SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ]ANNUAL] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal yearFiscal Year ended April 3, 1998March 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file numberFile Number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization) Number)
Nine Entin Road, Parsippany, NJ 07054
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(Address of principal executive offices) (Zip Code)
offices)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
- ------------------- ------------------------
which registered
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Common Stock, par value $.01 per share American Stock Exchange
per share
Securities registered pursuant to Series A Preferred Stock and Warrants
Section 12(g) of the Act: Series A Preferred
Stock and Warrants.-------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by
non-
affiliatesnon-affiliates of the registrant at June 24, 199822, 2000 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $10,461,520.
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. [X] YES [ ] NO.$12,919,000.
Number of Common Shares outstanding at June 24, 1998: 51,118,91522, 2000: 39,377,615
DOCUMENTS INCORPORATED BY REFERENCE:
Document Part of the Form 10-K
Proxy Statement for the 1998 Annual Meeting of
Stockholders:Stockholders to be held on August 10,
2000 Part III
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PART I
Item 1. BUSINESS
GENERALGeneral
Emerson Radio Corp. ("Emerson" or the "Company"), a consumer
electronics distributor, directly and through subsidiaries, designs, sources,
imports and markets a variety of televisionstelevision, video products including digital
video disc (DVD) and other video products,cassette recorders (VCR), microwave ovens, audio,
home office, home theater, multi-media, specialty and other consumer electronic
products. The Company also licenses the Emerson and G-Clef"[OBJECT OMITTED]" trademark for a
variety of
television, video, telephone, and other products domestically and internationally to certain non-affiliated entitieslicensees (See
"Business-Licensing and Related Activities" for further discussion)). The Company distributes its
products primarily through mass merchants, and discount retailers, distributors and
specialty catalogers leveraging the strength of its Emerson and G-Clef"[OBJECT OMITTED]"
trademark, a nationally recognized trade name in the consumer electronics
industry. The trade name "Emerson Radio" dates back to 1912 and is one of the
oldest and most well respected names in the consumer electronics industry.
The Company believes it possesses an advantage over its competitors due
to the combination of (i) the Emerson and G-Clef"[OBJECT OMITTED]" brand recognition, (ii) its
distribution base and established customer relations, with customers in the mass merchant
and discount retail channels, (iii) its sourcing
expertise and established vendor relations, and (iv) an infrastructure with
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel.channel, and (v) its extensive experience in
establishing license agreements with licensees on a global basis for a variety
of products. Emerson intends to continue to leverage its core competencies to
offer a broad variety of current and new consumer products to retail customers.
In addition, the Company has in the past and intends in the future to form joint
ventures and enter into licensing and distributor agreements which willthat take advantage
of the Company's trademarks and utilize the Company's logistical and sourcing
advantages for products whichthat are more efficiently marketed with the assistance
of these partners.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories including black and white
and color televisions, video cassette recorders ("VCRs"), video cassette players
("VCPs"), TV/VCR combination units, home stereo and portable audio products,
home theater products and microwave ovens.of consumer electronic
products. The majority of the Company's marketing efforts and sales of these productsefforts is
concentrated in the United States and, to a lesser extent, certain other
international regions. Emerson's major competitioncompetitors in these markets are
foreign-based manufacturers and distributors. See(See "Business - Competition.")
The Company was originally formed in the State of New York in 1956 under
the name Major Electronics Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. On March 31,
1994, the Company successfully reorganized under Chapter 11 of the Federal
Bankruptcy Code. On April 4,In 1994, the
Company was reincorporated in Delaware
by merger of its predecessor into its wholly-owned Delaware subsidiary formed
for such purpose.Delaware. References to "Emerson" or the "Company"
refer to Emerson Radio Corp. and its predecessor and its consolidated
subsidiaries, unless the context otherwise indicates. The Company's principal
executive offices are located at Nine Entin Road, Parsippany, New Jersey
07054-0430. The Company's telephone number in Parsippany, New Jersey, is (973)
884-5800.
PRODUCTS
Products
The Company directly and through subsidiaries designs, sources, imports
and markets a variety of television and other video, products, microwave ovens,
audio home theater, specialty and other consumer electronic products,
primarily on the strength of its Emerson and G-Clef"[OBJECT OMITTED]" trademark, a nationallyan
internationally recognized symbol in the consumer electronics industry. The
Company's current product categories consist of the following core products:
Video Products Audio Products Other
Color televisions Shelf systems Home theater
Black and white specialty televisions CD stereo systems Microwave ovensHome office
Color specialty televisions Digital clock radios Home theater
Digital video disc (DVD) Portable audio,
Color TV/VCR combination units cassette & CD Video cassette recorders systems Microwave ovens
Specialty video cassette players Personal audio, cassette & CD systems Digital clock
radiosMulti-media
Video cassette recorders (VCR) Shelf systems
Specialty clock radios
All of the Company's products offer various features. Color television
units range in screen size from 5 inches to 25 inches and specialty color
televisions are offered in 5 inch and 9 inch units. Combination units range in
screen size from 9 inches to 25 inches. Portable audio systems incorporate
AM/FM radios and/or cassette and/or CD players in a variety of models.
Microwave ovens
range in size from 0.6 cubic feet to 1.21.6 cubic feet containing features such as
turntables, key pad touch controls, multi-power levels, auto defrost and multi-turntables. The
newly developed Omni Wave Cooking System(TM) microwaves feature quicker and
more concentrated cooking. The Pop & Sizzle(TM) line of microwaves are specially
colored to match any kitchen design imaginable including the sophisticated
stainless steel look. The portable audio systems incorporate AM/FM radios and/or
cassettes and/or CD players in a variety of models. Emerson has entered into a
license agreement for use of the Hello Kitty(R) logo on selected products. The
specialty clock radios include the SmartSet(TM) clock, which is designed to
automatically convert to the correct time, date and month regardless of time
zone due to microprocessor technology that also allows it to reset itself after
a power levels. Industry sales of units of home theater speakers increased 60%
($126 million) in 1997 and are expected to increase another 20% ($70 million) in
1998. Duringfailure, thus eliminating the fiscal year ending April 3, 1998 ("Fiscal 1998") Emerson
introduced its CinemaSurround(R) product line, a new concept in"blinking light". The Company's H. H.
Scott division markets Home Theater Technology which usesproducts that utilize proprietary
CinemaSurround(R) technology that offers a patented technology to deliver dynamic 3-dimensional sound supplied
from any stereo source, without the need for any decoding electronics.
GROWTH STRATEGYelectronics, and
innovative sound speakers including multi-media speakers.
Growth Strategy
The Company's strategic focus is to: (i) develop and expand its
distribution of consumer electronicselectronic products in the domestic marketplace to
existing and new customers; (ii) develop and sell new products, such as home
theater;office products and products utilizing popular theme characters and logos such
as Hello Kitty(R); (iii) capitalize on opportunities to license the Emerson and G-Clef"[OBJECT
OMITTED]" trademark; (iv) leverage and exploit its sourcing capabilities, buying
power and logistics expertise in the Far East either internallyfor itself or on behalf of
third parties; (v) expand international sales and distribution channels; (vi)
further develop its direct to consumer sales channel; and (vi)(vii) expand through
strategic mergers and acquisitions of full or controlling interests in other
companies. See Note 3In connection with the Company's strategic focus, the Company may
from time to the consolidated financial statements
includedtime take an equity position in various corporate entities. (See
Item 8 - "Financial Statements and Supplementary Data" regarding
Emerson's investment in Sport Supply Group ("SSG") as partData - Note 3 of its strategic planNotes
to expand.the Consolidated Financial Statements.")
The Company believes that the Emerson and G-Clef"[OBJECT OMITTED]" trademark is
recognized in many countries. A principal component of the Company's growth
strategy is to utilize this global brand name recognition together with the
Company's reputation for quality and cost competitive products to aggressively
promote its product lines within the United States and targeted geographic areas
on an international basis. The Company's management believes the Company will be
able to compete more effectively in the highly competitive consumer electronics
and microwave oven industries, domestically and internationally, by combining
innovative approaches to the Company's current product line and augmenting its
product line with complimentarycomplementary products. The Company intends to pursue such
plans either on its own,independently or by forging new relationships, including through license
arrangements, distributorship agreements and joint ventures. See(See
"Business-Licensing and Related Activities."
SALES AND DISTRIBUTION)
Sales and Distribution
The Company makes available to its customers a direct import program,
pursuant to which products bearing the Emerson"[OBJECT OMITTED]" trademark are imported
directly by the Company's customers. In Fiscal 19982000 and Fiscal 1997,1999, products
representing approximately 77%82% and 46%84% of net revenues, respectively, were
imported directly from manufacturers to the Company's customers. If the Company
experiences a decline in sales effected through direct imports and a
corresponding increase in domestic sales, the Company will require increased
working capital in order to purchase inventory to makefulfill such sales. This
increase in working capital may affect the liquidity of the Company. See(See Item 7
- - "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Forward-looking Information"."Forward-Looking Information.")
The Company has an integrated system to coordinate the purchasing,
sales and distribution aspects of its operations. The Company receives orders
from its major accounts electronically, or by the conventional modes ofvia facsimile, telephone or mail. The
Company does not have long-term contracts with any of its customers, but rather
receives orders on an ongoing basis. Products imported by the Company (generally
from the Far East and Mexico)East) are shipped by ocean and/or inland freight and then stored in
contracted public warehouse facilities for shipment to customers. This also
includes the use of an Affiliate'saffiliate's warehouse pursuant to a Management Services
Agreement between the Company and the Affiliate.affiliate. (See Item 8 - "Financial
Statements and Supplementary Data - Note 3 of Notes to the Consolidated
Financial Statements
included in Item 8).Statements.") All merchandise receivedinventory is monitored by Emerson is automatically input
into the Company's on-lineelectronic
inventory system. As a purchase order is received and filled, warehoused product
is labeled and prepared for outbound shipment to Company customers by common, contract
or small package carriers for sales made from the Company's inventory.
DOMESTIC MARKETINGDomestic Marketing
In the United States, the Company markets its products primarily
through mass merchandisers and discount retailers. Wal-Mart Stores accounted for
approximately 58%55% and 36%52%, and Target Stores accounted for approximately 16%21% and
13%24% of the Company's net revenues in Fiscal 19982000 and Fiscal 1997,1999, respectively.
No other customer accounted for more than 10% of the Company's net revenues in
either period. Management believes that any loss or material reduction in sales
from either of these customers maywould have a material impactadverse affect on the
Company's operating income.results of operations.
Approximately 34%38% and 43%39% of the Company's salesnet revenues in Fiscal 19982000
and Fiscal 1997,1999, respectively, were made through sales representative
organizations that receive sales commissions and work closely with the Company's
sales personnel. The sales representative organizations sell, in addition to the
Company's products, similar, but generally non-competitive, products. In most
instances, either party may terminate a sales representative relationship on 30
days' prior notice in accordance with customary industry practice. The Company
utilizes approximately 30 sales representative organizations, including one
through which approximately 13%25% and 26% of the Company's net revenues were made
in 1997.Fiscal 2000 and Fiscal 1999, respectively. No other sales representative
organization accounted for more than 10% of the Company's net revenues in either
year. The remainder of the Company's sales areis made to retail customers serviced
by the Company's sales personnel.
FOREIGN MARKETING
While the major portion of the Company's marketing efforts are made in the
United States, approximately 2% and 8%Foreign Marketing
Approximately 3% of the Company's net revenues in Fiscal 19982000 and
Fiscal 1997, respectively,1999 were derived from customers based in foreign countries. See Note 14 of notes to consolidated financial statements includedcountries through
license and distribution agreements primarily in South America and Canada. (See
Item 8 - "Financial Statements and Supplementary Data"Data - Note 14 of Notes to the
Consolidated Financial Statements" and Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
LICENSING AND RELATED ACTIVITIES)
Licensing and Related Activities
The Company has several license agreements in place whichthat allow licensees to
use the use of the Emerson and G-Clef"[OBJECT OMITTED]" trademark for the manufacture and/or the sale of
consumer electronics and other products. The license agreements cover various
countries throughout the world and are subject to renewal at the initial
expiration of the agreements. Additionally, the Company has entered into several
sourcing and inspection agreements that require the Company to provide these
services in exchange for a fee. License revenues recognized in Fiscal years2000,
1999, and 1998 1997were $3,143,000, $3,633,000, and 1996 were $5,597,000, $5,040,000 and $4,493,000,
respectively.respectively,
including $4,000,000 in Fiscal 1998 from a major supplier whose licensing
agreement expired March 31, 1998. The Company records a majority of licensing revenues as they
are
earned over the term of the related agreements.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier") entered into two
mutually contingent agreements (the "Agreements"). Effective March 31, 1995,
the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G-Clef trademark to one of the Company's
largest customer (the "Customer")April 1997 in the U.S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson and
G-Clef trademark or the Supplier's other trademarks. Further, the Agreements
provided that the Supplier would supply the Company with certain video products
for sale to other customers at preferred prices for a three-year term. Under
the terms of the Agreements, the Company received non-refundable minimum annual
royalties from the Supplier to be credited against royalties earned from sales
of video cassette recorders and players, television/video cassette recorder and
player combinations, and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreements were $4,000,000, $4,000,000 and $4,442,000 in
Fiscal 1998, 1997 and 1996, respectively, and are included in the balances
provided above. The agreement expired on March 31, 1998.
In anticipation of the expiration of the Agreements,license
agreement, Emerson executed a four-yearmarketing agreement ("DaewooMarketing Agreement") with
Daewoo Electronics Co. Ltd., ("Daewoo") in April 1997.. This agreement providesMarketing Agreement provided that
Daewoo will manufacture and selldistribute television and video products bearing the
Emerson and G-Clef"[OBJECT OMITTED]" trademark to customers in the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo iswas responsible for and assumesassumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned by the Company will arrange sales and
provide marketing services and in return receive a commission for such services.
This agreement can be terminated without cause by either party upon 90 days
notice.
The Daewoo Agreement may result in commission revenues that will be less
than, equal to or exceed those earned from the Supplier Agreement. The
agreement with Daewoo does not contain minimum annual commissions and iswas
entirely dependent onupon the volume of sales made by the Company that arewere subject to the
DaewooMarketing Agreement. Should the Company not generate commission revenues
that are at levels substantially equal to the revenues generated from the
Supplier Agreement, the Company's resultsEffective as of operations will be effected
adversely.
In February 1997, the Company executed five-year license/supply agreements
with Cargil International Corp. ("Cargil"), covering the Caribbean and Central
and South American markets. The agreements provide for the license of theOctober 29, 1999, Emerson and G-Clef trademark for certain consumer electronics and other products
and require Emerson to source and inspect product for Cargil. Under the terms
of the agreements, the Company will receive minimum annual royalties and a
separate fee for the provision of sourcing and inspection services. Cargil
assumes all costs and expenses associated with the purchasing, marketing and
after-sales support of such products.
In October 1994, the CompanyDaewoo
entered into a license agreement with Jasco
Products Co., Inc.,three year License Agreement ("Jasco"License Agreement"), as amended, whereby which replaced
the Marketing Agreement. The License Agreement includes, among other items,
minimum production quotas and subject to certain conditions, minimum annual
royalty payments each year, which in Fiscal 2001
amounts to $4,500,000. All other material aspects of the License Agreement
remain substantially similar to the terms set forth in the superceded Marketing
Agreement.
In addition, the Company granted a license
of certain trademarks to Jasco for use on consumer electronics accessories.
Under the terms of the agreement as amendedhas several other licensing agreements in
April 1997, the Company will
receive minimum annual royalties through the life of the agreement, which
expires on December 31, 1998.
In June 1997, the Company entered into an eighteen month non-exclusive
license agreementplace with World Wide One, Ltd., a Hong Kong corporation for use of
the Emerson and G-Clef trademarklicensees primarily in connection with the sale of certain consumer
electronics products and other products to Makro International Far East Ltd. for
sales of these products in China, Indonesia, Malaysia, Philippines, South Korea,
Taiwan and Thailand. The Company will provide sourcing and inspection services
for at least 50% of the licensee's purchase requirement. The licensee is
required to meet certain minimum sales requirements as well as to ensure the
establishment of adequate service centers or agents for after-sales warranty
services.
In March 1998, the Company executed three-year license and supply
agreements with WW Mexicana, S. A. de C. V. ("WW Mexicana"), a distributor
located in Mexico covering the Mexico market. The agreements provide for the
license of the Emerson and G-Clef trademark for use on certain consumer products
to be sold in Mexico and sourcing and inspection services. Under the terms of
these agreements, the Company will receive minimum annual royalties through the
life of the agreement and will receive a separate fee for sourcing and
inspection services.
In March 1998 the Company executed a three-year license agreement with Tel-
Sound Electronics, Inc. ("Tel-Sound"), covering the United States, Canada, Latin America,
Mexico, Eastern Asia and Canada
markets. The agreement provides for the licenseparts of Europe.
Throughout many parts of the Emerson and G-Clef
trademark for use with telephones, answering machines and caller ID products.
Under the terms of this agreement,world, the Company will receive minimum annual
royalties throughmaintains
distributorship, and/or sales support and assistance agreements that allow the
lifedistribution of the agreement.Company's product into defined geographic areas. Currently
the Company has such agreements covering the Sub-Asian Continent, North Africa,
Canada and the Middle East.
The Company intends to pursue additional licensing and distributor
opportunities and believes that such licensing activities have had and will continue to
have a positive impact on operating results by generating royalty and sourcing income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. See(See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information."
DESIGN AND MANUFACTURING)
Design and Manufacturing
The majority of the Company's products are manufactured by original equipment
manufacturers in accordance with the Company's specifications. These
manufacturers are primarily located in Hong Kong, South Korea, China, Malaysia
Thailand and Mexico.Thailand.
The Company's design team is responsible for product development and
works closely with its suppliers. Company engineers determine the detailed
cosmetic, electronic and other features for new products, which typically
incorporate commercially available electronic parts to be assembled according to
its design. Accordingly, the exterior designs and operating features of the
Company's products reflect the Company's judgment of current styles and consumer
preferences. The Company's designs are tailored to meet the consumer preferences
of the local market, particularly in the case of the Company's international
markets.
During Fiscal 19982000 and Fiscal 1997,1999, 100% of the Company's purchases
consisted of imported finished goods.
The following summarizes the Company's purchases from its major
suppliers.
