THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1996 FILED ON AUGUST 20, 1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
executive offices)
(201)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock outstanding as of December 31, 1995:June 30, 1996:
40,252,772.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended Three Months Ended
December 31, December 31,June 30
1996 1995 1994 1995 1994
Net salesrevenues . . . . . . . . . . . . . $214,720 $529,111$41,147 $ 70,314 $194,33357,058
Costs and Expenses:expenses:
Cost of sales . . . . . . . . . . 198,184 490,803 67,491 179,052. 38,784 50,886
Other operating costs and expenses.expenses . . . . . . . . . . 3,529 6,777 983 1,910934 1,617
Selling, general & administrative
expenses.expenses . . . . . . . . . . . . 16,332 23,858 5,338 7,681
______ _______ ______ _______
218,045 521,438 73,812 188,643
_______ _______ ______ _______. 5,364 5,242
45,082 57,745
Operating profit (loss)loss . . . . . . . . (3,325) 7,673 (3,498) 5,690. . . . (3,935) (687)
Interest expense . . . . . . . . . . . 2,322 2,124 1,029 950
_____ _____ _____ _____
Earnings (loss)812 622
Loss before income taxes. . . (5,647) 5,549 (4,527) 4,740
Provision for income taxes . . 26 196 (129) 82
Net earnings (loss). . . . . . . (4,747) (1,309)
Provision (benefit) for income taxes . . . $(5,673) $ 5,353 $ (4,398) $ 4,658
======= ======= ======= =====(24) 92
Net earnings (loss) per common share . $ (.15) $ .12 $ (.11) $ .10
======= ======= ======= =====
Weighted average number of common
and common equivalent shares
outstandingloss . . . . . . . . . . . . . . . $ (4,723) $ (1,401)
Net loss per common share. . . . . . . $ (.12) $ (.04)
Weighted average number of
common shares outstanding . . . . . . 40,253 46,537 40,253 48,879
====== ====== ====== ======
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
Dec. 31,June 30, March 31,
1995 19951996 1996
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 19,04117,508 $ 17,02016,133
Accounts receivable (less allowances of
$7,140$4,426 and $9,350,$6,139, respectively) . . . . 29,576 34,309. 17,908 23,583
Inventories . . . . . . . . . . . . . . . 42,385 35,336. 31,682 35,292
Prepaid expenses and other current assets 10,974 15,715
_______ _______. 9,979 10,306
Total current assets . . . . . . . . . . 101,976 102,380. 77,077 85,314
Property and equipment - (at cost less
accumulated depreciation and amortization
of $5,753$4,838 and $7,102,$4,422, respectively) . . . . 4,298 4,676. 3,137 3,501
Other assets . . . . . . . . . . . . . . . . . 8,053 6,913
_______ _______8,336 7,761
Total Assets . . . . . . . . . . . . . . . $ 114,32788,550 $ 113,969
======= =======96,576
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . $ 24,73517,436 $ 27,29621,151
Current maturities of long-term debt . . . 240 508. 138 173
Accounts payable and other current
liabilities . . . . . . . . . . . . . . 14,083 18,982. 11,533 10,391
Accrued sales returns . . . . . . . . . . 6,489 12,713. 2,672 3,091
Income taxes payable . . . . . . . . . . . 214 283
_______ ______. 187 202
Total current liabilities . . . . . . . 45,761 59,782. 31,966 35,008
Long-term debt . . . . . . . . . . . . . . . 20,993 214. 20,872 20,886
Other non-current liabilities . . . . . . . 354 322. 278 300
Shareholders' Equity:
Preferred stock - $.01 par value, 10,000,000
and 1,000,000 shares authorized,
respectively, 10,000 shares issued
and outstanding.outstanding . . . . . . ... . . . . . . . . 9,000 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 40,252,772. . . . . . . .
shares issued and outstanding. . . . . . . . 403 403
Capital in excess of par value . . . . . . . 107,944 107,969. 108,986 108,991
Accumulated deficit . . . . . . . . . . . . (70,284) (64,086). (83,073) (78,175)
Cumulative translation adjustment . . . . . 156 365
______ _______. 118 163
Total shareholders' equity . . . . . . 47,219 53,651. 35,434 40,382
Total Liabilities and Shareholders' Equity $ 114,32788,550 $ 113,969
======== =======96,576
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
Nine Months Ended
December 31,
1995 1994
Cash Flows from Operating Activities:
Net cash used by operating activities. . . $ (11,478) $(28,287)
________ ________
Cash Flows from Investing Activities:
Redemption of certificates of deposit. . . . 137 8,469
Additions to property and equipment. . . . (1,490) (2,733)
Other. . . . . . . . . . . . . . . . . . . (522) 29
Net cash (used) provided by investing ______ _____
activities . . . . . . . . . . . . . . . . (1,875) 5,765
______ _____
Cash Flows from Financing Activities:
Net proceeds from private placement of
Senior Subordinated Convertible
Debentures . . . . . . . . . . . . . . . 19,220 -
Net (repayments) borrowings under line of
credit facility. . . . . . . . . . . . . (2,561) 14,271
Net proceeds from public offering of common
stock. . . . . . . . . . . . . . . . . . - 5,701
Other . . . . . . . . . . . . . . . . . (1,285) (1,155)
Net cash provided by financing _______ ______
activities . . . . . . . . . . . . . . 15,374 18,817
________ ______
Three Months Ended
June 30,
1996 1995
Cash Flows from Operating Activities:
Net cash provided by operating
activities . . . . . . . . . . . . . . . . $ 5,308 $ 1,428
Cash Flows from Investing Activities:
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . 45 (1,177)
Cash Flows from Financing Activities:
Net repayments under line of
credit facility. . . . . . . . . . . . . . (3,715) (2,077)
Other . . . . . . . . . . . . . . . . . . . (263) (720)
Net cash used by financing
activities . . . . . . . . . . . . . . . . (3,978) (2,797)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . 1,375 (2,546)
Cash and cash equivalents at beginning
of year. . . . . . . . . . . . . . . . . . . 16,133 17,020
Cash and cash equivalents at end of period . . $ 17,508(a) $14,474 (a)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 815 $ 884
Income taxes paid . . . . . . . . . . . . . $ 15 $ 114
(a) The balances at June 30, 1996 and 1995, include $9.0 million and $9.1
million of cash and cash equivalents, . . . . . . . . . . . . . . . 2,021 (3,705)
Cash and cash equivalents at beginning
of year. . . . . . . . . . . . . . . . . 17,020 21,623
______ ______
Cash and cash equivalents at end of period . .$ 19,041(a) $ 17,918(a)
======= =======
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 2,751 $ 2,198
======== ======
Income taxes paid . . . . . . . . . . . . . $ 153 $ 298
======== ======
(a) The balances at December 31, 1995 and 1994 include $9.0 million and
$6.0 million, respectively, of cash and cash equivalents pledged to assure the
availability of certain letterofletter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements reflect all
adjustments that management believes are necessary to present fairly the results of
operations for the periods being reported. The unaudited interim consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission and accordingly do not include all of the
disclosures normally made in the Emerson Radio Corp. (the "Company") annual
consolidated financial statements. It is suggested that these unaudited interim
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the year ended March 31, 1995,1996,
included in the Company's annual Form 10-K filing.
