annual report or the date of the document incorporated by reference into this annual report. The Company has no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. The Company has expressed its expectations, beliefs and projections in good faith and the Company is including with this Form 10-K/A certain currently dated certifications. Except as described above, no other amendments are being made tobelieves they have a reasonable basis. However, the Annual Report. This Form 10-K/A does not reflect events occurring afterCompany cannot assure you that its expectations, beliefs or projections will result or be achieved or accomplished.
The following table sets forth the filing ofmaterial properties owned or leased by the Annual Report on July 11, 2008 or modify or update the disclosure contained in the Annual Report in any way other than as required to reflect the amendments discussed above and reflected below.Company:
TABLE OF CONTENTS
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| | ItemApproximate
| | Page |
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Part III | | | | 1 |
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| | Square
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| | 6Footage | | | Location | | Lease Expires |
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Corporate headquarters | | | 22,500 | | | Parsippany, NJ | | December 2009 |
New York office | | | 3,032 | | | New York, NY | | July 2012 |
China office | | | 1,489 | | | Zhong Shan, China | | June 2009* |
Hong Kong office | | | 19,484 | | | Hong Kong, China | | December 2009 |
Macao office | | | 4,333 | | | Macao, China | | March 2011 |
Warehouse | | | 97,100 | | | Irving, TX | | June 2010 |
Warehouse | | | 180,650 | | | Mira Loma, CA | | June 2011 |
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* | | The lease automatically renews on amonth-by-month basis, unless a one month cancellation notice is given by either party. |
Periodically, depending on need and circumstances, the Company may also utilize public warehouse space with terms typically of one year or less. Public warehouse expenses vary based upon the volume and value of products shipped from each leased location.
The Company believes that the properties used for its operations are in satisfactory condition and adequate for its present and anticipated future operations. In advance of the termination of the lease on its corporate headquarters in December 2009, the Company intends to purchase an office building in New Jersey for use as its new headquarters location.
In re: Emerson Radio Shareholder Derivative Litigation. In late 2008, the plaintiffs in two previously filed derivative actions (the Berkowitz and Pinchuk actions) filed a consolidated amended complaint naming as defendants two current and one former director of the Company and alleging that the named defendants violated their fiduciary duties to the Company in connection with a number of related party transactions with affiliates of Grande Holdings, the Company’s controlling shareholder. In January 2009, the individual defendants filed an answer denying the material allegations of the complaint and the litigation currently is in the discovery stage. The recovery, if any, in this action will inure to the Company’s benefit.
Except for the litigation matters described above, the Company is not currently a party to any legal proceedings other than litigation matters, in most cases involving ordinary and routine claims incidental to our business. Management cannot estimate with certainty the Company’s ultimate legal and financial liability with respect to such pending litigation matters. However, management believes, based on our examination of such matters, that the Company’s ultimate liability will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
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Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted to a vote of security holders during the fourth quarter.
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PART II
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Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES |
(a) Market Information
The Company’s common stock began trading on the American Stock Exchange under the symbol MSN on December 22, 1994, and currently trades on the NYSE Amex under the same symbol, as a result of NYSE Euronext’s acquisition of the American Stock Exchange in 2008. The following table sets forth the range of high and low sales prices for the Company’s common stock as reported by the NYSE Amex and American Stock Exchanges during the last two fiscal years.
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| | Fiscal 2009 | | | Fiscal 2008 | |
| | High | | | Low | | | High | | | Low | |
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First Quarter | | $ | 1.39 | | | $ | 1.02 | | | $ | 3.30 | | | $ | 2.90 | |
Second Quarter | | | 1.30 | | | | .30 | | | | 3.05 | | | | 2.12 | |
Third Quarter | | | .90 | | | | .43 | | | | 2.75 | | | | 1.20 | |
Fourth Quarter | | | .75 | | | | .41 | | | | 1.45 | | | | 1.01 | |
There is no established trading market for our Series A convertible preferred stock, whose conversion feature expired as of March 31, 2002.
(b) Holders
At June 22, 2009, there were approximately 287 stockholders of record of our common stock. The Company believes that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our common stock is held of record in broker “street names”.
(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 not paid and does not intend to pay cash dividends on its common stock. In addition, The Company’s credit facility restricts its ability to pay cash dividends on its common stock.
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Item 6. | SELECTED CONSOLIDATED FINANCIAL DATA |
Not applicable.
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Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of the Company’s operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Annual Report onForm 10-K.
Special Note: Certain statements set forth below constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See Item 1A — “Risk Factors — Forward-Looking Information.”
In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations.
Results of Operations:
As a result of the Company’s sale of its membership in the ASI joint venture in April 2009, the results of operations of the Company’s membership interest in the ASI joint venture have been presented as discontinued operations for all periods presented.
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The following table summarizes certain financial information for the fiscal years ended March 31 (in thousands):
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Net revenues | | $ | 200,596 | | | $ | 223,174 | |
Cost of sales | | | 182,346 | | | | 200,998 | |
Other operating costs and expenses | | | 5,762 | | | | 6,097 | |
Selling, general and administrative | | | 16,889 | | | | 23,285 | |
| | | | | | | | |
Operating (loss) income | | | (4,401 | ) | | | (7,206 | ) |
Gain on sale of building | | | — | | | | 854 | |
Gain on foreign exchange forward contracts | | | — | | | | 465 | |
Interest income (expense), net | | | 245 | | | | 303 | |
Loss on impairment of securities | | | (117 | ) | | | (1,952 | ) |
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(Loss) income from continuing operations before income taxes and minority interest | | | (4,273 | ) | | | (7,536 | ) |
(Benefit) provision for income taxes | | | (90 | ) | | | 1,427 | |
| | | | | | | | |
Net (loss) income from continuing operations | | $ | (4,183 | ) | | $ | (8,963 | ) |
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Results of Continuing Operations — Fiscal 2009 compared with Fiscal 2008
Net Revenues — Net revenues for fiscal 2009 were $200.6 million as compared to $223.2 million for fiscal 2008, a decrease of $22.6 million or 10.1%. Net revenues are primarily comprised of Emerson® branded product sales, themed product sales and licensing revenues. Emerson® branded product sales are earned from the sale of products bearing the Emerson® or HH Scott® brand name; themed product sales represent products sold bearing a certain theme or character; and licensing revenues are derived from licensing the Emerson® and HH Scott® brand names to licensees for a fee. The major elements which contributed to the overall decrease in net revenues were as follows:
i) Home appliances product sales increased $12.8 million, or 10.0%, to $140.4 million in fiscal 2009 as compared to $127.6 million in fiscal 2008, on increases across all existing product categories, and the addition of one new category, coffee makers, during fiscal 2009. In fiscal 2009, home appliance product sales consisted of microwave ovens, small refrigerators, wine coolers, toaster ovens and coffee makers;
ii) Emerson® branded products sales, excluding home appliances products, were $44.9 million in fiscal 2009 compared to $78.9 million in fiscal 2008, a decrease of $34.0 million, or 43.1%, primarily resulting from decreased sales volumes across the entire audio product category;
iii) Themed product sales were $8.4 million in fiscal 2009 compared to $9.4 million in fiscal 2008, a decrease of $1.0 million, or 11.5%, primarily due to lower sales of Mattel® products and the discontinuance of Nickelodeon® products;
iv) Licensing revenues of $6.9 million in fiscal 2009 were unchanged from fiscal 2008. The Company’s largest license agreement is with Funai Corporation, Inc. (“Funai”), which expires December 31, 2010. The agreement provides that Funai will manufacture, market, sell and distribute specified products bearing the ‘‘ ” trademark to customers in the U.S. and Canadian markets. Under the terms of the agreement, the Company will receive non-refundable minimum annual royalty payments of $4.3 million each calendar year and a license fee on sales of product subject to the agreement in excess of the minimum annual royalties. During fiscal 2009 and 2008, revenues of $4,940,000 and $4,601,000, respectively, were recorded under this agreement. Cost of Sales — In absolute terms, cost of sales decreased $18.7 million, or 9.3%, to $182.3 million in fiscal 2009 as compared to $201.0 million in fiscal 2008. Cost of sales, as a percentage of net revenues, was 90.9% in
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fiscal 2009 as compared to 90.0% in fiscal 2008. Cost of sales as a percentage of net revenues less license revenues was 94.1% in fiscal 2009 as compared to 92.9% in fiscal 2008. The decrease in absolute terms for fiscal 2009 as compared to fiscal 2008 was primarily related to the decrease in sales volume.
Gross profit margins across all product categories were under significant pressure during fiscal 2009 due to the global economic environment, its impact on our customers’ buying habits, and the pricing to our major customers within the categories where the Company competes. The Company’s products are generally placed in thelow-to-medium priced category of the market, which has a tendency to be highly competitive and subject to intense margin pressure.
Other Operating Costs and Expenses — Other operating costs and expenses include those components as described in Note 1 of the Notes to the Consolidated Financial Statements. Other operating costs and expenses as a percentage of net revenues were 2.9% in fiscal 2009 and 2.7% in fiscal 2008. In absolute terms, other operating costs and expenses decreased $0.3 million, or 5.5%, to $5.8 million for fiscal 2009 as compared to $6.1 million in fiscal 2008.
Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, was 8.4% in fiscal 2009 as compared to 10.4% in fiscal 2008. S,G&A, in absolute terms, decreased $6.4 million, or 27.5%, to $16.9 million in fiscal 2009 as compared to $23.3 million in fiscal 2008. The decrease in S,G&A in absolute terms between fiscal 2009 and 2008 was primarily due to a decrease in legal fees of $1.5 million, freight out costs of $1.5 million, personnel costs of $1.5 million, and decreases in miscellaneous other expenses.
Interest Income (Expense), net — Interest income, net, from third parties, was $245,000 in fiscal 2009 as compared to $140,000 in fiscal 2008, and was higher due to interest earned on auction rate securities held in fiscal 2008 and lower inventory and accounts receivable balances. Interest income, net, including interest from related parties, decreased in fiscal 2009 versus fiscal 2008 due to inclusion in the first quarter of fiscal 2008 of $163,000 of interest income on a note due from a related party, which was repaid in the same period.
Loss on impairment of securities — During fiscal 2009, the Company recorded a net impairment charge of $117,000 on its auction rate securities. This compares to the fiscal 2008 net impairment charge of $1.95 million recorded during the fourth quarter of fiscal 2008, due to a decline in fair value which was deemed to be other than temporary. Our valuation and impairment was estimated by comparing current value based on projected cash flows discounted to the present and taking into account yields of similar illiquid instruments and assumptions about the extent of the failure of the auction process and the amount of discounts demanded in sales of comparable securities. The Company will continue to review any investments with a fair value less than the carrying value at each reporting period. See Item 1A. Risk Factors and Note 12 “Marketable Securities”.
Provision (benefit) for Income Taxes — In fiscal 2009, the Company recorded an income tax benefit of $90,000 attributable to the loss from continuing operations of $4.3 million. In fiscal 2008, the Company recorded a net income tax provision of $1.4 million, which largely represented deferred tax charges associated with the Company’s profits in the United States and the settlement in fiscal 2008 of the Company’s predecessor’s California franchise taxes. See Item 8 — “Financial Statements and Supplementary Data — Note 7 — Income Taxes”.
Net loss from continuing operations — As a result of the foregoing factors, the Company’s net loss from continuing operations was $4.2 million for fiscal 2009 as compared to a net loss from continuing operations of $9.0 million for fiscal 2008.
Liquidity and Capital Resources
General
As of March 31, 2009, the Company had cash and cash equivalents of approximately $22.5 million, compared to approximately $14.3 million at March 31, 2008. Working capital increased to $44.8 million at March 31, 2009 as compared to $44.3 at March 31, 2008. The increase in cash and cash equivalents of approximately $8.2 million was due to increases in cash provided by investing and financing activities of $5.8 million and $5.4 million, respectively, partially offset by a usage of cash from operations of $3.0 million.
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Cash used by operating activities was approximately $3.0 million for fiscal 2009, resulting from the net loss from continuing operations of $4.2 million, the temporary classification of $3.0 million of cash as restricted to ensure the release of letters of credit, if needed, by the Company’s lender, lower level of accounts payable ($2.8 million) due to reduction of unsettled supplier payables on the Company’s direct import sales, which represent sales under letter of credit arrangements, partially offset by lower inventories ($4.4 million) and accounts receivable ($2.9 million).
Net cash provided by investing activities was $5.8 million for fiscal 2009, which was attributable to partial calls on the auction rate securities ($5.8 million), disposition of the Company’s membership interest in ASI ($0.4 million), offset by purchases of showroom furniture and computer equipment for the Company’s US operations as well as tooling by a foreign subsidiary related to sourcing of product.
Net cash provided by financing activities was $5.4 million for fiscal 2009, resulting from short-term borrowings made against the unredeemed portion of still outstanding auction rate securities.
Wachovia
On December 23, 2005, the Company entered into a $45.0 million Revolving Credit Agreement with Wachovia Bank. This credit facility provides for revolving loans subject to individual maximums which, in the aggregate, are not to exceed the lesser of $45.0 million or a “Borrowing Base” as defined in the loan agreement. The Borrowing Base amount is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime plus 1.00% to 1.50% or, at the Company’s election, the London Interbank Offered Rate (“LIBOR”) plus 2.50% to 3.00% depending on excess availability. Pursuant to the loan agreement, the Company is restricted from, among other things, paying certain cash dividends, and entering into certain transactions without the lender’s prior consent and is subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of the Company’s tangible assets.
At March 31, 2009 and March 31, 2008, there were approximately $13.0 million and $10.8 million of letters of credit outstanding under this facility.
At March 31, 2009, the Company held approximately $3.0 million in restricted cash to ensure the release of additional letters of credit for trade purchases of inventory, if necessary.
At March 31, 2009, as a result of failing to meet the fixed charge coverage ratio requirement, the Company was not in compliance with the covenants of the Wachovia Loan Agreement. The lender agreed to waive such defaults, and the Company and the lender negotiated an amendment to the loan and security agreement. The Company was required to pay $50,000 to the lender in connection with the amendment.
Short-Term Liquidity. The Company’s liquidity is impacted by the seasonality of its business in that the Company generally records the majority of its annual sales in the quarters ending September and December. This requires the Company to maintain higher inventory levels during the quarters ending June and September, therefore increasing the working capital needs during these periods. Additionally, the Company receives the largest percentage of its product returns in the quarter ending March. The higher level of returns during this period adversely impacts the Company’s collection activity, and therefore liquidity. In fiscal 2009, products representing approximately 34% of gross sales were imported directly to the Company’s customers. This significantly benefits Emerson’s liquidity because this inventory does not need to be financed by the Company.
The Company’s principal existing sources of cash are generated from operations and borrowings available under its revolving credit facility. As of March 31, 2009, the Company had $22.2 million of borrowing capacity available under its $45.0 million revolving credit facility, as there were $13.0 million letters of credit outstanding, and no outstanding loans. The Company believes that its existing sources of cash, including cash flows generated from operations, will be sufficient to support its existing operations over the next 12 months; however, the Company may raise additional financing, which may include the issuance of equity securities, or the incurrence of additional debt, in connection with its operations or if the Company elects to pursue acquisitions.
As of March 31, 2009, there were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product. As of July 9, 2009, in advance
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of the termination of the lease on its corporate headquarters in December 2009, the Company intends to purchase an office building in New Jersey for use as its new headquarters location but has no binding agreement obligating it to do so.
Off-Balance Sheet Arrangements. The Company does not have any off-balance sheet arrangements.
Other Events and Circumstances Pertaining to Liquidity. During fiscal 2008, the Company entered into foreign exchange forward contracts (denominated in US and Hong Kong dollar), based on economic and market conditions and solely for the purpose of speculative trading (See Item 8 — “Financial Statements and Supplementary Data — Note 11 — Financial Instruments”). The contract terms were for fixed periods and at March 31, 2008, these foreign exchange forward contracts had expiration dates that ranged from one to two months, with notional amounts of $10 million, and expired during the first quarter of fiscal 2009. At each balance sheet date, the Company accounts for its foreign exchange forward contracts as a current asset with corresponding realized or unrealized gains and losses included in the income statement. At March 31, 2009, the Company held no foreign exchange forward contracts.
As of March 31, 2008, the Company had $13.9 million face value invested in trading securities, consisting entirely of student loan auction rate securities (“SLARS”). These securities have long-term nominal maturities for which interest rates are reset through a Dutch auction process at pre-determined calendar intervals; a process which, prior to February 2008, had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced in the global credit and capital markets, these SLARS have had multiple failed auctions. Based on an independent valuation and its internal analysis, the Company concluded at March 31, 2008, that these securities had experienced another-than-temporary decline in fair value and recorded an impairment charge of $1.95 million in fiscal 2008. During fiscal 2009, the issuers of these SLARS redeemed $5.8 million for cash, and the Company recorded an additional impairment charge of $117,000. These SLARS have AAA/Aaa and AAA/Baa3 credit ratings as of March 31, 2009, and have been classified as long-term investments in the Company’s Consolidated Balance Sheet as a consequence of their uncertain liquidity. The net book value of these SLARS at March 31, 2009 and 2008, respectively was $6.0 million and $11.9 million.
Restatement of Prior Interim Period Financial Statements
Based upon an extensive review and analysis of its sales allowance reserve and i-pod(R) marketing fund (the “Review”) initiated as a result of the receipt of a comment letter from the Staff of the Securities and Exchange Commission (“SEC”), management of the Company concluded, as reported in its Current Report onForm 8-K dated July 9, 2009 filed with the SEC, that its previously issued financial statements for each of the three month periods ended June 30, 2008 and September 30, 2008 need to be restated to correct an overstatement of pre-tax loss in the June quarter and an understatement of pre-tax loss in the September quarter, each in an amount currently estimated at $1.0 million. Because the amounts to be restated in such quarters offset each other, the Company believes that its financial statements for the six months ended September 30, 2008 continue to fairly present the Company’s results of operations and financial condition for the period and as of that date and need not be restated.
The Review revealed that, in certain instances, credits offered to or taken by customers were charged against the incorrect sales allowance reserve account which had no material impact on the Company’s publicly disclosed financial results until the quarter ended June 30, 2008, when the Company, believing it was then under reserved in its sales allowance accounts, expensed an extra amount of approximately $1.0 million in order to maintain these reserves at an appropriate level. In the quarter ended September 30, 2008, the Company incorrectly concluded that it had excess reserves in an account specifically related to the marketing of its iPod® category and, therefore, took an amount of approximately $1.0 million into income. The Company believes that the amounts reserved at September 30, 2008 for all sales allowances represent a fair estimation at that date of the amounts then required to be reserved for such purposes.
The Company currently anticipates that it will amend its previously reported financial statements for the three months ended June 30, 2008 and the three months ended September 30, 2008 (but not for the six months ended September 30, 2008 or any period ended thereafter) on or before August 31, 2009.
The Company’s management, Audit Committee and independent registered public accounting firm have discussed the Company’s analysis and its conclusions.
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Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted within the United States. The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade accounts receivables, impairment of long lived assets, valuation of deferred tax assets, sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each.
Revenue Recognition. Revenues from product distribution are recognized at the time title passes to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for possible returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific arrangements to the contrary, returns are not permitted unless the goods are defective.
In addition to the distribution of products, the Company grants licenses the right to use the Company’s trademarks for as stated term for the manufactureand/or sale of consumer electronics and other products under agreements which require payment of either i)a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using thefirst-in, first-out basis. The Company records inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.
Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer’s financial condition and provides for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial conditions of a customer deteriorates, resulting in an impairment of that customer’s ability to make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.
Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset will likely be realized in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it is determined that all or part of a net deferred tax asset will likely not be realized in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
Sales Return Reserves. Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return
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rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-based incentives, which are provided to retailers and distributors are accounted for on an accrual basis as a reduction in net revenues in the period in which the related sales are recognized as per the guidance of the Emerging Issues Task Force of the Financial Accounting Standards Board (“FASB”) inEITF 01-09 “Accounting for Consideration Given by a Vendor to a Customer.” If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the sales, then additional reserves may be required and are accrued for when such support is offered.
Recently-Issued Financial Accounting Pronouncements
In December 2007, the FASB revised Statement 141, “Business Combinations” — effecting the acquisitions on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This Statement replaces FASB Statement No. 141,Business Combinations.This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued FAS 160, “Non-controlling Interests in Consolidated Financial Statements, — an amendment of ARB No. 51. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB ratified the Emerging Issues Task Force consensus on EITF IssueNo. 07-1, “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”. The EITF resolved that revenues and costs incurred and revenues generated from transactions with third parties outside the collaborative arrangement should be reported by the collaborators based on the criteria inEITF 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent”. Payments between collaborators should be characterized based on existing accounting literature or analogous to such guidance if the payments are not within the scope of such pronouncements. Disclosures should include the nature and purpose of the collaborative arrangement along with the relevant accounting policies and classification of significant financial statement amounts associated with the arrangements. EITF IssueNo. 07-1 is effective for fiscal years beginning after December 15, 2008 and is to be applied retrospectively to all periods presented for collaborative arrangements in existence on the date of adoption. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In February 2008, the FASB issued FSP Financial Accounting Standard (“FAS”)FAS 157-2,Effective Date of FASB Statement No. 157. FSPFAS 157-2 delays the effective date of SFAS No. 157,Fair Value Measurements, for certain nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. FSPFAS 157-2 defers the effective date of certain provisions of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for items within the scope of this FSP. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2008, the FASB issued FAS 161, “Disclosures about Derivative Instruments and Hedging Activities” — an amendment of FASB Statement No. 133, “Accounting for Derivatives Instruments and Hedging Activities”. FAS 161 is effective for annual periods beginning after December 15, 2008. FAS 161 expands in the reporting requirements of FAS 131. The Statement requires that objectives for using derivative instruments be
26
disclosed in terms of underlying risk and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is intending to manage. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2008, the FASB issued FSPFAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSPFAS 142-3). FSPFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FSPFAS 142-3 is effective for our financial statements beginning in fiscal 2010, and interim periods within those fiscal years. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2008, FASB issued FAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. Effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2008, the FASB issued FAS No. 163, “Accounting for Financial Guarantee Insurance Contracts.” FAS No. 163 is an interpretation of FAS No. 60, “Accounting and Reporting by Insurance Enterprises”. FAS No. 163 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF)03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSPEITF 03-06-1), which clarifies that unvested share-based payment awards with a right to receive non-forfeitable dividends are participating securities and provides guidance on how to allocate earnings to participating securities to allow computation of basic earnings per share using the two-class method. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued FSPSFAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume or level of activity in a market for an asset or liability has decreased significantly. This FSP also provides additional guidance on identifying circumstances that indicate a transaction is not orderly (i.e., a forced liquidation or distressed sale). The Company is currently evaluating the impact of this new Standard.
In April 2009, the FASB issued FSPSFAS 115-2 and SFAS to sell a debt security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, then an entity may separate other-than temporary impairments into two components: 1) the amount related to credit losses (recorded in earnings) and 2) all other amounts (recorded in other comprehensive income). The Company is currently evaluating the impact of this new Standard.
| |
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
27
| |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Index to Consolidated Financial Statements
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 (the “Company”), as of March 31, 2009 and 2008, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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 the Company as of March 31, 2009 and 2008, and the consolidated results of their operations, and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ MSPC
Certified Public Accountants and Advisors
A Professional Corporation
Cranford, New Jersey
July 13, 2009
29
EMERSON RADIO CORP. AND SUBSIDIARIES
For the Years Ended March 31, 2009 and 2008
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands, except per share data) | |
|
Net revenues: | | | | | | | | |
Net revenues | | $ | 200,581 | | | $ | 222,801 | |
Net revenues-related party | | | 15 | | | | 373 | |
| | | | | | | | |
| | | 200,596 | | | | 223,174 | |
| | | | | | | | |
Costs and expenses: | | | | | | | | |
Cost of sales | | | 182,346 | | | | 200,766 | |
Cost of sales-related party | | | — | | | | 232 | |
Other operating costs and expenses | | | 5,762 | | | | 6,097 | |
Selling, general and administrative expenses | | | 16,889 | | | | 23,285 | |
| | | | | | | | |
| | | 204,997 | | | | 230,380 | |
| | | | | | | | |
Operating income (loss) | | | (4,401 | ) | | | (7,206 | ) |
Other income (expense): | | | | | | | | |
Gain on sale of building | | | — | | | | 854 | |
Gains on foreign exchange forward contracts | | | — | | | | 465 | |
Interest income, net | | | 245 | | | | 140 | |
Interest income-related party | | | — | | | | 163 | |
Loss on impairment of securities | | | (117 | ) | | | (1,952 | ) |
| | | | | | | | |
| | | 128 | | | | (330 | ) |
| | | | | | | | |
Loss from continuing operations before income taxes | | | (4,273 | ) | | | (7,536 | ) |
(Benefit) provision for income taxes | | | (90 | ) | | | 1,427 | |
| | | | | | | | |
Loss from continuing operations | | | (4,183 | ) | | | (8,963 | ) |
Loss from discontinued operations, net of tax benefit | | | (634 | ) | | | (58 | ) |
| | | | | | | | |
Net loss | | | (4,817 | ) | | | (9,021 | ) |
| | | | | | | | |
Basic net loss per share | | | | | | | | |
Continuing operations | | $ | (.16 | ) | | $ | (.33 | ) |
Discontinued operations | | | (.02 | ) | | | — | |
| | | | | | | | |
| | $ | (.18 | ) | | $ | (.33 | ) |
| | | | | | | | |
Diluted net loss per share | | | | | | | | |
Continuing operations | | $ | .(16 | ) | | $ | (.33 | ) |
Discontinued operations | | | (.02 | ) | | | — | |
| | | | | | | | |
| | $ | (.18 | ) | | $ | (.33 | ) |
| | | | | | | | |
Weighted average shares outstanding | | | | | | | | |
Basic | | | 27,130 | | | | 27,126 | |
Diluted | | | 27,130 | | | | 27,126 | |
The accompanying notes are an integral part of the consolidated financial statements.
30
EMERSON RADIO CORP. AND SUBSIDIARIES
As of March 31, 2009 and 2008
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands, except per share data) | |
|
ASSETS |
Current Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 22,518 | | | $ | 14,283 | |
Restricted cash | | | 3,025 | | | | — | |
Foreign exchange forward contracts | | | — | | | | 134 | |
Net accounts receivable | | | 15,970 | | | | 17,254 | |
Other receivables | | | 1,587 | | | | 2,131 | |
Due from affiliates | | | 78 | | | | 765 | |
Net inventory | | | 20,691 | | | | 24,721 | |
Prepaid expenses and other current assets | | | 2,190 | | | | 2,246 | |
Deferred tax assets | | | 4,872 | | | | 5,412 | |
Current assets of discontinued operations | | | — | | | | 329 | |
| | | | | | | | |
Total current assets | | | 70,931 | | | | 67,275 | |
Property, plant, and equipment, net | | | 1,139 | | | | 1,481 | |
Trademarks and other intangible assets, net | | | 255 | | | | 279 | |
Due from affiliates | | | 114 | | | | — | |
Investments in marketable securities | | | 6,031 | | | | 11,948 | |
Deferred tax assets | | | 7,102 | | | | 5,927 | |
Other assets | | | 472 | | | | 589 | |
Non current assets of discontinued operations | | | — | | | | 430 | |
| | | | | | | | |
Total Assets | | $ | 86,044 | | | $ | 87,929 | |
| | | | | | | | |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities: | | | | | | | | |
Short-term borrowings | | $ | 5,733 | | | $ | — | |
Current maturities of long-term borrowings | | | 85 | | | | 82 | |
Accounts payable and other current liabilities | | | 18,929 | | | | 21,695 | |
Due to affiliates | | | 66 | | | | 102 | |
Accrued sales returns | | | 1,130 | | | | 872 | |
Income taxes payable | | | 155 | | | | 185 | |
Current liabilities of discontinued operations | | | — | | | | 42 | |
| | | | | | | | |
Total current liabilities | | | 26,098 | | | | 22,978 | |
Long-term borrowings | | | 59 | | | | 142 | |
Deferred tax liabilities | | | 87 | | | | 57 | |
Minority interest | | | — | | | | 133 | |
Shareholders’ Equity: | | | | | | | | |
Preferred shares — 10,000,000 shares authorized; 3,677 shares issued and outstanding; liquidation preference of $3,677 | | | 3,310 | | | | 3,310 | |
Common shares — $.01 par value, 75,000,000 shares authorized; 52,965,797 shares issued at March 31, 2009 and March 31, 2008, respectively; 27,129,832 shares outstanding at March 31, 2009 and March 31, 2008, respectively | | | 529 | | | | 529 | |
Capital in excess of par value | | | 117,243 | | | | 117,245 | |
Accumulated other comprehensive losses | | | (82 | ) | | | (82 | ) |
Accumulated deficit | | | (36,976 | ) | | | (32,159 | ) |
Treasury stock, at cost, 25,835,965 shares | | | (24,224 | ) | | | (24,224 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 59,800 | | | | 64,619 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 86,044 | | | $ | 87,929 | |
| | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
31
EMERSON RADIO CORP. AND SUBSIDIARIES
For the Years Ended March 31, 2009 and 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Shares
| | | | | | | | | Accumulated
| | | | | | | |
| | | | | Issued | | | | | | Capital
| | | Other
| | | | | | Total
| |
| | Preferred
| | | Number
| | | Par
| | | Treasury
| | | in Excess of
| | | Comprehensive
| | | Accumulated
| | | Shareholders’
| |
| | Stock | | | of Shares | | | Value | | | Stock | | | Par Value | | | Losses | | | Deficit | | | Equity | |
| | (In thousands, except share data) | |
|
Balance — March 31, 2007 | | $ | 3,310 | | | | 52,945,797 | | | $ | 529 | | | $ | (24,224 | ) | | $ | 117,371 | | | $ | (82 | ) | | $ | (23,017 | ) | | $ | 73,887 | |
Exercise of stock options and warrants | | | | | | | 20,000 | | | | | | | | | | | | 51 | | | | | | | | | | | | 51 | |
Stock based compensation | | | | | | | | | | | | | | | | | | | (177 | ) | | | | | | | | | | | (177 | ) |
Adjustment for implementation of FIN 48 | | | | | | | | | | | | | | | | | | | | | | | | | | | (121 | ) | | | (121 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (9,021 | ) | | | (9,021 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (9,021 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance — March 31, 2008 | | $ | 3,310 | | | | 52,965,797 | | | $ | 529 | | | $ | (24,224 | ) | | $ | 117,245 | | | $ | (82 | ) | | $ | (32,159 | ) | | $ | 64,619 | |
Stock based compensation | | | | | | | | | | | | | | | | | | | (2 | ) | | | | | | | | | | | (2 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,817 | ) | | | (4,817 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4,817 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance — March 31, 2009 | | $ | 3,310 | | | | 52,965,797 | | | $ | 529 | | | $ | (24,224 | ) | | $ | 117,243 | | | $ | (82 | ) | | $ | (36,976 | ) | | $ | 59,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statement
32
EMERSON RADIO CORP. AND SUBSIDIARIES
For the Years Ended March 31, 2009 and 2008
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Cash Flows from Operating Activities: | | | | | | | | |
Loss from continuing operations | | $ | (4,183 | ) | | $ | (8,963 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | |
(used) provided by operating activities: | | | | | | | | |
Minority interest | | | — | | | | 133 | |
Depreciation and amortization | | | 775 | | | | 808 | |
Non cash compensation | | | (2 | ) | | | (177 | ) |
Deferred tax benefit | | | (605 | ) | | | (1,550 | ) |
Asset allowances, reserves, and other | | | (1,739 | ) | | | 1,746 | |
Gain on insurance reimbursements | | | (54 | ) | | | — | |
Gains on sales of investments | | | (670 | ) | | | — | |
Gain on sale of building and other property | | | — | | | | (865 | ) |
Impairment charges and asset write-offs | | | 877 | | | | 2,072 | |
Gains on foreign exchange forward contracts not settled | | | — | | | | (134 | ) |
Changes in assets and liabilities: | | | | | | | | |
Restricted cash | | | (3,025 | ) | | | 3,000 | |
Foreign exchange forward contracts | | | 134 | | | | — | |
Accounts receivable | | | 2,919 | | | | (444 | ) |
Other receivables | | | 544 | | | | (595 | ) |
Due from affiliates | | | 573 | | | | 23,925 | |
Inventories | | | 4,392 | | | | 8,242 | |
Prepaid expenses and other current assets | | | 110 | | | | 1,130 | |
Other assets | | | 34 | | | | (153 | ) |
Accounts payable and other current liabilities | | | (2,766 | ) | | | 1,609 | |
Due to affiliates | | | (36 | ) | | | 102 | |
Income taxes payable | | | 40 | | | | (242 | ) |
| | | | | | | | |
Operating activities of continuing operations | | | (2,682 | ) | | | 29,644 | |
Operating activities of discontinued operations | | | (347 | ) | | | (354 | ) |
| | | | | | | | |
Net cash (used) provided by operating activities | | | (3,029 | ) | | | 29,290 | |
| | | | | | | | |
Cash Flow From Investing Activities: | | | | | | | | |
Proceeds from sale of building and other property | | | — | | | | 2,011 | |
Proceeds from partial calls on securities | | | 5,800 | | | | 1,100 | |
Purchases of securities | | | — | | | | (15,000 | ) |
Additions to property and equipment (continuing operations) | | | (416 | ) | | | (873 | ) |
Investing activities of discontinued operations, including Proceeds from sale of ASI (net of cash at date of sale) | | | 430 | | | | (430 | ) |
| | | | | | | | |
Net cash provided (used) by investing activities | | | 5,814 | | | | (13,192 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Short-term borrowings | | | 9,279 | | | | (64 | ) |
Repayments of short-term borrowings | | | (3,613 | ) | | | — | |
Net borrowings under foreign bank facilities | | | — | | | | (3,111 | ) |
Exercise of stock options | | | — | | | | 51 | |
Borrowings under long-term credit facility | | | 141,608 | | | | 183,144 | |
Repayments of borrowings under long-term credit facility | | | (141,691 | ) | | | (183,728 | ) |
| | | | | | | | |
Financing activities of continuing operations | | | 5,583 | | | | (3,708 | ) |
Financing activities of discontinued operations | | | (133 | ) | | | 42 | |
| | | | | | | | |
Net cash provided (used) by financing activities | | | 5,450 | | | | (3,666 | ) |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 8,235 | | | | 12,432 | |
Cash and cash equivalents at beginning of year | | | 14,283 | | | | 1,851 | |
| | | | | | | | |
Cash and cash equivalents at end of year (Including cash of discontinued operations of $0) | | $ | 22,518 | | | $ | 14,283 | |
| | | | | | | | |
Supplemental disclosures of non-cash investing and financing activities: | | | | | | | | |
Interest | | $ | 144 | | | $ | 464 | |
| | | | | | | | |
Income taxes | | $ | 67 | | | $ | 5,393 | |
| | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
33
EMERSON RADIO CORP. AND SUBSIDIARIES
March 31, 2009
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES:
Background and Basis of Presentation
The consolidated financial statements include the accounts of Emerson Radio Corp. (“Emerson”, consolidated — the “Company”), and its subsidiaries. The Company designs, sources, imports and markets a variety of consumer electronic and household products, and licenses the Emerson trademark for a variety of products domestically and internationally.
On April 16, 2009, the Company entered into an agreement with Advanced Sound and Image, LLC, a Delaware limited liability company (“ASI”), ADCOM, LLC, an Arizona limited liability company (“ADCOM”), Quality Technology Electronics (Thailand) LTD, a Thai corporation (“QTE”) and Daniel Donnelly, pursuant to which, among other things, the Company sold (a) to ASI all of its membership interest in ASI and (b) to QTE all of its right, title and interest in and to certain loan documentation relating to a secured line of credit made available to ASI under which approximately $1.2 million was due and payable to the Company as of April 16, 2009. In connection with this transaction, the Company recognized an after-tax loss of approximately $0.6 million and, accordingly, the financial position and results of operations of the Company’s interest in the ASI joint venture for the fiscal years ended March 31, 2009 and 2008 have been presented as discontinued operations. See Note 17 “Discontinued Operations”.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Highly liquid short-term investments with original maturities of three months or less at the time of purchase are considered to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts for cash and cash equivalents, cash securing bank loans, trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to short-term maturity of these financial instruments. The carrying amounts of bank debt approximate their fair values due to their variable rate interest features.
Investments
The Company determines the appropriate classifications of securities at the time of purchase and evaluates the continuing appropriateness of that classification thereafter. The Company’s investments in auction rate securities are classified as trading securities in fiscal 2009 and 2008. Realized gains and losses are determined on a specific identification basis and are reported separately as a component of income. Decreases and increases in the fair value of securities deemed to be other than temporary are included in earnings.
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
34
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
collateral. The Company provides for any anticipated credit losses in the financial statements based upon management’s estimates and ongoing reviews of recorded allowances. The accounts receivable allowance for doubtful accounts was $691,000 at March 31, 2009 and $959,000 at March 31, 2008
The Company maintains its cash accounts primarily with the bank providing its credit facility and also with major foreign financial institutions. See Note 6 — “Borrowings”. The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per bank as of March 31, 2009 and $100,000 per bank as of March 31, 2008. The Company’s cash balances in excess of FDIC-insured limits were $25.3 million and $14.2 million at March 31, 2009 and March 31, 2008, respectively.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets being depreciated. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. The cost of maintenance and repairs is charged to expense as incurred. Significant renewals and betterments are capitalized and depreciated over the remaining estimated useful lives of the related assets. At time of disposal, the cost and related accumulated depreciation are removed from the Company’s records and the difference between net carrying value of the asset and the sale proceeds is recorded as a gain or loss.
Depreciation of property, plant and equipment is provided by the straight-line method as follows:
| | | | |
• | | Equipment | | 14Five years to ten years |
• | | Computer Equipment and Software | | Three years to ten years |
• | | Office Equipment | | 18 |
| | | | |
Part IV | | | | 19 |
| | | | |
Signatures | | 20 |
| | | | |
Exhibit Index | | 20Five years to seven years |
(i)
Long-Lived Assets
The Company’s long-lived assets include property and equipment, trademark and other amortizable intangibles. At March 31, 2009, the Company had approximately $1,139,000 of property and equipment, net of accumulated depreciation, and approximately $255,000 of trademark and other amortizable intangible assets, net of amortization, accounting for approximately 2% of the Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposals of Long-Lived Assets.” Recoverability of assets held and used are measured by a comparison of the carrying amount of an asset to estimated undiscounted pre-tax future net cash flows. Future events could cause the Company to conclude that impairment indicators exist and that long-lived assets may be impaired. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.
Revenue Recognition
Distribution of products
Revenues from product distribution are recognized at the time title passes to the customer. Under the Direct Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for possible returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific arrangements to the contrary, returns are not permitted unless the goods are defective.