FISCAL YEAR
SUPPLIER 1998 1997
Daewoo 42% 22%
Tonic Electronics 20% *
Orient Power * 21%
Imarflex * 16%Fiscal Year
Supplier 2000 1999
Daewoo 30% 22%
Avatar Mfg 17% *
Imarflex 13% 12%
Tonic Electronics 11% 32%
================
* Less than 10%.
No other supplier accounted for more than 10% of the Company's total
purchases in Fiscal 19982000 or Fiscal 1997.1999. The Company considers its relationships
with its suppliers to be satisfactory and believes that, barring any unusual
shortages or economic conditions (See Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Forward-Looking
Information" regarding the economic crisis in Asia)and Item 7A - "Inflation and Foreign Currency"), the Company could
develop, as it already has developed, alternative sources for the products it
currently purchases. Except for the agreement with Daewoo described above (See "Licensing
and Related Activities"), theThe Company does not havehas a contractual agreement with any of its suppliers for product purchases.one supplier
to provide future raw materials totaling approximately $700,000. No assurance
can be given that certain shortagesample supply of product would not resultbe available at current prices
if the Company was required to seek alternative sources of supply without
adequate notice by a supplier or a reasonable opportunity to seek alternate
production facilities and component parts.
WARRANTIES
On sales the Company makes to customers within the United States, theWarranties
The Company offers limited warranties comparable to those offered to
consumers by its competitors.
RETURNED PRODUCTScompetitors in the United States. Such warranties typically
consist of a 90 day period under which the Company will pay for labor and parts,
or offer a new or similar unit in exchange for a non-performing unit.
Returned Products
Customers return product to the Company for a variety of reasons,
including liberal retailer return policies with their customers, damage to goods
in transit and occasional cosmetic imperfections and mechanical failures.
The Company has executed an agreement with Hi Quality International
(U.S.A.) Inc. ("Hi Quality") as an outlet for the Company's returned products
pursuant to which Hi Quality has agreed to purchase from the Company all
returned consumer electronics products in the United States that are not subject
to the return-to-vendor agreements discussed below. Hi Quality will refurbish
them, if feasible, and sell them as either refurbished or "As-Is" product.
To further reduce the costs associated with product returns, the Company has
entered into return-to-vendor agreements with the majority of its suppliers. For a fee, the
Company returns defective returned product to the supplier and in exchange
receives a replacement unit. The agreements cover certain microwave oven, home theater,ovens, audio and video
products. The Company has realized and expects to continue to realize
significant cost savings from such agreements.
BACKLOGIn addition, the Company has an agreement with Hi Quality International
(U.S.A.) Inc. ("Hi Quality") as an outlet for much of the Company's returned
products pursuant to which Hi Quality has agreed to purchase from the Company
certain returned products in the United States that are not subject to the
vendor agreements discussed previously. Hi Quality will refurbish them, if
feasible, and sell them as either refurbished or "As-Is" product.
Backlog
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the
Company's business.
TRADEMARKS
Trademarks
The Company owns the Emerson and G-Clef "[OBJECT OMITTED]", "Emerson Research(TM)",
"Emerson Interactive (sm)", "H.H. Scott"Scott(R)" and "Scott""Scott(R)" trademarks for
certain of its home entertainment and consumer electronic products in the United
States, Canada, Mexico and various other countries. Of the trademarks owned by
the Company, those registered in the United States must be renewed at various
times through 20082010 and those registered in Canada must be renewed at various
times through 2011.2014. The Company's trademarks are also registered on a worldwide
basis in various countries, which registrations must be renewed at various
times. The Company intends to renew all such trademarks.trademarks necessary for its business.
The Company considers the Emerson and G-Clef"[OBJECT OMITTED]" trademark to be of material
importance to its business. The Companybusiness and owns several other trademarks, none of which is
currently considered by the Company to be of material importance to its
business. The Company has licensed certain applications of the Emerson and G-
Clef" [OBJECT
OMITTED]" trademark to Tel-Sound, WW Mexicana, Cargil, Daewoo, World Wide One, Jasco
and the Franklin Mintseveral licensees on a limited basis and for a definitive
period of time. See "(See Item 1 - "Business - Licensing and Related Activities."
COMPETITION)
Competition
The market segment of the consumer electronics industry in which the
Company competes generates approximately $18$15 billion of factory sales annually
and is highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.
The industry is characterized by the short life cycle of products, which
requires continuous design and development efforts. Market entry is comparatively easy
because of low initial capital requirements.
The Company primarily competes in the low to medium-priced sector of
the consumer electronics market. Management estimates that the Company has
several dozen competitors that are manufacturers and/or distributors, many of
which are much larger and have greater financial resources than the Company. The
Company competes primarily on the basis of its products' reliability, quality,
price, design, consumer acceptance of the Emerson and G-Clef"[OBJECT OMITTED]" trademark, and
quality service to retailers and their customers. The Company's products also
compete at the retail level for shelf space and promotional displays, all of
which have an impact on the Company's established and proposed distribution
channels. See(See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
SEASONALITY)
Seasonality
The Company generally experiences stronger demand from its customers
for its products in the fiscal quarters ending September 30 and December, 31.
Accordingly, to accommodate such increased demand, the Company generally is
required to place higher orders with its vendorsbut
during the quarters ending June
30last several years this revenue pattern has been less prevalent due
to the retailers need to plan earlier for the Christmas selling season and
September 30, thereby increasingmanagement's ability to obtain additional orders during the Company's need for working capital
during such periods.slower times of the
year. On a corresponding basis, the Company also is subject tostill experiences increased returns
during the quarters ending March 31 and June, 30, which adversely affects the Company's
collection activities and liquidity during such periods. Operating results may
fluctuate due to other factors such as the timing of the introduction of new
products, price changes by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, fluctuation in foreign currency exchange rates relative to the
United States dollar, seasonal
cost increases and general economic conditions.
GOVERNMENT REGULATIONGovernment Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974
and regulations promulgated thereunder, the United States government charges
tariff duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
EMPLOYEESEmployees
As of June 24, 1998,22, 2000, the Company had approximately 108104 employees. The
Company considers its labor relations to be generally satisfactory. The Company
has no union employees.
Item 2. PROPERTIES
The Company leases warehouse and office space in New Jersey, Texas, CanadaHong Kong,
and Hong KongTexas under leases expiring at various times.
A lease for office space at its Corporate offices in New Jersey for
21,509 square feet expires on October 31, 2003. Lease agreements for 10,132
square feet of office space in Hong Kong expire July 31, 2000. Renewal for reduced square footage for office space at its
Corporate offices in New Jersey for 19,216 square feet was entered into on May
15, 1998 for commencement as of August 1, 1998 and expires on July 31, 2003. There is also
5,40034,000 square feet of warehouse and office space in Texas, rented from an
Affiliateaffiliate pursuant to a Management Services Agreement which can be terminated by
either party upon 60 days notice.
In the past several years, theThe Company has closed substantially all of its
leased or owned warehouse facilities in favor ofutilizes public warehouse space as part
of the Company's effort to convert fixed costs to variable costs.space. Such public warehouse
commitments are evidenced by contracts with terms of up to one year. The cost
for the public warehouse space is primarily based on a fixed percentage of the
Company's sales from each respective location. The Company does not presently
own any real property.
In addition, a portion of its New Jersey
corporate headquarters has been subleased through July 1998.
Item 3. LEGAL PROCEEDINGS
CERTAIN OUTSTANDING COMMON STOCK
Pursuant toAs previously reported, the Company's bankruptcy restructuring plans onCompany has resolved substantially all of
the litigation against it and has accrued the net cost thereof as an expense in
its fiscal year ended March 31, 1994,
30 million shares of the Company's Common Stock were issued to GSE Multimedia
Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN")
and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the
"Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President. On June 11, 1996,2000. All that remains is a Stipulation of Settlement and Order (the "Settlement Agreement") was
executed in proceedings before the United States District Court for the District
of New Jersey,previously reported
claim by Gerhard Eisenbach, which settles various legal proceedings in Switzerland, the
Bahamas and the United States. The Settlement Agreement provides for, among
other things, the payment by Mr. Jurick and his Affiliated Entities of $49.5
million to various claimants of Mr. Jurick and the Affiliated Entities (the
"Creditors"), to be paid from the proceeds of the sale of certain of the 29.2
million shares of Emerson common stock (the "Settlement Shares") owned by the
Affiliated Entities. In addition, Mr. Jurick is to be paid the sum of $3.5
million from the sale of the Settlement Shares. The Settlement Shares are to be
sold over an indeterminate period of time by a financial advisor, TM Capital
(the "Advisor") pursuant to marketing plan taking into consideration (i) the
interests of Emerson's minority stockholders, and (ii) the goal of generating
sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible.
The Settlement Shares have been divided into two pools. The Pool A Shares
currently consist of 15.3 million shares of Emerson's common stock. The Pool B
Shares currently consist of the number of Emerson shares with respect to which
Mr. Jurick must retain beneficial ownership of voting power to avoid an event of
default arising out of a change of control pursuant to the terms of the
Company's Loan and Security agreement with a U.S. financial institution (the
"Lender") and/or the Indenture governing the Company's 8-1/2% Senior
Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales of the
Settlement Shares may be made pursuant to a registered offering if the sales
price is not less than 90% of the average of the three most recent closing
prices (the "Average Closing Price"), or, other than in a registered offering,
of up to 1% per quarter of the Emerson common stock outstanding, if the sales
price is not less than 90% of the Average Closing Price. Any other attempted
sales are subject to the consent of the Company, Mr. Jurick, the Creditors, and,
if necessary, the United States District Court in Newark, New Jersey.
All of the Settlement Shares secure payment of the $49.5 million owed to
the Creditors on a first priority basis. Any Creditor may apply to the Court
for an order to terminate the Settlement Agreement if certain events occur.
Such events include, without limitation, delisting of the Settlement Shares from
a national securities exchange or a determination that there is no reasonable
prospect that the goals contemplated by the Settlement Agreement can be
achieved. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion was held in April 1998 at which time it was adjourned. The hearing is
currently scheduled to resume on July 9, 1998.
If the Court enters an order terminating the Settlement Agreement, the
Creditors may take any action permitted by law to execute the Consent Judgments
given to them in connection with the Settlement Agreement to collect the unpaid
balance (including, without limitation, foreclosing on the Settlement Shares).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value thereof plus accrued but unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
In 1994, Petra and Donald Stelling ("the Stellings"), two of the Creditors
filed a complaint with the Swiss Authorities alleging that Messrs. Jurick and
Jerome H. Farnum ("Farnum"), directors of the Company, had conducted banking
operations in Switzerland without appropriate licenses and that Messrs. Jurick,
Farnum, and Peter G. Bunger ("Bunger"), also a director of the Company, engaged
in improper activities in the financing of the Plan of Reorganization.
Although, as part of the settlement discussed herein, the Stellings and other
affected parties requested the discontinuance of the criminal investigations of
these individuals, the matter is presently pending before a Swiss Court with a
trial, if any, to be held no earlier than 1999. The Federal Banking Commission
of Switzerland previously issued a decree purporting to determine that certain
entities affiliated with Messrs. Jurick and Farnum were subject to Swiss banking
laws and had engaged in banking activities without a license.
OTAKE
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") seeking damages and alleging
breach of contract, breach of covenant of good faith and fair dealing, unfair
competition, interference with prospective economic gain, and conspiracy in
connection with certain activities of the Otake Defendants under certain
agreements between the Company and the Otake Defendants.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, subsequently amended, alleging various
breaches of certain agreements by the Company, including breaches of the
confidentiality provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of those agreements, and
seeking declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action Orion Sales, Inc. v. Emerson Radio Corp., pending in the
United States District Court for the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orion has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.
The Company has withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and delivered to
Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on the other (the "Supply Agreement"). Emerson has
vigorously contested Orion and its affiliates' entitlement to the $3.2 million
payment.
Both the Company and Orion have asserted claims for interest accruing on
the unpaid principal balances respectively due them, which are presently pending
before the District Court. The Company's management believes that it will
receive the $5 million due pursuant to the license agreement and has meritorious
defenses to Orion's claim for the $3.2 million payment, and, also, the interest
allegedly accrued thereon. In any event, the Company believes the results of
that litigation should not have a material adverse effect on the financial
condition of the Company or on its operations.
BANKRUPTCY CLAIMS
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt in March 31, 1994. The largest claim was filed on or about July 25, 1994,
with the United States Bankruptcy Court for the District of New Jersey, in
connection with the rejection of certain executory contracts with two Brazilian
entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda.
(collectively, "Cineral"). The amount currently claimed is for $93.6 million, of
which $86.8 million represents a claim for lost profits. The claim will be
satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the
manner other allowed unsecured claims were satisfied. The Company has objected
to the claim and intends to vigorously contest such claim and believes it has
meritorious defenses to the highly speculative portion of the claim for lost
profits and the portion of the claim for actual damages for expenses incurred
prior to the execution of the contracts. An adverse final ruling on the Cineral
claim could have a material adverse effect on the Company, even though it would
be limited to 18.3% of the final claim determined by a court of competent
jurisdiction; however, with respect to the claim for lost profits, the Company
believes the chances for recovery for lost profits are remote. There has been
no activity regarding this litigationremained dormant during the current fiscal year.
TAX CLAIM
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relatesyear and as to
the 1992/1993 to 1997/1998 tax years and
asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. Emerson Radio (Hong Kong) Ltd.
is also in litigation with the IRD regarding a separate assessment
of $489,000 pertaining to the deduction of certain expenses that relate
to the taxable years 1991/1992 to 1997/1998. The outcome of both actions is
uncertain at this time. However, the Company believes that it will
prevail in both cases. During June 1998 the Company received a
favorable ruling in regards to the assessment of $489,000, which is
subject to appeal.
GRACE BROTHERS
The Company has filed legal proceedings on May 15, 1998 in the United
States District Court for the District of New Jersey against Grace Brothers
seeking damages and injunctive relief arising from its claims that Grace
violated sections of the Exchange Act and Securities and Exchange Act as a
result of its dealings with the Company's Series A Convertible Preferred Stock.
EISENBACH
On January 19, 1998, the Company was served with a lawsuit filed in June
1997 in the German Regional Court Frankfurt Am Main, filed by Professor Gerhard
Eisenbach against the Company, Geoffrey P. Jurick, the Company's Chairman, Chief
Executive Officer and President, Fidenas International Ltd. LLC, an affiliate of
Mr. Jurick, and Eugene I. Davis, a former executive officer of the Company,
jointly and severally, alleging breach of contractual duty, tort and investment
fraud arising from Eisenbach's $1,000,000 investment in the Company, on or about
March 31, 1994, in conjunction with the Company's reorganization in the
Bankruptcy Court. While the outcome of this action is not certain at this time, the Company believes it has meritorious defenses, to the claims made and intends
to vigorously defend this action.
EUGENE DAVIS
On September 24, 1997, pursuant to the terms of his Employment Agreement,
as amended, Mr. Davis was requested to resign as a director. On September 25,
1997 the Company terminated Mr. Davis' employment for cause. The circumstances
surrounding such termination of employment are the subject of two proceedings
filed on September 30, 1997 and October 2, 1997, respectively, in the Superior
Court of the State of New Jersey ("Superior Court") seeking injunctive relief
and money damages, respectively, in which the Company, the Affiliate and Mr.
Davis are parties. While the outcome of these actions is not certain at this
time, the Company believes the results of the litigation should not have a
material adverse effect on the financial condition of the Company or on its
results of operations.
The Company is involved in other legal proceedings and claims of various
typesarising in
the ordinary course of business. While any such litigation to whichbusiness, in the Company is a party contains an elementopinion of uncertainty, management, presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial position.position if
resolved on unfavorable terms to the Company and the implementation, as to Petra
Stelling only, of the Court ordered termination of the Stipulation of Settlement
entered into in 1996 (the "Stipulation") among Geoffrey P. Jurick, the Company's
Chairman, three of his creditors, the Company, and certain other parties. While
such implementation may have a material adverse effect on Mr. Jurick, it is the
opinion of management that termination of the Stipulation will not adversely
affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on January 6,
1998,February
24, 2000, at which time the shareholders elected the following slate of nominees
to remain on the Board of Directors: Peter G. Bunger, Robert H. Brown, Jr.,
Stephen H. Goodman, Jerome H. Farnum and Geoffrey P. Jurick and Raymond L. Steele.Jurick. Election of the
Board of Directors was the only matter submitted for shareholder vote. There
were 45,739,09947,828,215 shares of outstanding capital stock of the Company entitled to
vote at the record date for this meeting and there were present at such meeting,
in person or by proxy, stockholders holding 42,861,56744,427,428 shares of the Company's
Common Stock which represented 93.7%92.88% of the total capital stock outstanding and
entitled to vote. There were 42,861,56744,427,428 shares voted on the matter of the
election of directors. The result of the votes cast regarding each nominee for
office was:
Nominee for Director Votes For Votes Withheld
Robert H. Brown, Jr. 42,213,563 648,004
Peter G. Bunger 42,215,336 646,231
Jerome H. Farnum 42,215,336 646,231
Geoffrey P. Jurick 42,196,331 665,236
Raymond L. Steele 42,215,836 645,731
Nominee for Director Votes For Votes Withheld
Robert H. Brown, Jr. 44,203,390 224,038
Peter G. Bunger 44,203,390 224,038
Jerome H. Farnum 44,203,742 223,686
Stephen H. Goodman 44,178,290 249,138
Geoffrey P. Jurick 43,428,094 999,334
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange
since December 22, 1994 under the symbol MSN. The following table sets forth the
range of high and low sales prices for the Company's Common Stock as reported by
the American Stock Exchange during the last two fiscal years.
Fiscal 1997 Fiscal 1998
High Low High Low
First Quarter $3 $2 $1-1/16 $1/Fiscal 2000 Fiscal 1999
------------------------- --------------------
High Low High Low
First Quarter $ 7/8 $ 1/2 $ 5/8 $ 3/8
Second Quarter 3 2 3/4 1/2 11/16 3/8
Third Quarter 11/16 7/16 5/8 1/4
Fourth Quarter 1 1/2 7/8 7/16
Third Quarter 2-1/4 1-1/8 3/ 4 3/ 8
Fourth Quarter 1-7/8 7/8 9/16 3/ 8
There is no established trading market for the Company's Common Stock
Purchase Warrants.Warrants or Series A Convertible Preferred Stock.