The preparation of the unaudited interim consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Due to the seasonal nature of the Company's consumer electronics business,
the results of operations for the three and
nine month periodsmonths ended December 31, 1995June 30, 1996 are not
necessarily indicative of the results of operations for the full year ending
March 31, 1996.1997.
NOTE 2
Net loss per common share for the three and nine month periods ended December 31,June 30, 1996
and 1995 are based on the net loss and deduction of preferred stock dividend
requirements and the weighted average number of shares of common stock
outstanding during the periods. Theseeach period. The net loss per share amounts dofor both periods does
not include common stock equivalents assumed outstanding since they are anti-
dilutive.
Net earnings per common share for the three and nine month
periods ended December 31, 1994 are based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents include
shares issuable upon conversion of the Company's Series A
Preferred Stock, exercise of stock options and warrants and
shares issued (in February 1995) to former creditors primarily to
satisfy an anti-dilution provision.
NOTE 3
The provision (benefit) for income taxes for the three and nine month
periodsmonths ended December 31,June 30, 1995 and 1994
consists primarily of taxes related to international operations. The provision (benefit)benefit for
income taxes for the three and nine month periodsmonths ended December 31, 1995 also
includes a refund for overpaymentJune 30, 1996 consists primarily of
Federal alternative minimum
taxes and a reversal of an overaccrual of prior year taxes on
international operations.domestic tax refunds received. The Company did not recognize tax benefits for
losses incurred by its domestic operations (after
tax recognition of prior year book deductions) during the same periods.three months ended June
30, 1996 and 1995.
NOTE 4
Spare parts inventories, net of reserves, aggregating $2,321,000$1,920,000 and
$2,763,000$2,042,000 at December 31, 1995June 30, 1996 and March 31, 1995,1996, respectively, are included in
"Prepaid expenses and other current assets".assets."
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
Dec. 31, March 31,
1995 1995
8-1/2% Senior Subordinated
Convertible Debentures
Due 2002. . . . . . . . . . . . $20,750 $ -
Notes payable to unsecured
creditors . . . . . . . . . . . 94 465
Equipment notes and other . . . . 389 257
______ ___
21,233 722
Less current obligations. . . . . 240 508
______ ____
$20,993 $ 214
======= =====
The 8-1/2% Senior Subordinated Convertible Debentures Due 2002
(the "Debentures") were issued in August 1995. The Debentures
bear interest at the rate of 8-1/2% per annum, payable quarterly on
March 15, June 15, September 15 and December 15, in each year.
The Debentures mature on August 15, 2002. The Debentures are
convertible into shares of the Company's Common Stock at any time
prior to redemption or maturity at an initial conversion price of
$3.9875 per share, subject to adjustment under certain
circumstances. The Debentures are redeemable, at the option of
the Company, after the expiration of three years from the date of
issuance, in whole or in part, at an initial redemption price of
104% of principal, decreasing by 1% per year until maturity. The
Debentures are subordinated to all existing and future Senior
Indebtedness (as defined in the Indenture governing the
Debentures). The Debentures restrict, among other things, the
amount of Senior Indebtedness and other indebtedness that the
Company and, in certain instances, its subsidiaries, may incur.
Each holder of Debentures has the right to cause the Company to
redeem the Debentures if certain Designated Events (as defined)
should occur. The Debentures are subject to certain restrictions
on transfer, although the Company has registered the transfer of
the Debentures and the underlying Common Stock.
June 30, March 31,
1996 1996
8 1/2% Senior Subordinated Convertible
Debentures Due 2002 . . . . . . $20,750 $20,750
Other . . . . . . . . . . . . . . 260 309
21,010 21,059
Less current obligations. . . . . 138 173
$20,872 $20,886
NOTE 6
The 30 million shares of Common Stock issued to GSE Multimedia Technologies
Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision
International, Inc. ("Elision") on March 31, 1994, pursuant to the Company's bankruptcy
restructuring plan, arewere the subject of certain legal proceedings. TransferOn June 11,
1996, a Stipulation of certain shares
owned by Fidenas International Limited L.L.C. have been enjoined
by court orders issuedSettlement and Order (the "Settlement Agreement") was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States Bankruptcy Courtamong Mr. Jurick, Emerson's Chairman and Chief Executive
Officer, and his affiliated entities and certain of their creditors (the
"Creditors"). The Settlement Agreement provides, among other things, for the
Southern Districtpayment by Mr. Jurick and his affiliated entities of New York$49.5 million to the
Creditors, to be paid from the proceeds of the sale of certain of the 29,152,542
shares of Emerson common stock (the "Settlement Shares") owned by affiliated
entities of Mr. Jurick. In addition, Mr. Jurick will be paid the sum of $3.5
million from the sale of such stock. The Settlement Shares will be sold over an
extended, but indeterminate, period of time by a financial advisor (the
"Advisor") to be proposed by Emerson and selected in consultation with Mr.
Jurick and the CommonwealthCreditors. Such Advisor will formulate a marketing plan taking
into consideration (i) the interests of Emerson's minority stockholders, and
(ii) the goal of generating sufficient proceeds to pay the Creditors and Mr.
Jurick as quickly as possible. The Settlement Shares will be divided into two
pools. The Pool A Shares initially will consist of 15,286,172 Emerson shares.
The Pool B Shares will consist of the Bahamas. The Company is not a partynumber of Settlement Shares with respect
to anywhich Mr. Jurick must retain beneficial ownership of the proceedings
described in this paragraph; it is possible that a courtvoting power to avoid an
event of competent jurisdiction may order the turnover of all or a portion
of the shares of Common Stock owned by such persons to a third
party. A turnoverdefault arising out of a substantial portionchange of the Common Stock
could result in a "change of controlling ownership" prohibitedcontrol pursuant to the terms of the
Company's loanLoan and securitySecurity Agreement with a U.S. financial institution (the
"Lender") and/or the indenture governing the Company's 8 1/2% Senior
Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales may
be made of the Settlement Shares pursuant to a registered offering if the
sales price is not less than 90% of the average of the three most recent
closing prices (the "Average Closing Price"), or, other than in a
registered offering, of up to 1% of the Emerson common stock
outstanding per quarter, if the sales price is not less than 90% of the Average
Closing Price. Any other attempted sales are subject to the consent of the
Company, Mr. Jurick and the Creditors, or, if necessary, the Court. The
Settlement Agreement will only become effective after, among other things,
receipt by the Court of certain share certificates currently held in foreign
jurisdictions and all documents required in the Settlement Agreement.