Management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must
35
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERSEMERSON RADIO CORP. AND CORPORATE GOVERNANCE
DirectorsSUBSIDIARIES
The following table sets forth certain information regarding
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
be made and used in connection with establishing the current directorssales return reserves in any accounting period. Additional reserves may be required if actual sales returns increase above the historical return rates. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish the reserve.
Sales allowances, marketing support programs, promotions and other volume-based incentives, which are provided to retailers and distributors are accounted for on an accrual basis as a reduction in net revenues in the period in which the related sales are recognized as per the guidance of Emerson Radio Corp.the Emerging Issues Task Force of the Financial Accounting Standards Board (“Emerson,FASB”) inEITF 01-09 “Accounting for Consideration Given by a Vendor to a Customer.” “us”If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s products subsequent to the sales, then additional reserves may be required and are accrued for when such support is offered.
Licensing
In addition to the distribution of products, the Company grants licenses for the right to use the Company’s trademarks for a stated term for the manufactureand/or sale of consumer electronics and other products under agreements which require payment of either i)a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum. In effect, the Company recognizes the greater of Sales Royalties earned to date or the “Company”).straight-line amount of minimum guaranteed royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
| | | | | | | | | | |
| | | | | | Year First | | |
| | | | | | Became | | |
Name | | Age | | Director | | Principal Occupation or Employment |
| | | | | | | | | | |
Christopher Ho | | | 58 | | | | 2006 | | | Christopher Ho has served as our Chairman since July 2006. Mr. Ho is presently the Chairman of The Grande Holdings Ltd. (“Grande Holdings”), a Hong Kong based group of companies engaged in a number of businesses including the manufacture, sale and distribution of audio, video and other consumer electronics and video products. Grande Holdings beneficially holds approximately 57.6% of our outstanding common shares. Mr. Ho also currently serves as Chairman of Lafe Corporation Limited, a company listed on the Singapare Exchange, and a representative director of Sanusi Electric Co., Ltd., a company listed on the Tokyo Stock Exchange. Christopher Ho graduated with a Bachelor of Commerce degree from the University of Toronto in 1974. He is a member of the Canadian Institute of Chartered Accountants as well as a member of the Institute of Management Accountants of Canada. He also is a certified public accountant (Hong Kong) and a member of the Hong Kong Society of Accountants. He was a partner in international accounting firms before joining Grande Holdings and has extensive experience in corporate finance, international trade and manufacturing. |
| | | | | | | | | | |
Adrian Ma (1) | | | 63 | | | | 2006 | | | Adrian Ma, a director of the Company since March 30, 2006, has been our Chief Executive Officer since March 30, 2006 and also served as our Chairman from March 30, 2006 through July 26, 2006. In addition, Mr. Ma is a director of Grande Holdings. He has more than 30 years experience as an Executive Chairman, Executive Director and Managing Director of various organizations focused primarily in the consumer electronics industry. Mr. Ma also is Director of Lafe Technology Ltd., Vice Chairman and Managing Director of Ross Group Inc. and Deputy Chairman of Sansui Electric Co. Ltd. |
| | | | | | | | | | |
Greenfield Pitts | | | 58 | | | | 2006 | | | Greenfield Pitts has served as our Chief Financial Officer since February 2007 and a director since March 2006. Mr. Pitts has a 30-year background in international banking and was associated with Wachovia Bank, our present lender, for more than 25 years, with assignments in London, Atlanta and Hong Kong. From 1997 to 2006, he was in Hong Kong managing a joint venture between Wachovia and HSBC, later worked in Corporate Finance for Wachovia Securities. |
Cost of Sales
Cost of sales includes actual product cost, change in inventory reserves, duty, buying costs, the cost of transportation to the Company’s warehouses from its manufacturers, warehousing costs, and an allocation of depreciation and amortization.
Other Operating Costs and Expenses
Other operating costs and expenses include costs associated with returned product received from retailers, the costs associated with the markdown of returned inventory, and an allocation of depreciation and amortization. Because other operating costs and expenses is not included in cost of sales, the reported gross margin may not be comparable to those of other distributors that may include all costs related to the cost of product to their cost of sales and in the calculation of gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs of the Company that are not directly related to the cost of procuring product or costs not included in other operating costs and expenses.
Acquisition Costs Incurred
Acquisition costs include all costs incurred by the Company in acquisition attempts. These costs are charged to operations when the potential acquisition is terminated.
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| | | | | | | | | | |
| | | | | | Year First | | |
| | | | | | Became | | |
Name | | Age | | Director | | Principal Occupation or Employment |
Michael A.B. Binney | | | 49 | | | | 2005 | | | Michael A.B. Binney has been a Director since December 2005. Mr. Binney served as our Acting Group Controller from February 2007 until May 2008 and as our President-International Sales from July 2006 until May 2008. He is a fellow member of the Institute of Chartered Accountants in England and Wales and a fellow member of the Hong Kong Institute of Certified Public Accountants. He was a professional accountant for several years before joining the computer and electronics industry. He also currently is a Director of Grande Holdings, a Director of Lafe Corporation Limited, a company listed on the Singapore Exchange, as well as a Director of several other companies in Malaysia, Japan, Singapore and the United Kingdom. |
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Mirzan Mahathir | | | 50 | | | | 2007 | | | Mirzan Mahathir has been a Director since 2007. Mr. Mahathir currently manages his investments in Malaysia and overseas while facilitating business collaboration in the region. Previously, Mr. Mahathir worked for IBM Corporation and Salomon Brothers. Since 1992, Mr. Mahathir has served as the Executive Chairman and President of Konsortium Logistik Berhad, a Malaysian logistic solutions provider listed on the Kuala Lumpar Stock Exchange. He also is the Chairman and CEO of Crescent Capital Sdn Bhd, a Malaysian investment holding and independent strategic and financial advisory firm which he founded and the President of the Asian Strategy and Leadership Institute (ASLI), a leading organizer of business conferences, secretariat for business councils and public policy research centre. Currently, Mr. Mahathir holds directorships in Worldwide Holdings Berhad and AHB Holdings Berhad, companies listed on the Bursa Malaysia, and Lafe Technology Ltd., a company listed on the Singapore Exchange. He is also a member of the UN/ESCAP Business Advisory Council, the American Bureau of Shipping Southeast Asia Committee and the Wharton Business School Asian Executive Board. |
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Kareem E. Sethi (1)(2) | | | 30 | | | | 2007 | | | Kareem E. Sethi has been a Director since 2007. Mr. Sethi has served as Managing Director of Streetwise Capital Partners, Inc. since 2003. From 1999 until 2003, Mr. Sethi was Manager, Business Recovery Services for PricewaterhouseCoopers Inc. |
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Losses and gains resulting from foreign currency transactions are included in the results of operations.
The Company generally does not enter into foreign currency exchange contracts to hedge its exposures related to foreign currency fluctuations. However, in fiscal 2008, the Company entered into fixed period foreign exchange forward contracts (between the US and Hong Kong dollar), based on economic and market conditions and solely for the purpose of speculative trading, not for the purpose of hedging other business opportunities. The contract terms were for fixed periods and at March 31, 2008, the Company’s foreign exchange forward contracts had expiration dates that ranged from one to two months, with notional amounts of $10 million. (See Note 11 “Financial Instruments”). The Company recorded $465,000 of net foreign exchange gains on these contracts in fiscal 2008. There were no foreign exchange forward contracts held by the Company at March 31, 2009.
Advertising Expenses
Advertising expenses are charged to operations as incurred and are included in selling, general and administrative expenses. Total advertising expenses were approximately $1,143,000 and $820,000 for fiscal 2009 and 2008.
Sales Allowance and Marketing Support Expenses
Sales allowance, marketing support programs and other volume-based incentives are accounted for on an accrual basis as a reduction in net revenue according to the requirements of Emerging Issue Task Force01-09, “Accounting for Consideration Given By a Vendor to a Customer or a Reseller of the Vendor’s Products” in the period in which the related sales are recognized. These expenses were approximately $3,805,000 and $7,760,000 for fiscal 2009 and 2008, respectively.
Internet Expenses
The Company expenses the operating and development costs of its Internet websites when incurred.
Interest (Income) Expense
The Company expenses interest when incurred. The interest expenses for fiscal 2009 and 2008 consist of:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Interest expense | | $ | 174 | | | $ | 440 | |
Amortization of deferred financing costs | | | 83 | | | | 83 | |
Interest income | | | (502 | ) | | | (663 | ) |
| | | | | | | | |
Interest (income) expense, net | | $ | (245 | ) | | $ | (140 | ) |
| | | | | | | | |
Income Taxes
Deferred income taxes are provided for the tax effects of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets have been recorded, net of an appropriate valuation allowance, to the extent management believes it is more likely than not that such assets will be realized. (See Note 7 “Income Taxes”).
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37
| | | | | | | | | | |
| | | | | | Year First | | |
| | | | | | Became | | |
Name | | Age | | Director | | Principal Occupation or Employment |
Eduard Will | | | 66 | | | | 2006 | | | Eduard Will has been our Vice Chairman since October 2007 and a Director since July 2006. From July 2006 until October 2007, Mr. Will served as our President- North American Operations. Prior to becoming President- North American Operations, Mr. Will was the Chairman of our Audit Committee from January 2006 through July 2006. Mr. Will has more than 37 years experience as a merchant banker, senior advisor and director of various public and private companies. Presently, Mr. Will is serving on the Board of Directors or acting as Senior Adviser to Grande Holdings, KoolConnect Technologies Inc. and Integrated Data Corporation. |
| | |
(1) | | Member of the Corporate Governance, Nominating and Compensation Committee
|
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(2) | | Member of the Audit Committee |
Board of Directors and CommitteesEMERSON RADIO CORP. AND SUBSIDIARIES
At
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Comprehensive Income
Comprehensive income or loss, as disclosed in the Consolidated Statements of Changes in Shareholders’ Equity, is net income or loss adjusted for changes in the fair value of hedge instruments, unrealized gains or losses on securities, and foreign currency translation adjustments.
Net Earnings (Loss) Per Common Share
Net earnings (loss) per share are based upon the weighted average number of common and common equivalent shares outstanding. Outstanding stock options and warrants are treated as common stock equivalents when dilution results from their assumed exercise.
Stock- Based Compensation
The Company accounts for all share based payments in accordance with Statement of Financial Accounting Standard (“FAS”) No. 123R, “Share-Based Payment” (“FAS 123R”). As a result, the Company has applied FAS 123R to new awards and to awards modified, repurchased, or cancelled. Compensation cost for the portion of awards for which the requisite service has not been rendered is recognized as the requisite service is rendered (generally over the remaining option vesting period). The compensation cost for that portion of awards has been based on the grant-date fair value of those awards as calculated for pro forma disclosures under previously issued accounting standards. As a result of applying the provisions of FAS 123R, the Company recorded a recovery of compensation costs of $2,000 and $177,000 during fiscal 2009 and 2008, respectively.
There were no stock options granted under the Emerson Plan in fiscal 2009 or fiscal 2008.
Recent Pronouncements
In December 2007, the FASB revised Statement 141, “Business Combinations” — effecting the acquisitions on or after the beginning of our fiscal year ended March 31, 2008 (“Fiscal 2008”), our Boardthe first annual reporting period beginning on or after December 15, 2008. This Statement replaces FASB Statement No. 141,Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of Directors consistedaccounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of Christopher Ho, Adrian Ma, Greenfield Pitts, Peter Bünger, W. Michael Driscoll, Jerome H. Farnum, Eduard Willone or more businesses in the business combination and Norbert R. Wirsching. On October 25,establishes the acquisition date as the date that the acquirer achieves control. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In December 2007, Mr. Bünger resignedthe FASB issued FAS 160, “Noncontrolling Interests in Consolidated Financial Statements, — an amendment of ARB No. 51. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB ratified the Emerging Issues Task Force consensus on EITF IssueNo. 07-1, “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”. The EITF resolved that revenues and costs incurred and revenues generated from transactions with third parties outside the collaborative arrangement should be reported by the collaborators based on the criteria inEITF 99-19, “Reporting Revenue Gross as a director,Principal Versus Net as an Agent”. Payments between collaborators should be characterized based on existing accounting literature or analogous to such guidance if the payments are not within the scope of such pronouncements. Disclosures should include the nature and purpose of the collaborative arrangement along with the relevant accounting policies and classification of significant financial statement amounts associated with the arrangements. EITF IssueNo. 07-1 is effective as offor fiscal years beginning after December 15, 2008 and is to be applied retrospectively to all periods presented for collaborative arrangements in
38
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
existence on the date of our annual meetingadoption. The Company is currently evaluating the impact of stockholdersthis new Standard but believes that was heldit will not have a material impact on December 13, 2007 (the “2007 Annual Meetingthe Company’s financial position, results of Stockholders”operations or cash flows.
In February 2008, the FASB issued FSP Financial Accounting Standard (“FAS”)FAS 157-2,Effective Date of FASB Statement No. 157. FSPFAS 157-2 delays the effective date of SFAS No. 157,Fair Value Measurements, for certain nonfinancial assets and advised usnonfinancial liabilities, except those that he would not standare recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 establishes a framework for reelection as a director at such meeting. Mr. Bünger’s reasons for such actions were outlined in a letter submitted by himmeasuring fair value and expands disclosures about fair value measurements. FSPFAS 157-2 defers the effective date of certain provisions of SFAS No. 157 to our Board of Directors, a copy of which letter was filed as an exhibit to our current report on Form 8-K filed with the Securities and Exchange Commission, or the SEC, on October 31, 2007. Mr. Farnum elected not to stand for reelection to our Board of Directors at our 2007 Annual Meeting of Stockholders. At our 2007 Annual Meeting of Stockholders, we added three directors to our Board of Directors, Mirzan Mahathir, Kareem E. Sethi and David R. Peterson. In July 2008, Messrs. Driscoll, Peterson and Wirsching resigned as directors. The reasons for Mr. Driscoll’s resignation were outlined in a letter submitted by him to our Board of Directors, a copy of which letter was filed as an exhibit to our current report on Form 8-K filed with the SEC on July 18,fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for items within the reasons for Mr. Wirsching’s resignation were outlined inscope of this FSP. The Company is currently evaluating the impact of this new Standard but believes that it will not have a letter submitted by him to our Board of Directors, a copy of which letter was filed as an exhibit to our current report on Form 8-K filed with the SEC on July 29, 2008. Our Board of Directors presently consists of seven directors — Messrs. Ho, Ma, Pitts, Binney, Mahathir, Sethi and Will. Two of our seven current directors, Messrs. Mahathir and Sethi meet the definition of independence as established by the American Stock Exchange and SEC rules.
Under Section 803(B)(2)(A) of the American Stock Exchange Company Guide (the “Company Guide”), we are required to have an audit committee of at least two independent members, as defined by the listing standards of the American Stock Exchange. During Fiscal 2008, our Audit Committee, which is a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, was comprised of three
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independent directors and presently is comprised of one independent director, Mr. Sethi. During Fiscal 2008 and through the date of his resignation on July 14, 2008, W. Michael Driscoll served as the Chairman, the “audit committee financial expert” and an independent director of the Audit Committee. During Fiscal 2008 and through the date of his resignation on July 28, 2008, Norbert R. Wirsching served as an independent director of the Audit Committee. During Fiscal 2008 and through December 13, 2007, Mr. Farnum served as an independent director of the Audit Committee. Mr. Sethi began to serve as an independent director of the Audit Committee on December 13, 2007. Since Mr. Driscoll’s resignation on July 14, 2008, our Board of Directors has not formally designated an “audit committee financial expert” to serve on our Audit Committee.
On July 29, 2008, we notified the American Stock Exchange that as a result of Mr. Wirsching’s resignation and the resulting vacancymaterial impact on the Audit Committee,Company’s financial position, results of operations or cash flows.
In March 2008, the Audit Committee consistsFASB issued FAS 161, “Disclosures about Derivative Instruments and Hedging Activities” — an amendment of one independent director,FASB Statement No. 133, “Accounting for Derivatives Instruments and not two independent directors as required by Section 803(B)(2) of the Company Guide. As a result, we are not in compliance with Section 803(B)(2) of the Company Guide. In accordance with Section 803(B)(6) of the Company Guide, we must regain compliance with the audit committee requirements set forth in the Section 803(B)(2) of the Company Guide by the earlier of our nextHedging Activities”. FAS 161 is effective for annual shareholder meeting and July 28, 2009; provided, however, that if the annual shareholder meeting occurs prior to October 11, 2008, we shall instead have until October 11, 2008 to regain compliance. Our Board of Directors is considering candidates who will qualify to serveperiods beginning after December 15, 2008. FAS 161 expands on our Audit Committee.
The Audit Committee is empowered by the Board of Directors, among other things, to: (i) serve as an independent and objective party to monitor our financial reporting process, internal control system and disclosure control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) assume direct responsibility for the appointment, compensation, retention and oversight of the work of the outside auditors and for the resolution of disputes between the outside auditors and our management regarding financial reporting issues; and (iv) provide the opportunity for direct communication among the independent accountants, financial and senior management and the Board of Directors. A copy of our Audit Committee Charter is posted on our website: www.emersonradio.com on the Investor Relations page.
Codes of Ethics
We have adopted a Code of Ethics for Senior Financial Officers (“Code of Ethics”) that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and Treasurer. This Code of Ethics was established with the intention of focusing Senior Financial Officers on areas of ethical risk, providing guidance to help them recognize and deal with ethical issues, providing mechanisms to report unethical conduct, fostering a culture of honesty and accountability, deterring wrongdoing and promoting fair and accurate disclosure and financial reporting.
We also have adopted a Code of Conduct for Officers, Directors and Employees of Emerson Radio Corp. and Its Subsidiaries (“Code of Conduct”). We prepared this Code of Conduct to help all officers, directors and employees understand and comply with our policies and procedures. Overall, the purpose of our Code of Conduct is to deter wrongdoing and promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us; (iii) compliance with applicable governmental laws, rules and regulations; (iv) prompt internal reporting of code violations to an appropriate person or persons identified in this Code of Conduct; and (v) accountability for adherence to the Code of Conduct.
The Code of Ethics and the Code of Conduct are posted on our website:www.emersonradio.com on the Investor Relations page. If we make any substantive amendments to, or grant any waiver (including any implicit waiver) from a provision of the Code of Ethics or the Code of Conduct, and that relates to any element of the Code of Ethics definition enumerated in Item 406 (b) of Regulation S-K, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
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Executive Officers
The following table sets forth certain information regarding the current executive officers of Emerson:
| | | | | | |
| | | | | | Year |
Name | | Age | | Position | | Became Officer |
Adrian Ma | | 63 | | Chief Executive Officer and Director | | 2006 |
Greenfield Pitts | | 58 | | Chief Financial Officer and Director | | 2007 |
John Spielberger | | 44 | | President-North American Operations | | 2007 |
Adrian Mahas served as our Chief Executive Officer since March 30, 2006 and served as our Chairman of the Board of Directors from March 30, 2006 through July 26, 2006. Mr. Ma continues to serve as a director. See Mr. Ma’s biographical information above.
Greenfield Pittshas served as our Chief Financial Officer since February 2007 and a director since March 2006. See Mr. Pitts’ biographical information above.
