____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED
EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file 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 Identification Number)
incorporation or organization)
Nine Entin Road, Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: Series A Preferred
Stock and Warrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant at July 10, 1997 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $8,180,593.
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. [X] YES [ ] NO.
Number of Common Shares outstanding at July 10, 1997: 41,101,687
DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the 1997 Annual
Meeting of Stockholders: Part III
________________________________________________________________________________
PART I
Item 1. BUSINESS
General
Emerson Radio Corp. ("Emerson" or the "Company"), one of the nation's
largest volume consumer electronics distributors, directly and through
subsidiaries, designs, sources, imports and markets a variety of televisions and
other video products, microwave ovens, audio and home theater products. The
Company also licenses the Emerson and G-Clef trademark for a variety of
television, video, certain other consumer electronic products as well as other
products domestically and internationally. The Company distributes its products
primarily through mass merchants and discount retailers leveraging on the
strength of its Emerson and G-Clef trademark, a nationally recognized trade name
in the consumer electronics industry. The trade name "Emerson Radio" dates back
to 1912 and is one of the oldest and most well respected names in the consumer
electronics industry.
The Company believes it possesses an advantage over its competitors due to
the combination of (i) the Emerson and G-Clef brand recognition, (ii) its
extensive distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, (iii) its sourcing
expertise and established vendor relations, and (iv) an infrastructure with
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to continue to
leverage its core competencies to offer a broad variety of current and new
consumer products to retail customers in developing markets worldwide. The
Company has in the past and intends in the future to form joint ventures and
enter into licensing agreements which will take advantage of the Company's
trademarks and utilize the Company's logistical and sourcing advantages.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories, including black and white
and color televisions, video cassette recorders ("VCRs"), video cassette players
("VCPs"), TV/VCR combination units, home stereo and portable audio products,
home theater products and microwave ovens. The majority of the Company's
marketing and sales of these products is concentrated in the United States and,
to a lesser extent, certain other international regions. Emerson's major
competition in these markets are foreign-based manufacturers and distributors.
See "Business - Competition."
The Company was originally formed in the State of New York in 1956 under
the name Major Electronics Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. On March 31,
1994, the Company successfully reorganized itself under Chapter 11 of the
Federal Bankruptcy Code. On April 4, 1994, the Company was reincorporated in
Delaware by merger of its predecessor into its wholly-owned Delaware subsidiary
formed for such purpose. References to "Emerson" or the "Company" refers to
Emerson Radio Corp. and its predecessor and subsidiaries, unless the context
otherwise indicates. The Company's principal executive offices are located at
Nine Entin Road, Parsippany, New Jersey 07054-0430. The Company's telephone
number in Parsippany, New Jersey, is (973) 884-5800.
COMPANY PRODUCTS
The Company directly and through subsidiaries designs, sources, imports and
markets a variety of television and other video products, microwave ovens, audio
and home theater products, primarily on the strength of its Emerson and G-Clef
trademark, a nationally recognized symbol in the consumer electronics industry.
The Company's current product categories consist of the following:
VIDEO PRODUCTS AUDIO PRODUCTS OTHER
Color televisions Shelf systems Home theater
Black and white CD stereo systems Microwave ovens
specialty
televisions
Color specialty Portable audio,
televisions cassette and CD
systems
Color TV/VCR Personal audio,
combination units cassette and CD
systems
Video cassette Digital clock
recorders radios
Specialty video
cassette players
All of the Company's products offer various features. Color television
units range in screen size from 5 inches to 25 inches and specialty color
televisions are offered in 5 inch and 9 inch units. Combination units range in
screen size from 9 inches to 25 inches. Portable audio systems incorporate
AM/FM radios and/or cassette and/or CD players in a variety of models.
Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing
features such as turntables, key pad touch controls, auto defrost and multi-
power levels. Industry sales of units of home theater speakers increased 15% in
1996 and are expected to increase another 7% in 1997. Emerson entered this
market segment with two new products during the fiscal year ended March 31, 1996
("Fiscal 1996") and is introducing another product in the fiscal year ending
March 31, 1998 ("Fiscal 1998"). The new product is CinemaSurround (TM), a new
concept in Home Theater Technology which uses a sophisticated patent pending
technology to deliver dynamic 3-dimensional sound from any stereo source,
without the need for any decoding electronics.
GROWTH STRATEGY
The Company's strategic focus is to: (i) develop and expand its
distribution of consumer electronics products in the domestic marketplace to new
customers, (ii) the development and sale of new products, such as home theater;
(iii) capitalize on opportunities to license the Emerson and G-Clef trademark;
(iv) leverage and exploit its sourcing capabilities, buying power and logistics
expertise in the Far East either internally or on behalf of third parties; (v)
expand international sales and distribution channels; and (vi) expand through
strategic mergers and acquisitions of, or controlling interests in, companies
in similar or complimentary businesses.
As part of its efforts to expand through strategic mergers and
acquisitions, the Company acquired 27% of the outstanding common stock of Sport
Supply Group, Inc. ("SSG"), a New York Stock Exchange listed company, in
December 1996. The Company also purchased five year warrants (the "SSG
Warrants") to acquire an additional 1,000,000 shares of common stock at an
exercise price of $7.50 per share, subject to standard anti-dilution
adjustments. Assuming the exercise of all the SSG Warrants, the Company would
beneficially own approximately 35% of SSG's outstanding common stock. As part
of the securities acquisition, SSG appointed the Company's designees to become
the majority of the members of its Board of Directors and certain of the
Company's management is directly involved in SSG's day-to-day operations.
Subsequent to such acquisition, SSG's stockholders elected Emerson's nominees as
a majority of the members of its Board of Directors. In addition, the Company
arranged for foreign trade credit financing of $2 million for the benefit of
SSG.
SSG is the largest direct mail distributor of sporting goods equipment and
supplies in the United States. SSG sells its products at margins significantly
higher than the average of Emerson's core business and to an institutional
market which does not require the significant after-market servicing costs
typical of Emerson's core business. The investment allows Emerson to diversify
from its core business of consumer electronics distribution to another
distribution business that offers what management believes to be significant
growth potential. Emerson should also benefit by several cost sharing
opportunities including sharing the compensation costs of senior management.
SSG benefited from the investment by gaining the liquidity needed to cure its
then-existing loan default with its senior lenders and amended its secured
credit facility on more favorable terms. Also, SSG now possesses the capital
necessary to take advantage of opportunities to increase its business in the
institutional sporting goods market both in the U.S. and internationally and to
continue marketing its products showcased at the 1996 Olympic games.
The Company believes that the Emerson and G-Clef trademark is recognized on
a world-wide basis. A principal component of the Company's growth strategy is
to utilize this brand name recognition together with the Company's reputation
for quality and cost competitive products to aggressively promote its product
lines within the United States and targeted geographic areas on an international
basis. The Company's management believes the Company will be able to compete
more effectively in the highly competitive consumer electronics and microwave
oven industries, domestically and internationally, by combining innovative
approaches to the Company's current product line and augmenting its product line
with complimentary products. The Company intends to pursue such plans either on
its own, or by forging new relationships, including through license
arrangements, partnerships and joint ventures. See "Business-Licensing and
Related Activities."
SALES AND DISTRIBUTION
The Company has an integrated system to coordinate the purchasing, sales
and distribution segments of its operations. The Company receives orders from
its major accounts electronically or by the conventional modes of facsimile,
telephone or mail. The Company does not have long-term contracts with any of
its customers, but rather receives orders on an ongoing basis. Products
imported by the Company (generally from the Far East and Mexico) are shipped by
ocean and/or inland freight and then stored in contracted public warehouse
facilities for shipment to customers. All merchandise received by Emerson is
automatically updated into the Company's on-line inventory system. As a
purchase order is received and filled, warehoused product is labeled and
prepared for outbound shipment to Company customers by common, contract or small
package carriers.
The Company also makes available to its customers (through foreign
subsidiaries) a direct import program, pursuant to which products are imported
directly by the Company's customers. In the fiscal year ended March 31, 1997
("Fiscal 1997") and Fiscal 1996, products representing approximately 49% and 44%
of net revenues, respectively, were imported directly from manufacturers to the
Company's customers. The Company intends to increase this percentage to
approximately 80% in Fiscal 1998. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition." If the Company experiences a
decline in sales effected through direct imports and a corresponding increase in
domestic sales, its working capital and inventory requirements will be
incrementally affected. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
DOMESTIC MARKETING
In the United States, the Company markets its products primarily through
mass merchandisers and discount retailers. Wal-Mart Stores, Inc. ("Wal-Mart" or
the "Customer") accounted for approximately 36% and 18%, and Target Stores,
Inc., accounted for approximately 13% and 16% of the Company's net revenues in
Fiscal 1997 and Fiscal 1996, respectively. Net revenues from Wal-Mart in
Fiscal 1997 and 1996 exclude sales of certain video products which are subject
to a license/supply arrangement, which became effective as of March 31, 1995.
The Company reports the royalty revenues attributable to such sales, in lieu of
reporting the full dollar value of such sales and associated costs. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." Net sales of these products to Wal-Mart accounted for approximately
47% of consolidated net revenues in Fiscal 1995. See "Business-Licensing and
Related Activities." No other customer accounted for more than 10% of the
Company's net revenues in either period.
Approximately 43% and 58% of the Company's revenues in Fiscal 1997 and
Fiscal 1996, respectively, were made through sales representative organizations
which receive sales commissions and work closely with the Company's sales
personnel. The sales representative organizations sell, in addition to the
Company's products, allied, but generally non-competitive, products. In most
instances, either party may terminate a sales representative relationship on 30
days' prior notice in accordance with customary industry practice. The Company
utilizes approximately 30 sales representative organizations, including one
through which approximately 13% and 19% of the Company's net revenues were made
in Fiscal 1997 and Fiscal 1996, respectively, and one other through which 14% of
the Company's net revenues were made in Fiscal 1996. No other sales
representative organization accounted for more than 10% of the Company's net
revenues in either period. The remainder of the Company's sales are made to
retail customers serviced principally by the Company's sales personnel. The
Company has three sales professionals based in the United States. The domestic
sales force is based in the Company's New Jersey corporate headquarters, and in
a regional office located in Missouri.
FOREIGN MARKETING
While the major portion of the Company's marketing efforts are directed
toward the United States, approximately 4% and 5% of the Company's net revenues
in Fiscal 1997 and Fiscal 1996, respectively, were made to foreign customers in
Canada, Central and South America, Spain and the Middle East. See Note M of
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
LICENSING AND RELATED ACTIVITIES
In February 1997, the Company executed five-year license/supply agreements,
subject to renewals, with Cargil International Corp. ("Cargil"), covering the
Caribbean and Central and South American markets. The agreements provide for
the license of the Emerson and G-Clef trademark for certain consumer electronics
and other products to be sold in those markets and the provision of sourcing and
inspection services. Under the terms of these agreements, the Company will
receive minimum annual royalties through the life of the agreement and will
receive a separate fee for sourcing and inspection services. Cargil assumes all
costs and expenses associated with the purchasing, marketing and after-sales
support of such products. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition."
Subsequent to the end of Fiscal 1997, Emerson executed a four-year
agreement with Daewoo Electronics Co. Ltd. and its U.S. affiliate (collectively,
"Daewoo"). This agreement provides that, subject to existing agreements
relating to sales to the Customer, Daewoo will manufacture and sell television
and video products bearing the Emerson and G-Clef trademark to all customers in
the U.S. market. Daewoo will also be responsible for, and assume all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after- sale services. The Company will arrange sales and provide
marketing services and receive a commission for such services. Sales to the
Customer are currently subject to a license/supply agreement with one of the
Company's former suppliers and certain of its affiliates (collectively, the
"Supplier"), as more fully described below.
Additionally, in June 1997, the Company entered into a non-exclusive
license agreement with World Wide One, a Hong Kong corporation, for use of the
Emerson and G-Clef trademark in connection with the sale of certain consumer
electronics products and other products to Makro International Far East
Ltd. for their exclusive sale in in China, Indonesia, Malaysia, Philippines,
South Korea, Taiwan and Thailand. The term is initially for a six month trial
period at which time the agreement will either be terminated or continue for an
additional twelve months. In addition, the Company will provide sourcing and
inspection services for at least 50% of World Wide One's purchase requirements.
World Wide One is required to meet certain minimum sales requirements as well as
ensuring the establishment of adequate service centers or agents for after sales
warranty services.
In Fiscal 1995, the Company successfully concluded licensing agreements
with (i) the Supplier for the sale of certain video products bearing the Emerson
and G-Clef trademark to the Customer's locations in the United States and
Canada, (ii) Jasco Products Co., Inc. ("Jasco"), one of the largest domestic
electronics accessory companies, for distribution of electronic accessories in
the United States, and (iii) the Franklin Mint for distribution of classic
Emerson Radio reproductions. The Company intends to pursue additional
licensing opportunities and believes that such licensing activities has had and
will continue to have a positive impact on operating results by generating
royalty income with minimal costs, if any, and without the necessity of
utilizing working capital or accepting customer returns. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
DESIGN AND MANUFACTURING
The majority of the Company's products are manufactured by original
equipment manufacturers in accordance with the Company's specifications. These
manufacturers are primarily located in Hong Kong, South Korea, China,
Malaysia, Thailand and Mexico.