On May 10, 1996, International Jensen Incorporated ("Jensen") filed an
action in the United States District Court for the Northern District of
Illinois, Eastern Division, against the Company and its President, Eugene I.
Davis, for violations of proxy solicitation rules and for breach of a
confidentiality agreement with Jensen. On May 14, 1996, the Court entered a
temporary restraining order against the Company and its primary United States lenderPresident, which
subsequently lapsed, enjoining them from (i) further solicitation of Jensen's
stockholders or their representatives until the Company has filed a Proxy
Statement with the Securities and Exchange Commission which complies with the
provisions of Regulation 14A of the Securities Exchange Act of 1934; (ii) making
further solicitation containing false and misleading or misleading statements of
material fact or material omissions; and (iii) disclosing confidential
information in violation of the confidentiality agreement. On May 20, 1996, the
Company filed a counterclaim and third party complaint in this action alleging
that Jensen and its Chairman, Chief Executive Officer and President, Robert G.
Shaw, fraudulently induced the Company to enter into a confidentiality agreement
and failed to negotiate with the Company in good faith. In its counterclaim and
third party complaint, the Company requests such other equitable or other relief
as the Court finds proper and an award of attorneys' fees and expenses. On
July 2, 1996, the Company amended its third party complaint to include Recoton
Corporation ("Recoton"), the competing bidder for Jensen, and William Blair
Leveraged Capital Fund, L.P. ("Blair") for conspiring in the actions of Jensen
and Mr. Shaw. The Company voluntarily dismissed Blair, without prejudice, on
August 2, 1996. On August 8, 1996, the Company filed a Second Amended
Counterclaim and Third Party Complaint with the Chicago Federal Court
alleging that disclosures and omissions in Jensen's proxy materials
consitituted violations of the antifraud provisions of the federal proxy rules
and seeking a temporary restraining order to enjoin Jensen from holding its
August 28, 1996 Special Meeting of Stockholders to approve the Recoton/Shaw
transactions and from utilizing any proxies solicited pursuant to such allegedly
materially misleading proxy materials. Jensen has sought to have the terms of the Debentures. Additionally, such a change in
controlling ownership could result in a second "ownership change"
under Internal Revenue Code Section 382, which could affect the
Company's ability to use its net operating loss and tax credit
carryforwards and may cause an adjustment of the conversion price
of the Debentures.Court
abstain from deciding this matter. The Court has not yet ruled on whether it
will abstain. The Company does not believeand its President intend to vigorously defend
Jensen's claims against the Company and its President and to vigorously
pursue its counterclaim against Jensen and its third party complaint against
Mr. Shaw and Recoton. The Company believes that Jensen's claims are without
basis, that it has meritorious defenses against Jensen's claim and that the
litigation or the results thereof will not have a material adverse effect on the
Company's consolidated financial position, but may resultposition.
On July 30, 1996, the Company filed a complaint in the Court of Chancery of
the State of Delaware against Jensen, all of its directors, Blair, Recoton, and
certain changesaffiliates of the foregoing alleging violations of Delaware law
involving Jensen's auction process, interference with prospective economic
advantage, and aiding and abetting breaches of fiduciary duties. In particular,
the complaint seeks an order enjoining the consummation of the Jensen/Recoton
merger and the sale of Jensen's Original Equipment Manufacturing business to Mr.
Shaw. The complaint also seeks to require Jensen and its Board of Directors to
provide relevant due diligence materials to the Company and to engage in ownershipgood
faith negotiations with the Company by asking the Court to order Jensen and its
Board of Directors to conduct a fair auction on a level playing field. The
Company is also requesting the Court to award damages and further relief as
would be just and equitable. The Court ordered expedited discovery and held a
hearing on the matter and on a motion for preliminary injunction filed on behalf
of Jensen's stockholders on August 15, 1996. The Court has not yet rendered its
decision.
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, with any resulting consequences as
describedhaving served in this paragraph.
The Company has filed a shelf registration statement
covering 5,000,000 shares of common stock owned by Fidenas
International Limited L.L.C., which has reserved the ability
to assignlatter capacity until he became involved
working for the right to sell certain of such shares to Elision
International, Inc. and/or GSE Multimedia Technologies Corporation,
to finance a settlement, if any,other Otake Defendants. Certain of the litigation describedother Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year ended March 31, 1996.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the immediately preceding paragraph. The shares coveredUnited States District Court,
Southern District of Indiana, Evansville Division, alleging
various breaches of certain agreements by the shelf
registrationCompany, including
breaches of the confidentiality provisions, certain payment breaches, breaches
of provisions relating to product returns, and other alleged breaches of those
agreements, and seeking damages in the amount of $2,452,656, together with
interest thereon, attorneys' fees, and certain other costs. While the outcome
of the New Jersey and Indiana actions are subject tonot certain contractual restrictions and may
be offered for saleat this time, the Company
believes it has meritorious defenses against the claims made by the plaintiffs
in the Indiana action. In any event, the Company believes the results of that
litigation should not have a material adverse effect on the financial condition
of the Company or sold only by means of a prospectus
following registration under the Securities Act of 1933.on its operations.
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed July 25, 1994 in connection with the
rejection of certain executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The contracts were executed in August 1993, shortly before the
Company's filing for bankruptcy protection. The amount claimed was $93,563,457,
of which $86,785,000 represents a claim for lost profits and $6,400,000 for
plant installation and establishment of offices, which were installed and
established prior to execution of the contracts. The claim was filed as an
unsecured claim and, therefore, will be satisfied, to the extent the claim is
allowed by the Bankruptcy Court, in the manner other allowed unsecured claims
arewere satisfied. The Company has objected to the
claim and intends tohas vigorously contest suchcontested the
claim and believes it has meritorious defenses to the highly speculative portion
of the claim for lost profits and the portion of the claim for actual damages
for expenses incurred prior to the execution of the contracts. Additionally, on
or about September 30, 1994, the Company has instituted an adversary proceeding in
the Bankruptcy Court asserting damages caused by Cineral.Cineral and seeking declaratory
relief and replevin. A motion filed by Cineral to dismiss the adversary
proceeding has been denied. The adversary proceeding and claim objection have
been consolidated into one proceeding.proceeding an discovery commenced. This action has
been stayed since June 1995 by order of the Bankruptcy Court pending settlement
negotiations. An adverse final ruling on the Cineral claim could have a
material adverse effect on the Company, even though it would be limited to 18.3%
of the final claim determined by a court of competent jurisdiction; however,
with respect to the claim for lost profits, in light of the foregoing, the
Company believes the chances for recovery for lost profits are remote.