(b) Holders
At June 24, 1998,22, 2000, there were approximately 511458 stockholders of record
of the Company's Common Stock and 1112 holders of the Warrants.
(c) Dividends
The Company's policy has been to retain all available earnings, if any,
for the development and growth of its business. The Company has nevernot paid cash
dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock (as more fully described below), prohibits Common Stock
dividends unless the Series A Preferred Stock dividends are paid or put aside.
The Series A Preferred Stock accrues dividends, payable on a quarterly basis, at
a 7%2.8% dividend rate through March 31,
1997, then decliningand declines by a 1.4% dividend rate each succeeding year until March
31, 2001 when no further dividends are payable. The Company is currently in arrears on $727,000compliance
with the default provisions of dividends of the Company'sits Series A Preferred Stock. SeeStock, and currently owes
dividends in arrears of $925,000. (See Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition.")
(d) Unregistered Securities
The Company issuedauthorized 10 million shares and issued 10,000 shares of Series
A Convertible Preferred Stock ("Series A Preferred Stock") in conjunction with the Company's Plan of
Reorganization completedon March 31, 1994. As
of March 31, 2000, there were 3,677 shares of Series A Preferred Stock
outstanding.
The Series A Preferred Stock is convertible into shares of the Company's
common stock at any time during the period beginning on March 31, 1997 and
ending on March 31, 2002. The conversion rate is equal to 80% times the average
of the daily market prices of a share of the Company's common stock for the 60
consecutive days immediately preceding the conversion date.
During the three monthsyear ended April 3, 1998,March 31, 2000, the Company issued a total of
1,818,201repurchased 37 shares of
the common stock, upon conversion of 650 shares ofits Series A Preferred Stock. No consideration was received by the Company for the issuanceThere were no conversions of the shares of common stock. The shares of common stock were issued by the
Company to certain of its existing holders ofCompany's Series
A Preferred Stock where no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange. The shares ofinto common stock were issued pursuant to
Section 3(a)(9) offor the Securities Act of 1933, as amended.year ended March 31, 2000.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for the five years ended April 3, 1998.March 31, 2000. For the yearyears ended April
3, 1998 through March 31, 2000, the Company changed its financial reporting year
to a 52/53 week year ending on the Friday closest to March 31. Accordingly, the
current fiscal year ended on April 3, 1998.March 31, 2000. The selected consolidated financial
data should be read in conjunction with the Company's consolidated financial statements,Consolidated Financial
Statements, including the notes thereto, and Item 7 - "Management's Discussion
and Analysis of Results of Operations and Financial Condition" set forth elsewhere in this Form 10-K..
Year Ended------------- ------------- --------------- -------------- ---------------
March 31, April 2, April 3, March 31, March 31,
March 31, March 31,2000 1999 1998 1997 1996
1995 1994
(In thousands, except per share data)------------- ------------- --------------- -------------- ---------------
Summary of Operations:
Net Revenues (1)$ 204,956 $ 158,730 $162,730 $178,708 $245,667 $654,671 $487,390$ 178,708 $ 245,667
Operating Income (Loss) $ 5,334 $ 3,278 $ 524 $ (20,243) $ (10,088)
Net EarningsIncome (Loss) (2):
Before Extraordinary
Gain $(1,430) $(23,968) $(13,389) $ 7,375 $(73,654)
Extraordinary Gain -- -- -- -- 129,155
$(1,430) $(23,968) $(13,389)3,620 $ 7,375289 $ 55,501(1,430) $ (23,968) $ (13,389)
Balance Sheet Data at Period End:
Total Assets $51,920 $58,768$ 57,996 $ 54,395 $ 54,767 $ 58,768 $ 96,576
$113,969 $ 119,021
Current Liabilities 17,04324,542 23,351 19,890 21,660 35,008
59,782 76,083
Long-Term Debt 20,891 20,847 20,929 21,079 20,886
214 227
Shareholders'EquityShareholders' Equity 12,563 10,197 13,948 16,029 40,382
53,651 42,617
Working Capital 11,1649,854 6,859 9,610 13,258 48,434
42,598 32,248
Current Ratio 1.71.4 to 1 1.3 to 1 1.5 to 1 1.6 to 1 2.4 to 1
1.7 to 1 1.4 to 1
Per Common Share: (2) (3)
Earnings (Loss) Per Common
Share: Basic
Income (Loss) Before
Extraordinary Gain $ (.04) $ (0.61) $(0.35) $ 0.25 $ (1.95)
Extraordinary Gain -- -- -- -- 3.38(1)
Net Income (Loss) Per Common Share - Basic $ .07 $ (.01) $ (.04) $ (0.61) $(0.35) $ 0.25 $ 1.43
Earnings (Loss) Per Common
Share: Diluted
Income (Loss) Before
Extraordinary Gain $ (.04) $ (0.61) $(0.35) $ 0.19 $ (1.95)
Extraordinary Gain -- -- -- -- 3.38(0.35)
Net Income (Loss) Per Common Share - Diluted $ .07 $ (.01) $ (.04) $ (0.61) $(0.35) $ 0.19 $ 1.43(0.35)
Weighted Average Shares Outstanding:
Basic 47,632 49,398 45,167 40,292 40,253
36,530 38,191
Diluted 53,508 49,398 45,167 40,292 40,253 47,900 38,191
Common Shareholders' Equity per
Common Share (4)(2) $ 0.180.19 $ 0.13 $ 0.19 $ 0.15 $ 0.75 $ 1.08 $ 0.98.75
(1) The decline in net direct revenues forFor Fiscal 1995 through 1998 was due
primarily to the implementation of the Agreement signed with the Supplier
effective March 31, 1995. Net Revenues for Fiscal 1995 included $340,465,000
of sales of video products covered by the arrangement with the Supplier which
expired on March 31, 1998. See "Business-Licensing and Related Activities".
(2) Net earnings for Fiscal 1994 includes an extraordinary gain of
$129,155,000, or $3.38 per common share, on the extinguishment of debt
settled in the Plan of Reorganization. Accordingly, the Company recorded
reorganization expenses of $17,385,000 relating primarily to the writedown of
assets transferred to creditors under the Plan of Reorganization and
professional fees and other related expenses incurred during the bankruptcy
proceedings.
(3) Earnings (loss) per common share for Fiscal 1994 are based on the weighted
average number of old common shares outstanding . Earnings per common share
for Fiscal 1995 is based on the weighted average number of shares of new
Common Stock and related potentially dilutive securities outstanding during
the year. Potentially2000 dilutive securities include 4,664,0005,876,000 shares assuming
conversion of $10 million of Series A Preferred Stock at a price equal to 80% of the
weighted average market value of a share of Common Stock, determined as of
March 31, 1995. Since the Series A Preferred Stock was not convertible
into Common Stock until March 31, 1997, the number of shares issuable upon
conversion may have been significantly different. Loss per2000. Per common share for
Fiscal 1996, Fiscal 1997 and Fiscal 1998 aredata is based on the net income or loss
and deduction of preferred stock dividend requirements (resulting in additionala loss
attributable to common stockholders)stockholders for Fiscal 1999-1996) and the weighted
average of new Common Stock outstanding during each fiscal year. Loss per share
does not include potentially dilutive securities assumed outstanding since
they arethe effects of such conversion would be anti-dilutive.
(4)
(2) Calculated based on common shareholders' equity divided by actual shares of
Common Stock outstanding. Common shareholders' equity at April 3,for Fiscal Years
2000, 1999, and 1998 is equal to total shareholders' equity less
$5,713,000$3,677,000, $3,714,000 and 5,237,000, respectively, and for the liquidation
preference of the Series A Preferred Stock. Common shareholders' equity at
March 31,Fiscal Years
1997 1996, 1995 and 19941996 is equal to total shareholders' equity less $10 million for
the liquidation preference of the Series A Preferred Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company reported a decline in its net sales forResults of Operations - Fiscal 1998, 1997 and
1996 as2000 compared to Fiscal 1995 primarily due to the licensing of video sales.
However, the Company's sales of video products to other customers in the United
States also declined during these periods due to increased price competition,
higher retail stock levels, weak consumer demand, a soft retail market and the
extremely high level of sales achieved in Fiscal 1995. The Company expects its
sales in the United States for the first two quarters ofwith Fiscal 1999
to be
higher than the first two quarters of Fiscal 1998 due to an improved retail
climate, improved sales of microwave products, and that licensing and commission
revenues will increase in future years.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED WITH FISCAL 1997
NET REVENUES Consolidated netNet Revenues Net revenues for Fiscal 1998 decreased $16.02000 increased $46.2 million (9%(29%)
as compared to Fiscal 1997.1999. The decreaseincrease in net revenues resulted primarily from
decreasesincreases in unit sales of video cassette recorders, televisionsmicrowave ovens and television/video cassette recorder combination units due to the Company's
licensing agreement with Daewoo and The Supplier. The decrease also resulted
from decreases in unit sales of (i) home theater products, due to a reduction in
the variety of products offered, and (ii) car audio products which were
discontinued in Fiscal 1998, and the transfer of the Company's Canadian sales to
a local distributor. The reduced revenues were partially offset by increased
sales of microwave ovens attributable to a broader product line, byas well as the
introduction of the Company's CinemaSurround(R)DVD and home office product andcategory. In addition, the
favorable trend of declining returned product as a percentage of sales continued
for Fiscal 2000, resulting from continuing a more restrictive return policy by
the sales
of home audio products into foreign markets as well
as the U.S. market.Company's customers. Revenues recognizedearned from the licensing of the Emerson and G-Clef"[OBJECT
OMITTED]" trademark were $5.6$3.1 million infor Fiscal 19982000 as compared to $5.0$3.6
million for Fiscal 1997.1999. The decrease is attributable to the continued
transition towards the Daewoo License Agreement. For Fiscal 2001, this trend is
expected to reverse because Emerson entered into a new Licensing Agreement with
Daewoo which provides for minimum royalty payments which exceeds the royalty
revenue recorded for Fiscal 2000.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs. (See
"Business-Licensing and Related Activities"). The Company
expects its U.S. gross sales on its Core Productscore products to improveincrease and its margins on
such sales to also improve due to the change in product mix to higher margin
products.products, a reduction in returned product and through the continued introduction
of theme products through the use of current and newly developed license
agreements such as Hello Kitty(R) .
Cost of Sales Cost of Sales,sales, as a percentage of consolidated net
revenues, was 87%86.9% and 87.3% in Fiscal 1998 as compared to 97% in2000 and Fiscal 1997. In absolute dollars,
cost of sales decreased by $31.8 million (18%) for Fiscal 1998 as compared to
Fiscal 1997. Cost of sales in Fiscal 1998 were significantly improved as a
percent of sales and in absolute dollars due to the change in the product mix to
higher margin products and the reduction of inventory overhead costs due to the
Company's successful efforts to shift a higher proportion of its sales to a
direct import basis. For Fiscal 1998, products representing approximately 77%
of net revenues were directly imported from manufacturers to the Company's
customers as compared to 46% for Fiscal 1997.1999, respectively.
The Company's gross profit margins continue to be subject to
competitive pressures arising from pricing strategies associated with the
category of the consumer electronics market in which the Company competes. The
Company's products are generally placed in the low-to-medium priced category of
the market, which tendhas a tendency to be the most competitive and generate the
lowest profits. The Company believes that the combination of its (i) Daewoo
License Agreement; (ii) various other license agreements; (iii) the (i) arrangement with Daewoo, (ii)introduction
of higher margin products and (iv) use of license agreements with Cargil, W. W. Mexicanasuch as Hello
Kitty(R) and Tel-Sound; (iii) introduction
of its new home theater(v) reduced product CinemaSurround(R), and (iv) distributor
agreements in Canada, Europe and parts of Asiareturns will all have a favorable impact on the
Company's gross profit. The Company continues to promote its direct import
programs to reducelimit its inventory levels and working capital risks thereby
reducing its inventory overhead costs.risks. In addition, the Company continues
to focus on its higher margin products and is reviewing new products whichthat can
generate higher margins than its current business, either through license
arrangements, acquisitions and joint ventures or on its own.
OTHER OPERATING COSTS AND EXPENSES
Other Operating Costs and Expenses Other operating costs and expenses
increased $1.3 millionas a percentage of net revenues decreased from 2.5% in Fiscal 1998 as compared1999 to 2.2% in
Fiscal 1997,2000. The decrease was primarily as a
result of the Company's implementation of its returndue to vendor program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSESdecreases in freight charges.
Selling, General and Administrative Expenses ("S,G&A") S,G&A, as a
percentage of net revenues, were 8.3% in Fiscal 2000 as compared to 8.2% in
Fiscal 1999. The increase is primarily due to increased litigation and
cooperative advertising costs, offset somwehat by the effect of a higher sales
base.
Equity In Earnings Of Affiliate The Company's 33% share in the earnings
of an Affiliate amounted to $277,000 for Fiscal 2000 and $1.5 million for Fiscal
1999. The Company's ownership investment in the Affiliate increased to 33% from
31% in Fiscal 1999 due to an additional investment by Emerson of SSG's shares
and through a reduction of SSG shares outstanding resulting from a SSG stock
buyback program.
Write-down of Investment in and Advances to Joint Ventures Write-down
of investment in and advances to Joint Ventures was $135,000 for Fiscal 2000 as
compared to $900,000 for Fiscal 1999. This was attributable to the finalization
of the Joint Venture in Fiscal 2000.
Loss on Marketable Securities The loss on marketable securities results
from the sale of marketable securities which are classified as
"available-for-sale".
Interest Expense Interest expense did not change significantly from
Fiscal 1999 to Fiscal 2000. The Company's reduced average borrowings were offset
by higher borrowing costs.
Provision for Income Taxes The Company's income tax benefit was
$577,000 for Fiscal 2000 as compared to a provision of $207,000 for Fiscal 1999.
The income tax benefit recorded for Fiscal 2000 was the result of a favorable
resolution of a tax claim and the acceptance of a compromise offer in Hong Kong.
(See Item 8- "Financial Statements and Supplementary Data - Note 7 of Notes to
the Consolidated Financial Statements".)
Net Income As a result of the foregoing factors, the Company generated
net income of $3.6 million for Fiscal 2000 as compared to $289,000 for Fiscal
1999.
Results of Operations - Fiscal 1999 compared with Fiscal 1998
Net Revenues Consolidated net revenues for Fiscal 1999 decreased $4.0
million (2.5%) as compared to Fiscal 1998. The decrease in net revenues resulted
primarily from decreases in unit sales of microwave ovens and home theater
products. The reduced revenues were offset by increased sales of audio products,
particularly CD/radio/cassette products and CD shelf systems. This decrease in
product sales was partially offset by a significant reduction in returned
product resulting from an overall more restrictive return policy by the
Company's customers. Revenues earned from the licensing of the "[OBJECT
OMITTED]" trademark were $3.6 million for Fiscal 1999 as compared to $5.6
million for Fiscal 1998. The decrease is attributable to the first year
transition of a marketing agreement with Daewoo Electronics, Ltd. implemented to
replace a previous license agreement.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories. (See Item 1 -
Business - "Licensing and Related Activities").
Cost of Sales Cost of Sales, as a percentage of consolidated net
revenues, was 87.3% and 87.5% in Fiscal 1999 and Fiscal 1998.
Other Operating Costs and Expenses Other operating costs and expenses
decreased $344,000 in Fiscal 1999 as compared to Fiscal 1998, primarily as a
result of reduced freight costs on returns, offset by increased return-to-vendor
program fees as this program was fully implemented this fiscal year.
Selling, General and Administrative Expenses ("S,G&A") S,G&A, as a
percentage of net revenues, were 8.2% in Fiscal 1999 as compared to 9.5% in
Fiscal 1998 as compared to 10.5% in
Fiscal 1997.1998. In absolute terms, S,G&A decreased by $3.2$2.5 million in Fiscal 19981999
as compared to Fiscal 1997.1998. The decrease in S,G&A as a percentage of net
revenues and in absolute terms was primarily attributable to the following: (i)
a decreasereduction in
salary expense associated with the Company's reduced staffing
levels; (ii)co-op advertising and a decreasereduction in charges related to bad debts, partially
offset by an increase in professional fees; and (iii) a decrease in
depreciation expense.
RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company did not record
any restructuring charges in Fiscal 1998, compared to charges of $3.0 million in
Fiscal 1997. The charges recorded in Fiscal 1997 includes charges for the
closure of the Company's local Canadian office; employee severance; asset write-
downs; and $1.9 million of nonrecurring charges relating to the proposed but
unsuccessful acquisition of International Jensen Incorporated.
EQUITY IN EARNINGS OF AFFILIATEconsulting fees.
Equity In Earnings Of Affiliate The Company's 28%31% share in the earnings
of an Affiliate amounted to $1.5 million for Fiscal 19981999, which was
approximately the same as for Fiscal 1998.
Write-down of Investment In And Advances to Joint Ventures Write-down
of investment in and advances to Joint Ventures was $900,000 for Fiscal 1999 as
compared to a loss of
$66,000$714,000 for Fiscal 1997. During1998. For Fiscal 1999 the write-down consisted
of a charge of $230,000 for the continuing liquidation of a joint venture and a
$670,000 charge for the write-down of a foreign investment. For Fiscal 1998 fourteen monthsthe
charge of earnings were
included in$714,000 was entirely for the Consolidated Statement of Operations, compared to Fiscal 1997
when only two months of operations were included in the Statement of Operationsjoint venture.
Loss on Marketable Securities Loss on marketable securities is due to
the acquisitionwrite-down of the Affiliates stockmarketable securities which are classified as
"available-for-sale", net of gains on December 10, 1996 and a change
in the Affiliate's Fiscal year.
INTEREST EXPENSEcompleted sales.
Interest Expense Interest expense decreased by $919,000$238,000 in Fiscal 19981999
as compared to Fiscal 1997.1998. The decrease was attributable to the amortization of
closing costs associated with a significantborrowing which were fully amortized in the
prior year, along with a reduction in short-term average borrowings on the U.S. revolving line of credit facility primarily due to thea
reduction in trade accounts receivable and inventory.
NET LOSSworking capital requirements.
Provision for Income Taxes The Company's provision for income taxes was
$207,000 for Fiscal 1999 as compared to $254,000 for Fiscal 1998. The provision
for income taxes consisted primarily of foreign tax for both years.