John Spielbergerhas served as our President-North American Operations since October 2007. From 1995 until 2007, Mr. Spielberger held a variety of positions with Sony BMG Music Entertainment Sales Co., an entertainment software sales and marketing distribution company. Mr. Spielberger held the positions of Senior Vice President—Business Operations and Customer Relations Management from 2004 until 2007, Senior Vice President—Finance and Administration from 2003 to 2004, Senior Vice President—Finance from 2000 until 2003 and Vice President—Finance from 1995 until 2000. Prior to his tenure with Sony BMG Music Entertainment Sales Co., Mr. Spielberger served as Senior Director—Finance and Administration of Columbia Records Group, a recording company, and held several positions with RCA Records Label, a music company. Mr. Spielberger holds a Bachelor of Science degree in Business Management and Marketing from Cornell University and a Masters of Business Administration from the University of Michigan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, officers, and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with respect to our equity securities with the Securities and Exchange Commission and the American Stock Exchange. All reporting persons are required to furnish us with copies of all reports that such reporting persons file with the Securities and Exchange Commission pursuant to Section 16(a) of the Exchange Act.
Based solely upon a review of Forms 3 and 4 and amendments to these forms furnished to the Company, all parties subject to the reporting requirements of Section 16(a) filed all such required reports duringFAS 131. The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and with respectaccounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is intending to Fiscalmanage. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2008, exceptthe FASB issued FSPFAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSPFAS 142-3). FSPFAS 142-3 amends the factors that Grande Holdings, Ltd.,should be considered in developing renewal or extension assumptions used to determine the useful life of a beneficial ownerrecognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FSPFAS 142-3 is effective for our financial statements beginning in fiscal 2010, and interim periods within that fiscal year. The Company is currently evaluating the impact of more than 10%this new Standard but believes that it will not have a material impact on the Company’s financial position, results of our outstanding sharesoperations or cash flows.
In May 2008, FASB issued FAS No. 162, “The Hierarchy of our common stock, filed a Form 4 with respect to one transaction pursuant to which it purchased shares of our common stock four businessGenerally Accepted Accounting Principles”. Effective 60 days following the date such Form 4 was due,SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and Mr. Wirsching filedthe framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The Company is currently evaluating the impact of this new Standard but believes that it will not have a Form 4material impact on the Company’s financial position, results of operations or cash flows.
In May 2008, the FASB issued FAS No. 163, “Accounting for Financial Guarantee Insurance Contracts.” FAS No. 163 is an interpretation of FAS No. 60, “Accounting and Reporting by Insurance Enterprises”. FAS No. 163 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF)03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSPEITF 03-06-1), which clarifies that unvested share-based payment awards with respecta right to three transactions pursuantreceive non-forfeitable dividends are participating securities and provides guidance on how to which he purchased sharesallocate earnings to participating securities to allow computation of our common stock two business days followingbasic earnings per share using the date such Form 4 was due.two-class method. The Company is currently evaluating the impact of this new Standard but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.
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ITEM 11 — EXECUTIVE COMPENSATIONEMERSON RADIO CORP. AND OTHER INFORMATIONSUBSIDIARIES
This discussion presents the principles underlying our executive officer compensation program. Our goal in this discussion is to provide the reasons why we award compensation as we do and to place in perspective the data presented in the tables that follow this discussion. The focus is primarily on compensation of our executive officers for Fiscal 2008, but some historical and forward-looking information is also provided to put such year’s compensation information in context. The information presented herein relates to Adrian Ma, our Chief Executive Officer, Greenfield Pitts, our Chief Financial Officer, John Spielberger, our President
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — North American Operations, and our two other most highly compensated executive officers who served during Fiscal 2008, who are sometimes referred to herein as our “named executive officers”, although Mr. Ma did not receive any salary or other compensation from us in Fiscal 2008. Messrs. Raab and Will retired or resigned from their positions as executive officers of our company in August 2007 and December 2007, respectively.
Compensation Philosophy and Objectives(Continued)
We attempt to apply a consistent philosophy to compensation
In April 2009, the FASB issued FSPSFAS 157-4 “Determining Fair Value When the Volume and Level of Activity for all employees, including senior management.the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This philosophy is based onFSP provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the premises that our success is dependent upon the efforts of each employee and that a cooperative, team-oriented environment is an essential part of our culture.
Our compensation programs for our named executive officers are designed to achieve a variety of goals, including:
| • | | attracting and retaining talented and experienced executives; |
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| • | | motivating and rewarding executives whose knowledge, skills and performance are critical to our success; |
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| • | | aligning the interests of our executives and stockholders by motivating executives to increase stockholder value in a sustained manner; and |
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| • | | provide a competitive compensation package which rewards achievement of our goals. |
Elements of Executive Officer Compensation
Overview. Total compensation paid to our named executive officers is influenced significantly by the need to attract and retain management employees with a highvolume or level of expertiseactivity in a market for an asset or liability has decreased significantly. This FSP also provides additional guidance on identifying circumstances that indicate a transaction is not orderly (i.e., a forced liquidation or distressed sale). The Company is currently evaluating the impact of this new Standard.
In April 2009, the FASB issued FSPSFAS 115-2 and SFAS to motivatesell a debt security and retain key executives for our long-term success. Some of the components of compensation, such as salary, are generally fixed and doit is more likely than not vary based on our financial and other performance. Some components, such as bonus, stock options and stock award grants, if any, are discretionary and are dependent upon the achievement of certain goals jointly agreed upon by our management and our Board of Directors. Furthermore, the value of certain of these components, such as stock options and stock awards, is dependent upon our future stock price. Our Board of Directors has indicated that it currently does not intend to grant new stock awards to our executive officer and employees. However, the Board of Directors does intend to grant stock awards to non-employee directors and may in the future change its current policy with respect to stock awards to executive officers and employees.
We compensate our named executive officers in these different ways in order to achieve different goals. Cash compensation, for example, provides executive officers a minimum base salary. Incentive bonus compensation is generally linked to the achievement of financial and business goals, and is intended to reward executive officers for our overall performance in reaching annual goals that would be agreed to by management and the Board of Directors. Although we may utilize, stock options and grants of restricted stock in the future, we did not grant any stock options or restricted stock to our executive officers during Fiscal 2008. See “—Cash and Other Compensation.”
We view the three components of our named executive officer compensation as related but distinct. We do not believe that compensation derived from one component of compensation necessarily should negate or reduce compensation from other components. We determine the appropriate level for each compensation component based
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in part, but not exclusively, on its historical practices with the individual and our view of individual performance and other information we deem relevant. Our Board of Directors has not engaged an outside consultant to assist the Board in the compensation process. Our management does review publicly available data with respect to executive compensation at peer group companies. The Board of Directors realizes that benchmarking our compensation against the compensation earned at comparable companies may not always be appropriate, but believes that engaging in a comparative analysis of compensation practices is useful. The Board of Directors has not adopted any formal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of compensation. We have not reviewed wealth and retirement accumulation as a result of employment with us, and have only focused on compensation for the year in question.
Base Salary. We pay our current named executive officers other than Mr. Ma a base salary, which we review and determine annually, and currently are considering paying Mr. Ma a base salary for the fiscal year ending March 31, 2009. We believe that a competitive base salary is a necessary element of any compensation program. We believe that attractive base salaries can motivate and reward executives for their overall performance. Base salaries are established in part based on the individual position, responsibility, experience, skills and expected contributions during the coming year of the executive and their performance during the prior year. We also have sought to align base compensation levels comparable to our competitors and other companies in similar stages of development. We do not view base salaries as primarily serving our objective of paying for performance, but in attracting and retaining the most qualified executives necessary to run our business.
Cash Incentive Bonuses.Consistent with our emphasis on pay-for-performance incentive compensation programs, our named executive officers are eligible to receive annual performance bonuses or discretionary bonuses that must be approved by our Board of Directors. The primary objective of our annual cash incentive bonuses is to motivate and reward our employees, including our named executive officers, for meeting our short-term objectives using a pay-for-performance program with objectively determinable performance goals. Our Corporate Governance, Nominating and Compensation Committee considered and slightly modified proposals for bonuses to be paid for Fiscal 2008 provided to it by our Chairman and Chief Executive Officer. We expect that bonuses to be paid for Fiscal 2008 will be finalized and approved by our Board of Directors in the near future. We do not have a formal policy onto sell the effect on bonusessecurity before recovery of a subsequent restatement orits cost basis, then an entity may separate other-than temporary impairments into two components: 1) the amount related to credit losses (recorded in earnings) and 2) all other adjustment toamounts (recorded in other comprehensive income). The Company is currently evaluating the financial statements, other than the penalties provided by law.impact of this new Standard.
Equity Compensation. We review our equity compensation plans annually. Under our plans, employees are eligible for annual stock option and restricted stock award grants based on targeted levels and we have in the past granted stock options to our executive officers and employees. These options and grants are intended to produce value for each executive officer if (i) our stockholders derive significant sustained value; and (ii) the executive officer remains with us. We do not have any program, plan or obligation that requires us to grant equity compensation to any executive officer on specified dates. The authority to make equity grants to executive officers rests with the Board of Directors, although, as noted above, the Board of Directors does not currently intend to grant any new stock awards to our executive officers or employees. We did not grant any stock options or restricted stock awards during Fiscal 2008. See “—Cash and Other Compensation.”
Severance and Change-in-Control Benefits.Reclassifications
We do not provide
Certain reclassifications were made to anyconform the prior year’s financial statements to the current presentation, including changes to reflect the discontinued operations of our named executive officers any severance or change in control benefits in the event of termination or retirement, whether following a change-in-control or otherwise.Company.
Employment Agreements.NOTE 2 — INVENTORIES:
During Fiscal 2008, we had employment agreements with certain of our named executive officers, each of which is described below.
Greenfield Pitts, our Chief Financial Officer, entered into an employment agreement with us on April 3, 2007, which provides that Mr. Pitts shall serve as our Chief Financial Officer through March 31, 2008. John Spielberger, our President-North American Operations, entered into an employment agreement with us on October 15, 2007, which provides that Mr. Spielberger shall serve as our President-North American Operations from
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October 29, 2007 through October 31, 2008. During the initial term of each employment agreement, we have the right to terminate the agreement upon 90 days prior written notice, and the named executive officer has the right to terminate the agreement upon 30 days prior written notice. Each agreement provides for an annual base salary of $250,000 and a discretionary bonusInventories are stated at the endlower of our fiscal year as recommended bycost or market. Cost is determined using the Board of Directors.
We were a party to a series of employment contracts, the last of which expired on August 31, 2007, with John J. Raab, our former Chief Operating Officer and Senior Executive Vice President. In addition, we were a party to an employment contract with Eduard Will, who served as our President — North American Operations from July 2006 until his resignation from such position in October 2007. Compensation paid to each of Messrs. Raab and Will during Fiscal 2008 and the fiscal year ended March 31, 2007 (“Fiscal 2007”) is set forth below in this Item 11.
Benefits. The named executive officers participate in all of our employee benefit plans, such as medical and 401(k) plan, on the same basis as our other employees.
Perquisites. Our use of perquisites as an element of compensation is very limited. We do not view perquisites as a significant element of our comprehensive compensation structure.
The Process
Employment terms, including compensation, typically have been proposed to the Board of Directors by our Chairman and our Chief Executive Officer, and then considered and approved by the Board of Directors. We expect that, the charter for our recently established Corporate Governance, Nominating and Compensation Committee will provide that employment terms, including compensation, will be proposed to such committee by our Chairman and our Chief Executive Officer, and then considered and recommended for approval by the Board of Directors. For decisions regarding the grant of bonuses to named executive officers (other than our Chairman and our Chief Executive Officer) for Fiscal 2008, the Corporate Governance, Nominating and Compensation Committee has considered the recommendations of our Chairman and our Chief Executive Officer and included them in their discussions.
Regulatory Considerations
We account for the equity compensation expense for our employees under the rules of SFAS 123(R), which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.
Cash and Other Compensation
The following table, which should be read in conjunction with the explanations provided above, provides certain compensation information concerning our named executive officers for Fiscal 2008 and Fiscal 2007.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Non-equity | | | | |
| | | | | | | | | | | | | | Incentive Plan | | All Other | | |
Name and | | Fiscal | | | | | | Option | | Compensation | | Compensation | | |
Principal Position | | Year | | Salary($) | | Awards($)(1) | | ($)(2) | | ($)(3) | | Total ($) |
Adrian Ma (4) | | | 2008 | | | | — | | | | — | | | | — | | | | — | | | | — | |
President and | | | 2007 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Greenfield Pitts (5) | | | 2008 | | | | 250,000 | | | | 9,500 | | | | — | | | | 22,841 | | , | | 282,341 | |
Chief Financial Officer | | | 2007 | | | | 19,231 | | | | 3,430 | | | | — | | | | — | | | | 22,661 | |
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Non-equity | | | | |
| | | | | | | | | | | | | | Incentive Plan | | All Other | | |
Name and | | Fiscal | | | | | | Option | | Compensation | | Compensation | | |
Principal Position | | Year | | Salary($) | | Awards($)(1) | | ($)(2) | | ($)(3) | | Total ($) |
John Spielberger (6) | | | 2008 | | | | 105,769 | | | | — | | | | — | | | | 9,437 | | | | 115,206 | |
President -North | | | 2007 | | | | — | | | | — | | | | — | | | | — | | | | — | |
American Operations and Vice Chairman | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Eduard Will (7) | | | 2008 | | | | 58,423 | | | | 21,836 | | | | — | | | | 12,433 | | | | 92,692 | |
President -North | | | 2007 | | | | 182,692 | | | | 16,944 | | | | 37,500 | | | | 4,704 | | | | 241,840 | |
American Operations and Vice Chairman | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
John J. Raab (8) | | | 2008 | | | | 163,000 | | | | 32,646 | | | | — | | | | 12,264 | | | | 207,910 | |
Senior Executive | | | 2007 | | | | 291,500 | | | | 59,328 | | | | — | | | | 20,141 | | | | 370,969 | |
Vice President and Chief Operating Officer | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Represents the expense to us pursuant to FAS 123(R) for the respective year for stock options granted as long-term incentives pursuant to our 2004 Non-Employee Outside Director Stock Option Plan or our 2004 Employee Stock Option Plan. All options received by each of Messrs. Pitts and Will in the table above were received by such person as a non-employee director and prior to being named as an executive officer and after their resignation as an executive officer, if applicable. The amount of option expense shown in the Summary Compensation Table for these three individuals is also included in “Directors Compensation” on page 17. Immediately following the adoption by our stockholders of an amendment to our 2004 Non-Employee Outside Director Stock Option Plan to increase the number of shares available for issuance thereunder from 250,000 to 500,000 shares in November 2006, each of Messrs. Pitts and Will received an option to purchase up to 25,000 shares of our common stock, each of whom began to serve as a director at a time when he was not an employee of ours and no additional shares were available under such plan. See notes to our financial statements for the fiscal years ended March 31, 2008, 2007 and 2006 for the assumptions used for valuing the expense under FAS 123(R). |
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(2) | | Represents bonus paid for such fiscal year. |
|
(3) | | The dollar amounts shown under the heading “All other compensation” represent the incremental cost of all perquisites and other personal benefits to our named executive officers. |
|
(4) | | Mr. Ma did not receive any salary or other compensation from us in Fiscal 2007 or Fiscal 2008. |
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(5) | | Mr. Pitts commenced employment as our Chief Financial Officer on February 19, 2007. |
|
(6) | | Mr. Spielberger commenced employment as our President-North American Operations on October 29, 2007. |
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(7) | | Mr. Will was appointed to serve as our President-North American Operations in July 2006. On March 30, 2007, Mr. Will’s annual base salary was increased to $300,000. Mr. Will resigned from his position as our President-North American Operations and was appointed as our non-executive Vice Chairman on October 29, 2007, at which time Mr. Spielberger became our President-North American Operations. On December 1, 2007, Mr. Will relinquished his duties and responsibilities as an executive officer. |
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(8) | | Mr. Raab retired as our Vice President and Chief Operating Officer effective August 31, 2007. |
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Outstanding Equity Awards at Fiscal Year End
The following table provides certain information concerning outstanding equity awards held by each of our named executive officers at March 31, 2008.
Outstanding Equity Awards at Fiscal Year-End
| | | | | | | | | | | | | | | | |
| | Option Awards |
| | Number of | | Number of | | | | |
| | Securities | | Securities | | | | |
| | Underlying | | Underlying | | | | |
| | Unexercised | | Unexercised | | | | |
| | Options (#) | | Options (#) | | Option Exercise | | Option Expiration |
Name | | Exercisable | | Unexercisable | | Price ($) | | Date |
|
Adrian Ma | | | 0 | | | | 0 | | | | — | | | | — | |
Greenfield Pitts | | | 8,333 | | | | 16,667 | | | | 3.19 | | | | 11/21/16 | |
John Spielberger (1) | | | 0 | | | | 0 | | | | — | | | | — | |
Eduard Will (2) | | | 16,667 | | | | 8,333 | | | | 3.07 | | | | 1/31/16 | |
| | | 8,333 | | | | 16,667 | | | | 3.19 | | | | 11/21/16 | |
| | |
(1) | | Mr. Spielberger commenced employment as our President-North American Operations on October 29, 2007. |
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(2) | | Mr. Will was appointed to serve as our President-North American Operations in July 2006 and resigned from that position on October 29, 2007. On December 1, 2007, Mr. Will relinquished all his duties and responsibilities as an executive officer; he currently is our non-executive Vice Chairman. |
Compensation of Directors
During Fiscal 2008, our directors who were not employees (“Outside Directors”), specifically Messrs. Bünger and Farnum (until their departures in December 2007), Mr. Will (upon on his relinquishment of duties as an executive officer in December 2007) and Messrs. Driscoll, Mahathir, Peterson, Sethi and Wirsching were paid $33,750, $57,500, $15,000, $76,667, $13,125, $13,125, $16,042 and $71,667, respectively, for serving on the Board of Directors and on our various committees during the period. Outside Directors each is paid an annual director’s fee of $45,000. During Fiscal 2008, each of the members of the Audit Committee was paid an additional fee of $5,000 per annum until December 2007 and thereafter, an additional fee of $10,000 per annum. The Chairman of the Audit Committee is paid an additional fee of $5,000 per annum. All directors’ fees are paid in four equal quarterly installments per annum. Directors who are our employees were not paid for their services as a director while an employee during Fiscal 2008.
Additionally, each director, who is not an employee, is eligible to participate in our 2004 Non-Employee Outside Director Stock Option Plan. Our directors are reimbursed their expenses for attendance at meetings. Further, we offer to provide health care insurance to each of our directors who is not an employee. In addition, in connection with the expiration of Mr. Farnum’s term as a director as of the date of our 2007 Annual Meeting of Stockholders, we agreed to pay for Mr. Farnum’s medical benefits for a period of two years following the date of our 2007 Annual Meeting of Stockholders. We estimate that our annual cost of providing these benefits is approximately $12,000 per year, and during Fiscal 2008, the cost of such benefits to us was $2,812.
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The following table provides certain information with respect to the compensation earned or paid to our Outside Directors during Fiscal 2008.