On December 20, 1995, the Company filed suit in the United
States District Court for the District of New Jersey against
Orion Sales, Inc., Otake Trading Co. Ltd., Technos Development
Limited, Shigemasa Otake, and John Richard Bond (collectively,
the "Otake Defendants") alleging breach of contract, breach of
covenant of good faith and fair dealing, unfair competition,
interference with prospective economic gain, and conspiracy in
connection with certain activities of the Otake Defendants under
a license agreement covering the use of the "Emerson and G-Clef"
trademark on sales of certain video products by the Otake
Defendants to a significant customer of the Company and a supply
agreement for the manufacture and sale of certain video products
for the Company by certain of the Otake Defendants (collectively,
the "Otake Agreements"). Mr. Bond is a former officer and sales
representative of the Company, having served in the latter
capacity until he became involved working for the other Otake
Defendants. Certain of the other Otake Defendants have
supplied the majority of the Company's purchases until the
Company's most recent fiscal year. During the nine months ended
December 31, 1995, such Otake Defendants supplied approximately
16% of the Company's total purchases.
On December 21, 1995, Orion Sales, Inc. and Orion Electric
(America), Inc. filed suit against the Company in the United
States District Court, Southern District of Indiana, Evansville
Division, alleging various breaches of the Otake Agreements by
the Company, including breaches of the confidentiality
provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of the
Otake Agreements, and seeking damages in the amount of
$2,452,656, together with interest thereon, attorneys' fees,
and certain other costs. The plaintiffs in this action
have also filed for certain injunctive relief relating to certain
of the allegations in their complaint. The Company is seeking to
have the Indiana action moved to the New Jersey court having
jurisdiction over the Company's previously-filed suit relating
to the Otake Agreements and consolidating the actions in such
court. The Company believes that the Indiana Court should so
transfer the Indiana suit, and should do so prior to ruling
on certain requests for injunctive relief sought by the
plaintiffs in the Indiana action. As noted earlier, the Company
is not as dependent on the Otake Defendants for its purchases as
in previous years, and, while the outcome of the New Jersey and
Indiana actions is not certain at this time, the Company
believes it has meritorious defenses against the claims made by
the plaintiffs in the Indiana action. In any event, the Company
believes the results of that litigation should not have a
material adverse effect on the financial condition of the
Company or on its operations. Also, the Company cannot determine
at this time the impact of the final outcome of the New Jersey
and Indiana actions on either of the Otake Agreements, or
whether any of the Otake Defendants will retain any rights to
license certain products with the "Emerson and G-Clef" trademark.
NOTE 7
The Company has a 50% investment in E & H Partners, a joint venture that
purchases, refurbishes and sells allcertain of the Company's product returns. The
results of this joint venture are accounted for by the
equity method. The Company's equity in the earnings of the joint venture is
reflected as a reduction of cost of sales in the Company's unaudited interim
Consolidated Statements of Operations. Summarized financial information relating
to the joint venture is as follows (in thousands):
Dec. 31, March 31,
1995 1995
Accounts receivable from
joint venture (a) $ 13,255(a) $15,283
NineThree Months Ended December 31,June 30,
1996 1995
1994
Condensed income statement (d):
Income Statement data:
Net Sales (a) $10,405 $ 7,274
Net Earnings 580 919
Sales by the Company 2,819 7,989
to E&H Partners
June 30, March 31,
1996 1996
Balance Sheet Data:
Current assets (b) $17,121 $19,326
Noncurrent assets 181 162
Total Assets $17,302 $19,488
Accounts Payable to the
Company (b) $ 6,471 $13,270
Other Current liabilities 7,721 3,688
Total Liabilities 14,192 16,958
Partnership Equity 3,110 2,530
Total Liabilities and
Partnership Equity $17,302 $19,488
Equity of the Company in net
assets of E&H Partners $ 1,555 $ 1,265
(a) Includes sales $21,147(b) $17,142
Net earnings 240(c) 2,396
____________________
(a) Secured by a lien onto the partnership's inventory. Such lien
hasCompany of $3,971,000 and $1,425,000, respectively.
(b) Inventories of the Partnership had been assigned to the Company's primary lenderLender as
collateral for the U.S. line of credit facility. (b) Includes salesIn April 1996, the Company
agreed to equally share the lien on the partnership's inventory with the other
party in the joint venture, in exchange for, among other things, a $5.0 million
loan by such partner to the joint venture and a subsequent partial paydown of
E&H Partners' obligation to the Company of $3,731,000 and $2,384,000
for the nine months ended December 31, 1995 and 1994,
respectively.
(c) Net earnings for the nine months ended December 31, 1995
includes a bad debt provision of approximately $1,575,000 for one
customer.
(d) E&H Partners was inactive for substantially all of the three
month period ended June 30, 1994.
The Company filed a complaint on July 5, 1995 in the
Superior Court of New Jersey, Morris County, alleging Hopper
Radio of Florida, Inc. ("Hopper"), the Company's partner in E&H
Partners, Barry Smith, the President of Hopper, and three former
employees of the Company (collectively, the "Hopper Defendants")
have formed a business entity for the purpose of engaging in the
distribution of consumer electronics and that the action of the
Hopper Defendants in connection therewith violated certain duties
owed to, and rights, including contractual rights arising from
two agreements, of the Company. E & H Partners has continued to
operate since the filing of said lawsuit. On January 25, 1996,
the New Jersey Court dismissed the Company's complaint as to
certain of the Hopper Defendants based upon the Court's
determination that certain clauses contained in the agreements
between the parties mandated Delaware as the more proper forum
for Emerson's lawsuit. The Company is considering an appeal
of this determination. The Company also filed suit on
January 27, 1996, in the Delaware Chancery Court, New Castle
County, as to those Hopper Defendants who do not reside in
New Jersey, which contains similar allegations to those
contained in the New Jersey suit. The Delaware suit also
seeks a preliminary injunction against those Hopper Defendants
covered by the Delaware suit. The Company is considering its
alternatives in this litigation, in light of certain procedural
requirements of the Delaware Chancery Court. The Company cannot predict
at this time how the New Jersey suit or the Delaware suit will, if at
all, affect the joint venture or the Company.
Note 8
Effective December 31, 1995, the Company and its primary
U.S. lender agreed to recast the adjusted net worth covenant of
its United States secured credit facility. The adjusted net
worth covenant, as amended, requires the Company to maintain
a net worth of not less than the sum of (i) the "Base Amount", plus
(ii) any proceeds received by the Company after December 31, 1995
from the sale of any equity or debt securities. The Base Amount is
defined to be the amount of (i) $38,000,000 through September 30,
1996, (ii) $40,000,000 from October 1, 1996 through and including
March 31, 1997 and (iii) $45,000,000 from and after April 1, 1997.