Net Income As a result of the foregoing factors, the Company generated
a
net lossincome of $1.4 million$289,000 for Fiscal 19981999 as compared to a net loss of
approximately $24.0$1.4 million for Fiscal 1997.
RESULTS OF OPERATIONS - FISCAL 1997 COMPARED WITH FISCAL 1996
NET REVENUES Consolidated net revenues for Fiscal 1997 decreased $66.9
million (27%) as compared to Fiscal 1996. The decrease in revenues resulted
primarily from decreases in unit sales of video cassette recorders, televisions1998.
Liquidity and television/video cassette recorder combination units due to higher retail
stock levels, increased price competition in these product categories, weak
consumer demand, a soft retail market and closure of Emerson's Canadian office
in December 1996. The reduced revenues were partially offset by increased sales
of microwave ovens attributable to a broader product line; the introduction of
the Company's new home theater product, CinemaSurround(TM);
and car audio products which were not introduced
until the second and third quarters of Fiscal 1996.
Revenues recognized from the licensing of theEmerson and G-Clef trademark were
$5.0 million in Fiscal 1997 as compared to $4.4 million for Fiscal 1996.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
COST OF SALES Cost of sales, as a percentage of consolidated revenues,
was 97% in Fiscal 1997 as compared to 94% in Fiscal 1996. In absolute dollars,
cost of sales decreased by $57.3 million (25%) for Fiscal 1997 as compared to
Fiscal 1996. Cost of sales margins in Fiscal 1997 were unfavorably impacted by
lower sales prices, a higher proportion of closeout sales, the allocation of
reduced fixed costs over a lower revenue base, and the recognition of income
relating to reduced reserve requirements for sales returns in Fiscal 1996. These
increases in cost of sales were partially offset by the introduction of higher
margin products_home theater and car audio products_and by a reduction in the
costs associated with product returns.
OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses
declined $1.7 million in Fiscal 1997 as compared to Fiscal 1996, primarily as a
result of (i) reduced sales levels and reduced customer returns and (ii) a
decrease in compensation and other expenses incurred to perform after-sale
services as a result of the Company's downsizing program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A, as a
percentage of net revenues, were 10.5% in Fiscal 1997 as compared to 8% in
Fiscal 1996. In absolute terms, S,G&A decreased by $781,000 in Fiscal 1997 as
compared to Fiscal 1996. The increase in S,G&A as a percentage of net revenues
was primarily attributable to the allocation of S,G&A costs over a lower sales
base. In absolute terms the decrease in S,G&A was primarily attributable to a
reduction in fixed costs and compensation expense relating to the Company's
continuing cost reduction program in both the U.S. and its foreign offices and
lower selling expenses attributable to lower sales, partially offset by the
reversal of accounts receivable reserves in the prior year and foreign currency
exchange losses.
RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company recorded charges
of approximately $3.0 million in Fiscal 1997. Of this total, $1.1 million
related to restructuring charges for the closure of the Company's local Canadian
office and distribution operations in favor of utilizing an independent
distributor and the downsizing of the Company's U.S. operations. The charges
include costs for employee severance, asset write-downs, and facility and
equipment lease costs. The remaining portion of the $3 million charge included
$1.9 million of nonrecurring charges relating to the proposed but unsuccessful
acquisition of International Jensen Incorporated. These costs primarily include
investment banking, loan commitment, and professional fees, including litigation
costs, relating to the proposed acquisition.
EQUITY IN EARNINGS OF AFFILIATE The Company's 28% share in the loss of
the Affiliate amounted to $66,000 for Fiscal 1997. During Fiscal 1997 the
Company included two months of the Affiliate's operation in the Company's
consolidated statement of operations following the December 10, 1996 purchase of
the Affiliate's shares.
INTEREST EXPENSE Interest expense increased by $154,000 in Fiscal 1997 as
compared to Fiscal 1996. The increase was attributable to interest incurred on
the debentures issued in August 1995 partially offset by lower average
borrowings at lower average interest rates on the U.S. revolving line of credit
facility.
NET LOSS As a result of the foregoing factors, the Company generated a
net loss of $24.0 million for Fiscal 1997 as compared to a net loss of $13.4
million for Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCESCapital Resources
Net cash provided by operating activities was $6,091,000$6.4 million for Fiscal
1998.2000. Cash was primarily provided by an increase in the profitability of the
Company, a reduction in accountsof other receivables and
inventories partially offset by an increase in
prepaid expenses. The decrease
in accounts receivable is due primarily to the change in the nature of the
Company's sales to a direct shipment basis and the decrease in inventory is
primarily due to a more conservative purchasing strategy focusing on reducing
inventory levels combined with a majority of the Company's sales being made on a
direct basis.inventory.
Net cash used by investing activities was $538,000 for Fiscal 2000.
Cash was utilized primarily for additional purchases of shares in its
unconsolidated Affiliate (See Item 8 - "Financial Statements and Supplementary
Data - Note 3 of Notes to the Consolidated Financial Statements."), and computer
related capital additions, partially offset by the sale of marketable
securities.
Net cash used for financing activities was $6,096,000. Cash was used$390,000 primarily to reducefor the
purchase of the Company's borrowings under its U.S.stock for treasury, partially offset by increased
borrowings.
The Company maintains an asset-based $10 million U. S. line of credit
facility. On March 31, 1998, the Company amended its Loan and Security
Agreement which includes a senior secured credit facility.credit.
The facility provides for revolving loans and letters of credit, subject to
certain limits which, in the aggregate, cannot exceed the lesser of $10 million
or a "Borrowing Base" amount based on specified percentages of eligible accounts
receivable and inventories. The Company is required to maintain a certain working
capital and net
worth levels,level, and is in compliance with these requirements.this requirement. At April 3, 1998,March 31, 2000,
there were no outstandingwas $2,914,000 of borrowings under the facility, and no outstanding
letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $28.5$23.5 million with a bank in Hong Kong
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $25$20
million credit facility with seasonal over - advances, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit. At April 3, 1998,March 31, 2000, the Company's Hong Kong subsidiary pledged $1 million
in certificates of deposit to this bank to assure the availability of thesethe $3.5
million credit facilities.facility. At April 3,
1998,March 31, 2000, there were $1,958,000approximately $3,442,000
and $23,700,000$24,566,000, respectively, of letters of credit outstanding under these
credit facilities.
The Company successfully concludedhas continued to enter into licensing agreements for
existing core business products and new products, and intends to pursue
additional licensing opportunities. The Company believes that such licensing
activities will have a continued positive impact on net operating results by
generating royalty income with minimal costs, if any, and without the necessity
of utilizing working capital or accepting customer returns. (See "Business-LicensingItem 1 -
Business -"Licensing and Related Activities").
SHORT-TERM LIQUIDITY.ShortTerm Liquidity. Cash increased to $8.5 million as of March 31,
2000 from $3.1 million as of April 2, 1999, primarily from its operations. At
present, management believes that future cash flow from operations and the
institutional financing noted above will be sufficient to fund all of the
Company's cash requirements for the next fiscal year. However, the adequacy of future cash flow from operations is dependent
upon the Company achieving its operating plan. During Fiscal 1998, the Company
reduced inventory levels approximately 15%, accounts receivable by 58% and
executed cost-reduction programs. The Company intends to maintain these reduced
inventory levels and to continue the sale of its products on a direct basis. In Fiscal 1998,2000, products
representing approximately 77%82% of net revenues were directly imported from
manufacturers to the Company's customers. The direct import program implemented
by the Company is critical in providing sufficient working capital to meet its
liquidity objectives. If the Company is unable to maintain its existing level of
direct sales volume, it may not have sufficient working capital to finance its
operating plan.
The Company is currently in arrears on $727,000$925,000 of dividends on the
Company'sits
Series A Preferred Stock. The preferred stock is convertible into
common stock until March 31, 2002 at a price per share of common stock equal to
80% of the defined average market value of a share of common stock on the date
of conversion. The preferred stock dividend rate for Fiscal 1999 is 4.2%.
The Company's liquidity is impacted by the seasonality of its business.
The Company generally records the majority of its annual sales in the quarters
ending September 30 and December 31.December. This requires the Company to open higher amounts
of letters of credit during the quarters ending June 30 and September, 30, therefore
increasing the Company's working capital needs during these periods.
Additionally, the Company receives the largest percentage of customer returns in
the quartersquarter ending March 31 and June 30.March. The higher level of returns during these periodsthis period
adversely impacts the Company's collection activity, and therefore its
liquidity. The Company believes that the license agreements with Cargil, Daewoo, WW
Mexicana, Tel-Sound and other licensees, as discussed above,
and the arrangements it has implemented concerning returned merchandise, should
favorably impact the Company's cash flow over their respective terms.
LONG-TERM LIQUIDITY.
Long-Term Liquidity. The Company has discontinued certain lower margin
product lines of products and believes that this, together with theits various license
agreements covering
its North American video business and the introduction of CinemaSurround(TM),
can reversehigher margin products will result in
continued profitability, thus reversing the negative trendstrend of net losses reported in Fiscal 1998 and Fiscal
1997.prior
fiscal years. The senior secured credit facility with the Lender was amended in
March 1998 and extended to March 31, 2001 and imposes a financial covenantscovenant on
the Company whichCompany. Non-compliance of the covenant could materially affect its liquidity in the
future.Company's future liquidity. Management believes that its direct import program
and the anticipated cash flow from operations and the financing noted above will
provide sufficient liquidity to meet the Company's operating and debt service
cash requirements on a long-termlongterm basis.
There were no substantial commitments for purchase orders outside the
normal purchase orders used to secure product as of March 31, 2000. See Item 8 -
"Financial Statements and Supplementary Data - Note 13 of Notes to the
Consolidated Financial Statements" for disclosure on material cash commitment
subsequent to March 31, 2000.
Year 2000
Emerson successfully completed its program to ensure Year 2000 readiness.
As of April 3, 1998a result, the Company had no material commitments for Capital
expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had a significant effect on the
Company'sYear 2000 problems that affected its business,
results of operations during Fiscal 1998. The Company's exposureor financial condition. Emerson incurred expenses of
$400,000 related to currency fluctuations has been minimized byits Year 2000 program.
Recently-Issued Financial Accounting Pronouncements
During the usesecond quarter of U.S. dollar denominated
purchase orders, and by sourcing production in more than one country. The
Company purchases virtually all of its products from manufacturers located in
various Asian countries. The economic crises in these countries and its related
impact on their financial markets has not impacted the Company's ability to
purchase product. Should these crises continue, they could have a material
adverse effect on the Company by inhibiting its relationship with its suppliers
and its ability to acquire products for resale.
YEAR 2000
The Company has developed and is in the process of implementing a plan to
modify its management information system to be year 2000 compliant. The Company
currently expects to be substantially complete with this conversion by mid-1999.
The incremental cost of conversion is estimated to be less than $300,000. The
Company does not expect the conversion to have a significant effect on
operations or the Company's financial results. In addition, the year 2000
problem may impact other entities with which the Company transacts business, and
the Company cannot predict the effect of the year 2000 problem on such entities.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of1998 the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at April 3, 1998, include the following
Statements(FASB)
issued Statement of Financial Accounting Standards ("SFAS"):(SFAS) No. 133 "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS no. 129, "DisclosureNo. 137 which deferred the effective date of Information about Capital Structure," whichSFAS No. 133 by one
year. SFAS No. 133 will be effective for the Company for the fiscal year ending March 31, 1999,
consolidates existing disclosure requirements. This new standard requires the
Company to report its capital structureFiscal 2001 and
relevant information in summary
format. The Company voluntarily adopted SFAS No. 129 in the 1998 fiscal year.
SFAS No. 130, "Reporting Comprehensive Income," establishes accounting and reporting standards for reportingderivative instruments,
including certain derivative instruments embedded in other contracts, and
display of comprehensive income (all changes in equity during a
period except those resulting from investments by and distributions to owners)
and its components in the financial statements. This new standard, which will
be effective for the Company for the fiscal year ending March 31, 1999, is not
currently anticipated to have a significant impact on the Company's financial
statements based on the current financial structure and operations of the
Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the fiscal year ending
March 31, 1999, establishes standards for reporting information about operating
segments in the annual financial statements, selected information about
operating segments in interim financial reports and disclosures about products
and services, geographic areas and major customers. This new standard requires
the Company to report financial information on the basis that is used internally
for evaluating segment performance and deciding how to allocate resources to
segments, which may result in more detailed information in the notes to the
Company's financial statements than is currently required and provided.hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 131133 on its reporting of financial information.
FORWARD-LOOKING INFORMATIONForward-Looking Information
This report contains various forward lookingforward-looking statements under the
Private Securities Litigation Reform Act of 1995 (the "Reform Act'Act") and
information that areis based on Management's beliefs as well as assumptions made by
and information currently available to Management. When used in this report, the
words "anticipate", "estimate", "expect", "predict", "project", and similar
expressions are intended to identify forward lookingforward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
expected or projected. Among the key factors that could cause actual results to
differ materially are as follows: (i) the ability of the Company to continue
selling products to its largest customers whose net revenues represented 58%55% and
16%21% of Fiscal 19982000 net revenues; (ii) competitive factors such as competitive
pricing strategies utilized by retailers in the domestic marketplace whichthat
negatively impacts product gross margins; (iii) the ability of the Company to
maintain its suppliers, primarily all of whom are located in the Far East; (iv)
the Company's ability to replace the licensing income from the
Supplier with commission revenues from Daewoo; (v) the outcome of the
litigation. (See "Legal Proceedings"); (vi) the availability of sufficient
capital to finance the Company's operating plans; (vii)litigation; (v) the ability of the Company to comply with the
restrictions imposed upon it by its outstanding indebtedness; and (viii)(vi) general
economic conditions. Due to these uncertainties and risks, readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.Inflation and Foreign Currency
Neither inflation nor currency fluctuations had a significant effect on
the Company's results of operations during Fiscal 2000. The Company's exposure
to currency fluctuations has been minimized by the use of U.S. dollar
denominated purchase orders, and by sourcing production in more than one
country. The Company purchases virtually all of its products from manufacturers
located in various Asian countries. Financial turmoil in the South American
economies may have an adverse impact on the Company's South American Licensee.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. Directors And Executive Officers
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 11. Executive Compensation
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedule:
Report of Independent Auditors F- 1
Consolidated Statements of Operations for the years ended
April 3, 1998, March 31, 1997 and 1996 F- 2
Consolidated Balance Sheets at April 3, 1998
and March 31,1997 F- 3
Consolidated Statements of Changes in
Shareholders' Equity
for the years ended April 3, 1998,
March 31, 1997 and 1996 F- 4
Consolidated Statements of Cash Flows for
the years ended April 3, 1998, March 31, 1997
and 1996 F- 5
Notes to Consolidated Financial Statements F- 6
Schedule VII Valuation and Qualifying
Accounts and Reserves F- 27
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED
INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year ended April 3, 1998.
(c) Exhibits
(2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of
Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under
Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared effective
by the Securities and Exchange Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and between Old
Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio
(Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as
of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Form of Promissory Note issued to certain Pre-Petition Creditors
(incorporated by reference to Exhibit (10) (e) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (b) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (c) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995,
among Emerson, Majexco Imports, Inc. and Congress (incorporated by
reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(10) (d) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (e) Amendment No. 3 to Financing Agreements, dated as of August 20, 1996
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (f) Amendment No. 4 to Financing Agreements, dated as of
November 14, 1996 (incorporated by reference to Exhibit (10) (c)
of Emerson's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
(10) (g) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997
(incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (h) Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson.
(10) (i) Pledge Agreement dated as of February 4, 1997 by Fidenas International
Limited, L.L.C. ("FIN") in favor of TM Capital Corp. (incorporated by
reference to Exhibit (10) (a) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996).
(10) (j) Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (k) License and Exclusive Distribution Agreement with Cargil International
Corp. dated as of February 12, 1997 (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996).
(10) (l) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics
Co., Ltd.
(10) (m) Securities Purchase Agreement dated as of November 27, 1996, by and
between Sport Supply Group, Inc. ("SSG") and Emerson (incorporated by
reference to Exhibit (2)(a) of Emerson's Current Report on Form 8-K
dated November 27, 1996).
(10) (n) Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (o) Form of Registration Rights Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(b) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (p) Consent No. 1 to Financing Agreements among Emerson, certain of its
subsidiaries, and Congress (incorporated by reference to Exhibit
(10)(b) of Emerson's Current Report on Form 8-K dated November 27,
1996).
(10) (q) Form of Termination of Employment Agreement between Emerson and John
Walker dated as of January 15, 1998.*
(10) (r) License Agreement dated as of March 30, 1998 by and between
Tel-Sound Electronics, Inc. and Emerson. *
(10) (s) License Agreement dated as of March 31, 1998 by and between WW
Mexicana, S. A. de C. V. and Emerson. *
(10) (t) Amendment No. 7 to Financing Agreements, dated as of March 31,
1998. *
(10) (u) Amendment No. 1 to Pledge and Security Agreement dated as of
March 31, 1998.*
(10) (v) Second Lease Modification dated as of May 15, 1998 between
Hartz Mountain, Parsippany and Emerson. *
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges
and Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of April 3, 1998.*
(23) Consent of Independent Auditors*
(27) Financial Data Schedule for year ended April 3, 1998.*
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: July 1, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, July 1, 1998
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ John P. Walker Executive Vice President July 1, 1998
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director July 1, 1998
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 1, 1998
Peter G. Bunger
/s/ Jerome H. Farnum Director July 1, 1998
Jerome H. Farnum
/s/ Raymond L. Steele Director July 1, 1998
Raymond L. Steele REPORT OF INDEPENDENT
AUDITORS
To the Board of Directors and Shareholders
of Emerson Radio Corp.