The Company's design team is responsible for product development and works
closely with the Company's suppliers. The Company's engineers determine the
detailed cosmetic and option specifications for new products, which typically
incorporate commercially available electronic parts to be assembled according to
the Company's designs. Accordingly, the exterior designs and operating features
of the Company's products reflect the Company's judgment of current styles and
consumer preferences. The Company's designs are tailored to meet the needs of
the local market, particularly in the case of international distribution, where
products are generally introduced on a country-by-country basis.
During Fiscal 1997 and Fiscal 1996, approximately 100% and 93%,
respectively, of the cost value of the Company's purchases consisted of imported
finished goods. Daewoo and Imarflex, Mfg. Co., Ltd. supplied approximately 22%
and 16%, respectively, of the Company's total purchases in Fiscal 1997 and
approximately 21% and 14%, respectively in Fiscal 1996. Additionally, Orient
Power Electronics Limited supplied approximately 22% of the Company's total
purchases in Fiscal 1997 and Kong Wah, the Supplier and Musical Electronics
Limited supplied approximately 17%, 16% and 12%, respectively, of the Company's
total purchases in Fiscal 1996. No other supplier accounted for more than 10%
of the Company's total purchases in Fiscal 1997 or Fiscal 1996. Except as to
the Supplier, the Company considers its relationships with its suppliers to be
satisfactory and believes that, barring any unusual shortages or economic
conditions, it could develop, and has developed, alternative sources for the
products it currently purchases. Except for the agreement with Daewoo described
above (See "Business-Licensing and Related Activities"), the Company does not
have a contractual agreement with any of its suppliers for product purchases and
no assurance can be given that certain brief shortages of product would not
result if the Company were required to seek alternative sources of supply
without adequate notice by a supplier or a reasonable opportunity to seek
alternate production facilities and component parts.
WARRANTIES
The Company offers its United States consumers limited warranties
comparable to those offered to consumers by its competitors and accepts returns
from its customers in accordance with customary industry practices.
RETURNED PRODUCTS
The Company's customers return product to the Company for a variety of
reasons, including liberal retailer return policies, damage to goods in transit
and occasional cosmetic imperfections and mechanical failure.
Effective April 1, 1994, the Company formed a partnership ("Partnership")
with Hopper Radio of Florida, Inc. ("Hopper"). The Company and Hopper each own
a 50% interest in the Partnership. The Partnership was formed to purchase (i)
all returned consumer electronics products in the United States from the
Company, refurbish them, if feasible, and sell them refurbished or "As-Is" on a
worldwide basis in all countries where the Company has trademark rights, and
(ii) new consumer electronics products from manufacturers sourced through a
subsidiary of the Company or through third parties, if such new products could
be obtained on more favorable prices and terms, for sale exclusively in Mexico
and Central and South America.
The Partnership, during its existence, enabled the Company to control the
costs associated with product returns by providing a stable selling price for
returned products and increased inventory turnover by utilizing the distribution
network of Hopper to sell products. Effective January 1, 1997, the Company and
Hopper mutually agreed to dissolve the Partnership and wind down its
operations. The partners have elected to extend such wind down to facilitate
a more orderly liquidation of the Partnership. The Company has executed an
agreement with Hi Quality International (U.S.A.) Inc. ("Hi Quality")
to replace the Partnership as an outlet for the Company's returned products.
Hi Quality will purchase all returned consumer electronics products in the
United States, that are not subject to the return to vendor agreements
discussed below, from the Company, refurbish them, if feasible, and sell
them refurbished or "As-Is" in the United States, Mexico and Canada.
To further reduce the costs associated with product returns, the Company
has entered into "return to vendor" agreements with the majority of its
suppliers. For a fee, the agreements permit the Company to return defective-
product returns to the supplier and to receive in exchange an "A" quality unit.
The agreements cover certain microwave oven, home theater, audio and video
products. The Company has realized and expects to continue to realize
significant cost savings from such agreements.
BACKLOG
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the
Company's business.
TRADEMARKS
The Company owns the Emerson and G-Clef, "H.H. Scott" and "Scott" trademarks
for certain of its home entertainment and electronic products in the United
States, Canada, Mexico and various other countries. Of the trademarks owned by
the Company, those registered in the United States must be renewed at various
times through 2008 and those registered in Canada must be renewed at various
times through 2011. The Company's trademarks are also registered on a worldwide
basis, which registrations must be renewed at various times. The Company
intends to renew all such trademarks. The Company considers the Emerson and G-
Clef trademark to be of material importance to its business. The Company owns
several other trademarks, none of which is currently considered by the Company
to be of material importance to its business. The Company has licensed certain
applications of the Emerson and G-Clef trademark to Cargil, Daewoo, World Wide
One, the Supplier, Jasco and the Franklin Mint on a limited basis. See
"Business - Licensing and Related Activities."
COMPETITION
The market segment of the consumer electronics industry in which the
Company competes generates approximately $16 billion of factory sales annually
and is highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.
The industry is characterized by the short life cycle of products which requires
continuous design and development efforts. Market entry is comparatively easy
because of low initial capital requirements.
The Company primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that the Company has several
dozen competitors, many of which are much larger and have greater financial
resources than the Company. Emerson's major competitors are foreign-based
manufacturers and distributors. The Company competes primarily on the basis of
its products' reliability, quality, price and design, the Emerson and G-Clef
trademark and service to retailers and their customers. The Company's products
also compete at the retail level for shelf space and promotional displays, all
of which have an impact on the Company's established and proposed distribution
channels. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
SEASONALITY
The Company generally experiences stronger demand for its products in the
quarters of each year ending September 30 and December 31. Accordingly, to
accommodate such increased demand, the Company generally is required to place
seasonally higher orders with its vendors during the quarters ending June 30 and
September 30, thereby affecting the Company's need for working capital during
such periods. On a corresponding basis, the Company also is subject to
increased returns during the quarters ending on March 31 and June 30, which
adversely affects the Company's collection activities during such periods, also
affecting its liquidity. Operating results may fluctuate due to other factors
such as the timing of the introduction of new products, price changes by the
Company and its competitors, demand for the Company's products, product mix,
delay, available inventory levels, fluctuation in foreign currency exchange
rates relative to the United States dollar, seasonal cost increases, and general
economic conditions.
GOVERNMENT REGULATION
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and
regulations promulgated thereunder, the United States government charges tariff
duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
EMPLOYEES
As of July 10, 1997, the Company had approximately 103 employees. The
Company considers its labor relations to be generally satisfactory.
ITEM 2. PROPERTIES
The Company, directly and through its subsidiaries, leases warehouse and
office space in New Jersey, Missouri, Canada, and the Far East under
leases expiring at various times through calendar 1998, at minimum
aggregate rentals, net of sublease income, as follows:
FISCAL
YEAR ENDING
MARCH 31, (IN THOUSANDS)
1998 $1,231
1999 328
$1,559
In the past several years, the Company has closed substantially all of its
leased or owned warehouse facilities in favor of utilizing public warehouse
space as part of the Company's effort to convert fixed costs to variable costs.
Such public warehouse commitments are evidenced by contracts with terms of up
to one year. The cost for the public warehouse space is primarily based on a
fixed percentage of the Company's sales from each respective location. Such
amounts are not included in the above table. The Company does not presently
own any real property. In addition, the Company has subleased all of its
Canadian office space and 12% of its New Jersey corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
BANKRUPTCY CLAIMS
The Company is presently contesting claims submitted by several creditors
in its reorganization under Chapter 11 of the Federal Bankruptcy Code. The
largest claim was filed on or about 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 amount currently claimed is for approximately $93,563,457, of
which $86,785,000 represents a claim for loss of profits. The claim will be
satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the
manner other allowed unsecured claims were satisfied, at 18.3% of the allowed
claim. The Company believes the Bankruptcy Court will separately review the
portion of the claim for lost profits from the substantially smaller claim for
actual damages. The Company has objected to the claim, intends to vigorously
contest such claim and believes it has meritorious defenses to the highly
speculative portion of the claim for lost profits and the portion of the claim
for actual damages for expenses incurred prior to the execution of the
contracts. Additionally, on or about September 30, 1994, the Company instituted
an adversary proceeding in the Bankruptcy Court asserting damages caused by
Cineral and seeking declaratory relief and replevin. 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, in light of the foregoing, the Company believes
the chances for recovery for lost profits are remote.
TELETECH LITIGATION
In December 1990, an action entitled Emerson Radio (Hong Kong) Limited (a
wholly owned subsidiary of the Company) and Teletech (Hong Kong) Limited was
commenced in the Supreme Court of Hong Kong High Court (the "Teletech Action")
by Emerson Radio (Hong Kong) Limited ("Emerson (H.K.)") against Teletech (Hong
Kong) Limited ("Teletech"). The Statement of Claim, filed and served in March
1991, alleges that Teletech breached its agreements to sell cordless telephones
and telephone answering machines to Emerson (H.K.) and seeks damages of
approximately $1,000,000. In March 1991, Teletech filed a counterclaim that
essentially denies the allegations and alleges that Emerson (H.K.) breached its
agreement to purchase cordless telephones and telephone answering machines
arising from wrongful cancellation of placed orders. The counterclaim seeks
damages of approximately $1,700,000. In May 1991, Emerson (H.K.) filed a reply
to the counterclaim denying the allegations in the counterclaim. The case is
presently dormant. This litigation was not affected by the bankruptcy
proceedings.
OTAKE LITIGATION
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. 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 certain agreements by the Company, including breaches of the
confidentiality provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of those agreements, and
seeking 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 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.
TAX MATTERS
In June and October 1988, the Franchise Tax Board of the State of
California issued Notices of Proposed Assessment to the Company proposing
additional state income tax of approximately $501,000 in the aggregate, plus
interest, for the fiscal years 1980, 1985 and 1986. In August and November
1988, the Company filed protests with the Franchise Tax Board taking exception
to the Notices of Proposed Assessment. After disallowing the Company's protest,
on July 24, 1992, the Franchise Tax Board issued a formal Notice of Action
assessing a deficiency in the aggregate of approximately $664,000, which
includes interest through July 24, 1992. On August 24, 1992, the Company filed
an appeal with the California State Board of Equalization. The Franchise Tax
Board filed a response on April 29, 1993, and the Company filed its reply on
July 16, 1993. This matter was temporarily stayed during the Company's
bankruptcy proceeding, until the Bankruptcy Court entered an Order of Abstention
directing the parties to litigate in California. The proceeding in California
is currently pending.
On February 15, 1994, the Franchise Tax Board issued Notices of Proposed
Assessment to the Company proposing additional state income tax of approximately
$382,000 in the aggregate, plus interest, for the fiscal years 1987, 1988 and
1989. The Company filed its protest with the Franchise Tax Board on April 15,
1994, taking exception to the Notices of Proposed Settlement.
Management believes that adequate amounts of tax reserves have been
provided for any adjustments which may result from the above assessments and any
possible additional adjustments for years not currently under examination.
LITIGATION REGARDING CERTAIN OUTSTANDING COMMON STOCK
Subsequent to confirmation of the Plan of Reorganization, litigation arose
among the principal shareholders of Fidenas Investment Limited ("FIL"), the
Company's largest shareholder prior to confirmation of the Plan of
Reorganization, with respect to various business relations and transactions
entered into among the shareholders, certain affiliates and their principals,
including Geoffrey Jurick, the Company's Chairman, Chief Executive Officer and
President, and Petra and Donald Stelling. Mr. Stelling was the former Chairman
of the Company.
Based on certain charges raised by the Stellings, the Swiss authorities
commenced investigations and have questioned Mr. Jurick, Mr. Peter Bunger and
Mr. Jerome Farnum, directors of the Company. In connection with the settlement
discussed below, letters were sent to the Swiss authorities requesting the
discontinuance of the criminal investigations of these individuals. While the
investigation is still pending, none of Messrs. Jurick, Bunger or Farnum have
been indicted by the Swiss Court. The Federal Banking Commission of Switzerland
has issued a decree purporting to determine that certain entities affiliated
with Messrs. Jurick and Farnum are subject to Swiss banking laws and have
engaged in banking activities without a license.