Directors Compensation
| | | | | | | | | | | | | | | | |
| | Fees | | | | | | | | |
| | Earned | | | | | | All Other | | |
| | or Paid in | | | | Compensation | | |
Name | | Cash ($) | | Option Awards ($)(1) | | ($) | | Total ($) |
Michael A.B. Binney (2) | | $ | 0 | | | $ | 12,996 | | | $ | 0 | | | $ | 12,996 | |
Eduard Will (3) | | $ | 15,000 | | | $ | 21,836 | | | $ | 0 | | | $ | 36,836 | |
Peter Bünger (4) | | $ | 33,750 | | | $ | 5,423 | | | $ | 0 | | | $ | 39,173 | |
Jerome Farnum (5)(6) | | $ | 57,500 | | | $ | (15,046 | ) | | $ | 2,812 | | | $ | 45,266 | |
W. Michael Driscoll (6)(7) | | $ | 76,667 | | | $ | 19,000 | | | $ | 0 | | | $ | 95,667 | |
Norbert Wirsching (6)(8) | | $ | 71,667 | | | $ | 9,500 | | | $ | 0 | | | $ | 81,167 | |
Mirzan Mahathir (9) | | $ | 13,125 | | | $ | 0 | | | $ | 0 | | | $ | 13,125 | |
Kareem E. Sethi (9) | | $ | 16,042 | | | $ | 0 | | | $ | 0 | | | $ | 16,042 | |
David R. Peterson (10) | | $ | 13,125 | | | $ | 0 | | | $ | 0 | | | $ | 13,125 | |
| | |
(1) | | Represents the expense to us pursuant to FAS 123(R) for the respective year for stock options granted as long-term incentives pursuant to our 2004 Non-Employee Outside Director Stock Option Plan. See notes to our financial statements for the fiscal years ended March 31, 2008, 2007 and 2006 for the assumptions used for valuing the expense under FAS 123(R). At March 31, 2008, Messrs. Binney, Will, Pitts, Driscoll and Wirsching had options to purchase 25,000, 50,000, 25,000, 50,000 and 25,000, shares of our common stock, respectively. |
|
(2) | | Mr. Binney was appointed to serve as our Acting Group Controller in February 2007 and as our President-International Operations in July 2006. Mr. Binney did not receive any salary or other compensation from us in Fiscal 2007 or Fiscal 2008. Mr. Binney resigned from his positions in May 2008. |
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(3) | | Mr. Will was appointed to serve as our President-North American Operations in July 2006. Mr. Will resigned from his position as our President-North American Operations and began to serve as our Vice Chairman on October 29, 2007. On December 1, 2007, Mr. Will relinquished his duties and responsibilities as an executive officer. |
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(4) | | On October 25, 2007, Mr. Bünger resigned as a director, effective as of the date of our annual meeting of stockholders, December 13, 2007. |
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(5) | | In connection with the expiration of Mr. Farnum’s term as a director as of the date of our 2007 Annual Meeting of Stockholders, we agreed to pay for Mr. Farnum’s medical benefits for a period of two years following the date of our 2007 Annual Meeting of Stockholders. We estimate that our annual cost of providing these benefits is approximately $12,000 per year. Our cost of providing these benefits during Fiscal 2008 was $2,812. |
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(6) | | Includes fees of $20,000 paid to each of Messrs. Farnum, Driscoll and Wirsching for services through December 31, 2007 in connection with the Audit Committee’s independent review of certain related party transactions. |
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(7) | | Mr. Driscoll resigned as a director on July 14, 2008. |
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(8) | | Mr. Wirsching resigned as a director on July 28, 2008. |
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(9) | | Each of Messrs. Mahathir and Sethi began to serve as a director on December 13, 2007. |
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(10) | | Mr. Peterson began to serve as a director on December 13, 2007 and resigned from such position on July 15, 2008. |
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Compensation Committee Interlocks and Insider Participation
During Fiscal 2008, we did not have a compensation committee, and Christopher Ho, our Chairman, and Adrian Ma, our President and Chief Executive Officer, participated in deliberations of our Board of Directors concerning executive officer compensation. In April 2008, our Board of Directors established a Corporate Governance, Nominating and Compensation Committee, which presently is comprised of two directors, Adrian Ma and Kareem E. Sethi.
None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director or member of our Board of Directors during Fiscal 2008.
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of July 21, 2008, the beneficial ownership of (i) each current director; (ii) each nominee for director at our annual meeting; (iii) each of our named executive officers; (iv) our current directors and executive officers as a group; and (v) each stockholder known by us to own beneficially more than 5% of our outstanding shares of common stock. Common stock beneficially owned and percentage ownership as of July 21, 2008 were based on 27,129,832 shares outstanding. Except as otherwise noted, the address of each of the following beneficial owners is c/o Emerson Radio Corp., Nine Entin Road, Parsippany, New Jersey 07054.
| | | | | | | | |
| | Amount and Nature of | | |
Name and Address of Beneficial Owners | | Beneficial Ownership (1) | | Percent of Class (1) |
Christopher Ho (2) | | | 15,634,482 | | | | 57.6 | % |
Adrian Ma | | | 0 | | | | 0 | % |
Greenfield Pitts (3) | | | 33,333 | | | | | * |
John Spielberger | | | 0 | | | | 0 | % |
Michael A. B. Binney (4) | | | 16,667 | | | | | * |
Eduard Will (5) | | | 25,000 | | | | | * |
John J. Raab (6) | | | 0 | | | | | * |
Mirzan Mahathir | | | 0 | | | | 0 | % |
David R. Peterson | | | 0 | | | | 0 | % |
Kareem E. Sethi | | | 0 | | | | 0 | % |
Lloyd I. Miller, III (7) | | | 1,584,381 | | | | 5.8 | % |
Dimensional Fund Advisors LP (8) | | | 1,388,214 | | | | 5.1 | % |
All Directors and Executive Officers as a Group (9 persons) (9) | | | 15,718,815 | | | | 57.8 | % |
| | |
(*) | | Less than one percent. |
|
(1) | | Based on 27,129,832 shares of common stock outstanding as of July 21, 2008. Each beneficial owner’s percentage ownership of common stock is determined by assuming that options that are held by such person (but not those held by any other person) and that are exercisable or convertible within 60 days of July 21, 2008 have been exercised. Except as otherwise indicated, the beneficial ownership table does not include common stock issuable upon exercise of outstanding options, which are not currently exercisable within 60 days of July 21, 2008. Except as otherwise indicated and based upon our review of information as filed with the U.S. Securities and Exchange Commission (“SEC”), we believe that the beneficial owners of the securities listed have sole investment and voting power with respect to such shares, subject to community property laws where applicable. |
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(2) | | S&T International Distribution Ltd. (“S&T”) is the record owner of 15,634,482 shares of common stock (the “Shares”).first-in, first-out method. As the sole stockholder of S&T, Grande N.A.K.S. Ltd. (“N.A.K.S.”) may be deemed to own beneficially the Shares. As the sole stockholder of N.A.K.S., Grande Holdings may be deemed to own beneficially the Shares. Mr. Ho has a beneficial interest in approximately 67% of the capital stock of Grande Holdings. By virtue of such interest and his position with Grande Holdings, Mr. Ho may be deemed to have |
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| | |
| | power to vote and power to dispose of the Shares beneficially held by Grande Holdings. Information with respect to the ownership of these shares was obtained from a Schedule 13D/A filed on November 5, 2007. |
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(3) | | Mr. Pitts’ ownership consists of 25,000 shares of common stock directly owned by him and options to purchase 8,333 shares of our common stock issued pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are exercisable within 60 days of July 21, 2008. Mr. Pitts also has options to purchase 16,667 shares of our common stock issued pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are not exercisable within 60 days of July 21, 2008. |
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(4) | | Mr. Binney’s ownership consists of options to purchase 16,667 shares of our common stock issued pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are exercisable within 60 days of July 21, 2008. Mr. Binney also has options to purchase 8,333 shares of our common stock issued pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are not exercisable within 60 days of July 21, 2008. |
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(5) | | Mr. Will’s ownership consists of options to purchase 25,000 shares of our common stock pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are exercisable within 60 days of July 21, 2008. Mr. Will also has options to purchase 25,000 shares of our common stock issued pursuant to Emerson’s 2004 Non-Employee Director Stock Option Plan that are not exercisable within 60 days of July 21, 2008. Mr. Will resigned from his position as our President-North American Operations and began to serve as our Vice Chairman, effective as of October 29, 2007. On December 1, 2007, Mr. Will relinquished his duties and responsibilities as an executive officer. |
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(6) | | Mr. Raab resigned as our Senior Vice President and Chief Operating Officer, effective August 31, 2007. |
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(7) | | Lloyd I. Miller, III has sole voting and dispositive power with respect to 638,445 of the reported securities as (i) a manager of a limited liability company that is the general partner of a certain limited partnership and (ii) an individual. Lloyd I. Miller, III has shared voting and dispositive power with respect to 945,936 of the reported securities as an investment advisor to the trustee of certain family trusts. The address of Lloyd Miller, III is 4550 Gordon Drive, Naples, Florida 34102. Information with respect to the ownership of these shares was obtained from a Schedule 13G filed with the SEC on June 24, 2008. |
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(8) | | Dimensional Fund Advisors LP (formerly, Dimensional Fund Advisors Inc.), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds.” In its role as investment advisor or manager, Dimensional Fund Advisors LP possesses investment and/or voting power over the securities that are owned by the Funds, and may be deemed to be the beneficial owner of the shares held by the Funds. However, all shares reported are owned by the Funds and Dimensional Fund Advisors LP disclaims beneficial ownership of such securities and the filing by Dimensional Fund Advisors LP. The address of Dimensional Fund Advisors LP is 1299 Ocean Avenue, Santa Monica, California 90401. Information with respect to the ownership of these shares was obtained from a Schedule 13G filed with the SEC on February 6, 2008. |
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(9) | | See footnotes (2) through (5) and (7). |
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Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of options and rights under our 1994 Stock Compensation Program, 1994 Non-Employee Director Stock Option Plan, Emerson Radio Corp. 2004 Employee Stock Incentive Plan and 2004 Non-Employee Outside Director Stock Option Plan and exercise of warrants, as of March 31, 2009 and 2008, (the “Plans”). The 1994 Plans expired in July 2004 andinventories of continuing operations consisted of the remaining Plans are the only equity compensation plans in existence as of March 31, 2008.following:
| | | | | | | | | | | | |
| | Number of securities to be | | Weighted average exercise | | Number of securities |
| | issued upon exercise of | | price of outstanding | | remaining available for |
| | outstanding options, | | options, warrants and | | future issuance under |
| | warrants and rights | | rights | | equity compensation plans |
| | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | | 212,334 | | | $ | 3.03 | | | | 2,800,000 | |
| | | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | 100,000 | | | | 4.00 | | | | — | |
| | | | | | | | | | | | |
Total | | | 312,334 | | | $ | 3.34 | | | | 2,800,000 | |
| | | | | | | | |
| | March 31, 2009 | | | March 31, 2008 | |
| | (In thousands) | |
|
Finished goods | | $ | 24,205 | | | $ | 28,597 | |
Less inventory allowances | | | (3,514 | ) | | | (3,876 | ) |
| | | | | | | | |
| | $ | 20,691 | | | $ | 24,721 | |
| | | | | | | | |
ITEM 13NOTE 3 — CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
From time to time, we engageEmerson engages in business transactions with ourits controlling shareholder, The Grande Holdings Limited and its subsidiaries (“Grande”). As of July 21, 2008, Grande beneficially owned approximately 57.6% of our outstanding common stock. Mr. Ho, our Chairman of the Board, also serves as Chairman of the Grande Holdings Limited. Set forth below is a summary of such transactions. As of July 15, 2008, substantially all monies then currently due to us from Grande have been paid in full.
Majority Shareholder
Grande’s Purchase of ControllingOwnership Interest in EmersonEmerson.. On December 5, 2005, Grande purchased At March 31, 2009, approximately 37% (10,000,000 shares)57.6% of ourthe Company’s outstanding common stock from our former Chairman and Chief Executive Officer, Geoffrey P. Jurick. Since its initial purchase, Grande has increased its ownership of our common stock through open market and private purchases, including the purchase on September 21, 2007, from a former holder of more than five percent of our common stock of 1,853,882 shares. Grande beneficiallywas owned approximately 57.6% of our common stock on July 15, 2008.
License Agreement for Scott Brands. In April 2008, we terminated our agreement with a consumer electronics distributor, APH (the “Licensee”), pursuant to which, among other things, we had agreed to grant the Licensee a license to distribute and sell LCD televisions in North America under our “H.H. Scott” brand name. The Licensee also had a distributor relationship with Grande. We were paid royalties of $0 in Fiscal 2008 and $110,000 in Fiscal 2007 as a result of sales of LCD televisions bearing the H.H. Scott name.
Unsecured Financial Assistance to Grande. During the third quarter of Fiscal 2007, we provided unsecured financial assistance in the form of letters of credit and loans which aggregated approximately $22.0 million at December 31, 2006 to Capetronic Display Limited (“Capetronic”), Nakamichi Corporation (“Nakamichi”), Akai Electric (China) Co. Ltd. (“Akai”), and Sansui Electric (China) Co. (“Sansui”), each of which is a wholly-owned subsidiary of Grande. In reviewing the documentation for certain of the letters of credit referred to above, we determined that some of the parts for which letters of credit were opened were to be used for the manufacture of 27” and 42” television sets to be sold to the Licensee by Akai. We had no direct or indirect interest in such sales, and Capetronic paid Emerson $57,000 as a fee for facilitating these transactions.
On February 21, 2007, Capetronic, Nakamichi, Akai, and Sansui (collectively, the “Borrowers”), each of which is a wholly-owned subsidiary of Grande, jointly and severally, issued a promissory note (the “Note”) in favor
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of us in the principal amount of $23,501,514. The principal amountsubsidiaries of the Note represented the outstanding amount owed to us as of February 21, 2007, asGrande Group Limited, a result of certain related party transactions entered into between us and the Borrowers described above, including interest that had accrued from the date of such related party transactions until the date of the Note. Simultaneously with the execution of the Note, Grande executed a guaranty (the “Guaranty”) in favor of us pursuant to which Grande guaranteed payment of all of the obligations of the Borrowers under the Note in accordance with the terms thereof. All installments due under the Note, together with interest at the rate of 8.25% per annum, were paid on their respective due dates and the note was paid in full on June 3, 2007. In February 2008, Emerson accepted a debit note from Capetronic for $4,604 resulting from a previous overpayment of the note. By June 3, 2007, all amounts due under the note were repaid. In February 2008, we accepted a debit note from Capetronic for $4,604 resulting from a previous overpayment of the note.Singapore corporation.
In addition, on August 14, 2007, Capetronic reimbursed Emerson for the $125,000 fee which it was required to pay to its lender in order to receive from its lender a waiver of the defaults under its credit agreement attributable to the transactions described in the preceding paragraphs.
Related Party Transactions
Product Sourcing TransactionsTransactions.. Since August 2006, we haveEmerson has been providing to Sansui Sales PTE Ltd (“Sansui Sales”) and Akai Sales PTE Ltd (“Akai Sales”), both of which are subsidiaries of Grande, assistance with acquiring certain products for sale. We issueEmerson issues purchase orders to third-party suppliers who manufacture these products, and we issueEmerson issues sales invoices to Sansui Sales’ and Akai Sales’ at gross amounts for these products. Financing is provided by Sansui Sales’ and Akai Sales’ customers in the form of transfer letters of credit to the suppliers, and goods are shipped directly from the suppliers to Sansui Sales’ and Akai Sales’ customers. WeEmerson recorded income totaling $102,000$10,000 and $13,000$102,000 for providing this service in Fiscalfiscal 2009 and 2008, respectively. As of March 31, 2009 and the three months ended June 30, 3008. respectively.March 31, 2008, Sansui Sales and Akai Sales paid their outstanding balances as of the end Fiscal 2008collectively owed Emerson $7,600 and $134,000, respectively, relating to us in June 2008.this activity.
40
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sales of goodsgoods.. In addition to the product sourcing transactions described in the preceding paragraph, we haveEmerson also has purchased products on behalf of Sansui Sales and Akai Sales from third-party suppliers and sold these goods to Sansui Sales and Akai Sales. These transactions, arethe latest of which occurred in February 2008, were similar to the transactions described in the preceding paragraph; however, instead of utilizing transfer letters of credit provided by Sansui Sales’ and Akai Sales’ customers, we utilize ourEmerson utilized its own cash to pay Sansui Sales’ and Akai Sales’ suppliers. We invoiceEmerson invoices Sansui Sales and Akai Sales an amount that is marked up between two and three percent from the cost of the product. As a result of this arrangement, Emerson recorded sales to Akai and Sansui of $242,000 in Fiscal 2008. Sansui Sales and Akai Sales, paid theircollectively, of $0 and $242,000 in fiscal 2009 and 2008, respectively. At March 31, 2009 and March 31, 2008, Sansui Sales and Akai Sales collectively owed Emerson $1,500 and $5,000 relating to these activities, respectively. Akai Sales deducted $9,600 for storage charges from its June 30, 2008 settlement payment to Emerson for this activity, which was deemed to be in error by Emerson, which resulted in an outstanding balancesbalance owed to us in June 2008.Emerson of $9,600 at March 31, 2009. At March 31, 2009 and March 31, 2008, Emerson had outstanding liabilities to suppliers of product invoiced to Sansui Sales and Akai Sales totaling $0 and $3,000, respectively.
Leases and Other Real Estate TransactionsTransactions.. Effective January 1, 2006, weMay 15, 2009, Emerson entered into aan amended lease for office space in Hong Kongagreement with Grande and an agreement for services in connection with this officepursuant to which the space rentalrented from Grande which was extended through December 31, 2008, and which will expire at that date unless terminated earlier by either party upon three months prior written notice of termination by either party. Under a new agreement commencing March 1, 2008, the office space rented was increased from 7,81018,476 square feet to 18,47619,484 square feet. This amended agreement by its terms expires on December 31, 2009. Rent expense and related service charges with Grande was $119,000,totaled $414,000 and $270,000 for fiscal 2009 and $206,000 forfiscal 2008, respectively. Rent and related service charges described in this activity are included in the three months ended June 30,Consolidated Statements of Operations as a component of selling, general, and administrative expenses. Emerson owed Grande $41,600 and $0 related to this activity at March 31, 2009 and March 31, 2008, Fiscal 2008 and Fiscal 2007, respectively. The amountA security deposit of expense incurred with$81,900 on the leased property is held by Grande as of March 31, 2009. Emerson is also due a $11,500 refund from Grande for all other services in connection with this office space rental was approximately $13,000, $106,000 and $56,000 for the three months ended June 30, 2008, Fiscal 2008 and Fiscal 2007.previously paid warehouse charges.
We utilize
Emerson utilizes the services of Grande employees for certain administrative and executive functions. Grande pays usEmerson’s quality assurance personnel in RMBRenminbi in China on ourEmerson’s behalf for which weEmerson subsequently paypays a reimbursement to Grande. Payroll and travel expenses, including utilization of Grande employees as well as payroll and travel expenses paid on ourEmerson’s behalf and reimbursed to Grande, were $85,000 and $515,000 for fiscal 2009 and $167,000 for Fiscalfiscal 2008, and Fiscal 2007, respectively. WeEmerson owed Grande $98,000$0 at March 31, 2009 and $70,000 related to this activity at March 31, 2008.
In December 2008, Emerson signed a lease agreement with Akai Electric (China) Ltd. concerning the rental of office space, office equipment, and lab equipment for Emerson’s quality assurance personnel in Zhong Shan, China. The lease term began in July 2007 and ends June 2009, and the agreement renews automatically at the end of the term unless canceled by either party. Rent charges with Akai Electric (China) Ltd. totaled $264,000 for fiscal 2009. Emerson owed Grande $9,500 related to the agreement at March 31, 2009. A security deposit of $31,600 on the leased property is held by Akai Electric (China) Ltd. as of June 30, 2008.March 31, 2009
From May to October 2007, weEmerson occupied office space in Shenzhen, China under a lease agreement with Akai AV Multimedia (Zhongshan) Co Ltd, an affiliate of Grande. Rent expense was $79,000 and other expenses in connection with this agreement were $29,000.related charges totaled $12,000 for the three months ended December 31, 2007 and $108,000 for the nine months ended December 31, 2007. The agreement was not renewed.renewed after its termination in October 2007.