We have audited the accompanying consolidated balance sheets of Emerson Radio
Corp. and Subsidiaries as of April 3, 1998 and March 31, 1997,2000 and April 2, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended April 3, 1998.March 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(1).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
auditing
standards.in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance aboutregarding whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Emerson
Radio Corp. and Subsidiaries at April 3, 1998 and March 31, 1997,2000 and April 2, 1999, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended April 3, 1998,March 31, 2000, in conformity with accounting
principles generally accepted accounting principles.in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
July 1, 1998May 30, 2000
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2000, April 2, 1999, and April 3, 1998 March 31, 1997 and 1996
(In thousands, except per share data)
2000 1999 1998
1997 1996----------------- ------------- -------------
Net revenues $ 204,956 $ 158,730 $ 162,730
Costs and expenses:
Net revenues $ 162,730 $ 178,708 $ 245,667
Cost of sales 178,125 138,502 142,372 174,184 231,455
Other operating costs and expenses 4,501 4,007 4,351 3,079 4,803
Selling, general and administrative expenses 16,996 12,943 15,483
18,716 19,497
Restructuring and other
nonrecurring charges -- 2,972 ------------------- ------------ --------------
199,622 155,452 162,206
198,951 255,755----------------- ------------ --------------
Operating income (loss)5,334 3,278 524 (20,243) (10,088)
Equity in earnings (loss) of Affiliateaffiliate 277 1,499 1,524 (66) --
Write-down of investment in and advances to Joint Venturejoint
venture (135) (900) (714)
--Loss on marketable securities, net (149) (1,109) --
Interest expense, net (2,284) (2,272) (2,510)
(3,429) (3,275)
Loss----------------- ------------- -------------
3,043 496 (1,176)
Income (loss) before income taxes
(1,176) (23,738) (13,363)
Provision (benefit) for income taxes ( 577) 207 254
230 26----------------- ------------------ ----------------
Net lossincome (loss) $ 3,620 $ 289 $ (1,430)
$(23,968) $(13,389)================= ================== ================
Net lossincome (loss) per common share
Basic $ .07 $ ( .01) $ (.04)
$ (.61) $ (.35)Diluted .07 ( .01) (.04)
Weighted average shares outstanding
Basic 47,632 49,398 45,167
40,292 40,253
Diluted 53,508 49,398 45,167 40,292 40,253
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of April 3, 1998 and March 31, 19972000 and April 2, 1999
(In thousands, except share data)
1998 1997
ASSETS 2000 1999
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 2,6088,539 $ 2,6403,100
Available for sale securities 37 738
Accounts receivable (less allowances of $4,884$3,977 and $6,001,$3,907, respectively) 5,247 12,4524,756 5,143
Other receivables 6,474 2,1174,027 6,782
Inventories 11,375 13,32914,384 11,608
Prepaid expenses and other current assets 2,503 4,3802,653 2,839
---------- ------
Total current assets 28,207 34,91834,396 30,210
Property and equipment (net of accumulated
depreciation of $3,152 and 1,381 2,130
$3,521, respectively)1,034 1,211
Investment in Affiliatesaffiliates and Joint Venture 17,522 16,033joint venture 20,277 19,525
Other assets 4,810 5,6872,289 3,449
---------- --------
Total Assets $51,920 $58,768$ 57,996 $ 54,395
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ --2,914 $ 5,6892,216
Current maturities of long-term debt 85 8597 50
Accounts payable and other current liabilities 12,256 13,05316,499 16,759
Accrued sales returns 4,511 2,7304,897 3,926
Income taxes payable 191 103135 400
----------------- ---------------
Total current liabilities 17,043 21,66024,542 23,351
Long-term debt, less current maturities 20,750 20,85620,750
Other non-current liabilities 179 223141 97
Shareholders' Equity:
Preferred shares -- 10,000,000 shares authorized; 5,2373,677 and 10,0003,714
shares issued and outstanding, respectively 4,713 9,0003,310 3,343
Common shares -- $.01 par value, 75,000,000 shares authorized;
51,044,73051,331,615 shares issued; 46,477,615 and 40,335,64247,828,215
shares
issued and outstanding, respectively 510 403513 513
Capital in excess of par value 113,201 109,278
Accumulated deficit (104,673) (102,843)113,289 113,288
Cumulative translation adjustment 197 191(76) (78)
Accumulated deficit ( 101,445) (104,962)
Treasury stock, at cost, 4,854,000 and 3,503,400 shares, respectively (3,028) (1,907)
----------------- ---------------
Total shareholders' equity 13,948 16,02912,563 10,197
----------------- ---------------
Total Liabilities and Shareholders' Equity $51,920 $ 58,76857,996 $ 54,395
================= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For The Years Ended AprilFOR THE YEARS ENDED MARCH 31,
2000, APRIL 2, 1999 AND APRIL 3, 1998 March 31, 1997 and 1996
(In thousands, except share data)
Common Shares Issued Cap-
ital Cumula-
in tive
Excess Trans-
Prefer-Capital Cumulative Total
Preferred Number Par Treasury In excess of Accum- lation
redTranslation Accumulated Shareholders
Stock of Par Par ulated Adjust-
Stock Shares Value Stock Par Value Adjustment Deficit mentEquity
Balance-March
Balance--March 31, 1995 $9,000 40,252,7721997 $ 9,000 40,335,642 $ 403 $107,969 $(64,086) $ 365
Issuance of
common stock
warrants 1,065
Preferred
stock dividends (700)
Other (43) (202)
Net loss (13,389)
Balance-March 31,
1996 9,000 40,252,772 403 108,991 (78,175) 163
Issuance of
common stock
warrants 257
Exercise of
stock options
and warrants 82,870 40
Preferred
stock dividends (700)
Other (10) 28
Net loss (23,968)
Balance-March 31,
1997 9,000 40,335,642 403-- $ 109,278 $ 191 $ (102,843) 191$ 16,029
Issuance of common stock
upon conversion of
preferred stock (4,287) 10,709,088 107 4,180
Cancellation of common
stock warrants (257) (257)
Preferred stock dividends
declared (400) Other 6(400)
Comprehensive loss:
Net loss for the year (1,430) Balance-April(1,430)
Currency translation
adjustment 6 6
Comprehensive loss (1,424)
------ ---------- --- ------- ------ ---- -------- -------
Balance--April 3, 1998 $4,713 $51,044,730 $5104,713 51,044,730 510 113,201 197 (104,673) 13,948
Issuance of common stock
upon conversion of
preferred stock (90) 286,885 3 87
Purchase of treasury stock (1,907) (1,907)
Purchase of preferred stock (1,280) (407) (1,687)
Preferred stock dividends
declared
(171) (171)
Comprehensive income:
Net income for the year 289 289
Currency translation adjustment (275) (275)
-------
Comprehensive income 14
----- ---------- --- ------ ------ ---- -------- ------
Balance - April 2, 1999 3,343 51,331,615 513 (1,907) 113,288 (78) (104,962) 10,197
Purchase of treasury stock (1,121) (1,121)
Purchase of preferred stock (33) 1 (32)
Preferred stock dividends
declared (103) ( 103)
Comprehensive income:
Net income for the year 3,620 3,620
Currency translation adjustment 2 2
-------
Comprehensive income 3,622
--------- ------------- ----- --------- --------- ---------- ---------- --------
Balance - March 31, 2000 $ 113,201 $(104,673)3,310 51,331,615 $513 $(3,028) $113,289 $ 197(76) $(101,445) $12,563
========= ============= ===== ========= ========= ========== ========== ========
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS For theThe Years
Ended March 31, 2000, April 2, 1999,
and April 3, 1998
March 31, 1997 and 1996
(In thousands)
2000 1999 1998
1997 1996------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net lossincome (loss) $ (1,430)3,620 $ (23,968)289 $ (13,389)(1,430)
Adjustments to reconcile net lossincome (loss) to net
cash provided
(used) by operating activities:
Depreciation and amortization 1,306 1,245 1,759 2,844 3,664
Equity in earnings of affiliate (277) (1,499) (1,524)
66 --
Restructuring and other
nonrecurring charges -- 2,782Write-down of investment in joint venture 153 900 714
Loss on marketable securities 149 1,298 --
Asset valuation and loss reserves (2,378) ( 752) (14,209)626 (1,375) (3,092)
Other 2 (275) (251) 1,048 298
Changes in assets and liabilities:
Accounts receivable 9,151 11,230 17,391(45) 2,642 4,543
Other receivables 2,755 (308) (4,357)
(2,117) --
Inventories 3,418 20,871 (437)(2,970) 1,021 4,505
Prepaid expenses and other current assets 845 3,884 3,231186 (460) (241)
Other assets ( 71) (896) (601)493 699 (71)
Accounts payable and other current liabilities 841 1,827 (9,092)634 900 2,739
Income taxes payable (265) 209 88
(98) (53)------------------ ------------------ ----------------
Net cash provided (used) by operations 6,091 16,721 (13,197)6,367 5,286 3,382
------------------ ------------------ ---------------
Cash Flows from Investing Activities:
Proceeds from (investment in) marketable securities 552 (2,036) --
Investment in affiliates -- (14,513) 1,840(841) (91) 2,709
Additions to property and equipment (462) (413) (27)
(255) (1,666)
Redemption of certificates of
depositDistributions from joint venture 213 241 --
100 945
Other -- 12 (477)------------------ ------------------ ---------------
Net cash (used) provided (used) by investing activities (27) (14,656) 642(538) (2,299) 2,682
------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net repaymentsborrowings (repayments) under line of credit facility 698 2,216 (5,689) (15,462) (6,145)
Net proceeds from issuance of
senior subordinated
convertible debentures -- -- 19,208
Retirement of long-term debt 47 (35) (106) (118) (298)
Payment of dividend on preferred stock dividends(26) (407) (257)
(231) (700)
PaymentPurchase of debt costspreferred and common stock (1,153) (3,187) --
-- (237)
Other 44 (82) (44)
253 (160)------------------ ------------------ ----------------
Net cash provided (used)used by financing activities (390) (1,495) (6,096)
(15,558) 11,668------------------ ------------------ ---------------
Net decreaseincrease (decrease) in cash and cash equivalents 5,439 1,492 (32) (13,493) (887)
Cash and cash equivalents at beginning of year 2,640 16,133 17,0203,100 1,608 1,640
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $2,608 $ 2,640 $16,1338,539 $ 3,100 $ 1,608
================== ================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 273 $ 203 $ 316
================== ================== ===============
Cash paid for income taxes $ 11 $ 32 $ 152
================== ================== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1998March 31, 2000
Note 1 -- Significant Accounting Policies:
BASIS OF PRESENTATIONBasis of Presentation
The consolidated financial statements include the accounts of Emerson Radio
Corp. and its majority-ownedmajorityowned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. A 28% ownedThe Company's
investment in an Affiliateaffiliate and a 50% ownership ofin a domestic joint venture are accounted for by
the equity method (see Notes 3 and 15).
EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
USE OF ESTIMATESmethod.
The preparation of the financial statements in conformity with generally
accepted accounting principles 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.
CASH AND CASH EQUIVALENTS
Short-termCertain reclassifications were made to conform prior years financial statements
to the current presentation.
Cash and Cash Equivalents
Shortterm investments with original maturities of three months or less at the
time of purchase are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
FAIR VALUES OF FINANCIAL INSTRUMENTSFair Values of Financial Instruments
The estimated fair values of financial instruments have been determined by the
Company using available market information, including current interest rates,
and the following valuation methodologies:
Cash and cash equivalentequivalents and accounts receivable -- the carrying amounts
reported in the balance sheet for cash and cash equivalents approximate their
fair values because of the short maturity of these instruments.
The carrying
amountfair value of accounts receivable approximate their fair value.
Otherother receivables -- the fair value is estimated on the basis of discounted cash
flow analyses, using appropriate interest rates for similar instruments.
Notes payable and long-term debt -- the fair value is estimated on the basis of
rates available to the Company for debt of similar maturities.
INVENTORIES
Inventories
Inventories are stated at the lower of cost (first-in, first-out)(first in, first out) or
market.
CONCENTRATIONS OF CREDIT RISKInvestments
The Company determines the appropriate classifications of securities at the
time of purchase. The investments held by the Company at March 31, 2000 and
April 2, 1999 were classified as "available-for-sale." Realized gains and losses
are reported separately as a component of income. Declines in the market value
of securities deemed to be other than temporary are included in earnings (See
Note 10 - Available-for-Sale Securities).
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable represent sales to retailers
and distributors of consumer electronics throughout the United States and
Canada. The Company periodically performs credit evaluations of its customers
but generally does not require collateral.
DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLESDepreciation, Amortization and Valuation of Property and Intangibles
Property and equipment, stated at cost, are being depreciated by the
straight-linestraightline method over their estimated useful lives. Leasehold improvements
are amortized on a straight-linestraightline basis over the shorter of the useful life of the
improvement or the term of the lease.
Goodwill (resulting from itsthe investment in an Affiliate)affiliate) and trademarks are
amortized using the straight-line method, principally over 40 years. Management
periodically evaluates the recoverability of goodwill and trademarks. The
carrying value of goodwill and trademarks would be reduced if it is probable
that management's best estimate of future operating income before amortization
of goodwill and trademarks will be less than the carrying value over the
remaining amortization period.
FOREIGN CURRENCY
Foreign Currency
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Gains
and lossesLosses
resulting from foreign currency transactions are included in the Consolidated
Statements of Operations and amounted to a gain (loss) of
($39,000), ($79,000), and $475,000 for the years ended April 3, 1998, March 31,
1997 and 1996, respectively.Operations.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
RECLASSIFICATION
Certain amounts inRecently Issued Accounting Pronouncements
During the prior period's consolidated financial
statements have been reclassified to conform to current periods presentation.
CHANGE IN ACCOUNTING PERIOD
Beginning in Fiscalsecond quarter of 1998 the Financial Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133 by one
year. SFAS No. 133 will be effective for the Company changedfor Fiscal 2001 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 133 on its reporting of financial information.
Change in Accounting Period
The Company's financial reporting year to a 52/53 week year endingended on the Friday closest to March
31. Accordingly, the current fiscal year ended on April 3, 1998.March 31, 2000. Beginning in
Fiscal 2001, the Company is changing its financial reporting year to end March
31.
Note 2 -- Inventories:
Inventories are comprised primarily of finished goods.
Spare parts
inventories, net of reserves, aggregating $384,000 and $1,469,000 at April 3,
1998 and March 31, 1997, respectively, are included in "Prepaid expenses and
other current assets."
Note 3 -- Investment in Unconsolidated Affiliate
On December 10, 1996,Affiliate:
The Company owns 2,386,000 (33% of the Company purchased fromissued and outstanding) shares
of common stock of Sport Supply Group, Inc. ("Affiliate"SSG") 1,600,000, of which 2,269,500 shares
were purchased in 1996, and the balance was purchased in Fiscal 2000, at a total
cost of newly issued common stock, $.01 par value per
share (the "SSG Stock"), for aggregate consideration of $11.5 million, or
approximately $7.19 per share.$ 16,569,000. In addition, the Company purchased, for an
aggregate consideration of $500,000, five-yearowns warrants expiring 2001 (the "SSG
Warrants") to acquirepurchase an
additional 1,000,0001 million shares of SSGSSG's common stock at an
exercise price offor $7.50 per share subject to standard anti-dilution
adjustments, pursuant to a Warrant Agreement. Prior to such purchase,("SSG
Warrants") which the Company beneficially owned approximately 9.9%purchased in 1996 at an aggregate cost of the outstanding shares of SSG
Stock which it had purchased for $4,228,000 in open market transactions. Based
upon the purchase of the SSG Stock, as set forth above, the Company owns
approximately 28% of the outstanding SSG common shares.$500,000.
If the Company exercises all of the SSG Warrants, it will beneficially own
approximately 36%41% of the SSG common shares. In JulyThe warrants are scheduled to expire
in December 2001. Effective March 1997, the Company entered into a Management
Services Agreement with SSG, wherebyunder which SSG would provideprovides various managerial and
administrative services to the Company.Company for a fee.
The investment in and results of operations of SSG are accounted for by the
equity method. In January 1997, SSG changed its financial reporting year end
from October 31 to September 30. This change in accounting period resulted in
the Company now recording its share of SSG earnings on a concurrent basis.
Previously, the Company recorded its share of SSG's earnings on a two month
delay. The Company's investment in SSG includes goodwill of $3,973,000 and$7,355,000
which is being amortized on a straight line basis over 40 years. At April 3, 1998,March 31,
2000, the aggregate market value quoted on the New York Stock Exchange of Emerson's shares
of SSG
common shares equivalent in number to those owned by Emerson was approximately
$21$14 million. Summarized financial information derived from SSG'sthe annual and
quarterly financial reports toas filed with the Securities and Exchange Commission
was as follows (in thousands):
(Unaudited)
April 3, 1998 January 31, 1997
Current assets $ 37,282 $ 39,850
Property, plant and
equipment and
other assets 19,878 36,748
Current liabilities 8,395 39,011
Long-term debt 7,498 324
(Unaudited)
For the 14 For the 3
Months Ended Months Ended
April 3, 1998 January 31, 1997
Net sales $ 111,214 $ 14,580
Gross profit 43,275 5,905
Earnings (loss) from
continuing operations 5,903 (1,356)
Loss from discontinued
operations -- (2,574)
Net (loss) income 5,903 (3,930)
Unaudited
------------------- --------------------
March 31, 2000 April 2, 1999
------------------- --------------------
Current assets $ 50,488 $ 44,322
Property, plant and equipment
and other assets 30,158 30,252
Current liabilities 38,450 14,965
Long-term debt 252 19,045
Stockholders' Equity 41,945 40,563
Unaudited
----------------------
For the 12 Months For the 12 Months
Ended Ended
March 31, 2000 April 2, 1999
---------------------- -------------------
Net sales $ 110,552 $ 100,953
Gross profit 39,598 39,090
Net income 2,083 5,454
Note 4 --- Property and Equipment:Equipment
As of April 3, 1998 and March 31, 1997,2000 and April 2, 1999, property and equipment is comprised of
the following:
1998 1997
(In thousands)
Furniture and fixtures. . . . . . $3,745 $4,021
Machinery and equipment . . . . . 532 891
Leasehold improvements. . . . . . 256 739
4,533 5,651
Less accumulated depreciation and
amortization . . . . . . . . . 3,152 3,521
$1,381 $2,130
2000 1999
------------ -------------
(In thousands)
Furniture and fixtures. . . . . . . . . . . . . $ 3,555 $ 3,228
Machinery and equipment . . . . . . . . . . . . 614 493
Leasehold improvements. . . . . . . . . . . . . 267 267
------------ --------------
4,436 3,988
Less accumulated depreciation and amortization 3,402 2,777
------------ --------------
$ 1,034 $ 1,211
============ ==============
Depreciation and amortization of property and equipment amounted to
$776,000, $1,631,000$638,700, $583,000, and $2,800,00$776,000 for the years ended March 31, 2000, April 2,
1999, and April 3, 1998, March 31,
1997 and 1996, respectively.