On June 11, 1996, Petra Stelling and certain other creditors of Mr. Jurick
and entities affiliated to him (which are the principal stockholders of the
Company), (collectively, the "Creditors"), Mr. Jurick, the Company (together
with the Creditors, the "Lead Parties"), and such principal stockholders signed
a Stipulation of Settlement and Order (the "Settlement Agreement") providing for
a settlement of all litigation among them on a global basis. Under the
Settlement Agreement, Mr. Jurick and Fidenas International Limited L.L.C.
have agreed to pay the Creditors the aggregate sum of $49.5 million
(the "Settlement Amount") and Mr. Jurick will be paid the sum of $3.5
million. Such payments are contemplated to be solely from
the proceeds of the sale of the 29,152,542 shares of Emerson's Common Stock (the
"Settlement Shares") owned by such principal stockholders. All of such shares
have been deposited with and will remain in the custody of the United States
District Court in Newark, New Jersey ("the Court"), to prevent defaults under
the Company's borrowing facilities.
No definite time has been provided for the sale of any shares or the full
payment of the Settlement Amount. However, a Creditor may apply to the Court,
on notice to all other Lead Parties, to terminate the Settlement Agreement,
based on the totality of the circumstances, on the grounds that its goals and
purposes are not reasonably likely to be realized. No assurance can be given
that sufficient proceeds will be realized from the sale of such shares to
satisfy in full the Creditors. The Creditors will be able to resort to consent
judgments against Mr. Jurick and his affiliates if the Settlement Agreement is
terminated. Such a termination would also likely result in a default under the
Company's borrowing facilities.
JENSEN LITIGATION
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 Eugene I. Davis, an officer
of the Company, for violations of proxy solicitation rules and for breach of a
confidentiality agreement with Jensen. On May 20, 1996, the Company filed a
counterclaim 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. Subsequently, Recoton Corporation ("Recoton"), the
successful bidder in acquiring Jensen, filed an action in the same Court against
Emerson. In June 1997, Emerson, Mr. Davis, Jensen, Recoton, and certain other
related parties entered into a settlement agreement settling all disputes among
them and releasing each other from all liability in connection with the subject
matter of these actions on terms Emerson believes to be beneficial to it.
OTHER LITIGATION
The Company is involved in other legal proceedings and claims of various
types in the ordinary course of business. While any such litigation to which
the Company is a party contains an element of uncertainty, management presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened, or all of them combined, will not have a material
adverse effect on the Company's consolidated financial position.
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 of the fiscal year ended March 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange since
December 22, 1994 under the symbol MSN. The following table sets forth the
range of high and low sales prices for the Company's Common Stock as reported by
the American Stock Exchange during the last two fiscal years.
FISCAL 1996 HIGH LOW
First Quarter $3-1/8 $2-1/4
Second Quarter 3-3/4 2-1/4
Third Quarter 3 1-3/8
Fourth Quarter 2-7/8 1-3/4
FISCAL 1997 HIGH LOW
First Quarter $3 $2
Second Quarer 3 2
Third Quarter 2-1/4 1-1/8
Fourth Quarter 1-7/8 7/8
The Series A Preferred Stock and Warrants outstanding are freely tradable;
however, there is no established trading market for either security.
(b) Holders
At July 10, 1997, there were approximately 465 stockholders of record of
the Company's Common Stock, and 19 holders of record of the Series A Preferred
Stock and 12 holders of the Warrants.
(c) Dividends
The Company's policy has been to retain all available earnings, if any, for
the development and growth of its business. The Company has never paid cash
dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred
Stock dividends are paid or put aside. The Series A Preferred Stock accrues
dividends, payable on a quarterly basis, at a 7% dividend rate through March 31,
1997, then declining by a 1.4% dividend rate each succeeding year until March
31, 2001 when no further dividends are payable. The Company is currently in
arrears on $469,000 of dividends of the Company's Series A Preferred Stock. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years ended March 31, 1997, 1996, 1995, 1994 and 1993. The
selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" set forth elsewhere in this Form 10-K.
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1993 1994 1995 1996 1997
(In thousands, except per share data)
SUMMARY OF OPERATIONS:
Net Revenues(1) $741,357 $487,390 $654,671 $245,667 $178,708
Net Earnings (Loss)(2):
Before Extraordinary $(56,000) $(73,654) $ 7,375 $(13,389) $(23,968)
Gain
Extraordinary Gain 129,155
$(56,000) $ 55,501 $ 7,375 $(13,389) $(23,968)
BALANCE SHEET DATA AT
PERIOD END:
Total Assets $194,510 $119,021 $113,969 $ 96,576 $58,768
Current Liabilities (3) 249,307 76,083 59,782 35,008 21,660
Long-Term Debt (3) 151 227 214 20,886 21,079
Shareholders' Equity
(Deficit) (57,895) 42,617 53,651 40,382 16,029
Working Capital
(Deficit) (89,949) 32,248 42,598 48,434 13,258
Current Ratio 0.6 to 1 1.4 to 1 1.7 to 1 2.4 to 1 1.6 to 1
PER COMMON SHARE:
Net Earnings (Loss) Per
Common Share (2) (4):
Before Extraordinary
Gain $(1.47) $(1.93) $ 0.16 $(0.35) $(0.61)
Extraordinary Gain 3.38
$(1.47) $ 1.45 $ 0.16 $(0.35) $(0.61)
Common Shareholders'
Equity
(Deficit) per
Common Share (5) $(1.52) $ 0.98 $ 1.08 $ 0.75 $ 0.15
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 38,179 38,191 46,571 40,253 40,292
______________________________
(1) The decline in net direct revenues for Fiscal 1997 and 1996 was due
primarily to the implementation of the Agreements signed with the Supplier,
effective March 31, 1995. Net Revenues for Fiscal 1995 included
$340,465,000 of sales of video products now covered by the arrangement with
the Supplier. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
(2) Net earnings for Fiscal 1994 includes an extraordinary gain
of $129,155,000, or $3.38 per common share, on the
extinguishment of debt settled in the Plan of Reorganization. Accordingly,
the Company recorded reorganization expenses of $17,385,000 relating
primarily to the writedown of assets transferred to creditors under the Plan
of Reorganization and professional fees and other related expenses incurred
during the bankruptcy proceedings. The results of operations for the Fiscal
1993 include restructuring and other nonrecurring charges aggregating
$35,002,000. These charges represent the cost of
discontinuing its personal computer business, professional fees and other
expenses related to the Company's financial restructuring, the up-front costs
and writedowns of certain assets associated with implementing long-term cost
reduction programs and costs related to the proxy contest settled in June
1992.
(3) The aggregate outstanding principal balance of the Company's senior notes
has been classified as current as of March 31, 1993. See Note B of Notes to
Consolidated Financial Statements.
(4) Net earnings (loss) per common share for Fiscal 1993 and Fiscal 1994
are based on the weighted average number of old common shares outstanding
during each period. Net earnings per common share for Fiscal 1995 is based on
the weighted average number of shares of new Common Stock and related common
stock equivalents outstanding during the year. Common Stock equivalents
include 9,081,000 shares assuming conversion of $10 million of Series A
Preferred Stock at a price equal to 80% of the weighted average market value
of a share of Common Stock, determined on a quarterly basis. Since the
Series A preferred Stock was not convertible into Common Stock until
March 31, 1997, the number of shares issuable upon conversion may have been
significantly different. Net loss per common share for Fiscal 1996 and Fiscal
1997 are based on the net loss and deduction of preferred stock dividend
requirements (resulting in a loss attributable to common stockholders)
and the weighted average of new Common Stock outstanding during each
fiscal year. The net loss per share does not include common stock
equivalents assumed outstanding since they are anti-dilutive.
(5) Calculated based on common shareholders' equity (deficit) divided by
actual shares of Common Stock outstanding. Common shareholders' equity at
March 31, 1997, 1996, 1995 and 1994 is equal to total shareholders' equity
less $10 million for the liquidation preference of the Series A Preferred
Stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
In December 1996, the Company purchased from SSG 1,600,000 newly-issued
shares of common stock (the "SSG Stock") for aggregate consideration of $11.5
million, or approximately $7.19 per share. In addition, the Company purchased,
for aggregate consideration of $500,000, five year warrants to acquire an
additional 1,000,000 shares of SSG Stock at an exercise price of $7.50 per
share, subject to standard anti-dilution adjustments. Prior to such purchase,
the Company beneficially owned 669,500 shares or approximately 9.9% of
SSG's outstanding common stock which it had purchased for $4,228,000 in
open market purchases. Following the stock acquisition, the Company owns
2,269,500 shares or approximately 27% of SSG's outstanding common stock.
Assuming the exercise of all the SSG Warrants, the Company would
beneficially own approximately 35% of the outstanding shares of SSG Stock. As
part of the securities acquisition, SSG appointed the Company's designees to
become the majority of the members of its Board of Directors and certain of the
Company's management is directly involved in SSG's day-to-day operations.
Subsequent to such acquisition, SSG's stockholders elected Emerson's nominees as
a majority of the members of its Board of Directors. In addition, the Company
arranged for foreign trade credit financing of $2 million for the benefit of
SSG.
The $12 million purchase price paid by the Company was obtained from the
Lender (as hereinafter defined), under the terms of its existing credit
facility, and in accordance with the terms of the consent obtained from such
Lender. Pursuant to a Pledge and Security Agreement dated December 10, 1996,
the Company has pledged to the Lender the 1,600,000 shares of SSG Stock
and the SSG Warrants acquired on December 10, 1996.
SSG is the largest direct mail distributor of sporting goods equipment and
supplies in the United States. SSG sells its products at margins significantly
higher than the average of Emerson's core business and to an institutional
market which does not require the significant after-market servicing costs
typical of Emerson's core business. The investment allows Emerson to diversify
from its core business of consumer electronics distribution to another
distribution business which offers what management believes to be significant
growth potential. Emerson should also benefit by several cost sharing
opportunities including sharing the compensation costs of senior management.
SSG benefited from the investment by gaining the liquidity needed to cure its
then-existing loan default with its senior lenders and amended its secured
credit facility on more favorable terms. Also, SSG now possesses the capital
necessary to take advantage of opportunities to increase its business in
the institutional sporting goods market both in the U.S. and internationally
and to continue marketing its products showcased at the 1996 Olympic games.
In February 1997, the Company executed five-year license/supply
agreements, subject to renewals, with Cargil covering the Caribbean and Central
and South American markets. The agreements provide for the license of the
Emerson and G-Clef trademark for certain consumer electronics and other products
and the provision of sourcing and inspection services. Under the terms of the
agreements, the Company will receive minimum annual royalties through the life
of the agreements and will receive a separate fee for sourcing and inspection
services. Cargil assumes all costs and expenses associated with the purchasing,
marketing and after sales support of such products. The Company believes that
this transaction will have a positive impact on operating results by generating
royalty and servicing revenues with minimal costs while limiting its working
capital risks.
Subsequent to the end of Fiscal 1997, Emerson executed a four-year
agreement with Daewoo. This agreement provides that, subject to existing
agreements relating to sales to the Customer, Daewoo will manufacture and sell
television and video products bearing the Emerson and G-Clef trademark to all
customers in the U.S. market. Daewoo will also be responsible for and assume
all risks associated with, order processing, shipping, credit and collections,
inventory, returns and after-sale services. The Company will arrange sales and
provide marketing services and receive a commission for such services. Sales to
the Customer are currently subject to a license/supply agreement with the
Supplier, as more fully described below.
Additionally, in June 1997, the Company entered into a non-exclusive
license agreement with World Wide One, a Hong Kong corporation, for use of the
Emerson & G-Clef trademark in connection with the sale of certain consumer
electronics products and other products for sale exclusively to Makro
International Far East Ltd. in China, Indonesia, Malaysia, Philippines, South
Korea, Taiwan and Thailand. The term is initially for a six month trial period
at which time the agreement will either be terminated or continue for an
additional twelve months. In addition, Emerson will provide sourcing and
inspection services for at least 50% of World Wide One's purchase requirements.
World Wide One is required to meet certain minimum sales requirements as well as
ensuring the establishment of adequate service centers or agents for after sales
warranty services for the goods.
Effective March 31, 1995, the Company and the Supplier entered into the
Agreements. The 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 trademark to the Customer,
in the United States and Canada. As a result, the Company receives 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. Net sales
of these products to the Customer accounted for approximately 47% of
consolidated net revenues for Fiscal 1995. The Company continues to supply
other products to the Customer directly. Further, these agreements provided
that the Supplier would supply the Company with certain video products for sale
to other customers at preferred prices for a three-year term. Under the terms
of these agreements, the Company receives non-refundable minimum annual
royalties from the Supplier to be credited against royalties earned from sales
of VCRs, VCPs, TV/VCR 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 operating results have been significantly reduced, effective with
the quarter ended September 30, 1995. The Company has reported lower net direct
revenues in Fiscal 1997 and Fiscal 1996 as a result of these agreements, but its
net operating results for such years have not been impacted negatively. The
Company has realized a more stable cash flow, as well as reduced short-term
borrowings necessary to finance accounts receivable and inventory and has
thereby reduced interest costs.