EMERSON RADIO CORP. AND SUBSIDIARIESsame amount.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
On August 30,This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 Emerson Radio Corp. (the "Company""Reform Act")
completed. The Company's actual results
may differ from the results discussed in the forward-looking statements.
Factors that might cause such a private placement of $20,750,000 aggregate principal
amount of Debentures, resulting in net proceedsdifference include, but are not limited to,
the Company of
approximately $19,220,000 after the payment of commissions and
other expenses of such offering. The proceeds of this offering
were initially applied against the Company's United States
secured credit facility to reduce present working capital costs.
See Note 5 of Notes to Interim Consolidated Financial Statements
included elsewherethose discussed in this Form 10-Q. Management is utilizing its
new capital to repay an intercompany balance with a foreign
subsidiary, exploit new business opportunities via product line
additions and extensions and the expansion of its distribution
base, and may use such capital for acquisitions.
The Company also amended its secured credit facility with
its primary United States lender (the "Lender") effective as of
August 24, 1995. The amendment includes, among other things, a
reduction of 1% in the interest rate charged on borrowings, down
to 1.25% above the stated prime rate, an extension on the term
of the facility for one additional year toreport. See Other Information - Part II, Item 5.
GENERAL
Effective March 1998, an increase
in working capital requirements, a reduction of other loan fees and
charges under such facility and the release of the Lender's security
interests in the trademarks of the Company. In addition, the Company
recast its adjusted net worth covenant on such facility effective December 31,
1995 (See Note 8 of Notes to Interim Consolidated Financial Statements).
The trademarks are subject to a negative pledge covenant. The
modifications to its United States secured credit facility,
together with the net proceeds from the sale of the Debentures,
should enable the Company to reduce its effective cost of
borrowing while permitting the Company to expand its product
lines and distribution base.
On February 22, 1995, the Company and one of the Company'sits suppliers and certain
of its affiliates (collectively, the "Supplier"), entered into two mutually
contingent agreements (the "Agreements"). Effective
March 31, 1995, theThe Company granted a license of
certain trademarks to the Supplier for a three-year term. The license permits
the Supplier to manufacture and sell certain video products under the
"Emerson and G-Clef"Emerson trademark to one of the Company's significant customerslargest customer (the "Customer"), in
the U.S. and Canada. As a result, the Company will receiveis receiving royalties
attributable to such sales over the three-year term of the Agreements
in lieu of reporting the full dollar value of such sales and associated costs.
The Company will continuecontinues to supply other products to the Customer directly.
Further, the Agreements provide that the Supplier will supply the Company with
certain video products for sale to other customers at preferred prices for a
three-year term. Under the terms of the Agreements, the Company will receive
non-refundable minimum annual royalties from the Supplier to be credited against
royalties earned from sales of video cassette recorders and players,
television/video cassette recorder and player combination units, and color
televisions to the Customer. In addition, effective August 1, 1995, the Supplier
assumed responsibility for returns and after-sale and warranty services on all
video products manufactured by the Supplier and sold to the Customer, including
video products sold by the Company prior to August 1, 1995. As a result, the
impact of sales returns on the Company's net sales
and operating results have been
significantly reduced, effective with the quarter ended September 30, 1995. The
Company expects to
reporthas reported lower direct salesrevenues in the fiscal year ending March 31,quarters ended June 30, 1996
("Fiscal 1996")and 1995 as a result of the Agreements, but no
negative material impact is expected on its net operating results for such
year.periods have not been impacted negatively. The Company has realized and expects
to continue to realize a more stable cash flow over the three-year term of the
Agreements, and
expects to reduceas well as reduced short-term borrowings usednecessary to finance
accounts receivable and inventory, thereby reducing interest costs.
Additionally, the Company's gross margins are expected to improve as the change
in mix to higher margin products and a reduction in costs for product returns
(which have historically been higher for certain video products) take hold. The
Company and the Supplier are currently involved in litigation over certain
matters concerning the terms of the Agreements.
(See Note 6 of Notes to Interim Consolidated Financial
Statements).
The Company reported a significant decline in its net direct
sales for the nine month period ended December 31, 1995 as
compared to the same period in the fiscal year ended March 31,
1995 ("Fiscal 1995") primarily due to the licensed video sales.
However, the Company's United States sales to other customers
also declined due to increased price competition, primarily in
video product categories, higher retail stock levels, a slowdown
in retail activity and the extremely high level of sales achieved
in the first nine months of Fiscal 1995. The Company expects its
United States sales for the fourth quarter of Fiscal 1996 to be
lower than the fourth quarter of Fiscal 1995, exclusive of the
licensed video sales, due to the continuing weak retail climate
and the increased level of price competition in video product
categories. Net sales of video product to the Customer in the fourth
quarter of Fiscal 1995 (quarter ended March 31, 1995) were
$54,270,000 or 43% of consolidated net sales. On a pro forma
basis, the Company's consolidated net sales, excluding video
product sold to the Customer, for the quarter ended March 31, 1995,
was $71,290,000.
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its annual
sales in the quarters ending September 30 and December 31 and receives the
largest percentage of customer returns in the quarters ending March 31 and
June 30. Therefore, the results of operations discussed below are not
necessarily indicative of the Company's prospective annual results of
operations.
Results of OperationsRESULTS OF OPERATIONS
Consolidated net salesrevenues for the three and nine monthsmonth period ended December 31, 1995June 30, 1996
decreased $124,019,000 (or 64%$15,911,000 (28%) and
$314,391,000 (or 59%), respectively, as compared to the same periodsperiod in the fiscal year
ended March 31, 1996 ("Fiscal 1995.1996"). The effects of the Agreements described
above accounted for a substantial portion of the
decrease resulted from decreases in
unit sales (approximately 75%, or $93,500,000, and 85%, or
$267,273,000, net of licensing revenues received), and as a
result, sales to the Customer were reduced to 19% and 20% of
consolidated net sales for the three and the nine month periods
ended December 31, 1995, respectively, as compared to 51% and 53%
for the same periods in Fiscal 1995. Net sales to the Customer of video products bearing the "Emerson and G-Clef" trademark were
reported by the Supplier to the Company to be $64,309,000 and
$200,536,000 for the three and the nine month periods ended
December 31, 1995, respectively, or 32% and 27% lower than recorded by
the Company in the same periods in Fiscal 1995. In addition, sales for
the three and nine month periods ended December 31, 1995 decreased as
a result of lower unit sales ofcassette recorders, televisions and television/video
cassette recorder combination units, audio products and microwave ovens due to
higher retail stock levels, increased price competition in these product
categories, weak consumer demand and a soft retail market. This was partially
offset by sales of home theater and car audio products which were not introduced
until the second half of Fiscal 1996. Revenues earned from the licensing of the
Emerson Radio trademark were $1,002,000 and $1,044,000 in the three month
periods ended June 30, 1996 and 1995, respectively. Furthermore, the Company's
Canadian sales decreased $2.5 million relating to the continued weak Canadian
economy, partially offset by an increase in unitEuropean sales of video cassette recorders and audio
products. Furthermore, a decreaseto the Company's new
distributor in unit sales of microwave
ovens forSpain. Although the three months ended December 31, 1995 was partially
offset by sales of new product line introductions including a
home theater system, car audio and personal and home security
products. The Company's Canadian operations reported a decline of
$9.3 million and $15.8 million in netCompany expects its United States sales for
the three and
nine month periods ended December 31, 1995, respectively,quarter ending September 30, 1996 to be lower than the second quarter of
Fiscal 1996 due to declines in unit volumecontinuing weak consumer demand and the increased level of
price competition, the Company is focusing on improving its margins on such
sales prices due to a weak Canadian
economy. The Company's European sales decreased $4.9 million and
$13.1 million for the three and nine month periods ended December
31, 1995, respectively, relating to the Company's discontinuance
of its Spanish branch, and plan to sell products in Spain through
a distributor.by emphasizing higher margin products.