Note 5 -- Credit Facility:
On March 31, 1998, the Company amended its existing Loan and Security
Agreement (the "Loan and Security Agreement"), which includes a senior secured
credit facility with a U.S. financial institution. The amendment to the facility
reduced the facility to $10 million from $35 million and amended certain
financial covenants as defined below. The facility provides for revolving loans
and letters of credit, subject to individual maximums which, in the aggregate,
cannot exceed the lesser of $10 million or a "Borrowing Base" amount based on
specified percentages of eligible accounts receivable and inventories. Amounts
outstanding under the senior credit facility are secured by substantially all of
the Company's U.S. and Canadian assets except for trademarks, which are subject
to a negative pledge covenant, and a majorityportion of its minority interest of its
investment in an unconsolidated Affiliate.affiliate. At April 3, 1998 and March 31, 1997,2000 and April 2, 1999,
the weighted average interest rate on the outstanding borrowings was 9.75%
and 9.5%, respectively,9.36% for
both years, which is the prime rate of interest plus 1.25%. Interest paid
totaled $316,000, $1,494,000$273,000, $203,000, and $2,429,000 respectively,$316,000 for the years ended March 31, 2000,
April 2, 1999, and April 3, 1998, March 31, 1997 and 1996.respectively. Pursuant to the Loan and
Security Agreement, the Company is restricted from, among other things, paying
cash dividends (other than on the Series A Preferred Stock), redeeming stock,
and entering into certain transactions without the lender's prior consent and is
required to maintain certain working capital and equitynet worth levels. An event of default under the
credit facility maywould trigger a default under the Company's 8-1/8 1/2% Senior
Subordinated Convertible Debentures Due 2002. At March 31, 1998,2000 and April 2,
1999, there were no$2,914,000 and $2,216,000, respectively, outstanding borrowings
under the facility, and no outstanding letters of credit issued for inventory
purchases.
At March 31, 1997, there was $5,689,000 outstanding
borrowing and $444,000 outstanding letters of credit.
Note 6 -- Long-Term Debt:
As of April 3, 1998 and March 31, 1997,2000 and April 2, 1999, long-term debt consisted of the
following:
1998 1997
(in thousands)
8-1/2% Senior Subordinated
Convertible Debentures Due 2002. . . $20,750 $20,750
Notes payable to unsecured
creditors . . . . . . . . . . . . . -- 3
Equipment notes and other . . . . . . . 85 188
20,835 20,941
Less current obligations. . . . . . . . 85 85
Long term debt $20,750 $20,856
2000 1999
------------- --------------
(In thousands)
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 . . . . . . . . . . . $ 20,750 $ 20,750
Equipment notes and other . . . . . . . . 97 50
------------- --------------
20,847 20,800
Less current obligations . . . . . . . . 97 50
------------- --------------
Long-term debt $ 20,750 $ 20,750
============= ==============
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were
issued in August 1995. The Debentures bear interest at the rate of 8-1/8 1/2% per
annum, payable quarterly, and mature on August 15, 2002. The Debentures are
convertible into shares of the Company's common stock at any time prior to
redemption or maturity at an initial conversion price of $3.9875 per share,
subject to adjustment under certain circumstances. Beginning August 15, 1998,
at the option of the Company, theThe Debentures are presently
redeemable in whole or in part at an initialthe Company's option at a redemption price of
104%103% of principal, decreasing by 1% per year until maturity. The Debentures are
subordinated to all existing and future senior indebtedness (as defined in the
Indenture governing the Debentures). The Debentures restrict, among other
things, the amount of senior indebtedness and other indebtedness that the
Company, and, in certain instances, its consolidated subsidiaries, may incur.
Each holder of Debentures has the right to cause the Company to redeem the
Debentures if certain designated events (as defined) should occur. The
Debentures are subject to certain restrictions on transfer, although the Company
has registered the offer and sale of the Debentures and the underlying common
stock.
Note 7 --- Income Taxes:
The income tax provision for the years ended March 31, 2000, April 2, 1999, and
April 3, 1998 March 31, 1997
and 1996 consisted of the following:
1998 1997 1996
(In thousands)
Current:
Federal $ 13 $ -- $ (39)
Foreign, state and other 241 230 65
$ 254 $ 230 $ 26
2000 1999 1998
---------- ---------- ----------
(In thousands)
Current:
Federal $ 47 $ -- $ 13
Foreign, state and other (624) 207 241
---------- ----------- ----------
$ (577) $ 207 $ 254
========== =========== ==========
The difference between the effective rate reflected in the provision for income
taxes and the amounts determined by applying the statutory U.S. rate of 34% to
earnings (loss) before income taxes for the years ended March 31, 2000, April 2,
1999, and April 3, 1998 March 31,
1997 and 1996 are analyzed below:
2000 1999 1998
1997 1996--------------- --------------- ---------------
(In thousands)
Statutory provision benefit)(benefit) $ 1,035 $ 169 $ (400)
$ (8,071) $ (4,543)
U. S. and foreign net
operating losses
without tax benefit (930) 8,098 4,493
Expiration of state
net operating
losses 1,384 -- --
Rate differential on
foreignFederal valuation allowance (1,076) (177) 454
Foreign income taxes (642) 207 223 248 96
Other, net 106 8 (23)
(45) (20)--------------- --------------- ---------------
Total income tax (benefit) provision $ (577) $ 207 $ 254
$ 230 $ 26=============== =============== ===============
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd. was
assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in May
1998. The assessment related to the Fiscal 1993 to Fiscal 1998 tax years and
asserted that certain revenues reported as non-taxable by Emerson Radio (Hong
Kong) Ltd. were subject to a profits tax. In Fiscal 1999, the Company accrued
$256,000 equaling its compromise offer, and in June 1999, the IRD accepted the
offer in which the Company and the IRD settled, without prejudice, the
assessment for the amount accrued.
Emerson Radio (Hong Kong) Ltd. was also in litigation with the IRD regarding the
deductibility of certain expenses that related to Fiscal 1992 to Fiscal 1999. In
December 1999, the Company received a favorable ruling from the Hong Kong Court
of Final Appeals regarding this matter and a tax credit of $619,000 has been
recorded in the Company's financial results for Fiscal 2000.
As of April 3, 1998 and March 31, 19972000 and April 2, 1999, the significant components of the
Company's deferred tax assets and liabilities are as follows:
1998 1997
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,003 $ 4,255
Inventory reserves 2,332 2,880
Federal operating loss
carryforwards 15,469 15,682
State net operating loss
carryforwards 6,759 8,161
Other 1,050 322
Total deferred tax assets 30,613 31,300
Valuation allowance for
deferred tax assets (29,844) (31,091)
Net deferred tax assets 769 209
Deferred tax liabilities (769) (209)2000 1999
-------------- -----------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,243 $ 4,699
Inventory reserves 235 2,243
Federal loss carryforwards 13,753 16,207
State loss carryforwards 4,746 5,257
Other 449 1,016
-------------- ------------
Total deferred tax assets 24,426 29,422
Valuation allowance for
deferred tax assets (22,537) ( 28,054)
-------------- ------------
Net deferred tax assets 1,889 1,368
Deferred tax liabilities (1,889) (1,368)
-------------- ------------
Net deferred taxes $ -- $ --
============== ============
Total deferred tax assets of the Company at April 3, 1998 and March 31, 1997
represent2000, and April 2, 1999,
include the tax-effectedtax effected net operating loss carryforwards subject to annual
limitations (as discussed below), and tax-effectedtax effected deductible temporary
differences. The Company has established a valuation reserve against any
expected future benefits.
Cash paid for income taxes was $152,000, $125,000$11,400, $32,000, and $151,000$152,000 for the years
ended March 31, 2000, April 2, 1999, and April 3, 1998, March 31, 1997 and 1996, respectively.
Income (loss) of foreign subsidiaries before taxes was $3,065,000,
($2,512,000)$1,578,000, $1,492,000, and
($6,233,000)$3,065,000 for the years ended March 31, 2000, April 2, 1999, and April 3, 1998,
March 31, 1997
and 1996, respectively. Provision is made for federal income taxes which may be
payable on earnings of foreign subsidiaries to the extent that the Company
anticipates they will be remitted. It is the policy of the Company to permanently reinvest all the
earnings fromof its foreign subsidiaries.
As of March 31, 1997,2000, the Company has a federal net operating loss carryforwardcarry forward
of approximately $132,265,000,$130,813,000, of which $29,160,000, $13,385,000, $50,193,000,
$20,575,000,$18,201,000, $18,954,000 and $18,952,000$920,000 will expire in 2006, 2007, 2009, 2011,
2012 and 2013,2019, respectively. The utilization of these net operating losses are
limited based on the effects of a Plan of Reorganization consummated on March
31, 1994. Pursuant to the Plan, an ownership change occurred with respect to
the Company and subjected the Company's net operating loss and foreign tax
credit carryforwards to limitations provided in Sections 382 and 383, respectively, of the Internal Revenue
Code. Subject to special rules regarding
increases in the annual limitation for the recognition of net unrealized
built-in gains, theThe Company's annual limitation is approximately $2.2 million.million for net
operating losses which expire in 2006, 2007 and 2009.
Note 8 -- Commitments and Contingencies:
Leases:
The Company leases warehouse and office space at minimum aggregate rentals
net of sublease incomewith annual commitments as follows:
Fiscal
Years Amount
1999 $1,225
2000 963
2001 577
2002 384
2003 384
Later years 128
follows
(in thousands):
Fiscal Years Amount
------------ ------
2001 $ 890
2002 803
2003 803
2004 268
2005 --
Rent expense, net of rental income, aggregated $1,326,000, $1,304,000, and
$1,570,000 $1,790,000for Fiscal 2000, 1999, and $1,705,000 for the years ended March 31, 1998, 1997 and 1996, respectively. Rental income from the
sublease of warehouse and office space aggregated $238,000 $256,000 and $278,000 in the years ended April 3, 1998, March 31, 1997
and 1996, respectively.Fiscal 1998.
Letters of Credit:
There were no letters of credit outstanding under the Loan and Security
Agreement (See Note 5) at April 3, 1998 and $444,000as of Letters of Credit were
outstanding at March 31, 1997.2000, or April 2, 1999. The Company's
Hong Kong subsidiary also currently maintains various credit facilities
aggregating $28.5$23.5 million with a bank in Hong Kong subject to annual review
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for a
foreign subsidiary's direct import business and an affiliates' inventory purchases, and (ii) a $25$20
million credit facility with seasonal over - advances, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit with the Company's largest customer. At April 3, 1998,March 31, 2000, the Company's
Hong Kong subsidiary had pledged $1 million in certificates of deposit to this
bank to assure the availability of thesethe $3.5 million credit facilities.facility. At April 3, 1998,March
31, 2000, there were $1,958,000$3,442,000 and $23,700,000$24,566,000 of letters of credit outstanding
under these credit facilities, respectively.
Tax Assessments:
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relates to the 1992/1993 to 1997/1998 tax years and
asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. Emerson Radio Hong Kong Ltd. is also
in litigation with the IRD regarding a separate assessment of $489,000
pertaining to the deduction of certain expenses that relate to the taxable years
1991/1992 to 1997/1998. The outcome of both actions is uncertain at this time.
However, the Company believes that it will prevail in both cases. During June
1998 the Company received a favorable ruling in regards to the assessment of
$489,000, which is subject to appeal.
Note 9--9 -- Shareholders' Equity:
In July 1994, the Company adopted a Stock Compensation Program ("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth. The maximum
aggregate number of shares of common stock available pursuant to the Program is
2,000,000 shares and the Program is comprised of 4 parts-thefour parts--the Incentive Stock
Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights
Plan and the Stock Bonus Plan. A summary of transactions during the last three
years is as follows:
Number of Price Aggregate
Shares Per Share Price
------------------- --------------------- -----------------
Outstanding-March 31, 1995 1,830,000 $1.00 - $1.10 $1,890,000
Granted 125,000 $2.63 - $2.88 341,000
Canceled (287,000) $1.00 (287,000)
Outstanding-March 31, 1996 1,668,000 $1.00 - $2.88 1,944,000
Granted 50,000 $2.25 - $2.56 119,000
Exercised (69,000) $1.00 (69,000)
Canceled (59,000) $1.00 - $2.56 (67,000)
Outstanding-March
Outstanding--March 31, 1997 1,590,000 $1.00 - $2.88 1,927,000$1,927,000
Granted 207,000 $1.00 207,000
Canceled (790,000) $1.00 - $2.88 (1,067,000)
Outstanding-April------------------- ---------------
Outstanding--April 3, 1998 1,007,000 $1.00 - $1.10 $1,067,0001,067,000
Granted 23,000 $1.00 23,000
------------------- ---------------
Outstanding - April 2, 1999 1,030,000 $1.00 - $1.10 1,090,000
Granted 300,000 $1.00 300,000
Canceled (18,000) $1.00 (18,000)
------------------- ----------------
Outstanding - March 31, 2000 1,312,000 $1.00 - $1.10 $1,372,000
=================== =================
The
Subject to the terms set forth in each option agreement, generally, the term of
each option is ten years, except for options issued to any person who owns more
than 10% of the voting power of all classes of capital stock, for which the term
is five years. Options may not be exercised during the first year after the date
of the grant. Thereafter, each option becomes exercisable on a pro rata basis on
each of the first through third anniversaries of the date of the grant. The
exercise price of options granted must be at least equal to the fair market
value of the shares on the date of the grant, except that the option price with
respect to an option granted to any person who owns more than 10% of the voting
power of all classes of capital stock shall not be less than 110% of the fair
market value of the shares on the date of the grant. As of March 31, 2000 and
April 2, 1999, approximately 993,000 and 964,000 options were exercisable,
respectively.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation expense.
Had compensation cost been determined based upon the fair value at grant date
for awards consistent with the methodology prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FASSFAS
123"), the Company's net income would have decreased approximately $19,000 and
$25,000 for the years ended March 31, 2000 and April 2, 1999, respectively, and
the net loss would have increased approximately $21,000 $45,000 and $81,000 for the yearsyear ended April
3, 1998, March 31, 1997 and 1996,
respectively.1998.
The fair value of these options, and all other options and warrants of the
Company, was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for the years ended March 31, 2000, April
2, 1999, and April 3, 1998
and March 31, 1997 and 1996;1998: risk-free interest rate of 5%, an expected life of
10 years and a dividend yield of zero. For the years ended March 31, 2000, April
2, 1999 and April 3, 1998, and
March 31, 1997 and 1996, volatility was 56%57%, 73%15%, and 85%56%, respectively. The
effects of applying FASSFAS 123 and the results obtained are not likely to be
representative of the effects on future pro-forma income.
In October 1994, the Company's Board of Directors adopted, and the stockholders
subsequently approved, the 1994 Non-Employee Director Stock Option Plan. The
maximum number of shares of common stock available under such plan is 300,000
shares. A summary of transactions since inception ofunder the plan for the three years ending
March 31, 2000 is as follows:
Number of Price Aggregate
Shares Per Share Price
----------------- ----------------- -----------------
Outstanding-March 31, 1995 175,000 $1.00 $175,000
Canceled (25,000) $1.00 (25,000)
Outstanding_March 31, 1996,
March
Outstanding--March 31, 1997,
April 3, 1998, and April 2, 1999 150,000 $1.00 $150,000$ 150,000
Canceled (50,000) $1.00 (50,000)
----------------- -----------------
Outstanding - March 31, 2000 100,000 $1.00 $ 100,000
================= =================
The provisions for exercise price, term and vesting schedule are the same as
noted above for the Stock Compensation Program.
On September 29, 1993, theThe Company has issued and fiveoutstanding 3,677 shares of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization cases were
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy
Court entered into an order confirming the Plan of Reorganization. The Plan of
Reorganization provided for the implementation of a recapitalization of the
Company.
Pursuant to the Plan of Reorganization, on March 31, 1994, the Company
issued Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face value of
$10
million$3,677,000 and an estimated fair market value of approximately $9 million.$3,309,000. The
preferred stockPreferred Stock is convertible into Common Stock at any time during the
period beginning onthrough March 31, 1997 and ending on March 31, 2002; the preferred
stock is convertible into common stock2002 at a
price per share of common stockCommon Stock equal to 80% of the defined average market value
of a share of common stockCommon Stock on the date of conversion. The preferred stock bears
dividends, on a cumulative basis currently at 5.6%2.8% and declines by 1.4% each
June 30th until no dividends are payable.
During the year ended March 31, 2000, the Company repurchased 37 shares of its
Series A Preferred Stock. There were no conversions of the Company's Preferred
Stock into Common Stock for the year ended March 31, 2000.
The preferred stockPreferred Stock is non-voting. However, the terms of the preferred
stockPreferred
Stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the preferred stockPreferred Stock dividends are in default for
six consecutive quarters. At April 3, 1998,March 31, 2000, the Company wasis in arrearscompliance with
these default provisions and currently owes dividends in arears of $925,000.
The Company issued warrants on $727,000 of dividends.
Pursuant to the Plan of Reorganization the Noteholders received warrantsMarch 31, 1994 for the purchase of approximately
750,000 shares of common stock. The warrantsCommon Stock which are exercisable for a period of seven years fromat $1.30 per share and
expire on March 31, 1994 and provide for an
exercise price of $1.00 per share for the first three years, escalating by $.10
per share per annum thereafter until expiration of the warrants.
In connection with the Debentures offering, the2001.
The Company issued warrants in August 1995
issued to the placement agent and its authorized dealers warrants for the purchase of 500,000 shares
of common stock. The warrantsstock that are exercisable for a
period of four years fromthrough August 24, 1996 and provide for2000 at an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances. In
connection with a consulting agreement,December 1995, the Company in December 1995, issued warrants for the purchase of 250,000 shares of
common stockCommon Stock at an exercise price of $4.00 per share. The warrants may be
exercised until December 8, 2000, when such warrants shall expire.
In November 1995, the Company filed a shelf registration statement covering
5,000,000 shares of common stock owned by FINFidenas International Limited, LLC to
finance a settlement of the Litigation Regarding Certain Outstanding Common Stock.litigation regarding certain outstanding common
stock. The shares covered by the shelf registration are subject to certain
contractual restrictions and may be offered for sale or sold only by means of an
effective prospectus following registration under the Securities Act of 1933, as
amended.