The Company reported a significant decline in its net direct sales for
Fiscal 1997 and 1996 as compared to Fiscal 1995 primarily due to the licensed
video sales. However, the Company's sales to other customers in the United
States also declined during these periods due to increased price competition,
higher retail stock levels, weak consumer demand, a soft retail market and the
extremely high level of sales achieved in Fiscal 1995. The Company expects its
sales in the United States for the first two quarters of Fiscal 1998 to be lower
than the first two quarters of Fiscal 1997 due to the continuing weak retail
climate and the increased level of price competition in most product categories.
RESULTS OF OPERATIONS - FISCAL 1997 COMPARED WITH FISCAL 1996
Consolidated net revenues for Fiscal 1997 decreased $66,959,000 (or 27%) as
compared to Fiscal 1996. The decrease resulted from decreases in unit sales of
video cassette recorders, televisions, television/video cassette recorder
combination units and audio products due to higher retail stock levels,
increased price competition in these product categories, weak consumer demand, a
soft retail market and closure of its Canadian office. This was partially
offset by increased sales of microwave ovens attributable to a broader product
line, larger size units and increased model selections by customers, and by
sales of home theater and car audio products which were not introduced until the
second and third quarters of Fiscal 1996. Excluding the Company's video
products, the Company's U.S. gross sales increased by approximately 13% for
Fiscal 1997. Revenues recorded from the licensing of the Emerson and G-Clef
trademark were $5,040,000 in Fiscal 1997 as compared to $4,409,000 for Fiscal
1996. The increase in royalty income is primarily due to the execution of the
Cargil license agreement in February 1997, partially offset by lower aggregate
sales reported by the licensees of other Emerson and G-Clef brand products. The
Company's Canadian operations reported a decline of $5.7 million in net revenues
for Fiscal 1997 due to declines in unit volume and sales prices resulting from a
weak Canadian retail economy and the closure of the Company's local office and
Company-operated distribution operations in favor of an independent distributor.
Cost of sales, as a percentage of consolidated net revenues, was 97% in
Fiscal 1997 as compared to 94% in Fiscal 1996. Gross profit margins in Fiscal
1997 were unfavorably impacted by lower sales prices, a higher proportion of
close-out sales, the allocation of reduced fixed costs over a lower revenue base
in Fiscal 1997 and the recognition of income relating to reduced reserve
requirements for sales returns in Fiscal 1996. However, gross profit margins
were favorably impacted by the introduction of higher margin products --home
theater and car audio products, and by a reduction in the costs associated with
product returns related to the Company's agreements with a majority of its
suppliers to return defective products and receive in exchange an "A" quality
unit.
The Company's margins continue to be impacted by the pricing category
of the consumer electronics market in which the Company competes. The Company's
products are generally placed in the low-to-medium priced category of the
market. These categories tend to be the most competitive and generate the
lowest profits. The Company believes that the combination of (i) the new
television and video arrangement with Daewoo, (ii) the license agreement with
Cargil, and (iii) the introduction of the new CinemaSurround(TM) product will
all have a favorable impact on the Company's gross profit margins. The Company
intends to promote its direct import programs to reduce its inventory levels
and working capital risks thereby reducing its inventory overhead costs. In
addition, the Company is focusing on its higher margin products and is reviewing
new product categories which can generate higher margins than its current
business, either through license arrangements, acquisitions, joint ventures or
on its own. The Company also plans on expanding its sales and distribution
channels into the Central and Southeast Asia markets.
Other operating costs and expenses declined $1,724,000 in Fiscal 1997 as
compared to Fiscal 1996, primarily as a result of (i) reduced sales levels and
reduced customer returns and (ii) a decrease in compensation and other expenses
incurred to perform after-sale services as a result of the Company's downsizing
program.
Selling, general and administrative expenses ("S,G&A") as a percentage of
net revenues were 11% in Fiscal 1997 as compared to 8% in Fiscal 1996.
The increase in S,G&A as a percentage of net revenues is due primarily to
the allocation of S,G&A costs over a lower sales base. In absolute terms,
S,G&A decreased by $715,000 in Fiscal 1997 as compared to Fiscal
1996. The decrease was primarily attributable to a reduction in fixed costs and
compensation expense relating to the Company's continuing cost reduction program
in both the U.S. and its foreign offices and lower selling expenses attributable
to lower sales, partially offset by the reversal of accounts receivable reserves
in the prior year and foreign currency exchange losses. The Company's
exposure to foreign currency fluctuations, primarily in Canada and
Spain, resulted in the recognition of net foreign currency exchange losses
aggregating $57,000 in Fiscal 1997 as compared to net foreign currency exchange
gains aggregating $508,000 in Fiscal 1996. The Company has reduced its exposure
to foreign currency fluctuations by conducting its Canadian and Spanish business
in U.S. dollars.
Interest expense increased $154,000 in Fiscal 1997 as compared to Fiscal
1996. The increase was attributable to interest incurred on the Debentures
issued in August 1995 partially offset by lower average borrowings at lower
average interest rates on the U.S. revolving line of credit facility.
The Company recorded restructuring and other nonrecurring charges of
$2,972,000 in Fiscal 1997. The Company recognized $1,065,000 of restructuring
charges relating to the closure of the Company's local Canadian office and
distribution operations in favor of an independent distributor and the
downsizing of the Company's U.S. operations. The charges include costs for
employee severance, asset write-downs, and facility and equipment lease costs.
Additionally, the Company recognized $1,907,000 of nonrecurring charges relating
to the proposed but unsuccessful acquisition of International Jensen
Incorporated. These costs primarily include investment banking, loan
commitment, and professional fees, including litigation costs, relating
to the proposed acquisition.
As a result of the foregoing factors, the Company incurred a net loss of
$23,968,000 in Fiscal 1997 as compared to a net loss of $13,389,000 in Fiscal
1996.
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED WITH FISCAL 1995
Consolidated net revenues for Fiscal 1996 decreased $409,004,000 (or 62%)
as compared to Fiscal 1995. The effects of the agreements with the Supplier
described above accounted for a substantial portion of the decrease in revenues,
and sales to the Customer were reduced to 18% of consolidated net revenues in
Fiscal 1996 as compared to 53% in Fiscal 1995. Royalty income recognized by the
Company from these sales was $4,442,000 in Fiscal 1996. In addition, sales to
other customers for Fiscal 1996 decreased as a result of lower unit sales of
televisions and television/video cassette recorder combination units due to
increased price competition in these product categories. The Company's Canadian
operations reported a decline of $17.8 million in sales for Fiscal 1996 due to
declines in unit volume and sales prices due to a weak Canadian retail economy
and the bankruptcy of two key customers in Fiscal 1995. The Company's European
sales decreased $16.7 million in Fiscal 1996 due to the Company's discontinuance
and wind-down of its Spanish branch and subsequent assignment, to an independent
distributor, of the rights to sell Emerson Radio brand product in Spain.
Cost of sales, as a percentage of consolidated revenues, was 94% in Fiscal
1996 as compared to 92% in Fiscal 1995. Gross profit margins in Fiscal 1996
were lower on a comparative basis due primarily to the recognition of large
purchase discounts in Fiscal 1995 and the recognition of a loss experienced by
the Company's 50%-owned joint venture which sells product returns in Fiscal
1996. Additionally, the Company experienced lower sales prices and the
allocation of reduced fixed costs over a lower revenue base in Fiscal 1996 which
were substantially offset by a change in product mix, the recognition of
licensing income, reduced reserve requirements for sales returns and reduced
fixed costs associated with the downsizing of the Company's foreign offices.
The reduction in gross margins was unfavorably impacted by the accrual of
$9.9 million in Fiscal 1995 of purchase discounts received from one of the
Company's suppliers. Beginning in Fiscal 1996, the Company was not entitled to
a purchase discount from this supplier due to a reduction in purchase volume
associated with the Agreements. 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 absorbed certain price
increases from its suppliers. Additionally, the Company was not able to recover
such price increases from its customers due to increased price competition. As
the value of the Yen has decreased in 1996, the Company has been able to
negotiate lower prices from various sources of supply for certain audio and
video products.
Other operating costs and expenses declined $3,968,000 in Fiscal 1996 as
compared to Fiscal 1995, primarily as a result of a decrease in (i) handling and
freight charges associated with reduced customer returns and (ii) compensation
and other expenses incurred to perform after-sale services as a result of the
Company's downsizing program.
S,G&A as a percentage of revenues were 8% in Fiscal 1996 as compared to 5%
in Fiscal 1995. In absolute terms, S,G&A decreased by $11,550,000 in Fiscal
1996 as compared to Fiscal 1995. The decrease for Fiscal 1996 was primarily
attributable to lower selling expenses due to lower revenues, a reduction in
compensation and fixed overhead costs relating to the Company's downsizing
program, lower provisions for accounts receivable reserves and higher
professional fees incurred in Fiscal 1995 due to bankruptcy costs. The
increase in S,G&A as a percentage of revenues is due primarily to the
allocation of fixed S,G&A costs over a significantly lower revenue 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 $508,000 in Fiscal 1996 as compared to $354,000 in
Fiscal 1995.
Interest expense increased by $393,000 in Fiscal 1996 as compared to Fiscal
1995. The increase in interest expense was attributable to interest incurred on
the Debentures issued in August 1995, partially offset by lower average
borrowings on the Company's United States secured credit facility.
As a result of the foregoing factors, the Company incurred a net loss of
$13,389,000 in Fiscal 1996 as compared to net earnings of $7,375,000 in Fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16,688,000 for Fiscal 1997.
Cash was generally provided by the reduction in accounts receivables and
inventories partially offset by a loss from operations. The decrease in
accounts receivable is due primarily to the paydown of $9.8 million by the
Company's 50% owned joint venture (E&H Partners). The decrease in
inventory is primarily due to a more conservative purchasing strategy
focusing on reducing inventory levels and associated carrying costs,
and the closure of the Company's Canadian distribution operations.
Net cash utilized by investing activities was $14,623,000 for Fiscal 1997.
Cash was utilized primarily for the purchase of the Company's investment in SSG
as noted above.
Net cash utilized by financing activities was $15,558,000. Cash was
utilized primarily to reduce the Company's borrowings under its U.S. line of
credit facility through the collection of accounts receivable.
On September 29, 1993, the Company and five of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization case was
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order confirming
the Plan of Reorganization. The Plan of Reorganization provided for the
implementation of a recapitalization of the Company. In accordance with the Plan
of Reorganization, the Company's pre-petition liabilities (of approximately $233
million) were settled with the creditors in the aggregate, as follows:
I. The Company's bank group (the "Bank Lenders") received $70 million
in cash and the right to receive the initial $2 million of net proceeds
from one of the Company's non-trade receivables.
II. The institutional holders of the Company's senior notes (the
"Noteholders") initially received $2,650,000 in cash and warrants to
purchase 750,000 shares of common stock for a period of seven years at an
exercise price of $1.00 per share, provided that the exercise price shall
increase by 10% per year commencing in year four, and further received $1
million, payable $922,498 in cash from the initial public offering of
common stock and $77,502 in common stock calculated on the basis of $1.00
per share.
III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this amount was
distributable to the holders of allowed unsecured claims);
B. 10,000 shares of Series A Preferred Stock with a face value
of $10 million (estimated fair market value of approximately $9
million at March 31, 1994);
C. 4,025,277 shares of common stock, including 691,944 shares
issued in February 1995 pursuant to an anti-dilution provision;
D. The net proceeds from the sale of the Company's Indiana land
and building; and
E. The net proceeds to be received from the non-trade
receivables discussed in I. above in excess of $2 million.
IV. Holders of allowed unsecured claims received a pro-rata portion
of the $350,000 distribution and interest bearing promissory notes equal to
18.3% of the allowed claim amount, payable in two installments over 18
months.
In accordance with the Plan of Reorganization, the Company completed an
initial public offering of its Common Stock in September 1994 to shareholders of
record as of March 31, 1994, excluding its largest pre-bankruptcy shareholder.
The Company sold 6,149,993 shares of Common Stock for $1.00 per share resulting
in proceeds to the Company, net of issuance costs, of $5,692,000.
The Company maintains an asset-based revolving credit facility, as amended,
with the Lender. The facility provides for revolving loans and letters of
credit, subject to individual maximums which, in the aggregate, cannot exceed
the lesser of $30 million or a "Borrowing Base" amount based on specified
percentages of eligible accounts receivable and inventories. All credit
extended under the line is secured by the U.S. and Canadian assets of the
Company except for trademarks, which are subject to a negative pledge covenant.