Cost of sales, as a percentage of consolidated sales,revenues, was 96% and 92%94% for the
three and nine month periodsperiod ended December
31, 1995June 30, 1996 as compared to 92% and 93%, respectively89% for the same periodsperiod in
Fiscal 1995.1996. Gross profit margins in the three and
the nine month periodsperiod ended December 31, 1995June 30,
1996 were lower onunfavorably impacted by a comparative basis due primarily to the recognition of large
purchase discountschange in the prior year periods and the recognition
of a loss experienced by the Company's 50% owned joint venture
that sells product returns in the third quarter of the current
fiscal year. Additionally, the Company experiencedmix, lower sales prices
and(primarily video products), the allocation of reduced fixed costs over a lower
sales base in the current fiscal year, which were substantially offset by a change
in product mix,and the recognition of licensing income relating to
reduced reserve requirements for sales returns and reduced fixedin the first quarter of Fiscal
1996. However, gross profit margins were favorably impacted by a reduction in
the costs associated with the downsizing ofproduct returns related to the Company's foreign offices.
The reduction in gross margins was also unfavorably impacted
by the accrualagreements
with a majority of $3.8 million and $7.7 million in the three and
nine month periods ended December 31, 1994, respectively, of
purchase discounts received from one of the Company's
suppliers based on purchases from the supplier in calendar years
1993 and 1994. Due to the increase in the value of the Japanese
Yen in 1995, and its impact on the cost of certain raw materials
and subassemblies of the Company's suppliers, the Company has not
received any purchase discounts from its suppliers to return defective products and receive in
the first
half of Fiscal 1996, and the Company has also absorbed certain
price increases from its suppliers. Additionally, the Company
has not been able to recover such price increases from its
customers due to increased price competition. To mitigate the
impact of the value of the Yen, the Company has been able to
negotiate lower prices (including purchase discounts) from
various sources of supply for certain audio products, commencing
primarily in the second half of Fiscal 1996.exchange an "A" quality unit.
Other operating costs and expenses declined $927,000 and
$3,248,000$683,000 in the three and nine month
periodsperiod ended December 31,
1995June 30, 1996 as compared to the same periodsperiod in Fiscal 1995,1996,
primarily as a result of a decrease in (i) handling and freight charges
associated with customer returns and exchanges due to the Agreements,
(ii) compensation expense and other expenses formerly incurred to process
product returns and after-sale services, relatingwhich are now subject to the Company's downsizing program and change inAgreements with the resale arrangement
for product returns (See Note 7 of Notes to Interim Consolidated
Financial Statements).Supplier.
Selling, general and administrative expenses ("S,G & A"&A") as a percentage of
sales,revenues, was 8%13% for both the three and nine month periodsperiod ended December 31, 1995,June 30, 1996, as compared to
4% and 5%9% for the same periodsperiod in Fiscal 1995, respectively.1996. In absolute terms, S,G & A decreased&A increased by
$2,343,000 and $7,526,000$122,000 in the three and nine month periodsperiod ended December 31, 1995June 30, 1996 as compared to the same
periodsperiod in Fiscal 1995, respectively.1996. The decrease
for the three and nine month periods ended December 31, 1995increase was primarily attributable to lower selling expenses duea decrease in
foreign currency exchange gains, unrealized losses incurred on investment
securities and an increase in advertising incentives to the lowerstimulate sales,
partially offset by a reduction in fixed costs and compensation and fixed overhead costsexpense relating
to the Company's downsizing program in both the U.S. and in its foreign offices,
and lower provisions for accounts
receivable reserves dueselling expenses attributable to higher realization of accounts
receivable. Additionally, the decrease for the nine months ended
December 31, 1995 also included lower professional fees due to
bankruptcy costs incurred in the prior year.sales. The increase in the
S,G & A&A as a percentage of salesrevenues is due primarily to the allocation of fixed
S,G & A&A costs over a significantly lower sales base resulting from the licensing of video sales.base. Additionally, the Company's exposure to
foreign currency fluctuations, primarily in Canada and Spain, resulted in the
recognition of net foreign currency exchange gains aggregating $497,000$14,000 and
$432,000 in the ninethree month periodperiods ended December 31,June 30, 1996 and 1995, as compared to $72,000 in the same period in Fiscal 1995. However,
the Company incurred net foreign currency exchange losses
aggregating $174,000respectively.
Interest expense increased by $190,000 in the three month period ended December 31,
1995June
30, 1996 as compared to $753,000 for the same period in Fiscal 1995.
Interest expense increased by $79,000 and $198,000 in the
three and nine month periods ended December 31, 1995,
respectively, as compared to the same periods in Fiscal 1995.1996. The increase in interest expense was
attributable to the interest incurred
onexpense associated with the Debentures issued in
August 1995, partially offset by the lower average borrowings andat lower average interest
rates associated
withon the Company's United States securedU.S. revolving line of credit facility. The average rate in effect
on the credit facility for the three month periods ended June 30, 1996 and 1995
was approximately 9.5% and 11.25%, respectively.
As a result of the foregoing factors, the Company incurred a net lossesloss of
$4,398,000 and $5,673,000$4,723,000 for the three and nine
month periodsperiod ended December 31, 1995, asJune 30, 1996, compared to a net
earningsloss of $4,658,000 and $5,353,000$1,401,000 for the same periodsperiod in Fiscal 1995, respectively.