In November 1995,May 1998, the Company's BoardCompany modified its existing stock repurchase program to
permit the repurchase of Directors approved a plan to
repurchase up to two$2 million of its common shares, from time to time,
in the open market. In May 1998,Pursuant to this plan, the plan was modified to approveCompany repurchased 3,503,400
shares in Fiscal 1999 for $ 1,907,000, completing the repurchase of $2program. The
Board authorized a second repurchase program in January 2000 for an additional 5
million ofshares. In fiscal 2000, the Company repurchased 1,350,600 shares for
$1,121,000 pursuant to this program. The shares repurchased during Fiscal 2000
and Fiscal 1999 were funded by working capital.
Of the 46,477,615 common shares. Although there are 51,044,730 shares outstanding at March 31, 2000, approximately
29.2 million shares arewere held directly or indirectly by affiliated entities of
Geoffrey P. Jurick, Chairman, Chief Executive Officer and President of the
Company. The Company has agreed with Mr. Jurick that such shares willwould not be
subject to the repurchase underplans. Subsequent thereto, Mr. Jurick's shareholdings
were reduced and so were the Plan approved in
1995. The stock repurchase program is subjecttotal number of outstanding common shares. (See
Item 8 - "Financial Statements and Supplementary Data - Note 13 of Notes to consent of certain of the
Company's lenders, certain court imposed restrictions, price and availability of
shares, compliance with securities laws and alternative capital spending
programs, including new acquisitions. The repurchase of common shares is
intended to be funded by working capital.Consolidated Financial Statements".)
Note 10 -- Capital Structure:
In February 1997Available-For-Sale Securities:
Available-for-sale securities are stated at fair value, with the Financial Accounting Standards Board issued Statement
No. 129 "Disclosureunrealized
gains and losses reported in a separate component of Information About Capital Structure" which requires
companiesshareholders' equity.
Realized gains and losses, and declines in market value judged to adoptbe
other-than-temporary, are included in earnings. During the fourth quarter of
Fiscal 1999, the Company recorded a methodloss of $1,298,000 in earnings for
reporting an entity's capital structure and
relevant informationsecurities whose decline in summary format.value was deemed to be other-than-temporary. During
Fiscal 2000, the Company recorded a realized loss of $149,000 from the sale of
securities for less than their carrying value.
The following disclosure sets forth the
required information.
The outstanding capital stockis a summary of the Companyavailable-for-sale equity securities at April 3, 1998 consisted of
common stock and Series A convertible preferred stock. The preferred shares are
convertible to common shares at any time beginning March 31,
1997 until March
31, 2002.
During the year ended2000 and April 3, 1998, 4,763 shares of Series A Preferred
Stock were converted into 10.7 million shares of common stock. If all existing
outstanding Preferred shares were converted at April 3, 1998, an estimated 14.7
million additional common shares would be issuable. Dividends for the Preferred
Stock accrue and are payable quarterly at 7% up to March 31, 1997 then decline
by 1.4% each succeeding year until March 31, 2001 when no further dividends are
payable. The dividend rate at April 3, 1998 was 5.6% and as of April 3, 1998,
$727,000 of dividends were in arrears. Preferred shareholders have liquidation
rights subordinated to the Company's Senior Secured Lender and 8-1/2%
Senior Subordinated Convertible Debentures.
The Company has outstanding approximately 1.0 million options with exercise
prices ranging from $1.00 to $1.10. If the options were exercised, the holders
would have rights similar to common shareholders. Outstanding warrants total
approximately 670,000 common shares and have conversion prices ranging
from $1.10 to $4.00. If the warrants were exercised, the holders would
have rights similar to common shareholders.
The Company has outstanding $20.8 million of Senior Subordinated
Convertible Debentures due in 2002 and pay interest quarterly. The Debentures
are redeemable, in whole or in part, at the Company's option at the following
redemption prices beginning August 15, 1998 of 104% and declining by 1% per year
until maturity.
Holders may redeem the Debentures at any time at a conversion price of
$3.9875 per share of common stock, subject to certain adjustments which would
result in 5.2 million additional common shares being issued. The Debentures are
subordinated to all existing and future senior indebtedness.2, 1999 (in thousands):
Gross Gross Estimated
Cost Gains Losses Fair Value
March 31, 2000 $ 37 $ -- $ -- $ 37
April 2, 1999 2,036 -- 1,298 738
Note 11 --Net-- Net Earnings (Loss) per Share:
The following table sets forth the computation of basic and diluted lossearnings
(loss) per share for the years ended March 31, 2000, April 2, 1999, and April 3,
1998, March 31, 1997 and 1996:1998:
(In thousands, except per share amount)
2000 1999 1998
1997 1996--------------- ---------- ---------
Numerator:
Loss $(1,430) $(23,968) $(13,389)Net income (loss) $ 3,620 $ 289 $ (1,430)
Less: preferred stock dividends, and repurchase
costs 103 578 400
============== ========== ===========
Numerator for basic earnings
(loss) per share - income available
to common stockholders 3,517 (289) (1,830)
Add back to effect assumed conversions:
Preferred Stock Dividends 400 700 700
Loss available to
Common Stockholders
(numerator) (1,830) (24,668) (14,089)
Weighted average
shares (denominator) 45,167 40,292 40,253
Lossdividends 103 -- --
-------------- ------------ ------------
Numerator for diluted earnings
(loss) per share $ 3,620 $ (289) $ (1,830)
=============== =========== ============
Denominator:
Denominator for basic earnings per share -
weighted average shares 47,632 49,398 45,167
Effect of dilutive securities:
Preferred shares 5,876 -- --
--------------- ------------- --------------
Denominator for diluted earnings per share -
weighted average shares and assumed conversions
53,508 49,398 45,167
=============== ============ =============
Basic income (loss) per share $ .07 $ (.01) $ (.04)
===============
============ =============
Diluted income (loss) per share $ (.61).07 $ (.35)(.01) $ (.04)
=============== ============ =============
Options and warrants to purchase 1,826,000, 2,410,000,2,899,000, 2,667,000, and 2,510,000 of common
stock were not included in computing diluted earnings per share for 1998, 1997
and 1996, respectively, because the effect would be antidilutive.
Preferred stock convertible into 14,700,000, 9,000,000 and 5,400,0002,644,000 shares of
common stock were not included in computing diluted earnings per share for
1998,
1997Fiscal 2000, 1999, and 1996,1998, respectively, because the effect would be
antidilutive.
Preferred Stock convertible into 8,680,000 and 21,864,000 shares of Common Stock
were not included in computing diluted earnings per share for Fiscal 1999 and
1998, respectively, because the effect would be antidilutive.
Senior subordinated debenturesSubordinated Debentures convertible into 5,204,000 shares of common stockCommon Stock
if converted were not included in computing diluted earnings per share for
1998,
1997 Fiscal 2000, 1999,and 1996, respectively,1998, because the effect would be antidilutive.
Note 12 -- License Agreements:
The Company has several license agreements in place whichthat allow licensees to use
the use of the Emerson and G-Clef"[OBJECT OMITTED]" trademark for the manufacture and/or the sale of consumer
electronics and other products. The license agreements cover various countries
throughout the world and are subject to renewal at the initial expiration of the
agreements. Additionally, the Company has entered into several sourcing and
inspection agreements that require the Company to provide these services in
exchange for a fee. License revenues recognized in Fiscal years2000, 1999, and 1998
were $3,143,000, $3,633,000, and 1997 were $5,597,000, and $5,040,000 respectively.respectively, including $4,000,000
in Fiscal 1998 from a major supplier whose licensing agreement expired March 31,
1998. The Company records a majority of licensing revenues as it is earned over the term of the
related agreement.agreements.
In Fiscal 1998 and FiscalApril 1997, $908,000 and $1,074,000 of
license revenues recognized represented the discounted value of the minimum
royalties due under the term of the agreements. This will reduce the revenue
recognized related to such agreements in future years.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier") entered into two
mutually contingent agreements (the "Agreements"). Effective March 31, 1995,
the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G-Clef trademark to one of the Company's
largest customers (the "Customer") in the U.S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson
and G-Clef trademark or the Supplier's other trademarks. Further, the
Agreements provided that the Supplier would supply the Company with
certain video products for sale to other customers at preferred prices
for a three-year term. Under the terms of the Agreements, the Company
received non-refundable minimum annual royalties from the Supplier to be
credited against royalties earned from sales of video cassette recorders
and players, television/video cassette recorder and player combinations,
and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreements was $4,000,000, $4,000,000 and $4,442,000 in Fiscal
1998, 1997 and 1996, respectively. The agreement expired on March 31, 1998.
In anticipation of the expiration of the Agreements,major supplier license
agreement, Emerson executed a four-yearmarketing agreement ("DaewooMarketing Agreement") with
Daewoo Electronics Co. Ltd., ("Daewoo") in April 1997.. This agreement providesMarketing Agreement provided that
Daewoo will manufacture and selldistribute television and video products bearing the
Emerson and G-Clef"[OBJECT OMITTED]" trademark to customers in the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo iswas responsible for and assumesassumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned by the Company will arrange sales and
provide marketing services and in return receive a commission for such services.
This agreement can be terminated without cause by either party upon 90 days
notice.
The Daewoo Agreement may result in commission revenues that will
be less than, equal to or exceed those earned from the Supplier
Agreement. The agreement with Daewoo does not contain minimum annual
commissions and iswere
entirely dependent onupon the volume of sales made by
the Company that arewere subject to the
Marketing Agreement. Effective October 29, 1999, Emerson and Daewoo entered into
a three year License Agreement ("License Agreement") which replaced the
Marketing Agreement. ShouldThe License Agreement includes, among other items, minimum
production quotas and subject to certain conditions, minimum annual royalty
payments each year, which in Fiscal 2001 amounts to $4,500,000. All other
material aspects of the License Agreement remain substantially similar to the
terms set forth in the superceded Marketing Agreement.
In addition, the Company not generate commission revenueshas several other licensing agreements in place with
licensees primarily in the United States, Canada, Latin America, Mexico, Eastern
Asia and parts of Europe.
Throughout many parts of the world, the Company maintains distributorship and/or
sales support and assistance agreements that are at levels
substantially equal toallow the revenues generated from the Supplier
Agreementdistribution of the
Company's results of operations will be effected
adversely.
In February 1997,products into defined geographic areas. Currently the Company executed five-year license/supplyhas such
agreements
with Cargil International Corp. ("Cargil"), covering the CaribbeanSub-Asian Continent, North Africa, Canada and Central
and South American markets. The agreements provide for the license ofMiddle
East.
Note 13 -- Legal Proceedings:
In the Emerson and G-Clef trademark for certain consumer electronics and other products
and require Emerson to source and inspect product for Cargil. Under the terms
of the agreements,last few months, the Company will receive minimum annual royalties and a
separate fee for the provisionsettled substantially all of sourcing and inspection service. Cargil
assumes all costs and expenses associated with the purchasing, marketing and
after-sales support of such products.
In October 1994,its
outstanding litigation.
Certain Outstanding Common Stock
On May 25, 2000, the Company entered into a license agreementTermination, Settlement,
Redemption and Option Agreement, (the "Agreement") with Jasco
Products Co., Inc., ("Jasco"), as amended, whereby the Company granted a license
of certain trademarks to Jasco for use on consumer electronics accessories.
Under the terms of the agreement, as amended in April 1997, the Company will
receive minimum annual royalties through the life of the agreement, which
expires on December 31, 1998.
In June 1997, the Company entered into an eighteen month license
agreement with World Wide One, Ltd., a Hong Kong corporation for use of
the Emerson and G-Clef trademark in connection with the sale of certain consumer
electronics products and other products to Makro International Far East Ltd. for
sales of these products in China, Indonesia, Malaysia, Philippines, South Korea,
Taiwan and Thailand. The Company will provide sourcing and inspection services
for at least 50% of the licensee's purchase requirement. The licensee is
required to meet certain minimum sales requirements as well as to ensure the
establishment of adequate service centers or agents for after-sales warranty
services.
In March 1998, the Company executed three-year license and supply
agreements with WW Mexicana, S. A. de C. V. ("WW Mexicana"), a distributor
located in Mexico covering the Mexico market. The agreements provide for the
license of the Emerson and G-Clef trademark for use on certain consumer products
to be sold in Mexico and sourcing and inspection services. Under the terms of
these agreements, the Company will receive minimum annual royalties through the
life of the agreement and will receive a separate fee for sourcing and
inspection services.
In March 1998 the Company executed a three-year license agreement with Tel-
Sound Electronics, Inc. ("Tel-Sound"), covering the United States and Canada
markets. The agreement provides for the license of the Emerson and G-Clef
trademark for use with telephones, answering machines and caller ID products.
Under the terms of this agreement, the Company will receive minimum annual
royalties through the life of the agreement.
Note 13 --Legal Proceedings:
CERTAIN OUTSTANDING COMMON STOCK
Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994,
30 million shares of the Company's Common Stock were issued to GSE Multimedia
Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN")
and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the
"Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company'sits
Chairman, of the Board, Chief Executive Officer and President. On June 11,President, and two of Mr. Jurick's
institutional creditors, resolving outstanding litigation between Mr. Jurick and
two of his three outside creditors.
In 1996, Mr Jurick entered into a Stipulation of Settlement and Ordersettlement agreement (the "Settlement
Agreement") was
executed in proceedings beforepursuant to which he agreed to pay to an individual and two
institutions the United States District Court for the District
of New Jersey, which settles various legal proceedings in Switzerland, the
Bahamas and the United States. The Settlement Agreement provides for, among
other things, the payment by Mr. Jurick and his Affiliated Entitiessum of $49.5 million to various claimants of Mr. Jurick and the Affiliated Entities (the
"Creditors"), to be paid from the proceeds of the sale of
certainapproximately 29.2 million shares of Common Stock of the Company (the "Common
Stock") beneficially owned by him. None of the shares of Common Stock was sold
and, in March 2000, at the request of Mr. Jurick's three creditors, the Court
terminated the Settlement Agreement. To implement such termination, the Court
divided the 29.2 million shares of Emerson common stock (the "Settlement Shares") ownedCommon Stock among Mr. Jurick and his three
creditors in a manner insuring that Mr. Jurick would retain at least 25% of the
outstanding shares of Common Stock as required by the Affiliated Entities. In addition,Company's lending
agreements and approved the Agreement. Mr. Jurick is to be paidreceived 9.9 million shares,
the sum of $3.5two institutions received 11.1 million fromshares, and the sale ofindividual received
8.2 million shares.
In accordance with the Settlement Shares. The Settlement Shares are to be
sold over an indeterminate period of time by a financial advisor, TM Capital
(the "Advisor") pursuant to a marketing plan taking into consideration (i)Agreement, the interests of Emerson's minority stockholders, and (ii) the goal of generating
sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible.
The Settlement Shares have been divided into two pools. The Pool A Shares
currently consist of 15.3Company, on May 25, 2000, purchased
7.0 million shares of Emerson's common stock.Common Stock from the two institutional creditors for $6.0
million. The Pool B
Shares currently consistpurchase price was paid by the Company using cash generated from
operations. As a result of the numberpurchase by the Company, the outstanding shares
of Emerson shares with respectCommon Stock of the Company were reduced to which
Mr. Jurick must retain beneficial ownership of voting power to avoid an event of
default arising out of a change of control pursuant toapproximately 39.4 million
shares. In addition, under the terms of the Company's LoanAgreement, the Company was granted a
one year option to purchase from the two institutional creditors the remaining
4.1 million shares of Common Stock owned by them for approximately $5.5 million
(the "Option Purchase Price"). The option term may be extended by the Company
for one additional year upon making a non-refundable payment of $550,000 to the
two institutions and Security agreement withfor a U.S. financial institution (the
"Lender") and/second additional year upon making a payment of
$2,550,000, of which $1.9 million will be credited against the Option Purchase
Price.
In the event that the Company or its assignees do not purchase the
Indenture governingapproximately 4.1 million shares of Common Stock owned by such institutions,
these institutions will continue to have claims against Mr. Jurick.
Implementation of the Company's 8-1/2% Senior
Subordinated Convertible Debentures Due 2002 (the "Debentures"). Salestermination of the Settlement Shares may be made pursuant to a registered offering if the sales
price is not less than 90% of the average of the three most recent closing
prices (the "Average Closing Price"),Agreement with Mr. Jurick's
remaining creditor (by settlement or other than in a registered offering,
of up to 1% per quarter of the Emerson common stock outstanding, if the sales
price is not less than 90% of the Average Closing Price. Any other attempted
sales are subject to the consent of the Company, Mr. Jurick, the Creditors, and,
if necessary, the United States District Court in Newark, New Jersey.
All of the Settlement Shares secure payment of the $49.5 million owed to
the Creditors on a first priority basis. Any Creditor may apply to the Court
for an order to terminate the Settlement Agreement if certain events occur.
Such events include, without limitation, delisting of the Settlement Shares from
a national securities exchange or a determination that there is no reasonable
prospect that the goals contemplated by the Settlement Agreement can be
achieved. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion was held in April 1998 at which time it was adjourned. The hearing is
currently scheduled to resume on July 9, 1998.
If the Court enters an order terminating the Settlement Agreement, the
Creditors may take any action permitted by law to execute the Consent Judgments
given to them in connection with the Settlement Agreement to collect the unpaid
balance (including, without limitation, foreclosing on the Settlement Shares).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value hereof plus accrued by unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
In 1994, Petra and Donald Stelling ("the Stellings"), two of the Creditors,
filed a complaint with the Swiss Authorities alleging that Messrs. Jurick and
Jerome H. Farnum ("Farnum"), directors of the Company, had conducted banking
operations in Switzerland without appropriate licenses and that Messrs. Jurick,
Farnum, and Peter G. Bunger ("Bunger"), also a director of the Company, engaged
in improper activities in the financing of the Plan of Reorganization.
Although, as part of the settlement discussed herein, the Stellings
requested the discontinuance of the criminal investigations of these
individuals, the matter is presently pending before a Swiss Court with a
trial, if any, to be held no earlier than 1999. The Federal Banking Commission
of Switzerland previously issued a decree purporting to determine that certain
entities affiliated with Messrs. Jurick and Farnum were subject to Swiss banking
laws and had engaged in banking activities without a license.
OTAKE
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") seeking damages and alleging
breach of contract, breach of covenant of good faith and fair dealing, unfair
competition, interference with prospective economic gain, and conspiracy in
connection with certain activities of the Otake Defendants under certain
agreements between the Company and the Otake Defendants.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, subsequently amended, alleging various
breaches of certain agreements by the Company, including breaches of the
confidentiality provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of those agreements, and
seeking declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action Orion Sales, Inc. v. Emerson Radio Corp., pending in the
United States District Court for the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orioncourt order) has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.been finalized.