The interest rate on these borrowings is 1.25% above the stated prime rate. At
March 31, 1997, the weighted average interest rate on the outstanding borrowings
was 9.5%. Based on the "Borrowing Base" amount at March 31, 1997, $1.7 million
of the credit facility was not utilized. The facility is also subject to an
unused line fee of 0.25% per annum. Pursuant to the terms of this credit
facility, as amended, the Company is restricted from, among other things, paying
cash dividends (other than on the Series A Preferred Stock), redeeming stock,
and entering into certain transactions and is required to maintain certain
working capital and equity levels (as defined). The Company was required to
maintain a minimum adjusted net worth, as defined, of $17,000,000 and a minimum
working capital of $10,000,000 at March 31, 1997. Adjusted net worth at March
31, 1997 was $18,811,000. An event of default under the credit facility
may trigger a default under the Company's 8 1/2% Senior Subordinated
Convertible Debentures Due 2002. At March 31, 1997, there was
$5,689,000 outstanding under the revolving loan facility, and $444,000 of
outstanding letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $28.5 million with a bank in Hong Kong
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $25 million credit
facility, for the benefit of a foreign subsidiary, which is for the
establishment of back-to-back letters of credit with the Customer. At March 31,
1997, the Company's Hong Kong subsidiary had pledged $1 million in certificates
of deposit to this bank to assure the availability of these credit facilities.
At March 31, 1997, there were $4,488,000 and $6,598,000, respectively, of
letters of credit outstanding under these credit facilities.
Since the emergence of the Company from bankruptcy, management believes
that it has been able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries in the United States by
combining innovative approaches to the Company's current product line such as
value-added promotions, and augmenting its product line with higher margin
complimentary products. The Company also intends to engage in the marketing of
distribution, sourcing and other services to third parties similar to the sales
and marketing arrangements to be provided to Daewoo and the sourcing and
inspection services to be provided to Cargil. 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 license arrangements,
partnerships, joint ventures or strategic mergers and acquisitions of, or
controlling interests in, companies in similar or complimentary businesses.
The Company successfully concluded several licensing agreements for
existing core business products and new products, and intends to pursue
additional licensing opportunities. The Company believes that such licensing
activities will have a 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.
SHORT-TERM LIQUIDITY. At present, management believes that future cash
flow from operations and the institutional financing noted above will be
sufficient to fund all of the Company's cash requirements for the next fiscal
year. However, the adequacy of future cash flow from operations are dependent
upon the Company achieving its business plan. During Fiscal 1997, the Company
reduced inventory levels approximately 62% and executed cost-reduction programs
in both its U.S. and foreign offices. The Company intends to further reduce
inventory levels and shift a higher proportion of its sales to direct import
thereby reducing its inventory and its needs for working capital. In Fiscal
1997, products representing approximately 49% of net revenues were directly
imported from manufacturers to the Company's customers. The Company's business
plan includes an increase in this percentage to approximately 80% in Fiscal
1998. This increase in the direct import portion of sales is critical in
providing sufficient working capital to meet its sales objectives. If the
Company does not obtain this objective, it may not have sufficient working
capital to finance its sales plan. It may be necessary for the Company to
margin or sell some of the SSG Stock to adequately finance the Company's
operations.
There can be no assurance that the Company will be able to successfully
achieve its business plan in a time frame or manner which will permit the
Company to fund current operations and other planned expenditures at current and
expected sales volumes, if at all. Additionally, the Company is currently in
arrears on $469,000 of dividends on the Company's Series A Preferred Stock. The
preferred stock is convertible into common stock at any time during the period
beginning on March 31, 1997 and ending on March 31, 2002 and at a price per
share of common stock equal to 80% of the market value of a share of common
stock on the date of conversion. The preferred stock dividend rate for Fiscal
1998 is 5.6%.
The Company's liquidity is 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. 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 working capital
needs during these periods. Additionally, the Company receives the largest
percentage of customer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's collection
activity during this period, and therefore its liquidity. The Company believes
that the agreements with Daewoo and Cargil, as discussed above, and the
arrangements it has implemented over the past twelve months concerning returned
merchandise, should favorably impact the Company's cash flow over their
respective terms.
LONG-TERM LIQUIDITY. The Company has discontinued certain lower margin
lines of products and believes that this, together with the agreements
covering its North American video business and the introduction of
CinemaSurround(TM), can reverse the negative trends of operating losses reported
in Fiscal 1997 and Fiscal 1996. Additionally, the Company believes
that the SSG business offers significant growth potential. In its first full
quarter under Emerson's management team, SSG reported record earnings and double
digit sales growth as compared to the same period a year ago. The revolving
credit facility with the Lender imposes financial covenants on the Company which
could materially affect its liquidity in the future. The Company intends on
renegotiating with the Lender to amend the U.S. revolving credit facility to
ensure continued compliance with all covenants. Alternatively, the Company
may seek replacement funding. Management believes that the execution of its
business plan as well as the anticipated cash flow from operations and the
financing noted above will provide sufficient liquidity to meet the
Company's operating and debt service cash requirements on a long-term
basis.
HONG KONG OPERATIONS
A significant amount of the Company's activities are conducted through its
Hong Kong subsidiary, and the Company's Chairman, Chief Executive Officer and
President is resident in Hong Kong. Hong Kong, formerly a British administered
territory, reverted to the sovereignty of The People's Republic of China on July
1, 1997. Accordingly, there is a risk that the Company's operations in Hong
Kong may be interrupted or terminated. However, the Company cannot predict what
impact, if any, the renewal of China's sovereignty will have on the Company, its
business, or its results of operations.
INFLATION AND FOREIGN CURRENCY
Except as disclosed above, neither inflation nor currency fluctuations had
a significant effect on the Company's results of operations during Fiscal 1997,
Fiscal 1996 or Fiscal 1995. The Company's exposure to currency fluctuations has
been minimized by the use of U.S. dollar denominated purchase orders, and by
sourcing production in more than one country. However, the strength of the
Japanese Yen in 1995 had raised the costs of certain raw materials and
subassemblies of the Company's suppliers which were passed on to the Company in
the form of price increases in Fiscal 1996. The Company was not able to recover
such price increases from the selling price to its customers due to increased
price competition. However, the Company has been able to negotiate lower prices
from various sources of supply for certain audio products, commencing in the
second half of Fiscal 1996 and for certain video products commencing in Fiscal
1997.
FORWARD-LOOKING INFORMATION
Certain statements in this annual report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this annual report and in future filings
by the Company with the Securities and Exchange Commission, constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. 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: product supply and demand; general
economic and business conditions and condition of the retail consumer
electronics market; price competition and competition from
companies with greater resources; success of operating initiatives and new
product introductions, including CinemaSurround(TM); operating costs including
continuing the Company's cost reduction program and Company's return to vendor
program; effects of foreign trade; effects of the reversion of Hong Kong to the
sovereignty of the People's Republic of China; advertising and promotional
efforts; brand awareness; the existence or absence of adverse publicity; success
of the Company's acquisition strategy including results of SSG's operations;
changes in business strategy or development plans; success of management's
strategy to finance or refinance the Company's operations; quality of
management; success of licensing arrangements; availability, use and
terms of capital and compliance with debt covenants; 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 annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedule:
Report of Independent Auditors F-1
Consolidated Statements of Operations for the years ended
March 31, 1997, 1996 and 1995 F-2
Consolidated Balance Sheets at March 31, 1997 and 1996 F-3
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-27
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE
REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) No reports on Form 8-K were filed by the Company during the last quarter of
the fiscal year ended March 31, 1997.
(c) Exhibits
(2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of
Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under
Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared effective
by the Securities and Exchange Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and between Old
Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio
(Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as
of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Agreement, dated as of November 14, 1973, between National Union
Electric Corporation ("NUE") and Emerson (incorporated by reference to
Exhibit (10) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(10) (b) Trademark User Agreement, dated as of February 28, 1979, by and
between NUE and Emerson (incorporated by reference to Exhibit (10) (b)
of Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated
by reference to Exhibit (10) (c) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(10) (d) Agreement, dated September 15, 1988, between NUE and Emerson
(incorporated by reference to Exhibit (10) (d) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (e) Form of Promissory Note issued to certain Pre-Petition Creditors
(incorporated by reference to Exhibit (10) (e) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (g) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995,
among Emerson, Majexco Imports, Inc. and Congress (incorporated by
reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (i) Amendment No. 3 to Financing Agreements, dated as of August 20, 1996
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (j) Amendment No. 4 to Financing Agreements, dated as of November 14, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
(10) (k) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997
(incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (l) Emerson Radio Corp. Stock Compensation Program (incorporated by
reference to Exhibit (10) (i) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(10) (m) Employment Agreement between Emerson and Eugene I. Davis (incorporated
by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form
10-Q for quarter ended June 30, 1992).
(10) (n) Extension of Employment Agreement between Emerson and Eugene I. Davis
dated April 16, 1997.*
(10) (o) Employment Agreement between Emerson and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June 30, 1992).
(10) (p) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and
Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of
Emerson's Quarterly Report on Form 10-Q for quarter ended June 30,
1992).
(10) (q) Employment Agreement between Emerson Radio International Ltd.
(formerly Emerson Radio (B.V.I.), Ltd.) and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June 30, 1992).
(10) (r) Extension of Employment Agreement between Emerson and Geoffrey P.
Jurick dated April 16, 1997.*
(10) (s) Lease Agreement dated as of March 26, 1993, by and between Hartz
Mountain Parsippany and Emerson with respect to the premises located
at Nine Entin Road, Parsippany, NJ (incorporated by reference to
Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K for the year
ended December 31, 1992).
(10) (t) Employment Agreement, dated April 1, 1994, between Emerson and John
Walker (incorporated herein by reference to Exhibit (10)(ee) of
Emerson's Statement on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(10) (u) Amendment No. 1 to Employment Agreement between Emerson and John P.
Walker dated April 16, 1997.*
(10) (v) Employment Agreement, dated January 29, 1996 between Emerson and
Marino Andriani (incorporated herein by reference to Exhibit (10) (a)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
(10) (w) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper
Radio of Florida, Inc (incorporated by reference to Exhibit (10) (q)
of Emerson's Annual Report on Form 10-K for the year ended March 31,
1995).
(10) (x) Sales Agreement, dated April 1, 1994, between Emerson and E & H
Partners (incorporated by reference to Exhibit (10) (r) of Emerson's
Annual Report on Form 10-K for the year ended March 31, 1995).
(10) (y) Agreement, dated as of April 24, 1996 by and among Emerson and E & H
Partners relating to amendments of the Partnership Agreement dated
April 1, 1994 and the Sales Agreement dated April 1, 1994 and the
settlement of certain outstanding litigation.
(10) (z) License Agreement, dated February 22, 1995, between Emerson and Otake
Trading Co. Ltd. and certain affiliates ("Otake") (incorporated by
reference to Exhibit 6(a)(1) of Emerson's Quarterly Report on Form 10-
Q for quarter ended December 31, 1994).
(10) (aa) Supply Agreement, dated February 22, 1995, between Emerson and Otake
(incorporated by reference to Exhibit 6(a)(2) of Emerson's Quarterly
Report on Form 10-Q for quarter ended December 31, 1994).
(10) (ab) 1994 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit (10) (y) of Emerson's Annual Report on Form 10-K
for the year ended March 31, 1995).
(10) (ac) Consulting Agreement, dated as of December 8, 1995 between Emerson and
First Cambridge Securities Corporation (incorporated by reference to
Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ad) License Agreement, dated as of August 23, 1996 between Emerson and REP
Investment Limited Liability Company (incorporated by reference to
Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
(10) (ae) Distribution Agreement, dated as of September 11, 1996 between
Emerson, Emerson Radio Canada Ltd. and AVS Technologies Inc.
(incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
(10) (af) Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson.
(10) (ag) Pledge Agreement dated as of February 4, 1997 by Fidenas International
Limited, L.L.C. ("FIN") in favor of TM Capital Corp. (incorporated by
reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
(10) (ah) Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (ai) License and Exclusive Distribution Agreement with Cargil International
Corp. dated as of February 12, 1997 (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996).
(10) (aj) Supply and Inspection Agreement with Cargil International Corp. dated
as of February 12, 1996 (incorporated by reference to Exhibit (10) (d)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).
(10) (ak) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics
Co., Ltd.*
(10) (al) Securities Purchase Agreement dated as of November 27, 1996, by
and between Sport Supply Group, Inc. ("SSG") and Emerson
(incorporated by reference to Exhibit (2)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (am) Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (an) Form of Registration Rights Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(b) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (ao) Consent No. 1 to Financing Agreements among Emerson, certain of its
subsidiaries, and Congress (incorporated by reference to Exhibit
(10)(b) of Emerson's Current Report on Form 8-K dated November 27,
1996).
(10) (ap) License Agreement dated as of June 16, 1997 by and between World Wide
One Ltd. and Emerson.*
(10) (aq) Agreement dated as of July 2, 1997 by and between Hi Quality
International (U.S.A.) Inc. and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries of the Company as of March 31, 1997.*
(27) Financial Data Schedule for year ended March 31, 1997.*
___________________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: July 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Geoffrey P. Jurick Chairman of the Board, July 14, 1997
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ Eugene I. Davis Vice Chairman and Director July 14, 1997
Eugene I. Davis
/s/ John P. Walker Executive Vice President, July 14, 1997
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director July 14, 1997
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 14, 1997
Peter G. Bunger
/s/ Jerome H. Farnum Director July 14, 1997
Jerome H. Farnum
/s/ Raymond L. Steele Director July 14, 1997
Raymond L. Steele
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF EMERSON RADIO CORP.