In May 2007 weEmerson paid an initiala $10,000 commission to Vigers Hong Kong Ltd, (“Vigers”), a property agent and a subsidiary of Grande, related to the sale of a building owned by usEmerson to an unaffiliated buyer. Also, weEmerson received
-15-
a deposit of approximately $300,000 from the buyer on this date. The sale was concluded on September 27, 2007. An additional $10,000 commission was paid to Vigers by us2007, on the closingwhich date of the sale of the property. WeEmerson received the balance of the purchase price of approximately $1,700,000 on September 27, 2007, the closing date of the sale.and paid an additional $10,000 commission to Vigers.
Toy Musical InstrumentsInstruments.. In May 2007, weEmerson entered into an agreement with Goldmen Electronic Co. Ltd. (“Goldmen”), pursuant to which wethe Company agreed to pay $1,682,220 in exchange for Goldmen’s
41
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
manufacture and delivery to usEmerson of musical instruments in order for usit to meet ourits delivery requirements of these instruments in the first week of September 2007.
In July 2007, wethe Company learned that Goldmen had filed for bankruptcy and was unable to manufacture the ordered musical instruments we had ordered.instruments. Promptly after we learnedthereafter, Capetronic Displays Limited (“Capetronic”), a subsidiary of Goldmen’s bankruptcy, CapetronicGrande, agreed to manufacture the musical instruments at the same price and on substantially the same terms and conditions, including the price, as Goldmen had agreed to manufacture them.conditions. Accordingly, on July 12, 2007, weEmerson paid Tomei Shoji Limited, an affiliate of Grande, $125,000 to acquire from Goldmen and deliver to Capetronic the molds and equipment necessary for Capetronic to manufacture the musical instruments. In July 2007, Emerson made two upfront payments to Capetronic totaling $546,000. On July 20, 2007, Capetronic advised usEmerson that it was unable to manufacture the musical instruments for us because it did not have the requisite governmental licenses to do so.
In June 2008, Capetronic repaid the $546,000 advance it received from usEmerson in July 2007.
In August 2008, Capetronic requested that Emerson reimburse it for the costs it had incurred to purchase the production materials required to produce the musical instruments. After a review of the facts, the material purchase orders, the physical material at the Capetronic premises, and deducting an agreed upon scrap value of the material, Emerson decided to honor the request and paid $313,000 to Capetronic on September 30, 2008. These materials are the property of Capetronic.
Capetronic is currently physically possesses ourin physical possession of Emerson’s molds originally required to produce the musical instrument molds,instruments, which weEmerson wrote off in Fiscalfiscal 2008.
Freight Forwarding ServicesServices.. In June 2007, weEmerson and Capetronic signed an agreement for usEmerson to provide freight forwarding services to Capetronic. Under this agreement, wewhich contains no specified termination date, Emerson will pay the costs of importation into the United States of Capetronic’s inventory on Capetronic’s behalf, and to arrange for the inventory to be received at a port of entry, cleared through the United States Customs Service using ourEmerson’s regularly engaged broker, and transfer the inventory to a common carrier as arranged by Capetronic’s customer. If Capetronic’s customer failed to make such arrangements with a common carrier, weEmerson agreed to transfer the inventory to ourEmerson’s warehouse for storage or make other arrangements with a public warehouse. Following the transfer of Capetronic’s inventory, we areEmerson is required to provide Next Day delivery of all importation documents and bills of lading to Capetronic’s customer. Capetronic agreed to reimburse usEmerson for all costs incurred by usEmerson in connection with the activity just described within thirty days of demand by us,Emerson, after which interest accrues. As compensation, Capetronic agreed to pay usEmerson a service fee of 12% of the importation costs. WeEmerson billed Capetronic for the reimbursement of importation costs totaling $246,000 and a commission of $29,000.$29,000 for the nine month period of December 31, 2007. Capetronic paid usEmerson the full amount due of $275,000 on November 14, 2007.
OtherHong Kong Electronics Fairs (“HKEF”).. Emerson incurred costs totaling $152,633 for its participation in the 2008 HKEF. The total includes $5,138 billed by Grande to Emerson for services rendered in connection with the event, and, as of March 31, 2009, Emerson owes Lafe Technology (Hong Kong) Ltd $4,396 for storage and delivery charges. In addition, Emerson has billed $33,823 to its affiliates for expenses incurred on their behalf for the 2008 HKEF; and as of March 31, 2009, $19,657 from Nakamichi Corporation Ltd, $8,222 from Akai Sales PTE Ltd, and $5,944 from Sansui Sales PTE Ltd is due to Emerson.
Between August and December 2007, weEmerson paid invoices and incurred charges for goods and services relating to the Hong Kong Electronics Fair2007 HKEF of $153,069. Portions of these charges, totaling $87,353, have been allocated and invoiced to affiliates of Grande in proportion to their respective share of space occupied and services rendered during the Electronics Fair2007 HKEF as follows: Nakamichi Corporation Ltd. $17,143, Akai Sales PTE Ltd $44,495 and Sansui Sales PTE Ltd $25,715. Akai Sales and Sansui Sales paid uscollectively owed Emerson $6,437 and $70,210 in connection with the Hong Kong Electronics Fair in June 2008.2007 HKEF as of March 31, 2009 and March 31, 2008, respectively.
42
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Also related to the 2006 and 2007 annual Hong Kong Electronics Fairs, Capetronic incurred charges and paid invoices on our behalf of Emerson in the amount of $76,000 for which Emerson reimbursed Capetronic $48,000 for the 2007 Hong Kong Electronics Fair in March 2008. WeEmerson paid allCapetronic the remaining balance due of our outstanding balances to Capetronics in June$28,000 for the 2006 Hong Kong Electronics Fair on September 30, 2008.
Other. In June 2007 weEmerson paid a one-time sales commission in thean amount of $14,000 to an Executivea Director of Grande Holdings, who, isat the time, was also onea Director of our directors.Emerson. The commission was 50% of the net margin on a sale by usEmerson to an unaffiliated customer.
In January and February 2008, Grande transferred computer, office equipment, and furniture to us for which we paid $12,000, which represented the carrying amount of the assets on the booksEmerson invoiced The GEL Engineering Corp. Ltd (“GEL”), an affiliate of Grande, atfor a portion of $7,900 travel expenses paid by Emerson, of which 70% pertained to travel for the timebenefit of sale.GEL and 30% pertained to travel for Emerson. As of March 31, 2009 and March 31, 2008, GEL owed Emerson $5,500 as a result of this activity.
In June 2008, weEmerson paid Capetronic $160,000 for reimbursement of payroll and travel expenses that Capetronic paid on our behalf of Emerson from October 2007 through May 2008. Also included in the payment was a reimbursement2008 for expenses Capetronicrelated to Emerson employees located in mainland China.
In September 2008, Akai Sales invoiced Emerson for travel expenses and courier fees which Akai Sales paid on our behalfEmerson’s behalf. As of March 31, 2009 Emerson owed Akai Sales $2,700 as a result of this invoice.
In September 2008, the Emerson Board of Directors resolved that, effective as of April 1, 2008, the annual base salary of the Chief Executive Officer of the Company shall be $350,000, and, that because all members of the Board are to receive board fees according to a schedule approved by the Board, and because no such fees had been paid to the Chairman of the Board from July 2006 through March 31, 2008, the Chairman of the Board shall be paid compensation in full for his services for that period of time, to be calculated using the standard annual fee structure in place for board members then currently in effect. As a trade show.result of these resolutions, in September 2008 the Company began paying the Chief Executive Officer the stated annual salary, made a one time retroactive salary payment to the Chief Executive Officer of $145,833 covering the period April 1, 2008 through August 31, 2008, and made a one time cash payment of $75,625 to the Chairman of the Board covering the period July 2006 through March 31, 2008.
In October 2008, the Emerson Board of Directors resolved that those remaining directors currently serving on the Board who, from the date of joining the Board, had received no compensation as either a Board member or as an employee of the Company, receive a cash payment covering such periods of time, to be calculated using the standard annual fee structure in place for board members then currently in effect. As a result of this resolution, in October 2008 the Company made onetime cash payments of $90,000 and $37,500 to two members of the Board of Directors.
In November 2008, Emerson determined that it needed to temporarily maintain access to a material amount of Renminbi to ensure an uninterrupted supply of factory product in mainland China, due to the tightening of the local credit and exchange markets. Emerson does not have independent access to Renminbi because it does not maintain a physical presence in Mainland China. Emerson advanced to Zhongshan Tomei Audio & Video Products Company Ltd. (Zhongshan Tomei) an amount of HK$20,705,300 — approximately US$2,655,000 — for which Zhongshan Tomei was prepared to disburse, as may be needed, an equivalent amount of Renminbi to Emerson’s factory suppliers upon Emerson’s direction. Once the need to transact in Renminbi passed,US$2,670,922 was repaid to Emerson by Soshin Onkyo International Ltd in December 2008, resulting in a foreign exchange gain to Emerson of $16,000 in December 2008. This transaction was executed without the proper approvals per the Company’s internal policies governing related party transactions and led management to conclude that a material weakness over related party transactions existed as of March 31, 2009. For further detail, see “Item 1A Risk Factors” and “Item 9A. Controls and Procedures — Evaluation of Disclosure Controls and Procedures.
In February 2009, Akai Sales invoiced Emerson for travel expenses which Akai Sales paid on Emerson’s behalf. As of March 31, 2009 Emerson owed Akai Sales $3,100 as a result of this invoice.
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43
Review and Approval of Transactions with Related PartiesEMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
NOTE 4 — | PROPERTY, PLANT, AND EQUIPMENT: |
As of March 31, 2009 and 2008, property, plant, and equipment from continuing operations is comprised of the following:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Computer equipment & software | | | 2,930 | | | | 2,831 | |
Furniture and fixtures | | | 1,783 | | | | 1,902 | |
Machinery and equipment | | | 737 | | | | 1,503 | |
Leasehold improvements | | | 672 | | | | 672 | |
| | | | | | | | |
| | | 6,122 | | | | 6,908 | |
Less accumulated depreciation and amortization | | | (4,983 | ) | | | (5,427 | ) |
| | | | | | | | |
| | $ | 1,139 | | | $ | 1,481 | |
| | | | | | | | |
Depreciation and amortization of property, plant, and equipment from continuing operations amounted to $668,000 and $702,000 for the years ended March 31, 2009 and 2008, respectively.
NOTE 5 — OTHER INTANGIBLE ASSETS
Other intangible assets as of March 31, 2009 and related amortization expense for the year then ended, consist of the amounts shown below (in thousands). Trademarks relate to costs incurred in connection with the licensing agreements for the use of certain trademarks and service marks in conjunction with the sale of our products. The cost of intangible assets and related accumulated amortization are removed from the Company’s accounts during the year in which they become fully amortized.
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Weighted
|
| | Gross
| | | | | | | | Average
|
| | Carrying
| | Amortization
| | Accumulated
| | Amortization
| | Amortization
|
Fiscal Year Ended March 31, 2009 | | Amount | | Expense | | Amortization | | Period | | Period |
| | (In thousands) |
|
Amortizable Intangible Assets | | | | | | | | | | | | | | | | |
Trademarks | | $ | 361 | | | $ | 24 | | | $ | 106 | | | 15 years | | 15 years |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Weighted
|
| | Gross
| | | | | | | | Average
|
| | Carrying
| | Amortization
| | Accumulated
| | Amortization
| | Amortization
|
Fiscal Year Ended March 31, 2008 | | Amount | | Expense | | Amortization | | Period | | Period |
| | (In thousands) |
|
Amortizable Intangible Assets | | | | | | | | | | | | | | | | |
Trademarks | | $ | 361 | | | $ | 32 | | | $ | 82 | | | 15 years | | 15 years |
As of March 31, 2009, estimated amortization expense of other intangible assets for each of the next five years, and thereafter, is as follows (in thousands):
| | | | |
2010 | | $ | 24 | |
2011 | | | 24 | |
2012 | | | 24 | |
2013 | | | 24 | |
2014 | | | 24 | |
Thereafter | | | 135 | |
| | | | |
| | $ | 255 | |
| | | | |
44
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 6 — BORROWINGS:
Short-term Borrowings
At March 31, 2009 there were $5.7 million of short-term borrowings outstanding under a credit line maintained with Smith Barney. This facility is backed by the company’s auction rate securities, bears interest at the Fed Open Market Rate plus 1.10%, and these borrowings have no net carrying cost. At March 31, 2008, there were no short-term borrowings outstanding.
Long-term Borrowings
As of March 31, 2009 and 2008, long-term borrowings consisted of the following:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Capitalized lease obligations and other | | $ | 144 | | | $ | 224 | |
| | | | | | | | |
| | | 144 | | | | 224 | |
Less current maturities | | | 85 | | | | 82 | |
| | | | | | | | |
Long-term debt and notes payable | | $ | 59 | | | $ | 142 | |
| | | | | | | | |
Emerson Credit Facility — On December 23, 2005, the Company entered into a $45.0 million Revolving Credit Agreement with Wachovia Bank. This credit facility provides for revolving loans subject to individual maximums which, in the aggregate, are not to exceed the lesser of $45.0 million or a “Borrowing Base” as defined in the loan agreement. The Borrowing Base amount is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime plus 1.00% to 1.50% or, at the Company’s election, the London Interbank Offered Rate (“LIBOR”) plus 2.50% to 3.00% depending on excess availability. Pursuant to the loan agreement, the Company is restricted from, among other things, paying certain cash dividends, and entering into certain transactions without the lender’s prior consent and is subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of the Company’s tangible assets.
As of March 31, 2009 and March 31, 2008, there were $13.0 and approximately $10.8 million of letters of credit outstanding under this facility, respectively.
At March 31, 2009, as a result of failing to meet the fixed charge coverage ratio (FCCR) requirement, the Company was not in compliance with the covenants of the Wachovia Loan Agreement. The lender agreed to waive such defaults, and the Company and the lender negotiated an amendment in July 2009 to the loan and security agreement. The Company was required to pay $50,000 to the lender in connection with the amendment. The amendment raises the pricing on letters of credit by 2% and the unused line fee by 12.5 basis points.
As of March 31, 2009, the carrying value of this credit facility approximated fair value.
Maturities of long-term borrowings as of March 31, 2009, by fiscal year and in the aggregate are as follows (in thousands):
| | | | |
2010 | | $ | 85 | |
2011 | | | 40 | |
2012 | | | 19 | |
Thereafter | | | — | |
| | | | |
Total | | | 144 | |
Less current portion | | | 85 | |
| | | | |
Total long term portion | | $ | 59 | |
| | | | |
45
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 7 — INCOME TAXES:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | | | | (In thousands) | |
|
Current: | | | | | | | | |
Federal | | $ | — | | | $ | — | |
Foreign, state and other | | | 53 | | | | 321 | |
Prior year state and local | | | — | | | | 2,656 | |
Deferred: | | | | | | | | |
Federal | | | (108 | ) | | | (1,486 | ) |
Foreign, state and other | | | (35 | ) | | | (64 | ) |
| | | | | | | | |
| | $ | (90 | ) | | $ | 1,427 | |
| | | | | | | | |
The Company files a consolidated federal return and certain state and local income tax returns.
The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory federal rate of 34% to earnings from continuing operations before minority interest and income taxes for the years ended March 31, 2009 and 2008 is analyzed below:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Statutory benefit | | $ | (1,453 | ) | | $ | (2,602 | ) |
Foreign subsidiary | | | 1,197 | | | | 977 | |
State taxes | | | 18 | | | | 1,881 | |
Permanent differences | | | — | | | | 26 | |
Expiration of NOL | | | 768 | | | | 873 | |
State tax expensed in a prior year | | | — | | | | (748 | ) |
Valuation allowance | | | (611 | ) | | | 768 | |
Other, net | | | (9 | ) | | | 252 | |
| | | | | | | | |
Total income tax (benefit) | | $ | (90 | ) | | $ | 1,427 | |
| | | | | | | | |
46
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of March 31, 2009 and 2008, the significant components of the Company’s deferred tax assets and liabilities were as follows:
| | | | | | | | |
| | 2009 | | | 2008 | |
| | (In thousands) | |
|
Deferred tax assets: | | | | | | | | |
Current: | | | | | | | | |
Accounts receivable reserves | | $ | 2,494 | | | $ | 2,030 | |
Inventory reserves | | | 2,132 | | | | 2,207 | |
Accruals | | | 542 | | | | 1,009 | |
Stock warrants | | | 166 | | | | 166 | |
Non-current: | | | | | | | | |
Property, plant, and equipment | | | 308 | | | | 249 | |
Impairment of auction rate securities | | | 828 | | | | 781 | |
Net operating loss carryforwards | | | 5,584 | | | | 5,587 | |
Stock compensation | | | 78 | | | | 78 | |
| | | | | | | | |
Gross deferred tax assets | | | 12,132 | | | | 12,107 | |
Valuation allowances | | | (157 | ) | | | (768 | ) |
| | | | | | | | |
Total deferred tax assets | | | 11,975 | | | | 11,339 | |
Deferred tax liabilities: | | | | | | | | |
Current: | | | | | | | | |
Accruals | | | — | | | | — | |
Non-current: | | | | | | | | |
Capital lease expense | | | 87 | | | | 57 | |
| | | | | | | | |
Total Deferred Tax Liabilities | | | 87 | | | | 57 | |
| | | | | | | | |
Net deferred tax assets | | $ | 11,888 | | | $ | 11,282 | |
| | | | | | | | |
The amounts of federal net operating loss carryforwards (“NOLs”) on which the related deferred tax asset was calculated are as follows as of March 31, 2009 (in millions $):
| | | | | | |
Loss Year (Fiscal) | | Included in DTA | | Footnote | | Expiration Year (Fiscal) |
|
1997 | | 4.6 | | [1] | | 2012 |
1999 | | 1.3 | | [1] | | 2019 |
2008 | | 7.8 | | [1] | | 2028 |
2009 | | 2.2 | | [1] | | 2029 |
| |
[1] | As of August 29, 2006 the overall deduction Emerson may utilize each year against its taxable income is limited to $5.9 million by IRC section 382. |
The amounts of state NOLs available by year as of March 31, 2009 are as follows (in millions $):
| | | | |
Loss Year (Fiscal) | | Included in DTA | | Expiration Year (Fiscal) |
|
2008 | | 2.7 | | 2015 |
2009 | | 2.1 | | 2016 |
The tax benefits related to these operating loss carryforwards and future deductible temporary differences are recorded to the extent management believes it is more likely than not that such benefits will be realized.
47
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Loss of foreign subsidiaries before taxes was $3,521,000 and $2,874,000 for the years ended March 31, 2009 and 2008 respectively.
No provision was made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have been and will be reinvested but could become subject to additional tax if they were remitted as dividends, or were loaned to the Company or a domestic affiliate, or if the Company should sell its stock in the foreign subsidiaries. It is not practicable to determine the amount of additional tax, if any, that might be payable on undistributed foreign earnings.
In Februaryfiscal 2008, the Company resolved all of the outstanding disputes which its predecessor had relating to franchise taxes, interest and penalties due and owing to the State of California for the tax years through and including the date that such predecessor ceased doing business.