Liquidity and Capital Resources1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash utilizedprovided by operating activities was $11,478,000$5,308,000 for the ninethree
months ended December 31, 1995.June 30, 1996. Cash was used to
fund the loss from operationsprovided by decreases in accounts
receivables and higher inventory levels,inventories partially offset by a loss from operations. The
decrease in accounts receivable was due primarily to a one-time receipt of $5.0
million from the Company's 50% owned joint venture (E & H Partners) in the
current quarter as a partial paydown of joint venture's obligation to the
Company. The decrease in inventory is primarily due to a more cautious
purchasing strategy focusing on reducing inventory levels and the receipt of funds for purchase discounts accrued in Fiscal 1995.
License revenues earned from sales of video products by the Supplier to
the Customer have not generated any cash in Fiscal 1996, since the
minimum royalty payment received by the Company in Fiscal 1995
has not been exceeded as of December 31, 1995.associated
carrying costs.
Net cash utilizedprovided by investing activities was $1,875,000$45,000 for the ninethree months
ended December 31, 1995. Investing activities
consisted primarily of capital expenditures for the purchase of
new product molds.June 30, 1996.
In the ninethree months ended December 31, 1995,June 30, 1996, the Company's financing activities
provided $15,374,000utilized $3,978,000 of cash. Cash was
provided by the private placement of $20,750,000 aggregate
principal amount of Debentures. The proceeds of approximately
$19,220,000, net of issuance costs, was initially used to reduceCompany reduced its borrowings under theits U.S.
line of credit facility and have since
been used to repay an intercompany balance with a foreign
subsidiary, and to fund costs for product line additions and
extension and expansionby $3,715,000 through the collection of the Company's distribution base.accounts
receivable.
The Company maintains an asset-based revolving line of credit facility, as
amended, with the Lender.a U.S. financial institution (the "Lender"). The facility provides
for revolving loans and letters of credit, subject to individual maximums and,
in the aggregate, not to exceed the lesser of $60 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. All credit extended under the line of credit is secured by allthe U.S.
and Canadian assets of the Company except for trademarks, which are subject to a
negative pledge covenant. The interest rate on allthese borrowings is 1.25% above
the stated prime rate. At December 31, 1995,June 30, 1996, there waswere approximately $24.7$17.4 million
outstanding on the Company's revolving loan facility, and approximately $2.5 million of lettersfacility. At June 30, 1996, the
Company's letter of credit outstanding issued for inventory purchases.facility was not utilized. Based on the "Borrowing
Base" amount at December 31, 1995, $6.1 millionJune 30, 1996, $7,085,000 of the credit facility was not
utilized. Pursuant to the terms of the credit facility, as amended, effective
June 30, 1996, the Company is required to maintain a minimum adjusted net worth,
as defined, of $38,000,000, effective December 31, 1995. This minimum
will increase to $40,000,000 effective October 1,$30,000,000. At June 30, 1996, and then to
$45,000,000 effective April 1, 1997.the Company had an adjusted net
worth of $35,434,000.
The Company's Hong Kong subsidiary maintains various credit facilities
aggregating $114.3$62.1 million with a bank in Hong Kong consisting of the following:
(i) a $12.3$12.1 million credit facility generally used for letters of credit for a
foreign subsidiary's direct import business and affiliates' inventory
purchases, and (ii) a $2 million standby letter of credit facility, and (iii) a $100$50 million credit facility, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit with the Company's largest customer.Customer. At December 31, 1995,June 30, 1996, the Company's Hong Kong
subsidiary had pledged $4 million in certificates of deposit to this
bank to assure the availability of these credit facilities. At December 31, 1995,June 30, 1996,
there were approximately $4.2$7.7 million and $2.7$9.0 million of letters of credit
outstanding on the $12.3$12.1 million and $100$50 million credit facilities,
respectively.
The Company's Hong Kong subsidiary maintainsmaintained an additional credit facility
with another bank in Hong Kong. The facility providesprovided for a $10 million line of
credit for documentary letters of credit and a $10 million back-to-back letter
of credit line collateralized by a $5 million certificate of deposit. At December 31, 1995,June
30, 1996, the Company's Hong Kong subsidiary had pledged $5.0 million in
certificates of deposit to assure the availability of thesethis credit facilities.facility. At
December 31, 1995,
there were approximately $3.3 million of letters ofJune 30, 1996, this credit outstanding on these credit facilities.
In November 1995,facility was not utilized. The Company recently
terminated such facility.
Since the Company's Board of Directors approved
a plan to repurchase up to 2 million of its common shares, or
about 20 percentemergence of the Company's current float of approximately
10 million shares,Company from time to time in the open market.
Although there are 40,252,772 shares outstanding, approximately
29.2 million shares are held directly or indirectly by
affiliated entities of Geoffrey Jurick, Chairman and Chief Executive
Officer of the Company. The Companybankruptcy, management believes it
has agreed with Mr. Jurick
that such shares will not be subject to repurchase. The stock repurchase
program is subject to consent of certain of the Company's lenders,
certain court imposed restrictions, price and availability of
shares, compliance with securities laws and alternative capital
spending programs, including new acquisitions. The repurchase of
common shares is intended to be funded by working capital,
if and when available. It is uncertain at this time when the
Company might bebeen able to so repurchase any of its shares of Common
Stock.
Management's strategy to compete more effectively in the highly competitive
consumer products marketelectronics and microwave oven industries in the United States and
Canada is to combineby combining innovative approaches to the Company's current
product line, such as value-added promotions, augmentand augmenting its product
line on its own or through acquisitions with higher margin complementary products, including higher-end consumer
electronics products, personal and home security products, a
home theater system, clocks and watches, and car audio products. The Company also also
intends to engage in the marketing of distribution, sourcing and other services
to third parties. In addition, the Company intends to undertake efforts to
expand the international distribution of its products into areas where
management believes low to moderately priced, dependable consumer electronics
and microwave oven products will have a broad appeal. The Company has in the
past and intends in the future to pursue such plans either on its own or by
forging new relationships, including through license arrangements, partnerships, joint
ventures or joint ventures.strategic mergers and acquisitions of companies in similar or
complementary businesses.
In prior years, the Company successfully concluded licensing agreements for
certain business products and intends to pursue additional licensing
opportunities and believes that such licensing activities will have a positive
impact on net operating results by generating royalty income with minimal costs,
if any, and without the necessity of utilizing working capital or accepting
customer returns. The Company is also considering strategic alternatives for
its North American video business not covered under the license agreement with
the Supplier.
Management believes that future cash flow from operations and the
institutional financing described above will be sufficient to fund all of the
Company's cash requirements for the next year for its core business and to exploit certain new
business opportunities. Cash flow from operations may be
negativelyyear.
The Company's liquidity is impacted by a decreasethe seasonality of its business.