We have audited the accompanying consolidated balance sheets of Emerson Radio
Corp. and Subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Emerson
Radio Corp. and Subsidiaries at March 31, 1997 and 1996, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended March 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
July 11, 1997
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEARS ENDED MARCH 31,
1997 1996 1995
Net revenues $178,708 $245,667 $654,671
Costs and expenses:
Cost of sales 174,184 231,455 604,329
Other operating costs
and expenses 3,079 4,803 8,771
Selling, general and
administrative expenses 18,782 19,497 31,047
Restructuring and other
nonrecurring charges 2,972 - -
199,017 255,755 644,147
Operating profit (loss) (20,309) (10,088) 10,524
Interest expense 3,429 3,275 2,882
Earnings (loss) before income
taxes (23,738) (13,363) 7,642
Provision for income taxes 230 26 267
Net earnings (loss) $(23,968) $(13,389) $7,375
Net earnings (loss) per
common share $(0.61) $(0.35) $0.16
Weighted average number
of common and common
equivalent shares
outstanding 40,292 40,253 46,571
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
MARCH 31,
1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $2,640 $16,133
Accounts receivable (less allowances of
$6,001 and $6,139, respectively) 12,452 23,583
Inventories 13,329 35,292
Prepaid expenses and other current assets 6,497 8,434
Total current assets 34,918 83,442
Property and equipment, net 2,130 3,501
Investment in unconsolidated affiliate 16,033 1,872
Other assets 5,687 7,761
Total Assets $58,768 $96,576
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $5,689 $21,151
Current maturities of long-term debt 85 173
Accounts payable and other current liabilities 13,053 10,391
Accrued sales returns 2,730 3,091
Income taxes payable 103 202
Total current liabilities 21,660 35,008
Long-term debt, less current maturities 20,856 20,886
Other non-current liabilities 223 300
Shareholders' Equity:
Preferred shares -- 10,000,000 shares
authorized, 10,000 shares issued and
outstanding 9,000 9,000
Common shares -- $.01 par value,
75,000,000 shares authorized;
40,335,642 and 40,252,772 shares issued
and outstanding, respectively 403 403
Capital in excess of par value 109,278 108,991
Accumulated deficit (102,843) (78,175)
Cumulative translation adjustment 191 163
Total shareholders' equity 16,029 40,382
Total Liabilities and Shareholders'
Equity $58,768 $96,576
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Commom Shares
Issued Capital Cumu-
in lative
Pre- Number Excess Accumu- Trans-
ferred of Par 0f lated lation
Stock Shares Value Par Value Deficit Adjustment
Balance-March 31,
1994 $9,000 33,333,333 $333 $103,427 $(70,761) $618
Issuance of
common stock in
public offering,
net of expenses 6,149,993 62 5,630
Issuance of common
stock to former
creditors 769,446 8 (8)
Payment to former
creditors (922)
Preferred stock
dividends (700)
Other (158) (253)
Net earnings 7,375
Balance-March 31,
1995 9,000 40,252,772 403 107,969 (64,086) 365
Issuance of common
stock warrants 1,065
Preferred stock
dividends (700)
Other (43) (202)
Net loss (13,389)
Balance-March 31,
1996 9,000 40,252,772 403 108,991 (78,175) 163
Issuance of common
stock warrants 257
Exercise of stock
options and
warrants 82,870 40
Preferred stock
dividends (700)
Other (10) 28
Net loss (23,968)
Balance-March 31,
1997 $9,000 40,335,642 $403 $109,278 $(102,843) $191
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
1997 1996 1995
Cash Flows from Operating
Activities:
Net earnings (loss) ($23,968) $(13,389) $7,375
Adjustments to reconcile net
earnings (loss) to net
cash provided (used) by
operating activities:
Depreciation and amortization 2,877 3,664 3,876
Restructuring and other
nonrecurring charges 2,782
Asset valuation and loss
reserves ( 752) (14,209) (2,268)
Other 1,048 298 (969)
Changes in assets and
liabilities:
Accounts receivable 11,230 17,391 (14,805)
Inventories 20,871 (437) 11,032
Prepaid expenses and
other current assets 1,767 3,231 (5,598)
Other assets (896) (601) (605)
Accounts payable and
other current liabilities 1,827 (9,092) (18,633)
Income taxes payable (98) (53) (379)
Net cash provided (used) by
operations 16,688 (13,197) (20,974)
Cash Flows from Investing
Activities:
Investment in unconsolidated
affiliate (14,480) 1,840
Additions to property and
equipment (255) (1,666) (2,874)
Redemption of certificates of
deposit 100 945 8,455
Other 12 (477) 110
Net cash provided (used) by
investing activities (14,623) 642 5,691
Cash Flows from Financing
Activities:
Net borrowings (repayments)
under line of credit
facility (15,462) (6,145) 7,256
Net proceeds from private
placement of senior
subordinated convertible
debentures 19,208
Proceeds from issuances of
common stock 5,692
Retirement of long-term debt (118) (298) (500)
Payment to former creditors (922)
Payment of preferred stock
dividends (231) (700) (525)
Payment of debt costs (237)
Other 253 (160) (321)
Net cash provided (used) by
financing activities (15,558) 11,668 10,680
Net decrease in cash and cash
equivalents (13,493) (887) (4,603)
Cash and cash equivalents at
beginning of year 16,133 17,020 21,623
Cash and cash equivalents at end
of year $2,640 $16,133 $17,020
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES:
(1) BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Emerson Radio
Corp. and its majority-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. A 50% ownership of
a domestic joint venture and a 27% owned investment are accounted for by
the equity method (see Notes D and N). Historical cost accounting was
used to account for the plan of reorganization (the "Plan of
Reorganization") (see Note B) since the transaction did not meet the
criteria required for fresh-start reporting.
(2) USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(3) CASH AND CASH EQUIVALENTS:
Short-term investments with original maturities of three months or less at
the time of purchase are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
(4) INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(5) PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, is being depreciated for financial
accounting purposes on the straight-line method over its estimated useful life.
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. Upon the sale or
retirement of property and equipment, the costs and related accumulated
depreciation are eliminated from the accounts. Any resulting gains or losses
are included in income. The cost of repairs and maintenance is charged to
expense as incurred.
(6) WARRANTY CLAIMS:
The Company provides an accrual for future warranty costs when the product
is sold.
(7) NET EARNINGS (LOSS) PER SHARE:
Net loss per common share for the years ended March 31, 1997 and 1996 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 each
period. This calculation does not include common stock equivalents since they
are anti-dilutive.
Net earnings per common share for the year ended March 31, 1995 is based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. 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 the year ended March 31, 1995
primarily to satisfy an anti-dilution provision. The Series A Preferred Stock
was first convertible into common stock beginning after March 31, 1997, and
the number of shares of common stock issuable upon conversion will be
dependent on the market value of the common stock at the time of conversion
(See Note J(3)). No shares have been converted as of March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("FAS 128"), which is required to be
adopted on December 31, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock otions will be excluded.
The impact of FAS 128 on the calculation of primary earnings per share is
not expected to be material.
(8) FOREIGN CURRENCY:
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Gains
and losses resulting from foreign currency transactions are included in the
Consolidated Statements of Operations and amounted to a loss of $79,000 and
gains of $475,000 and $220,000 for the years ended March 31, 1997, 1996 and
1995, respectively.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations. However, the
Company is reducing its foreign currency exposure by conducting its European and
Canadian businesses in U.S. dollars commencing in the fiscal year ending March
31, 1997.
(9) RECLASSIFICATION:
Certain amounts in the prior periods consolidated financial statements
have been reclassified to conform to current periods presentation.
NOTE B -- REORGANIZATION:
On September 29, 1993, the Company and five of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization cases were
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order confirming
the Plan of Reorganization. The Plan of Reorganization provided for the
implementation of a recapitalization of the Company. In accordance with the
Plan of Reorganization, the Company's pre-petition liabilities (of approximately
$233 million) were settled with the creditors in the aggregate, as follows:
I. The Company's bank group (the "Bank Lenders") received $70 million
in cash and the right to receive the initial $2 million of net proceeds
from one of the Company's non-trade receivables.
II. The institutional holders of the Company's senior
notes (the "Noteholders") initially received $2,650,000 in
cash and warrants to purchase 750,000 shares of common stock for a period
of seven years at an exercise price of $1.00 per share, provided that the
exercise price shall increase by 10% per year commencing in year four,
and further received $1 million, payable $922,498 in cash from the
initial public offering of common
stock (see Note J(5)) and $77,502 in common stock calculated on the basis
of $1.00 per share.
III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this amount was
distributable to the holders of allowed unsecured claims);
B. 10,000 shares of Series A Preferred Stock with a face value
of $10 million (estimated fair market value of approximately $9
million at March 31, 1994);
C. 4,025,277 shares of common stock, including 691,944 shares
issued in February 1995 pursuant to an anti-dilution provision;
D. The net proceeds from the sale of the Company's Indiana land
and building; and
E. The net proceeds to be received from the non-trade
receivables discussed in I. above in excess of $2 million.
IV. Holders of allowed unsecured claims received a pro-rata portion
of the $350,000 distribution and interest bearing promissory notes equal to
18.3% of the allowed claim amount, payable in two installments over 18
months (see Note G).
Pursuant to the provisions of the Plan of Reorganization, as of March 31,
1994, the equity of the Company's shareholders, and the equity interest of
holders of stock options and warrants were cancelled.
Based on the settlement of the Chapter 11 proceedings, the Company
recognized an extraordinary gain of $129.2 million from the extinguishment of
debt. Additionally, the Company recognized a writedown of $12.9 million to
estimated fair market value on the assets transferred for the benefit of the
Bank Lenders and Noteholders.
Pursuant to the Plan of Reorganization, and in consideration for $30
million, the reorganized Company issued 30 million shares of common stock,
initially held by the following parties:
NUMBER OF SHARES
Fidenas International Limited L.L.C. ("FIN") 16,400,000
Elision International, Inc. ("Elision") 1,600,000
GSE Multimedia Technologies Corporation ("GSE") 12,000,000
The Company's Chairman, Chief Executive Officer and President has a
controlling beneficial ownership interest in each of the three entities listed
above and, therefore holds an approximate 73% interest in the Company's
outstanding common stock at March 31, 1997. Included above are 847,458 shares
of common stock held by FIN, as nominee, as to which FIN and the Company's CEO,
Mr. Geoffrey P. Jurick, disclaim beneficial ownership. In accordance with a
Stipulation of Settlement and Order (the "Settlement Agreement") dated June 11,
1996, upon the effective date of the Settlement Agreement, Elision and GSE were
to transfer all of their Emerson shares to FIN, to be registered in the name of
FIN. See Note L.
NOTE C -- INVENTORIES:
Inventories are comprised primarily of finished goods. Spare parts
inventories, net of reserves, aggregating $1,469,000 and $2,042,000 at March 31,
1997 and 1996, respectively, are included in "Prepaid expenses and other current
assets."
NOTE D -- INVESTMENT IN UNCONSOLIDATED AFFILIATE:
On December 10, 1996, the Company purchased from Sport Supply Group, Inc.
("SSG") 1,600,000 shares of newly issued common stock, $.01 par value per share
(the "SSG Stock"), for aggregate consideration of $11.5 million, or
approximately $7.19 per share. In addition, the Company purchased, for an
aggregate consideration of $500,000, five-year warrants (the "SSG Warrants") to
acquire an additional 1,000,000 shares of SSG Stock at an exercise price of
$7.50 per share, subject to standard anti-dilution adjustments, pursuant
to a Warrant Agreement. Prior to such purchase, the Company beneficially
owned approximately 9.9% of the outstanding shares of SSG Stock which
it had purchased for $4,228,000 in open market transactions. Based upon
the purchase of the SSG Stock as set forth above, the Company owns
approximately 27% of the outstanding shares of the SSG Stock. If the Company
exercises all of the SSG Warrants, it will beneficially own approximately 35% of
the SSG Stock. In addition, the Company has arranged for foreign trade credit
financing of $2 million for the benefit of SSG to supplement SSG's existing
credit facilities. In connection with such purchase, SSG appointed the Company's
designees to become the majority of the members of its Board of Directors and
the Company's management is directly involved in SSG's day-to-day operations.
In March 1997, SSG's stockholders elected Emerson's nominees as a majority of
the members of its Board of Directors.