A reconciliation of the Company’s changes in uncertain tax positions from April 1, 2008 to March 31, 2009 is as follows:
| | | | |
| | In 000’s | |
|
Total amount of unrecognized tax benefits as of April 1, 2008 | | $ | 149 | |
Gross increases in unrecognized tax benefits as a result of tax positions taken during a prior period | | | — | |
Gross decreases in unrecognized tax benefits as a result of tax positions taken during a prior period | | | (28 | ) |
Gross increases in unrecognized tax benefits as a result of tax positions taken during the current period | | | — | |
Gross decreases in unrecognized tax benefits as a result of tax positions taken during the current period | | | — | |
Decreases in unrecognized tax benefits relating to settlements with taxing authorities | | | — | |
Reductions to unrecognized tax benefits as a result of lapse of statute of limitations | | | — | |
Total amount of unrecognized tax benefits as of March 31, 2009 | | $ | 121 | |
As of April 1, 2008, the Company had $149,000 of unrecognized tax benefits related to state taxes. All of the unrecognized tax benefits could impact our effective tax rate if recognized.
The effective tax rate on our loss from continuing operations before minority interest and income taxes for fiscal 2009 differs from the federal statutory rate primarily as a result of state income taxes, difference in tax rate between U.S. and foreign jurisdictions, and change in valuation allowance. The effective tax rate on our loss from continuing operations before minority interest and income taxes for fiscal 2008 differs from the federal statutory rate primarily as a result of the settlement made in relation to the California franchise tax issue which the Company’s predecessor had relating to franchise taxes, interest and penalties due and owing to the State of California for the tax years through and including the date that such predecessor ceased doing business.
The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. A summary of the Company’s open tax years is as follows as of March 31, 2009:
| | | | |
Jurisdiction | | Open Tax Years |
|
U.S. federal | | | 2005-2008 | |
States | | | 2005-2008 | |
Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense.
48
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In May 2007, wethe FASB issued FASB Staff Position (“FSP”)FIN 48-1 Definition of a Settlement in FASB Interpretation No. 48 (FSPFIN 48-1). FSPFIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSPFIN 48-1 is effective retroactively to April 1, 2007. The implementation of this standard did not have a material impact on our consolidated balance sheets or statements of operations.
NOTE 8 — COMMITMENTS AND CONTINGENCIES:
Leases and royalties:
The Company leases warehouse and office space and is contractually obligated to pay fixed minimum royalty payments for specified periods with annual commitments as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | Minimum
| |
| | | | | Rental Commitments | | | Royalty
| |
Fiscal Years | | Amount | | | Affiliate | | | Non-Affiliate | | | Commitments | |
|
2010 | | $ | 2,424 | | | $ | 279 | | | $ | 1,758 | | | $ | 387 | |
2011 | | | 1,203 | | | | — | | | | 1,203 | | | | — | |
2012 | | | 424 | | | | — | | | | 424 | | | | — | |
2013 | | | 93 | | | | — | | | | 93 | | | | — | |
Thereafter | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 4,144 | | | $ | 279 | | | $ | 3,478 | | | $ | 387 | |
| | | | | | | | | | | | | | | | |
Rent expense from continuing operations resulting from leases from non-affiliates, which includes month-to-month leases, aggregated $2,352,000 and $1,034,000, respectively, for fiscal 2009 and 2008. Rent expense resulting from a lease from an affiliate was $688,000 and $283,000 in fiscal 2009 and 2008, respectively.
Letters of Credit:
At March 31, 2009 and March 31, 2008 there were $13.0 million and $10.8 million of letters of credit outstanding under the Company’s Credit Facility, respectively (see Note 6 “Borrowings”). During the third quarter of fiscal 2008, the Company elected to cancel its foreign bank facilities. As a result, the $3.0 million in certificates of deposit pledged to these banks to assure the availability of the credit facilities was returned.
Capital Expenditure and Other Commitments:
As of March 31, 2009, there were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product. As of July 9, 2009, in advance of the termination of the lease on its corporate headquarters in December 2009, the Company intends to purchase an office building in New Jersey for use as its new headquarters location.
Employee Benefit Plan:
The Company currently sponsors a defined contribution 401(k) retirement plan which is subject to the provisions of the Employee Retirement Income Security Act. The Company matches a percentage of the participants’ contributions up to a specified amount. These contributions to the plan for fiscal 2009 and 2008 were $193,000 and $144,000, respectively, and were charged to operations for the periods presented.
NOTE 9 — STOCK BASED COMPENSATION:
In July 1994, the Company adopted a policy thatStock Compensation Program (“Program”). The Program is comprised of four parts — the Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation
49
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rights Plan, and the Stock Bonus Plan. The maximum aggregate number of shares of common stock available pursuant to the Program was 2,000,000 shares.
In 2004, the Company adopted the 2004 Employee Stock Options Plan. The provisions for exercise price, term and vesting schedule are, for the most part, the same as the previous Incentive Stock Option Plan. The maximum aggregate number of shares of common stock available pursuant to the Program is 2,500,000 shares.
A summary of transactions during the last two years is as follows:
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Options | | | Exercise Price | |
|
Outstanding — April 1, 2007 | | | 357,334 | | | $ | 3.04 | |
| | | | | | | | |
Exercised | | | (20,000 | ) | | | 2.62 | |
| | | | | | | | |
Cancelled | | | (300,000 | ) | | | 3.16 | |
| | | | | | | | |
Outstanding — March 31, 2008 | | | 37,334 | | | $ | 2.32 | |
| | | | | | | | |
Cancelled | | | (3,334 | ) | | | 1.00 | |
| | | | | | | | |
Outstanding — March 31, 2009 | | | 34,000 | | | $ | 2.45 | |
| | | | | | | | |
Exercisable at March 31, 2009 | | | 34,000 | | | $ | 2.45 | |
| | | | | | | | |
The following table provides additional information as to the options outstanding under the Stock Compensation Program and the 2004 Employee Stock Option Plan as of March 31, 2009:
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | Weighted
| | | Weighted
| | | | | | | |
| | | | | Average
| | | Average
| | | | | | Weighted
| |
| | Amount
| | | Remaining
| | | Exercise
| | | Amount
| | | Average
| |
Range of Exercise Prices | | Outstanding | | | Contractual Life | | | Price | | | Exercisable | | | Exercise Price | |
|
$1.00 | | | 9,000 | | | | 1.3 | | | $ | 1.00 | | | | 9,000 | | | $ | 1.00 | |
$2.97 | | | 25,000 | | | | 5.6 | | | | 2.97 | | | | 25,000 | | | | 2.97 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 34,000 | | | | 4.4 | | | $ | 2.45 | | | | 34,000 | | | $ | 2.45 | |
| | | | | | | | | | | | | | | | | | | | |
Subject to the terms set forth in each option agreement, generally, the term of each option is ten years, except for incentive stock options issued to any person who owns more than 10% of the voting power of all future affiliated transactions in excessclasses of $500,000capital stock, for which the term is five years. Unless otherwise provided, 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 approved by a majorityequal to or greater than the fair value of the independent outside membersshares on the date of ourthe 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 value of the shares on the date of the grant. As of March 31, 2009, there were a total of 34,000 options outstanding with exercise prices ranging from $1.00 per share to $2.97 per share. As of March 31, 2009, all of the options outstanding were fully vested. At March 31, 2009, 2008 and 2007, the weighted average exercise price of exercisable options under the Program was $2.45, $2.32 and $3.00, respectively.
In October 1994, the Company’s Board of Directors who do not have an interest inadopted, and the transactions. This policystockholders subsequently approved, the 1994 Non-Employee Director Stock Option Plan. The maximum number of shares of Common Stock available under such plan was adopted by resolution of our Board of Directors at a meeting of our300,000 shares.
In 2004, the Company’s Board of Directors, and wethe stockholders subsequently approved the 2004Non-Employee Director Stock Option Plan, the provisions for exercise price, term and vesting schedule being, for the most part, the same as the 1994 Non-Employee Director Stock Option Plan. The maximum number of shares of Common Stock available under such plan was 250,000 shares. In December 2006, an additional listing
50
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
application was approved by the American Stock Exchange permitting the issuance of up to 500,000 shares pursuant to the 2004 plan.
A summary of transactions under the plan for the two years ended March 31, 2009 is as follows:
| | | | | | | | |
| | Number of
| | | Weighted Average
| |
| | Options | | | Exercise Price | |
|
Outstanding — April 1, 2007 | | | 275,000 | | | $ | 3.15 | |
Cancelled | | | (100,000 | ) | | | 3.11 | |
| | | | | | | | |
Outstanding — March 31, 2008 | | | 175,000 | | | $ | 3.18 | |
| | | | | | | | |
Cancelled | | | (75,000 | ) | | | 3.19 | |
| | | | | | | | |
Outstanding — March 31, 2009 | | | 100,000 | | | $ | 3.17 | |
| | | | | | | | |
Exercisable at March 31, 2009 | | | 83,334 | | | $ | 3.17 | |
| | | | | | | | |
The following table provides additional information as to the options outstanding under the Non-Employee Director Stock Option Plan as of March 31, 2009:
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | Weighted
| | | Weighted
| | | | | | | |
| | | | | Average
| | | Average
| | | | | | Weighted
| |
| | Amount
| | | Remaining
| | | Exercise
| | | Amount
| | | Average
| |
Range of Exercise Prices | | Outstanding | | | Contractual Life | | | Price | | | Exercisable | | | Exercise Price | |
|
$3.07 | | | 25,000 | | | | 6.8 | | | $ | 3.07 | | | | 25,000 | | | $ | 3.07 | |
$3.19 | | | 50,000 | | | | 7.6 | | | | 3.19 | | | | 33,334 | | | | 3.19 | |
$3.23 | | | 25,000 | | | | 6.7 | | | | 3.23 | | | | 25,000 | | | | 3.23 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 100,000 | | | | 7.2 | | | $ | 3.17 | | | | 83,334 | | | $ | 3.17 | |
| | | | | | | | | | | | | | | | | | | | |
There were no options granted during the fiscal years ending March 31, 2008 or 2009. As of March 31, 2009, there were a total of 100,000 options outstanding with exercise prices ranging from $3.07 per share to $3.23 per share. As of March 31, 2009, 50,000 of the options outstanding were fully vested with 50,000 options vesting in November 2009. At both March 31, 2009 and 2008, the weighted average exercise price of exercisable options under the Non-Employee Director Stock Option Plan was $3.17.
NOTE 10 — SHAREHOLDERS’ EQUITY:
Common Shares:
Authorized common shares total 75,000,000 shares of common shares, par value $0.01 per share, of which, 27,129,832 were issued and outstanding as of March 31, 2009 and 2008. Shares held in treasury at March 31, 2009 and 2008 were 25,835,965.
Common Stock Repurchase Program:
In January 2000, September 2001 and September 2003, the Company’s Board authorized share repurchase programs for 5,000,000 shares, 1,000,000 shares, and 2,000,000 shares, respectively. No shares were repurchased in fiscal 2009 or fiscal 2008. As of March 31, 2009, 732,377 shares remain available for repurchase under the program established in September 2003.
Series A Preferred Stock:
The Company has issued and outstanding 3,677 shares of Series A Preferred Stock, (“Preferred Stock”) $.01 par value, with a face value of $3,677,000, which had no determinable market value as of March 31, 2009.
51
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective March 31, 2002, the previously existing conversion feature of the Preferred Stock expired. The Series A convertible preferred stock is non-voting, has no dividend preferences and has not been convertible since March 31, 2002; however, it retains a liquidation preference.
Warrants:
On October 7, 2003, in connection with a consulting arrangement, the Company granted 50,000 warrants with an exercise price of $5.00 per share. These warrants were valued using the Black-Scholes option valuation model, which resulted in $90,500 being charged to earnings during fiscal 2004. As of March 31, 2009, these warrants had not been exercised.
On August 1, 2004, in connection with a consulting agreement, the Company granted 50,000 warrants with immediate vesting and an exercise price of $3.00 per share with an expiration date of August 2009. These warrants were valued using the Black-Scholes valuation model, which resulted in $88,500 being charged to earnings during the fiscal year ended March 31, 2005. As of March 31, 2009, these warrants had not been exercised.
NOTE 11 — FINANCIAL INSTRUMENTS:
In fiscal 2007, the Company entered into fixed period foreign exchange forward contracts (between the U.S. and Hong Kong dollar), based on economic and market conditions and solely for the purpose of speculative trading, not for the purpose of hedging other business opportunities. The contract terms were for fixed periods and at March 31, 2008, the Company’s foreign exchange forward contracts had expiration dates that ranged from one to two months, with notional amounts of $10 million.
At each balance sheet date, the Company accounts for its foreign exchange forward contracts as a current asset with corresponding realized or unrealized gains and losses included in the income statement. As such, realized gains of $330,267 and unrealized gains of $134,395 were recorded as non-operating income at March 31, 2008. At March 31, 2009, there were no foreign exchange forward contracts outstanding.
NOTE 12 — MARKETABLE SECURITIES:
As of March 31, 2008, the Company had $13.9 million face value invested in trading securities, consisting entirely of student loan auction rate securities (“SLARS”). These securities have long-term nominal maturities for which interest rates are reset through a Dutch auction process at pre-determined calendar intervals; a process which, prior to February 2008, had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced in the global credit and capital markets, these SLARS have had multiple failed auctions. Based on an independent valuation and its internal analysis, the Company concluded at March 31, 2008, that these securities had experienced an other-than-temporary decline in fair value and recorded an impairment charge of $1.95 million in fiscal 2008. During fiscal 2009, the issuers of these SLARS redeemed $5.8 million for cash, and the Company recorded an additional impairment charge of $117,000. These SLARS have AAA/Aaa and AAA/Baa3 credit ratings as of March 31, 2009, and have been classified as long-term investments in the Company’s Consolidated Balance Sheet as a consequence of their uncertain liquidity. The net book value of these SLARS at March 31, 2009 and 2008, respectively was $6.0 million and $11.9 million.
52
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 13 — NET EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per share for the years ended March 31, 2009 and March 31, 2008:
| | | | | | | | |
| | 2009 | | | 2008 | |
|
Numerator: | | | | | | | | |
Loss from continuing operations for basic and diluted earnings per share | | $ | (4,183 | ) | | $ | (8,963 | ) |
| | | | | | | | |
Denominator: | | | | | | | | |
Denominator for basic earnings per share — weighted average shares | | | 27,130 | | | | 27,126 | |
Effect of dilutive securities on denominator: | | | | | | | | |
Options and warrants | | | — | | | | — | |
| | | | | | | | |
Denominator for diluted earnings per share — weighted average shares and assumed conversions | | | 27,130 | | | | 27,126 | |
| | | | | | | | |
Loss from continuing operations | | | | | | | | |
Basic and diluted loss per share | | $ | (.16 | ) | | $ | (.33 | ) |
| | | | | | | | |
For the year ended March 31, 2008, 312,334 shares attributable to outstanding stock options and 100,000 shares attributable to outstanding stock warrants were excluded from the calculation of diluted earnings per share because the exercise price of the options and warrants exceeded the average price of the common shares, and therefore their inclusion would have been antidilutive. For the year ended March 31, 2009, 134,000 shares attributable to outstanding stock options and 100,000 shares attributable to outstanding stock warrants were excluded from the calculation of diluted earnings per share because the exercise price of the options and warrants exceeded the average price of the common shares, and therefore their inclusion would have been antidilutive.
NOTE 14 — LICENSE AGREEMENTS:
The Company is party to numerous license agreements that allow licensees to use its trademarks for the manufactureand/or the sale of consumer electronics and other products and are referred to as “outward licenses”. These license agreements (i) allow the licensee to use the Company’s trademarks for a specific product category, or for sale within specific geographic areas, or for sales to a specific customer base, or any combination of the above, or any other category that might be defined in the license agreement, (ii) may be subject to renewal at the initial expiration of the agreements and are governed by the laws of the United States and (iii) have expiration dates ranging through December 2011.
In addition to “outward licenses”, the Company enters into “inward licenses”, which allow the Company to use the name, trademark, logo or technology of third parties in the sale and distribution of products.
Effective January 2007, the Company entered into an inward license agreement with Mattel, Inc. to license the Barbie and Hot Wheels names, trademarks and logos. In March 2008, the Company entered into an amendment to this license agreement, adding the U.B. Funkeys names, trademarks and logos. Under the license agreement, the Company is producing and selling a line of Barbietm Real Electronics, Hot Wheelstm and U.B. Funkeystm products. The license agreement expires in December 2009 and will not be renewed. The Company is subject to a final minimum royalty payment obligation of $387,000 at the expiration date of the license agreement.
Effective July 2005, the Company entered into an inward license agreement with Apple Computer Inc. The license, which automatically renews for successive one-year terms after June 2007 and is cancellable by either party, will remain in effect unless terminated in accordance with the terms of the agreement. The license allows us to develop and market products that are compatible with iPod® portable audio and video devices. In addition, the
53
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
license further provides the right to use the “made for iPod®” logo on all of the Company’s packaging and promotional material.
Effective March 2003, the Company entered into an inward license agreement with MTV Networks to license the Nickelodeon name, trademark and logo, along with several of Nickelodeon’s trademarks and logos. The license agreement expired on March 31, 2007 and the Company had the right to sell off products using the Nickelodeon name through June 29, 2007. Additionally, the Company entered into a second contract with MTV Networks for additional Nickelodeon character trademarks and logos, along with expanded product categories. This license agreement also expired on March 31, 2007 and like the first agreement, the Company had the right to sell off products using the Nickelodeon name through June 29, 2007.
NOTE 15 — LEGAL PROCEEDINGS:
In re: Emerson Radio Shareholder Derivative Litigation. In late 2008, the plaintiffs in two previously filed derivative actions (the Berkowitz and Pinchuk actions) filed a consolidated amended complaint naming as defendants two current and one former director of the Company and alleging that the named defendants violated their fiduciary duties to the Company in connection with a number of related party transactions with affiliates of Grande Holdings, the Company’s controlling shareholder. In January 2009, the individual defendants filed an answer denying the material allegations of the complaint and the litigation currently are updatingis in the discovery stage. The recovery, if any, in this action will inure to the Company’s benefit.
Except for the litigation matters described above, the Company is not currently a party to any legal proceedings other than litigation matters, in most cases involving ordinary and routine claims incidental to our written financebusiness. Management cannot estimate with certainty the Company’s ultimate legal and accounting policy and procedure manual to, among other things, document such policy. Since the adoption of our policyfinancial liability with respect to affiliated transactionssuch pending litigation matters. However, management believes, based on our examination of such matters, that the Company’s ultimate liability will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
NOTE 16 — BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS:
Continuing operations for the Company for the fiscal years ended March 31, 2009 and March 31, 2008 are summarized below by geographic area (in thousands):
| | | | | | | | | | | | |
| | Year Ended March 31, 2009 | |
| | U.S. | | | Foreign | | | Consolidated | |
|
Net third party revenue | | $ | 198,831 | | | $ | 1,750 | | | $ | 200,581 | |
| | | | | | | | | | | | |
Loss before income taxes | | $ | (4,120 | ) | | $ | (153 | ) | | $ | (4,273 | ) |
| | | | | | | | | | | | |
Identifiable assets | | $ | 83,141 | | | $ | 2,903 | | | $ | 86,044 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, 2008 | |
| | U.S. | | | Foreign | | | Consolidated | |
|
Net third party revenue | | $ | 218,784 | | | $ | 4,017 | | | $ | 222,801 | |
| | | | | | | | | | | | |
Loss before income taxes | | $ | (7,262 | ) | | $ | (274 | ) | | $ | (7,536 | ) |
| | | | | | | | | | | | |
Identifiable assets | | $ | 83,237 | | | $ | 4,692 | | | $ | 87,929 | |
| | | | | | | | | | | | |
At March 31, 2009 and March 31, 2008, respectively, foreign identifiable assets included amounts due from several wholly-owned subsidiaries of Grande in February 2007,the aggregate amount of $192,000 and $765,000. See Note 3 “Related Party Transactions”. In addition to operating assets, at March 31, 2009 and March 31, 2008, respectively, there were no affiliated transactionsnon-operating assets of $8,641,000 and $8,625,000 located in excessforeign countries.
