periods ended December 31, 2023 and December 31, 2022. For the nine month periods ended December 31, 2023 and December 31, 2022, the Company incurred non-income based state taxes of $8,650 and $10,950, respectively, which are now reported as S,G &A. See “Note 5 – Income Taxes”.

Although the Company generated net income during the nine months ended December 31, 2023 , it has yet to demonstrate the ability to generate net income on a sustained basis in order to realize its deferred tax assets. Therefore, the Company is obligated to record a 100% valuation allowance against the deferred tax assets.

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

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

### Liquidity and Capital Resources

As of December 31, 2023, the Company had cash and cash equivalents of approximately $3.6 million as compared to approximately $25.3 million at March 31, 2023. Cash and cash equivalents includes short term investments in deposits which were classified as cash equivalents of $2.7 million as of December 31, 2023 compared to $23.1 million of such deposits as of March 31, 2023. Working capital increased to $27.5 million at December 31, 2023 as compared to $26.4 million at March 31, 2023. The decrease in cash and cash equivalents of approximately $21.6 million was due to an increase in short term deposits of $18.5 million, a decrease in advanced deposits of $3.3 million, an increase in inventory of $1.9 million and a decrease in long-term federal taxes payable of $0.5 million partially offset by the net income generated during the period of $1.6 million, an increase in accounts payable and other current liabilities of $0.6 million, an increase in short-term federal income taxes payable of $0.2 million and an increase in long-term operating lease liabilities of $0.2 million.

### Cash Flows

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

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

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

### Sources and Uses of Funds

The Company’s principal existing sources of cash are generated from operations and its existing short-term deposits. The Company believes that its existing cash balance and sources of cash will be sufficient to support existing operations over the next 12 months.

### Off-Balance Sheet Arrangements

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

### Recently Issued Accounting Pronouncements

The following ASUs were issued by the FASB which relate to or could relate to the Company as concerns the Company’s normal ongoing operations or the industry in which the Company operates.

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

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard took effect in the first quarter (June 2021) of the Company’s fiscal year ending March 31, 2022. The adoption of ASU 2019-12 had no material impact on the Company’s consolidated financial statements and related disclosures.

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

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses” to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2022. The adoption of ASU 2016-13 had no material impacts on the Company's financial statements.

## Controls and procedures

As filed, 2,341 characters.

(a) *Disclosure controls and procedures*

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d — 15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2023, are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) *Changes in Internal Controls Over Financial Reporting*

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 192 characters.

There have been no material changes to the risk factors contained in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the year ended March 31, 2023.

Filed Feb 20, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-004822. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.