The investment in and results of operations of SSG are accounted for
by the equity method. SSG's fiscal year end is October 31; therefore, the
Company's equity in earnings (losses) of SSG will be recorded on a two-month
delay basis. The Company's investment in SSG includes goodwill of $3,973,000 and
is being amortized on a straight line basis over 40 years. At March 31, 1997,
the aggregate market value quoted on the New York Stock Exchange of Emerson's
shares of SSG Stock was approximately $13,333,000. Summarized financial
information derived from SSG's financial reports to the Securities and Exchange
Commission was as follows (in thousands):
(Unaudited)
As of January 31, 1997
Current assets $39,850
Property, plant and equipment and
other assets 36,748
Current liabilities 39,011
Long-term debt 324
(Unaudited)
For the three months
ended January 31, 1997
Net sales $14,580
Gross Profit 5,905
Loss from continuing operations (1,356)
Loss from discontinued operations (2,574)
Net loss (3,930)
NOTE E -- PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
MARCH 31,
1997 1996
(In thousands)
Furniture and fixtures $ 4,021 $ 4,528
Molds and tooling - 1,281
Machinery and equipment 891 1,372
Leasehold improvements 739 742
5,651 7,923
Less accumulated depreciation and
amortization 3,521 4,422
$ 2,130 $ 3,501
Depreciation and amortization of property and equipment amounted to
$1,631,000, $2,800,000 and $3,267,000 for the years ended March 31, 1997, 1996
and 1995, respectively.
NOTE F -- NOTES PAYABLE:
Effective March 31, 1994, the Company entered into a Loan and Security
Agreement, as amended, with a U.S. financial institution (the "Lender")
providing for an asset-based revolving credit facility. The facility provides
for revolving loans and letters of credit, subject to individual maximums
and, in the aggregate, not to exceed the lesser of $30 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 the U.S. and Canadian assets of the Company, except for trademarks
which are subject to a negative pledge covenant. The interest rate on these
borrowings is 1.25% above the stated prime rate. At March 31, 1997 and 1996,
the interest rate on the outstanding borrowings was 9.5%. The facility is also
subject to an unused line fee of 0.25% per annum. Pursuant to the Loan and
Security Agreement, as amended, the Company is restricted from, among
other things, paying cash dividends (other than on the Series A
Preferred Stock), redeeming stock, and entering into certain
transactions and is required to maintain certain working capital
and equity levels (as defined). The Company was required to maintain
a minimum adjusted net worth, as defined, of $17,000,000 and a minimum
working capital of $10,000,000 at March 31, 1997. Adjusted net worth at
March 31, 1997 was $18,811,000. An event of default under the credit facility
may trigger a default under the Company's 8 1/2% Senior Subordinated
Convertible Debentures Due 2002. At March 31, 1997, there was $5,689,000
outstanding under the revolving loan facility and approximately $444,000 of
outstanding letters of credit issued for inventory purchases. The fair market
value of these notes payable is estimated to approximate their carrying amount.
Cash paid for interest was $3,436,000, $3,207,000 and $3,371,000 for the
years ended March 31, 1997, 1996 and 1995, respectively.
NOTE G -- LONG-TERM DEBT:
Long-term debt consists of the following:
MARCH 31,
1997 1996
(In thousands)
8 1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $20,750
Notes payable to unsecured creditors 3 79
Equipment notes and other 188 230
20,941 21,059
Less current obligations 85 173
$20,856 $20,886
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 the 15th of March, June,
September and December, 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, 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
offer and sale of the Debentures and the underlying common stock.
Pursuant to the Plan of Reorganization, the holders of allowed unsecured
claims received interest bearing promissory notes equal to 18.3% of the claim
amount. The notes were due in two installments: 35% of the outstanding
principal was due 12 months from the date of issuance, and the remaining
balance was due 18 months from the date of issuance.
NOTE H -- INCOME TAXES:
The income tax provision consists of the following:
YEARS ENDED MARCH 31,
1997 1996 1995
(In thousands)
Current:
Federal $ 0 $ (39) $ 40
Foreign, state and other 230 65 227
$230 $ 26 $267
The difference between the effective rate reflected in the provision for
income taxes and the amounts determined by applying the statutory U.S. rate of
34% to earnings (loss) before income taxes are analyzed below:
YEARS ENDED MARCH 31,
1997 1996 1995
(In thousands)
Statutory provision (benefit) $(7,561) $(4,543) $2,598
Utilization of net operating loss
carryforwards --- --- (632)
U.S. and foreign net operating
losses without tax benefit 7,588 4,493 1,675
Foreign income subject to foreign
tax, not subject to U.S. tax --- --- (785)
Tax recognition of prior year book
deductions --- --- (888)
Rate differential on foreign income
(loss) 248 96 (1,959)
Nondeductible bankruptcy expenses 6 24 137
Other, net (51) (44) 121
Total income tax provision $ 230 $ 26 $ 267
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," under
which the liability method (rather than the deferred method) is used in
accounting for income taxes. Under the liability method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities, and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
MARCH 31,
1997 1996
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 3,372 $2,995
Inventory reserves 2,553 2,259
Net operating loss carryforwards 24,978 18,250
Other 227 445
Total deferred tax assets 31,130 23,949
Valuation allowance for deferred
tax assets (30,921) (23,287)
Net deferred tax assets 209 662
Deferred tax liabilities 209 (662)
Net deferred taxes $ -- $ --
Total deferred tax assets of the Company at March 31, 1997 and 1996
represent the tax-effected net operating loss carryforwards subject to annual
limitations (as discussed below), and tax-effected deductible temporary
differences. The Company has established a valuation reserve against any
expected future benefits.
Cash paid for income taxes was $125,000, $151,000 and $725,000 for the
years ended March 31, 1997, 1996 and 1995, respectively.
Losses before taxes of foreign subsidiaries was $2,512,000 and $6,233,000
for the years ended March 31, 1997 and 1996, respectively. Income before taxes
of foreign subsidiaries was $3,786,000 for the year ended March 31, 1995.
Provision is made for federal income taxes which may be payable on earnings of
foreign subsidiaries to the extent that the Company anticipates they will be
remitted. Unremitted earnings of foreign subsidiaries which have been, or are
intended to be permanently reinvested (and for which no federal income tax has
been provided) aggregated $338,000, $1,034,000 and $3,396,000 at March 31, 1997,
1996 and 1995, respectively.
As of March 31, 1996, the Company has a net operating loss carryforward of
approximately $137,600,000, of which $33,074,000, $13,385,000, $50,193,000,
$21,159,000 and $19,789,000 will expire in 2006, 2007, 2009, 2011 and 2012,
respectively. The utilization of these net operating losses will be limited
based on the effects of the Plan of Reorganization consummated on March 31,
1994. Pursuant to the Plan of Reorganization, the Bank Lenders, the
Noteholders, FIN, Elision and GSE initially received 100% of the common
stock. As a result, an ownership change occurred with respect to the Company,
and subjected the Company's net operating losses and foreign tax
credit carryforwards to the limitation provided for in Sections 382 and
383, respectively, of the Internal Revenue Code. Subject to special rules
regarding increases in the annual limitation for the recognition of net
unrealized built-in gains, the Company's annual limitation will be approximately
$2.2 million.
NOTE I -- COMMITMENTS AND CONTINGENCIES:
(1) LEASES:
The Company leases warehouse and office space at minimum aggregate rentals
net of sublease income as follows:
Fiscal
Year Ending
March 31, Amount
(In thousands)
1998 $1,231
1999 328
$1,559
Rent expense, net of rental income, aggregated $1,790,000, $1,705,000 and
$2,731,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
Rental income from the sublease of warehouse and office space aggregated
$256,000, $278,000 and $273,000 in the years ended March 31, 1997, 1996 and
1995, respectively.
(2) LETTERS OF CREDIT:
Outstanding letters of credit for the purchase of inventory aggregated
$4,932,000 (including $444,000 issued under the Loan and Security Agreement --
see Note F) at March 31, 1997. $1,995,000 of such outstanding letters of credit
are not reflected in the accompanying financial statements.
The Company's Hong Kong subsidiary also currently maintains various credit
facilities aggregating $28.5 million with a bank in Hong Kong consisting of the
following: (i) a $3.5 million credit facility which is generally used for
letters of credit for a foreign subsidiary's direct import business and
affiliates' inventory purchases, and (ii) a $25 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. At March 31, 1997, the
Company's Hong Kong subsidiary had pledged $1 million in certificates of deposit
to this bank to assure the availability of these credit facilities. At March
31, 1997, there were $4,488,000 and $6,598,000 of letters of credit outstanding
under these credit facilities.
NOTE J-- SHAREHOLDERS' EQUITY:
(1) In July 1994, the Company's Board of Directors adopted, and the
stockholders subsequently ratified, a Stock Compensation Program ("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth. The maximum
aggregate number of shares of common stock available pursuant to the Program is
2,000,000 shares and the Program is comprised of 4 parts -- the Incentive Stock
Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights
Plan and the Stock Bonus Plan. A summary of transactions since the inception of
the Program is as follows:
NUMBER OF PRICE AGGREGATE
SHARES PER SHARE PRICE
Granted 1,860,000 $1.00 - $1.10 $1,920,000
Cancelled (30,000) $1.00 (30,000)
Outstanding--March 31, 1995 1,830,000 $1.10 - $1.10 1,890,000
Granted 125,000 $2.63 - $2.88 341,000
Cancelled (287,000) $1.00 (287,000)
Outstanding--March 31, 1996 1,668,000 $1.00 - $2.88 1,944,000
Granted 50,000 $2.25 - $2.56 119,000
Exercised (69,000) $1.00 (69,000)
Cancelled (59,000) $1.00 - $2.56 (67,000)
Outstanding--March 31, 1997 1,590,000 $1.00 - $2.56 $1,927,000
The term of each option is ten years, except for options issued to any
person who owns more than 10% of the voting power of all classes of capital
stock, for which the term is five years. Options may not be exercised during
the first year after the date of the grant. Thereafter each option becomes
exercisable on a pro rata basis on each of the first through third anniversaries
of the date of the grant. The exercise price of options granted must be at
least equal to the fair market value of the shares on the date of the grant,
except that the option price with respect to an option granted to any person who
owns more than 10% of the voting power of all classes of capital stock shall not
be less than 110% of the fair market value of the shares on the date of the
grant.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), the Company's net loss would have increased
approximately $45,000 and $81,000 for the years ended March 31, 1997 and
1996, respectively, and the Company's net income would have decreased by
$1,342,000 or $0.03 per share for the year ended March 31, 1995.
The fair value of these options, and all other options and warrants
of the Company, was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for the
years ended March 31, 1997, 1996 and 1995; risk-free interest rate of
5%, an expected life of 10 years and a dividend yield of zero. For the
years ended March 31, 1997, 1996 and 1995, volatility was 73%, 85% and 60%,
respectively. The effects of applying FAS 123 and the results obtained are
not likely to be representative of the effects on future pro-forma income.
(2) In October 1994, the Company's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stock available under such plan is
300,000 shares. A summary of transactions since inception of the plan is as
follows:
NUMBER OF PRICE AGGREGATE
SHARES PER SHARE PRICE
Granted 175,000 $1.00 $175,000
Outstanding--March 31, 1995 175,000 $1.00 175,000
Cancelled (25,000) $1.00 (25,000)
Outstanding--March 31, 1996,
March 31, 1997 150,000 $1.00 $150,000
The provisions for exercise price, term and vesting schedule are the same
as noted above for the Stock Compensation Program. Had compensation cost
been determined based upon the fair value at grant date for awards
consistent with the methodology prescribed by FAS 123, the Company's net
income would have decreased approximately $130,000 for
the year ended March 31, 1995.
(3) Pursuant to the Plan of Reorganization, on March 31, 1994, the Company
issued Series A Preferred Stock, $.01 par value, with a face value of $10
million and an estimated fair market value of approximately $9 million. The
preferred stock is convertible into Common Stock at any time during the
period beginning on March 31, 1997 and ending on March 31, 2002; the preferred
stock is convertible into common stock at a price per share of common stock
equal to 80% of the market value of a share of common stock on the date of
conversion. The preferred stock bears dividends commencing June 30, 1994 on a
cumulative basis at the following rates:
DIVIDEND RATE
Year 1 to 3 7.0%
Year 4 5.6%
Year 5 4.2%
Year 6 2.8%
Year 7 1.4%
Thereafter None
The preferred stock is non-voting. However, the terms of the preferred
stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the preferred stock dividends are in default for
six consecutive quarters. At March 31, 1997, the Company was in arrears on
$469,000 of dividends.
(4) Pursuant to the Plan of Reorganization, the Noteholders received
warrants for the purchase of 750,000 shares of common stock. The warrants are
exercisable for a period of seven years from March 31, 1994 and provide for an
exercise price of $1.00 per share for the first three years, escalating by $.10
per share per annum thereafter until expiration of the warrants.
(5) In accordance with the Company's Plan of Reorganization, the Company
completed an initial public offering of its common stock in September 1994 to
shareholders of record (in those states in which the offering could be made) as
of March 31, 1994, excluding the Company's former largest shareholder. The
Company sold 6,149,993 shares of common stock for $1.00 per share resulting in
proceeds to the Company, net of issuance costs, of approximately $5,692,000.