Other Litigation
The Company has withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and deliveredalso entered into definitive agreements to Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on theresolve
other (the "Supply Agreement"). Emerson has
vigorously contested Orion's and its affiliates' entitlement to the $3.2
million payment.
Both the Company and Orion have asserted claims for interest accruing on
the unpaid principal balances respectively due them, which are presently pending
before the District Court. The Company's management believes that it will
receive the $5 million due pursuant to the License Agreement and has meritorious
defenses to Orion's claim for the $3.2 million payment, and, also, the interest
allegedly accrued thereon. In any event, the Company believes the results of
that litigation should not have a material adverse effect on the financial
condition of the Company or on its operations.
BANKRUPTCY CLAIMSoutstanding litigation. The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt in March 31, 1994. The largest claim was filed on or about July 25, 1994
in connectionreached agreements with the rejection of certain executory contracts with two
Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine
Ltda. (collectively, "Cineral"). The amount currently claimed is, a former Latin American distributor, which had
brought suit for approximately $93.6 million in damages; Tanashin Denkin
Company, which had brought suit for patent infringements seeking potential
damages of which $86.8 million representsapproximately $12.0 million; and two former officers who sought
damages for alleged wrongful termination. Also, the Company received a claimjury
ruling in its suit against a former supplier and won a favorable ruling from the
Hong Kong Court of Final Appeals regarding its prior year tax filings in Hong
Kong for lost profits. The claim
will be satisfied, toits foreign subsidiary.
Costs of approximately $2.8 in excess of existing reserves associated
with the extentresolution of all of the claim is allowed by the Bankruptcy Court,above mentioned litigation, including
settlement payments and legal fees, were expenses in the manner other allowed unsecured claims were satisfied. The Company has
objected to the claim and intends to vigorously contest such claim and believes
it has meritorious defenses to the highly speculative portion of the claim for
lost profits and the portion of the claim for actual damages for expenses
incurred prior to the execution of the contracts. An adverse final ruling on the
Cineral claim could have a material adverse effect on the Company, even though
it would be limited to 18.3% of the final claim determined by a court of
competent jurisdiction; however, with respect to the claim for lost profits, the
Company believes the chances for recovery for lost profits are remote. There
has been no activity regarding this litigation during the currentCompany's fiscal year.year
ended March 31, 2000.
The Company is involved in other legal proceedings and claims of
various types in the ordinary course of business. While any such litigation to
which the Company is a party contains an element of uncertainty, management
presently believes that the outcome of each such proceeding or claim which is
pending or known to be threatened, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial position.
Note 14--14 -- Business Segment Information and Major Customers:
The consumer electronics business is the Company's only business segment.
Operations in this business segment are summarized below by geographic area:area (in
thousands):
Year Ended April 3, 1998
(In thousands)March 31, 2000
U.S. Foreign Eliminations Consolidated
Sales to unaffiliated customers $159,108 $ 3,622199,065 $ -5,891 $ 162,730
Earnings204,956
======= ======= ============
Income (loss) before income
taxes $ (2,368)3,075 $ 938(32) $ - $ (1,430)3,043
Identifiable assets $ 51,00855,265 $ 9122,731 $ - $ 51,920
57,996
======== ======== =============
Year Ended March 31, 1997April 2, 1999
U.S. Foreign Eliminations Consolidated
Sales to unaffiliated customers $172,417 $ 6,291154,282 $ -4,448 $ 178,708
Transfers between
geographic areas 2,592 581 (3,173) -
Total net revenues $175,009 $ 6,872 $ (3,173) $ 178,708
Earnings (loss)158,730
========== ========= =========
Income before income taxes $(20,677) $(1,791) $ -472 $ (22,468)24 $ 496
========== ========= =========
Identifiable assets $ 58,38250,974 $ 3863,421 $ - $ 58,76854,395
========== ========== =========
Year Ended March 31, 1996April 3, 1998
U.S. Foreign Consolidated
Sales to unaffiliated customers $234,369 $11,298 $ -159,108 $ 245,667
Transfers between
geographic areas 2,884 876 (3,760) -
Total net revenues $237,253 $12,1743,622 $ (3,760) $ 245,667
Earnings (loss)162,730
========== ========== =============
Loss before income taxes $(11,324) $(2,039) $ -(1,163) $ (13,363)(13) $ (1,176)
=========== ========== =============
Identifiable assets $ 90,35053,885 $ 6,226912 $ - $ 96,57654,767
=========== ========== ============
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic
area. AtIn addition to operating assets, at March 31, 2000, April 2, 1999, and
April 3, 1998, March 31, 1997there were non-operating assets of $8,297,000, $8,348,000 and
1996, total assets include $9,187,000,
$10,657,000 and $27,779,000,$8,275,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 58%55%, 36%52%
and 18%53% of consolidated net revenues for the years ended March 31, 2000, April
2, 1999, and April 3, 1998, March
31, 1997 and 1996, respectively. This customer approximated 17%30% of the
Company's trade accounts receivable at April 3, 1998,March 31, 2000, and has not been
collateralized. The Company's net sales to another customer aggregated 16%21%, 13%24%,
and 16%15% for the years ended March 31, 2000, April 2, 1999, and April 3, 1998, March 31, 1997 and 1996,
respectively. Trade accounts receivable from this customer were less than 10%27% of total
trade receivables.receivables at March 31, 2000.
Note 15 - Investment in Joint Venture:Quarterly Information (Unaudited):
The Company has a 50% investment in E & H Partners, a joint venture in
liquidation that refurbishes and sellsfollowing table sets forth certain ofinformation regarding the Company's
product returns.
The results of this joint venture were accountedoperations for byeach full quarter within the equity method and
the Company's equity in the earnings (loss) of the joint venture was reflected
as an increase or reduction of cost of sales. Summarized financial information
relating to the joint venture for thefiscal years ended April 3, 1998, March
31, 19972000 and 1996 is as follows:April 2, 1999, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
1998 1997 1996
(In thousands)
Activity between Company and
E & H Partners
Accounts receivable from joint
venture (a) $1,438 $3,522 $13,270
Investment in joint venture - 440 1,265
Sales to joint venture - 5,792 17,629
E & H Partners Summarized
Financial Information
Condensed balance sheet:
Current assets $1,889 $7,947 $19,326
Noncurrent assets - - 162
Total $1,899 $ 7,947 $19,488
Current liabilities $2,609 $ 7,476 $16,958
Partnership equity (720) 471 2,530
Total $1,889 $ 7,947 $19,488
Condensed income statement:
Net sales (b) $1,772 $31,564 $27,712
Net loss (318) (2,058) (600)
(a) Accounts receivable are secured by a shared lien on the partnership's
inventory with the other partner in the joint venture, and such lien had been
assigned to the Lender as collateral for the U.S. line of credit facility.
(b) Includes sales to the Company of $0, $7,058,000 and $5,964,000,
respectively.
Effective January 1, 1997, the partners to the E&H Partnership mutually
agreed to dissolve the joint venture and wind down its operations. The partners
have elected to extend such wind down in order to facilitate a more orderly
liquidation of the joint venture.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C Column D Column E
Balance Charged Balance
at to at
beginning costs Deduc- endConsolidated Statement Fiscal 2000 Fiscal 1999
of Decription of year expenses tions year (C)Operations
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------
Allowance
Net revenues $43,447 $55,531 $61,319 $44,659 $59,126 $46,762 $31,588 $21,254
Operating income 539 1,682 2,152 961 1,074 993 1,122 89
Net income (loss) 415 855 1,127 1,223 764 583 310 (1,368)
Net income (loss) per
common share - basic $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Net income (loss) per
common share - diluted $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Weighted average shares
outstanding - basic 47,828 47,828 47,828 47,056 51,220 50,037 48,601 47,844
Weighted average shares
outstanding - diluted 55,197 55,916 55,609 52,932 64,253 50,037 59,010 47,844
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules:
Page No.
(1) Consolidated Statements of Operations for doubtful
accounts/chargebacks:
Year ended:the years ended
March 31, 2000, April 2, 1999, and April 3, 1998 $2,686 $1,165 $ 337(A) $ 3,51421
Consolidated Balance Sheets as of March 31, 1997 2,831 2,558 2,703 2,6862000 and April 2,1999 22
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1996 4,150 1,111 2,430 2,831
Inventory reserves:
Year ended:2000, April 2, 1999, and April 3,1998 23
Consolidated Statements of Cash Flows for the years ended 24
March 31, 2000, April 2, 1999 and April 3, 1998
$2,161 $1,507 $2,971(B) $ 697
March 31, 1997 1,222 4,560 3,621 2,161
March 31, 1996 470 1,087 335 1,222Schedule VIII--Valuation and Qualifying Accounts and Reserves 49
(2) All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
(A) Accounts written off, net
(3) See (c) below.
(b) Reports on Form 8-K - Current report on Form 8-K, dated May 25, 2000,
reporting the settlement of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they
are not valuation reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
(2) Confirmation Order and Fourth Amended Joint Plan of
Reorganization of Emerson Radio Corp. ("Old Emerson") and
certain subsidiaries under Chapter 11substantially all of the United
States Bankruptcy Code, dated March 31, 1994
(incorporated by reference toCompany's
outstanding litigation.
(c) Exhibits
Exhibit (2) of Emerson's
Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the Securities and Exchange
Commission ("SEC") on August 9, 1994).Number
(3)(a) Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3)(b) Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3)(c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3) (c) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (d) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to Exhibit
(3)(a) of Emerson's Quarterly Report on Form 10-
Q10-Q for the quarter
ended December 31, 1995).
(3) (f)(d) By-Laws of Emerson adopted March 1994 (incorporated by reference
to Exhibit (3)(e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August
9, 1994).
(3) (g)(e) Amendment dated November 28, 1995 to the By-Laws of Emerson
adopted March 1994 (incorporated by reference to Exhibit (3) (b)
of Emerson's Quarterly Report on Form 10-
Q10-Q for the quarter ended
December 31, 1995).
(4)(a) Warrant Agreement to Purchase 750,000 shares of Common Stock,
dated as of March 31, 1994 (incorporated by reference to Exhibit
(4)(a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August
9, 1994).
(4)(b) Indenture, dated as of August 17, 1995 between Emerson and Bank
One, Columbus, NA, as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(4)(c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December 8,
1995 between Emerson and Michael Metter (incorporated by
reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares
of Common Stock, dated as of December 8, 1995 between Emerson
and Kenneth A. Orr (incorporated by reference to Exhibit (10)
(f) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995).
(10)(a) Form of Promissory Note issued to certain Pre-Petition
Creditors (incorporated by reference to Exhibit (10)
(e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(10) (b) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10)(f) of
Emerson's Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9, 1994).
(10) (c)(b) Amendment No. 1 to Financing Agreements, dated as of August 24,
1995, among Emerson, Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of Emerson's Current
Report on Form 8-K filed with the SEC on September 8, 1995).
(10) (d)(c) Amendment No. 2 to Financing Agreements, dated as of February 13,
1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(10) (e)(d) Amendment No. 3 to Financing Agreements, dated as of August 20,
1996 (incorporated by reference to Exhibit (10)(b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (f)(e) Amendment No. 4 to Financing Agreements, dated as of November 14,
1996 (incorporated by reference to Exhibit (10)(c) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
(10) (g)(f) Amendment No. 5 to Financing Agreements, dated as of February 18,
1997 (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10) (h)(g) Stipulation of Settlement and Order dated June 11, 1996 by and
among the Official Liquidator of Fidenas International Bank
Limited, Petra Stelling, Barclays Bank PLC, the Official
Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick,
Fidenas International Limited, L.L.C., Elision International, Inc.,
GSE Multimedia Technologies Corporation and Emerson. (incorporated
by reference to Exhibit 10(ae) of Emerson's Annual Report on Form
10-K for the year ended March 31, 1996.)
(10) (i)(h) Pledge Agreement dated as of February 4, 1997 by Fidenas
International Limited, L.L.C. ("FIN") in favor of TM Capital
Corp. (incorporated by reference to Exhibit (10)(a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).
(10) (j)(i) Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10)(b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10) (k)(j) License and Exclusive Distribution Agreement with Cargil
International Corp. dated as of February 12, 1997 (incorporated
by reference to Exhibit (10)(c) of Emerson's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996).
(10) (l) Agreement dated April 10, 1997 between Emerson and
Daewoo Electronics Co., Ltd.
(10) (m)(k) Securities Purchase Agreement dated as of November 27, 1996, by
and between Sport Supply Group, Inc. ("SSG") and Emerson
(incorporated by reference to Exhibit (2)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (n)(l) Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's
Current Report on Form 8-K dated November 27, 1996).
(10) (o)(m) Form of Registration Rights Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(b) of
Emerson's Current Report on Form 8-K dated November 27, 1996).
(10) (p)(n) Consent No. 1 to Financing Agreements among Emerson, certain of
its subsidiaries, and Congress (incorporated by reference to
Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
(10) (q) Form of Termination of Employment Agreement between
Emerson and John Walker(o) Amendment No. 6 to Financing Agreements, dated as of January 15, 1998.*August 14,
1997 (incorporated by reference to Exhibit (10(g) of Emerson's
Quarterly Report on Form 10-Q for quarter ended September 30,
1997).
(10) (r) License Agreement dated as of March 30, 1998 by and
between Tel-Sound Electronics, Inc. and Emerson. *
(10) (s) License Agreement dated as of March 31, 1998 by and
between WW Mexicana, S. A. de C. V. and Emerson. *
(10) (t)(p) Amendment No. 7 to Financing Agreements, dated as of March 31,
1998. *1998 (incorporated by reference to Exhibit (10) (u)(t) of Emerson's
Annual Report on Form 10-K for the year ended April 3, 1998).
(10)(q) Amendment No. 1 to Pledge and Security Agreement dated as of March
31, 1998. *1998 (incorporated by reference to Exhibit (10) (v)(u) of
Emerson's Annual Report on Form 10-K for the year ended April 3,
1998).
(10)(r) Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson. *Emerson (incorporated by reference
to Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the
year ended April 3, 1998).
(10)(s) Amendment No. 8 to Financing Agreements, dated as of November 13,
1998 (incorporated by reference to Exhibit (10)(a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended October 2,
1998).
(10)(t) Third Lease Modification made the 26 day of October, 1998 between
Hartz Mountain Parsippany and Emerson (incorporated by reference
to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended October 2, 1998).
(10)(u) Purchasing Agreement, dated June 30, 1998, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by
reference to Exhibit (10)(c) of Emerson's Quarterly Report on Form
10-Q for the quarter ended October 2, 1998).
(10)(v) Purchasing Agreement, dated March 5, 1999, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by
reference to Exhibit (10)(aa) of Emerson's Annual Report on Form
10-K for the year ended April 2, 1999).
(10)(w) Amendment No. 9 to Financing Agreements, dated June 16, 1999,
(incorporated by reference to Exhibit (10)(ab) of Emerson's Annual
Report on Form 10-K for the year ended April 2, 1999.
(10)(x) Supplemental Letter of Employment for Marino Andriani, dated as of
October 11, 1999, (incorporated by reference to Exhibit (10)(a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
October 1, 1999).
(10)(y) License Agreement dated as of October 29, 1999 by and between
Daewoo Electronics Co. Ltd and Emerson (incorporated by reference
to Exhibit (10)(b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended October 1, 1999).
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of April 3,
1998.March 31, 2000.*
(23) Consent of Independent Auditors.*
(27) Financial Data Schedule for the fiscal year ended April 3,
1998.March 31, 2000.*
- -------------------
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: June 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
EXHIBIT 12
/s/ Geoffrey P. Jurick Chairman of the Board, June 28, 2000
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ John P. Walker Executive Vice President, June 28, 2000
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director June 28, 2000
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director June 28, 2000
Peter G. B(nger
/s/ Jerome H. Farnum Director June 28, 2000
Jerome H. Farnum
/s/ Stephen H. Goodman Director June 28, 2000
Stephen H. Goodman
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGESSCHEDULE VIII
VALUATION AND PREFERRED STOCK DIVIDENDSQUALIFYING ACCOUNTS AND RESERVES
(In thousands, except ratio data)
Historicalthousands)
Column A Column B Column C Column D Column E
- ------------------------------------------------------------
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions year (C)
- ------------------------------------------------------------
Allowance for doubtful accounts/chargebacks:
Year Year Year Year Year
Ended Ended Ended Ended Ended
Apr. 3, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1996 1995 1994ended:
Pretax earnings
(loss) $(1,176) $(23,738) $(13,363)
March 31, 2000 $ 7,642 $(73,327)
Fixed charges:
Interest 1,911 2,789 2,788 2,582 10,243
Amortization of
debt expenses 677 640 487 300 -
2,588 3,429 3,275 2,882 10,243
Pretax earnings
(loss) before
fixed charges $1,412 $(20,309) $(10,088) $10,524 $(63,084)
Fixed charges:
Interest $1,9112,686 $ 2,789(100) $ 2,788139(A) $ 2,582 $10,243
Amortization of
debt expenses 677 640 487 300 -
Preferred stock
dividend
requirements 400 700 700 725(a)
requirements
$2,9882,447
April 2, 1999 3,015 (152) 177 2,686
April 3, 1998 2,686 666 337 3,015
Inventory reserves:
Year ended:
March 31, 2000 $ 4,129385 $ 3,975 $3,607708 $ 10,243
Ratio of earnings
(loss) to
combined fixed
charges and
preferred stock
dividends .47 (4.92) (2.54) 2.92 (6.16)
Coverage deficiency - $4,129514(B) $ 3,975 - $10,243579
April 2, 1999 697 1,068 1,380 385
April 3, 1998 2,161 1,507 2,971 697
(a) The preferred stock dividend requirements have been adjusted to reflect(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the pretax earnings which would be required to cover such dividend requirements.
EXHIBIT 21
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Subsidiaries of the Registrant
Jurisdiction of Percentage of
Name of Subsidiary Incorporation Ownership
Emerson Radio (Hong Kong) Ltd. Hong Kong 100%*
Emerson Radio International Ltd. British Virgin Islands 100%
Sport Supply Group, Inc. Delaware 28%
* One share is owned by a resident director pursuant to local law.Consolidated Balance Sheets since they are
not valuation reserves.