54
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s net sales to one customer aggregated approximately 46% and 35% of $500,000 that required approval bynet revenues for the years ended March 31, 2009 and 2008, respectively. The Company’s net sales to another customer aggregated 27% and 24% for the years ended March 31, 2009 and 2008, respectively. The trade accounts receivable balance for these two customers, net of specific reserves, approximated 46% and 8%, respectively, of consolidated trade accounts receivable as of March 31, 2009, and approximated 65% and 6%, respectively, of consolidated trade accounts receivable as of March 31, 2008. The Company has policies and procedures to limit its credit risk related to these and other customers.
NOTE 17 — DISCONTINUED OPERATIONS:
On April 16, 2009, the Company sold its 50% membership interest in Advanced Sound and Image LLC to ASI. On the same date, the Company also sold for $200,000 its right, title and interest in and to certain loan documentation relating to a majoritysecured line of credit made available to ASI, under which approximately $1.2 million was due and payable to the Company as of April 16, 2009. As a result of this transaction, the Company has presented as discontinued operations, net of taxes, its share of the independent outside membersresults of our Boardoperations of Directors under our policy other thanASI for the fiscal years ending March 31, 2009 and 2008, along with the approximately $1.0 million write-down loss it recorded in March 2009 on the April 2009 sale of its note receivable from ASI.
Discontinued operations, net of tax for the fiscal years ending March 31, 2009 and 2008, relating to this transaction described abovewere $634,000 and $58,000, respectively.
55
| |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| |
Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d — 15(e) under the subheading “Toy Musical Instruments, “ which was approvedSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in accordance with our policy.its Exchange Act reports are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons; by collusion of two or more people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.
As a result of its internal assessment, the Company’s management concluded that disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report onForm 10-K, are not effective to reasonably ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to ensure that such information is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Director IndependenceManagement’s Report on Internal Control over Financial Reporting
As of July 21, 2008, Grande Holdings beneficially owned an aggregate of 15,634,482 shares of our common stock, which represents approximately 57.6% of the shares of common stock currently outstanding. Accordingly, we are a “controlled company” (a “Controlled Company”),
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Section 801(a)Exchange ActRules 13a-15(f) and15d-15(f). Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, management conducted an evaluation of the Company Guide. Because we are a Controlled Company, we are exempt from the requirement that at least a majorityeffectiveness of the directorsCompany’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this framework, management concluded that the Company’s internal control over financial reporting and related party transactions was not effective. Management has identified the following material weaknesses as of March 31, 2009:
The company does not have adequate internal controls in place to ensure the accuracy of its financial statements. As a result, inadequate communication between departments and inadequate review over the financial statements caused the Company to misstate its results of operations for the three month periods ended June 30, 2008 and September 30, 2008, which will lead to the Company restating the results of those periods and issuing revised financial statements accordingly. Because the amounts to be restated in such quarters offset each other, the Company believes that its financial statements for the six months ended September 30, 2008 continue to fairly present the Company’s results of operations and financial condition for the period and as of that date and need not be restated as described in the “Management Discussion and Analysis of Financial Condition and Results of Operations — Restatement of Prior Interim Period Financial Statements” section of this Report.
The Company does not have adequate procedures in place to prevent related party transactions which give rise to potential conflicts of interest. As a result the Company entered into a transaction in which a subsidiary advanced funds to a related party without proper approval. The transaction was noted immediately as an unapproved transaction, and all the advanced funds were repaid to the Company on a timely basis.
56
This Annual Report onForm 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report onForm 10-K.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended March 31, 2009, there were no changes in the Company’s internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company, its Audit Committee and its Board of Directors will be “independent” as defined under the American Stock Exchange listing standards, (ii) the requirementworking to have the compensation of our executives determined by a compensation committee comprised solely of independent directors or by a majority of the board’s independent directorsimplement additional controls over financial reporting and (iii) from the requirement to have director nominees selected by a nominating committee comprised entirely of independent directors or by a majority of the independent directors.
We currently have seven directors, Christopher Ho, Adrian Ma, Greenfield Pitts, Michael A.B. Binney, Mirzan Mahathir, Kareem E. Sethi and Eduard Will. Our Board of Directors has determined that each of that Messrs. Mahathir and Sethi are “independent” as defined under the American Stock Exchange listing standards. Our Board of Directors also determined that Peter G. Bünger, W. Michael Driscoll, Jerome H. Farnum and Norbert R. Wirsching, each of whom served as a member of our Board of Directors during Fiscal 2008, were “independent” as defined under the American Stock Exchange listing standards.
Under Section 803(B)(2)(A) of the Company Guide, we are required to have an audit committee of at least two independent members, as defined by the listing standards of the American Stock Exchange. Our Audit Committee, which is a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act, presently is comprised of one independent director, Mr. Sethi. During Fiscal 2008 and through the date of his resignation on July 14, 2008, W. Michael Driscoll served as the Chairman, the “audit committee financial expert” and an independent director of the Audit Committee. During Fiscal 2008 and through the date of his resignation on July 28, 2008, Norbert R. Wirsching served as an independent director of the Audit Committee. During Fiscal 2008 and through December 13, 2007, Mr. Farnum served as an independent director of the Audit Committee. Mr. Sethi began to serve as an independent director of the Audit Committee on December 13, 2007.
On July 29, 2008, we notified the American Stock Exchange thatrelated party transactions as a result of Mr. Wirsching’s resignation and the resulting vacancymaterial weaknesses in internal controls over these areas identified during management’s fiscal 2009 assessment.
PART III
| |
Item 10. | DIRECTORS AND EXECUTIVE OFFICERS |
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report on the Audit Committee, the Audit Committee consists of one independent director, and not two independent directors as required by Section 803(B)(2) of the Company Guide. As a result, we are not in compliance with Section 803(B)(2) of the Company Guide. In accordance with Section 803(B)(6) of the Company Guide, we must regain complianceForm 10-K, to be filed with the audit committee requirements set forth inSecurities and Exchange Commission on or before July 29, 2009.
| |
Item 11. | EXECUTIVE COMPENSATION |
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report onForm 10-K, to be filed with the Section 803(B)(2) ofSecurities and Exchange Commission on or before July 29, 2009.
| |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report onForm 10-K, to be filed with the Company GuideSecurities and Exchange Commission on or before July 29, 2009.
| |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report onForm 10-K, to be filed with the earlier of our next annual shareholder meetingSecurities and Exchange Commission on or before July 28, 2009; provided, however, that if the annual shareholder meeting occurs prior to October 11, 2008, we shall instead have until October 11, 2008 to regain compliance. Our Board of Directors is considering candidates who will qualify to serve on our Audit Committee.29, 2009.
Under Sections 804
| |
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this Annual Report onForm 10-K, to be filed with the Securities and 805 of the Company Guide, we are exempt from the requirement to have the compensation of our executives determined by a compensation committee comprised solely of independent directorsExchange Commission on or by a majority of the board’s independent directors and from the requirement to have director nominees selected by a nominating committee comprised entirely of independent directors or by a majority of the independent directors because we are a Controlled Company. During Fiscal 2008, our Board of Directors did not have a compensationbefore July 29, 2009.
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committee or a nominating committee. In April 2008, our Board of Directors established a Corporate Governance, Nominating and Compensation Committee, which was to be comprised of three members, at least two of whom were to be “independent” as such term is defined in Section 803A of the Company Guide. On June 24, 2008, our Corporate Governance, Nominating and Compensation Committee was fully constituted with three directors, Messrs. Ma, Peterson and Sethi, two of whom the Board had determined were independent as such term is defined in Section 803A of the Company Guide. Since Mr. Peterson’s resignation on July 15, 2008, our Corporate Governance, Nominating and Compensation Committee has been comprised of two directors, Messrs. Ma and Sethi.
Our Board of Directors currently is considering the adoption of a charter of the Corporate Governance, Nominating and Compensation Committee. We expect that the charter, as finally adopted, will provide that the Corporate Governance, Nominating and Compensation Committee will be responsible for, among other things (i) the development and implementation of a set of corporate governance principles applicable to the Company; (ii) the determination of the slate of director nominees for election to the Company’s Board and recommendation to the Board individuals to fill vacancies occurring between annual meetings of shareholders; and (iii) the recommendation to the Board for compensation arrangements of the Company’s directors and executive officers.
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IV
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by our independent accountants, Moore Stephens, P.C., is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered.
| Ø | | Audit Fees.Audit fees billed to us by Moore Stephens for the audit of the financial statements included in our Annual Reports on Form 10-K, and reviews by Moore Stephens P.C. of the financial statements included in our Quarterly Reports on Form 10-Q, for the fiscal years ended March 31, 2007 and 2008 totaled approximately $233,900 and $247,400, respectively. |
|
| ØItem 15. | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES | Audit-Related Fees.We were billed $110,000 and $117,200 by Moore Stephens P.C. for the fiscal years ended March 31, 2007 and 2008, respectively, for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the captionAudit Feesabove. Audit-related fees were principally related to procedures in connection with the audit of our parent company’s consolidated financial statement for its fiscal years ended December 31, 2006 and December 31, 2007, portions of which were credited to our audit fees for the audit of our financial statements for our fiscal years ended March 31, 2007 and March 31, 2008. |
|
| Ø | | Tax Fees.Moore Stephens P.C. billed us an aggregate of $64,000 and $98,600, for the fiscal years ended March 31, 2007 and 2008, respectively, for tax services, principally related to the preparation of income tax returns and related consultation. |
|
| Ø | | All Other Fees.We were not billed by Moore Stephens P.C. for the fiscal years ended March 31, 2007 and 2008, respectively, for any permitted non-audit services. |
(a) List of Financial Statements, Financial Statement Schedules, and Exhibits.
Applicable law
1. Financial Statements. The following financial statements of Emerson Radio Corp. are included in Item 8 of Part II of this Annual Report onForm 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended March 31, 2009 and regulations provide an exemption that permits certain services2008
Consolidated Balance Sheets as of March 31, 2009 and 2008
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended March 31, 2009 and 2008
Notes to be provided by our outside auditors even ifConsolidated Financial Statements
2. Financial Statement Schedules.
Schedule II — Valuation and Qualifying Accounts and Reserves
All other financial statement schedules are omitted from this Annual Report onForm 10-K, as they are not pre-approved. We have not reliedrequired or applicable or the required information is included in the financial statements or notes thereto.
3. Exhibits. The following exhibits are filed with this Annual Report on this exemption at any time since the Sarbanes-Oxley Act was enacted.Form 10-K or are incorporated herein by reference, as indicated.
| | | | |
Exhibit
| | |
Number | | |
|
| 3 | .1 | | 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 | .4 | | 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 | .5 | | 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 | .6 | | By-Laws of Emerson (incorporated by reference to Exhibit 3.1 of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2007). |
| 3 | .7 | | 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). |
| 10 | .12 | | License Agreement effective as of January 1, 2001 by and between Funai Corporation and Emerson (incorporated by reference to Exhibit (10) (z) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| 10 | .12.1 | | First Amendment to License Agreement dated February 19, 2002 by and between Funai Corporation and Emerson (incorporated by reference to Exhibit (10.12.1) of Emerson’s Annual Report on Form 10-K for the year ended March 31, 2002). |
| 10 | .12.2 | | Second Amendment to License Agreement effective August 1, 2002 by and between Funai Corporation and Emerson (incorporated by reference to Exhibit (10.12.2) of Emerson’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2002). |
| 10 | .12.3 | | Third Amendment to License Agreement effective February 18, 2004 by and between Funai Corporation and Emerson (incorporated by reference to Exhibit 10.12.3 of Emerson’s Annual Report on Form 10-K for the year ending March 31, 2004) |
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PART IV.
ITEM 15 — Exhibits, Financial Statement Schedules
(a)(3)
| 31.1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
| 31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | | |
Exhibit
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Number | | |
|
| 10 | .12.4 | | Fourth Amendment to License Agreement effective December 3, 2004 by and between Funai Corporation, Inc. and Emerson (incorporated by reference to Exhibit (10.12.4) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004). |
| 10 | .12.5 | | Fifth Amendment to License Agreement effective May 18, 2005 by and between Funai Corporation, Inc. and Emerson (incorporated by reference to Exhibit (10.12.5) of Emerson’s Annual Report on Form 10-K for the year ending March 31, 2005) |
| 10 | .12.7 | | Seventh Amendment to License Agreement effective December 22, 2005 by and between Funai Corporation, Inc. and Emerson (incorporated by reference to Exhibit 10.1 of Emerson’s Current Report on Form 8-K filed on December 28, 2005) |
| 10 | .13 | | Second Lease Modification dated as of May 15, 1998 between Hartz Mountain, Parsippany and 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 | .13.1 | | 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 | .13.2 | | Fourth Lease Modification made the 12th day of February, 2003 between Hartz Mountain Parsippany and Emerson (incorporated by reference to Exhibit (10.13.2) of Emerson’s Annual Report on Form 10-K for the year ended March 31, 2003). |
| 10 | .13.4 | | Fifth Lease Modification Agreement made the 2nd day of December, 2004 between Hartz Mountain Industries, Inc. and Emerson (incorporated by reference to Exhibit (10.13.3) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004). |
| 10 | .13.3 | | Lease Agreement dated as of October 8, 2004 between Sealy TA Texas, L.P., a Georgia limited partnership, and Emerson Radio Corp. (incorporated by reference to Exhibit (10.13.3) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). |
| 10 | .13.5 | | Lease Agreement (Single Tenant) between Ontario Warehouse I, Inc., a Florida corporation, as Landlord, and Emerson Radio Corp., a Delaware corporation, as Tenant, effective as of December 6, 2005 (incorporated by reference to Exhibit 10.1 to Emerson’s Current Report on Form 8-K filed on January 4, 2006). |
| 10 | .13.6 | | Letter agreement, dated November 28, 2005, between Emerson Radio Corp. and The Grande Group (Hong Kong) Limited regarding lease of office space. (Incorporated by reference to Exhibit 10.13.6 to Emerson’s Annual Report on Form 10-K for the year ended March 31, 2006.) |
| 10 | .13.7 | | Letter agreement, dated November 28, 2005, between Emerson Radio Corp. and The Grande Group (Hong Kong) Limited regarding management services for office space. (Incorporated by reference to Exhibit 10.13.7 to Emerson’s Annual Report on Form 10-K for the year ended March 31, 2006.) |
| 10 | .18.1 | | Emerson Radio Corp. 2004 Employee Stock Incentive Plan (incorporated by reference to Exhibit 1 of Emerson’s 2004 Proxy Statement). |
| 10 | .18.2 | | Emerson Radio Corp. 2004 Non-Employee Outside Director Stock Option Plan (incorporated by reference to Exhibit 2 of Emerson’s 2004 Proxy Statement). |
| 10 | .25 | | Employment Agreement, dated as of April 3, 2007, by and between Emerson Radio Corp. and Greenfield Pitts (incorporated by reference to Exhibit 10.1 to Emerson’s Current Report on Form 8-K filed with the SEC on April 7, 2008). |
| 10 | .26 | | Employment Agreement, dated as of October 15, 2007, by and between Emerson Radio Corp. and John Spielberger (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on July 11, 2008). |
| 10 | .27.5 | | Loan and Security Agreement dated as of December 23, 2005, among Emerson Radio Corp., Emerson Radio Macao Commercial Offshore Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd., and Emerson Radio International Ltd. (as Borrowers) and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.2 of Emerson’s Form 8-K dated December 28, 2005). |
| 10 | .28.1 | | Form of Common Stock Warrant Agreement entered into on October 7, 2003 by and between Emerson Radio Corp. and Ladenburg Thalmann & Co., Inc. (incorporated by reference to Exhibit 10.28.1 of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003). |
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Exhibit
| | |
Number | | |
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| 10 | .28.2 | | Common Stock Purchase Warrant Agreement entered into on August 1, 2004 by and between Emerson Radio Corp. and EPOCH Financial Services, Inc. (incorporated by reference to Exhibit 10.28.2 of Emerson’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). |
| 10 | .28.3 | | Stock Purchase Agreement among Emerson Radio Corp., Collegiate Pacific Inc. and Emerson Radio (Hong Kong) Limited, dated July 1, 2005 (incorporated by reference to Exhibit 2.1 to Emerson’s Current Report on Form 8-K filed on July 8, 2005). |
| 14 | .1 | | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 of Emerson’s Annual Report on Form 10-K for the year ended March 31, 2004). |
| 21 | .1 | | Subsidiaries of the Company as of March 31, 2009.* |
| 23 | .1 | | Consent of Independent Registered Public Accounting Firm — MSPC, Certified Public Accountants and Advisors, Professional Corporation* |
| 31 | .1 | | Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| 31 | .2 | | Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| 32 | | | Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
(b) Exhibits. The exhibits required by Item 601 ofRegulation S-K are filed herewith or incorporated by reference.
(c) Financial Statement Schedules and Other Financial Statements.
Schedule II — Valuation and Qualifying Accounts and Reserves
All other financial statement schedules are omitted from this Annual Report onForm 10-K, as they are not required or applicable or the required information is included in the financial statements or notes thereto.
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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 Amendment No. 1 on Form 10-K/A to the Registrant’s Annual Report on Form 10-Kreport to be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
| | | | |
| EMERSON RADIO CORP.
| |
| By: | /s/ Adrian Ma | |
| | Adrian Ma | |
| | Chief Executive Officer | |
|
Adrian Ma
Chief Executive Officer
Dated: July 29, 200814, 2009
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.
| | | | |
| | Chairman of the Board of the | | July 29, 2008 |
| | | | |
Christopher Ho | | Directors | | |
| | | | |
/s/ Adrian Ma | | Chief Executive Officer | | July 29, 2008 |
|
| | | | |
Adrian Ma | | (Principal Executive Officer)
and Director | | |
| | | | |
/s/ Greenfield Pitts | | Chief Financial Officer | | July 29, 2008 |
| | | | |
Greenfield Pitts | | (Principal Financial and
Accounting Officer), and
Director | | |
| | | | |
/s/ Michael A. B. Binney | | Director | | July 29, 2008 |
| | | | |
Michael A. B. Binney | | | | |
| | | | |
/s/ Kareem E. SethiChristopher Ho Christopher Ho | | DirectorChairman of the Board of the Directors | | July 29, 200814, 2009 |
| | | | |
Kareem E. Sethi/s/ Eduard Will Eduard Will | | Vice Chairman of the Board of Directors | | July 14, 2009 |
| | | | |
/s/ Adrian Ma Adrian Ma | | Chief Executive Officer (Principal Executive Officer) and Director | | July 29, 200814, 2009 |
| | | | |
Eduard Will/s/ Greenfield Pitts Greenfield Pitts | | Chief Financial Officer (Principal Financial and Accounting Officer), and Director | | July 14, 2009 |
| | | | |
/s/ Duncan Hon Duncan Hon | | Director | | July 29, 200814, 2009 |
| | | | |
/s/ Mirzan Mahathir Mirzan Mahathir | | Director | | July 14, 2009 |
| | | | |
/s/ Kareem E. Sethi Kareem E. Sethi | | Director | | July 14, 2009 |
| | | | |
/s/ Terence A. Snellings Terence A. Snellings | | Director | | July 14, 2009 |
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