The Company records the majority of its annual sales in the proportionquarters ending
September 30 and December 31. This requires the Company to open significantly
higher amounts of letters of credit during the quarters ending June 30 and
September 30, therefore significantly increasing the Company's direct import sales to consolidated sales. A lowerworking capital
needs during these periods. Additionally, the Company received the largest
percentage of direct import sales may require increased usecustomer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's credit facilitycollection
activity during this period, and therefore its liquidity. The Company believes
that the Agreements with the LenderSupplier (as noted above) and may restrict
growth ofthe "return-to-
vendor" agreements should favorably impact the Company's sales. However, management believes that
it has sufficient working capital to finance its sales plan for
the next year.cash flow over their
respective terms.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information required by this item is included in Notes
6 and 7 of Notes to Interim Consolidated Financial Statements
filed in Part I of Form 10-Q for the quarter ended December 31,
1995,June 30, 1996,
and is incorporated herein by reference.
ITEM 2. Changes in Securities.
(a) On February 14, 1996, the Company filed
a certificate of Amendment to its Certificate of
Incorporation to increase the number of authorized
shares of preferred stock from one million to ten
million.
ITEM 4. Submission of Matters to a Vote of Security
Holders.
(a) An Annual Meeting of Stockholders was
held on November 28, 1995.
(b) The following directors were elected at
the Annual Meeting of Stockholders and constituted
the entire Board of Directors following the
Meeting:
Robert H. Brown, Jr.
Peter G. Bunger
Raymond L. Steele
Jerome H. Farnum
Geoffrey P. Jurick
Eugene I. Davis
(c) Other matters voted at Annual Meeting:
(i) Election of Directors:
For Against
Robert H. Brown, Jr. 37,730,390 129,984
Peter G. Bunger 37,730,270 130,194
Raymond L. Steele 37,729,129 131,265
Jerome H. Farnum 37,730,629 129,745
Geoffrey P. Jurick 37,730,390 129,984
Eugene I. Davis 37,730,270 130,194
(ii) Amendment of certificate of
incorporation to increase the number of
authorized shares of preferred stock from one
million to ten million - 31,990,968 shares for,
1,554,343 shares against and 60,775 shares
abstained.
(iii) Adoption of 1994 Non-Employee
Director Stock Plan - 37,331,250 shares for,
371,241 shares against and 102,128 shares
abstained.
(iv) Appointment of Ernst & Young, LLP
to audit financial statements of the Company for
the fiscal year ending in 1996 - 37,758,853
shares for, 43,238 shares against and 58,553
shares abstained.
ITEM 5. Other Information.
(a) Certain statements in this quarterly report on Form 10-
Q under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in
this quarterly report and in future filings by the Company with
the Securities and Exchange Commission, constitute "forward
looking statements" with the meaning of the Reform Act. Such
forward looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking
statements. Such factors include, among others, the following:
general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of
adverse publicity; changes in business strategy or development
plans; quality of management; availability, terms and deployment
of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit
costs; changes in, or the failure to comply with, government
regulations and other factors referenced in this quarterly
report.
(b) The Company and First CambridgeStarr Securities, CorporationInc. ("First Cambridge"Starr")
entered into a one-year consulting agreement dated as of December 8, 1995.August
1, 1996. Pursuant to the consulting agreement, First CambridgeStarr agreed to
provide financial consulting services in exchange for $6,000$5,000 per
month and stock purchase warrants to be issued to First Cambridge,Starr, and/or
officersrepresentatives of First CambridgeStarr it so designates (see Exhibits 10 e10b, 10c
and 10 f10d below). The stock purchase warrants were issued to Starr
and two officers of First Cambridgeits representatives and entitleentitles the holders thereof
to purchase an aggregate of 250,000 shares of the Company's
common stock at an exercise price of $4.00 per share, and expire
on December 8, 2000.August 1, 2001.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3(a) Amendment10(a) Consulting Agreement, dated February 14,as
of August 1, 1996 to the Certificate of Incorporation ofbetween Emerson Radio Corp.
("Emerson").
3(b) Amendment dated November 28, 1995
to the By-Laws of Emerson adopted March 1994.
10(a) Agreement dated as of January 1, 1996,
between Emerson and Albert G. McGrath, Jr.
relating to termination of employment and agreement on
consulting services.Starr Securities, Inc.
10(b) Agreement dated as of January 31,
1996, between Emerson and Merle Eakins relating
to termination of employment and agreement on
consulting services.
10(c) Amendment No. 2 to Financing
Agreements, dated as of February 13, 1996.
10(d) Consulting Agreement, dated as of
December 8, 1995 between Emerson and First
Cambridge Securities Corporation.
10(e) Common Stock Purchase Warrant
Agreement to purchase 50,000125,000 shares of Common
Stock, dated as of December 8, 1995August 1, 1996 between
Emerson and Michael Metter.
10(f)Starr Securities, Inc.
10(c) Common Stock Purchase Warrant
Agreement to Purchase 200,000purchase 110,000 shares of Common
Stock, dated as of December 8, 1995August 1, 1996 between
Emerson and Kenneth A. Orr.
27 Financial Data Schedule for the nine
months ended December 31, 1995.Arthur Stern, III.
10(d) Common Stock Purchase Warrant
Agreement to purchase 15,000 shares of Common
Stock, dated as of August 1, 1996 between
Emerson and Arthur Stern, IV.
(b) Reports on Form 8-K:
(1) During the three month period
ended December 31, 1995,June 30, 1996, no Form 8-K was filed by the
Company.filed.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION - CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: February 14, 1996 /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chief Executive Officer
Date: February 14,August 20, 1996 /s/ Eugene I. Davis
Eugene I. Davis
President
INDEX TO EXHIBITS
PAGE NUMBER
IN SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
3(a) Amendment dated February 14,Date: August 20, 1996 to the Certificate of
Incorporation of Emerson Radio Corp.
("Emerson").
3(b) Amendment dated November 28,
1995 to the By-Laws of Emerson
adopted March 1994.
10(a) Agreement dated as of January 1,
1996, between Emerson/s/ Eddie Rishty
Eddie Rishty
Senior Vice President - Controller
and Albert G.
McGrath, Jr. relating to termination
of employment and agreement on
consulting services.
10(b) Agreement dated as of January 31,
1996, between Emerson and Merle
Eakins relating to termination of
employment and agreement on
consulting services.
10(c) Amendment No. 2 to Financing
Agreements, dated as of February 13,
1996.
10(d) Consulting Agreement, dated as of
December 8, 1995 between Emerson and
First Cambridge Securities
Corporation.
10(e) Common Stock Purchase Warrant
Agreement to purchase 50,000 shares
of Common Stock, dated as of
December 8, 1995 between Emerson and
Michael Metter.
10(f) Common Stock Purchase Warrant
Agreement to Purchase 200,000 shares
of Common Stock, dated as of
December 8, 1995 between Emerson and
Kenneth A. Orr.
27 Financial Data Schedule for the
nine months ended December 31, 1995.Logistics (Chief Accounting Officer)