Pursuant to the terms of the Plan of Reorganization, in January 1995, the
Company paid approximately $922,000 to satisfy certain obligations owed to
former creditors, and in February 1995 issued 769,446 shares of common stock to
former creditors, primarily to satisfy an anti-dilution provision. The
remainder of such funds were used for working capital and other corporate
purposes.
(6) In connection with the Debentures offering in August 1995, the Company
issued to the placement agent and its authorized dealers warrants for the
purchase of 500,000 shares of common stock. The warrants are exercisable for a
period of four years from August 24, 1996 and provide for an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances. Had
compensation cost been determined based upon the fair value at grant
date for awards consistent with the methodology prescribed by FAS 123, the
Company's net loss would have increased approximately $1,140,000 or
$0.03 per share for the year ended March 31, 1996.
(7) In connection with a consulting agreement in December 1995, the
Company issued warrants for the purchase of 250,000 shares of common
stock at an exercise price of $4.00 per share. The warrants vest and
may be exercised by the holder (i) 50% at any time after six months from the
date of issuance, and (ii) the balance at any time after one year from the date
of issuance, in either event until December 8, 2000, when such warrants shall
expire. Had compensation cost been determined based upon the fair value of
grant date for awards consistent with the methodology prescribed by FAS 123,
the Company's net loss would have increased approximately $145,000 for the
year ended March 31, 1996.
(8) In November 1995, the Company filed a shelf registration statement
covering 5,000,000 shares of common stock owned by FIN to finance a settlement
of the Litigation Regarding Certain Outstanding Common Stock (See Note K). The
shares covered by the shelf registration are subject to certain contractual
restrictions and may be offered for sale or sold only by means of an effective
prospectus following registration under the Securities Act of 1933, as amended.
(9) In November 1995, the Company's stockholders approved an amendment to
the Company's certificate of incorporation increasing the number of authorized
shares of preferred stock from one million shares to ten million shares.
(10) In November 1995, the Company's Board of Directors approved a plan to
repurchase up to two million of its common shares, or about 20% of the Company's
current float of approximately eleven million shares, from time to time in the
open market. Although there are 40,335,642 shares outstanding, approximately
29.2 million shares are held directly or indirectly by affiliated entities of
Geoffrey Jurick, Chairman, Chief Executive Officer and President of the
Company. The Company 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 be able to
so repurchase any of its shares of Common Stock.
(11) In connection with a consulting agreement in August 1996, the Company
issued warrants for the purchase of 250,000 shares of common
stock at an exercise price of $4.00 per share. The warrants vest and may be
exercised by the holder (i) 50% at any time after six months from the date of
issuance, and (ii) the balance at any time after one year from the date of
issuance, in either event until August 1, 2001, when such warrants shall expire.
The fair value of these warrants at the date of grant was estimated to
be approximately $225,000. These warrants are being amortized over the
vesting period and accordingly, consulting expense related to the warrants
amounted to approximately $182,000 for the year ended March 31, 1997.
NOTE K -- LICENSE AGREEMENTS:
(1) In February 1997, the Company executed five-year license/supply
agreements, subject to renewals, with Cargil International Corp. ("Cargil"),
covering the Caribbean and Central and South American markets. The agreements
provide for the license of the Emerson and G-Clef trademark for certain consumer
electronics and other products and the provision of sourcing and inspection
services. Under the terms of the agreements, the Company will receive minimum
annual royalties through the life of the agreements and will receive a separate
fee for sourcing and inspection services. Cargil assumes all costs and expenses
associated with the purchasing, marketing and after sales support of such
products. The Company believes that this transaction will have a positive
impact on operating results by generating royalty and servicing revenues with
minimal costs while limiting its working capital risks.
(2) In February 1995, the Company and a large supplier and certain
of its affiliates (collectively, the "Supplier") entered into two mutually
contingent agreements (the "Agreements"). Effective March 31, 1995, the Company
granted a license of certain trademarks to the Supplier for a three-year term.
The license permited the Supplier to manufacture and sell certain video
products under the Emerson and G-Clef trademark to one of the Company's
significant customers (the "Customer") in the U.S. and Canada, and
precluded the Supplier from supplying product to the Customer other than
under the Emerson and G-Clef or the Supplier trademarks. The Company
continues to supply other products to the Customer directly.
Further, the Agreements provided that the Supplier would supply the
Company with certain video products for sale to other customers at
preferred prices for a three-year term. Under the terms of the
Agreements, the Company receives non-refundable minimum annual royalties from
the Supplier to be credited against royalties earned from sales of video
cassette recorders and players, television/video cassette recorder and player
combinations, and color televisions to the Customer. In addition, effective
August 1, 1995, the Supplier assumed responsibility for returns and after-sale
and warranty services on all video products manufactured by the Supplier
and sold to the Customer, including video products sold by the Company prior to
April 1, 1995. Royalty income recognized by the Company pursuant to the
Agreements was $4,000,000 and $4,442,000 in Fiscal 1997 and 1996, respectively.
Additionally, the Company and the Supplier agreed on a series of purchase
discounts, consistent with agreements and past practices between the Supplier
and the Company. Through March 31, 1995, the Supplier had paid the Company $6.3
million against an aggregate $10.2 million of purchase discounts for product
purchased from January 1, 1993 to March 31, 1995, and the balance of $3.9
million was paid in September 1995. The Company recognized $9.9 million of
discounts in the year ended March 31, 1995, of which $4.3 million of discounts
were attributable to purchases prior to April 1, 1994.
(3) In October 1994, the Company entered into a license agreement with
Jasco Products Co., Inc., ("Jasco"), as amended, whereby the Company granted a
license of certain trademarks to Jasco for use on non-competing consumer
electronics accessories. Under the terms of the agreement, the Company will
receive minimum annual royalties through the life of the agreement, which
expires on December 31, 1998, and the agreement is automatically renewable for
three successive three-year periods based upon Jasco's compliance with the
agreement. The minimum royalty was not exceeded in the first, second or
third contract years ended December 31, 1996. The Company recognized license
fee income of approximately $1,125,000 in the year ended March 31, 1995. In
April 1997, the agreement was amended to extend the initial three-year period
for one additional year.
(4) Subsequent to the end of Fiscal 1997, Emerson executed a four-year
agreement with Daewoo Electronics Co. Ltd. and its U.S. affiliate
(collectively "Daewoo"). This agreement provides that, subject to existing
agreements relating to sales to the Customer, Daewoo will manufacture and
sell television products bearing the Emerson and G-Clef trademark to all
customers in the U.S. market. Daewoo will also be responsible for, and
assume all risks associated with, order processing, shipping, credit and
collections, inventory, returns and after sale services. The Company will
arrange sales and provide marketing services and receive a commission for
such services. Sales to the Customer are currently subject to a
license/supply agreement with the Supplier, as more fully described in
Note K.
NOTE L --LEGAL PROCEEDINGS:
OTAKE LITIGATION
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. 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 certain agreements by the Company, including breaches of
the confidentiality provisions, certain payment breaches, breaches of
provisions relating to product returns, and other alleged breaches of those
agreements, and seeking 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 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.
LITIGATION REGARDING CERTAIN OUTSTANDING COMMON STOCK:
The 30 million shares of Common Stock issued to GSE, FIN and Elision on
March 31, 1994, pursuant to the Plan of Reorganization, were the subject of
certain legal proceedings. On June 11, 1996, the Settlement Agreement was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States. The Settlement Agreement provides for, among other
things, the payment by Mr. Jurick and his affiliated entities of $49.5 million
to various claimants of Mr. Jurick and affiliated entities (the "Creditors"), to
be paid from the proceeds of the sale 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, initially TM Capital (the "Advisor").
The 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 will
initially consist of 15,286,172 Emerson shares. The Pool B Shares consist of
the number of Emerson shares with respect to which Mr. Jurick must retain
beneficial ownership of voting power to avoid an event of default arising out of
a change of control pursuant to the terms of the Company's Loan and Security
Agreement with the Lender and/or the indenture governing the Debentures. Sales
may be made of the Settlement Shares pursuant to a registered offering if the
sales price in 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 Mr. Jurick, the Creditors and if necessary,
the United States District Court in Newark, New Jersey.
BANKRUPTCY CLAIMS:
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed on or about 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 amount currently claimed is for approximately $93,563,457, of
which $86,785,000 represents a claim for loss of profits. The claim will be
satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the
manner other allowed unsecured claims were satisfied. The Company has objected
to the claim and intends to vigorously contest such claim and believes it has
meritorious defenses to the highly speculative portion of the claim for lost
profits and the portion of the claim for actual damages for expenses incurred
prior to the execution of the contracts. Additionally, on or about September
30, 1994, the Company instituted an adversary proceeding in the Bankruptcy Court
asserting damages caused by Cineral and seeking declaratory relief and replevin.
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.
INTERNATIONAL JENSEN INCORPORATED ("JENSEN") LITIGATION
On May 10, 1996, Jensen filed an action in the United States District Court
for the Northern District of Illinois, Eastern Division, against the Company and
Eugene I. Davis, an officer of the Company for violations of proxy solicitation
rules and for breach of a confidentiality agreement with Jensen. On May 20,
1996, the Company filed a counterclaim 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, the
Company requests such other equitable or other relief as the Court finds proper
and an award of attorneys' fees and expenses. Subsequently, Recoton
Corporation ("Recoton"), the successful bidder in acquiring Jensen, filed an
action in the same court against Emerson. In June 1997, Emerson, Mr. Davis,
Jensen, Recoton and certain other related parties entered into a settlement
agreement settling all disputes among them and releasing each other from all
liability in connection with the subject matter of these actions on terms
Emerson believes to be beneficial to it.
OTHER LITIGATION:
The Company is involved in other legal proceedings and claims of various
types in the ordinary course of business. While any such litigation contains an
element of uncertainty, management presently believes that the outcome of each
such proceeding or claim which is pending or known to be threatened, or all of
them combined, will not have a material adverse effect on the Company's
consolidated financial position.
NOTE M -- BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS:
The consumer electronics business is the Company's only business segment.
Operations in this business segment are summarized below by geographic area:
YEAR ENDED MARCH 31, 1997 U.S. FOREIGN ELIMINATIONS CONSOLIDATED
(In thousands)
Sales to unaffiliated
customers $ 172,417 $ 6,291 $ -- $178,708
Transfers between
geographic areas 2,592 581 (3,173) --
Total net revenues $ 175,009 $ 6,872 $ (3,173) $178,708
Earnings (loss) before
income taxes $ (20,677) $(1,791) $ -- $(22,468)
Identifiable assets $ 58,513 $ 1,520 $ -- $ 60,033
YEAR ENDED MARCH 31, 1996
Sales to unaffiliated
customers $ 234,369 $11,298 $ -- $245,667
Transfers between
geographic areas 2,884 876 (3,760) --
Total net revenues $ 237,253 $12,174 $ (3,760) $245,667
Earnings (loss) before
income taxes $ (11,324) $(2,039) $ -- $(13,363)
Identifiable assets $ 90,350 $ 6,226 $ -- $ 96,576
YEAR ENDED MARCH 31, 1995
Sales to unaffiliated
customers $ 608,717 $45,954 $ -- $654,671
Transfers between
geographic areas 5,954 184 (6,138) --
Total net revenues $ 614,671 $46,138 $ (6,138) $654,671
Earnings (loss) before
income taxes $ 12,238 $(4,596) $ -- $ 7,642
Identifiable assets $ 98,604 $15,470 $ (105) $113,969
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic area.
At March 31, 1997 and 1996, total assets include $10,657,000 and
$27,779,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 36%, 18%
and 53% of consolidated net revenues for the years ended March 31, 1997, 1996
and 1995, respectively. Trade receivables from this customer approximated 11%
of accounts receivable at March 31, 1997, and has not been collateralized. At
March 31, 1997, the Company had a liability balance to this customer for product
returns. The Company's net sales to another customer aggregated 13%, 16%, and
10% for the years ended March 31, 1997, 1996 and 1995, respectively.
NOTE N -- INVESTMENT IN JOINT VENTURE
The Company has a 50% investment in E & H Partners, a joint venture that
refurbishes and sells certain 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 (loss) of the joint venture is reflected as an
increase or reduction of cost of sales in the Company's Consolidated Statements
of Operations. Summarized financial information relating to the joint venture
is as follows:
MARCH 31,
1997 1996 1995
(In thousands)
ACTIVITY BETWEEN COMPANY AND
E & H PARTNERS
Accounts receivable from joint
venture (a) $3,522 $13,270 $15,283
Investment in joint venture 440 1,265 1,565
Sales to joint venture 5,792 17,629 32,500
E & H PARTNERS SUMMARIZED
FINANCIAL INFORMATION
Condensed balance sheet:
Current assets $ 7,947 $19,326 $26,749
Noncurrent assets - 162 161
Total $ 7,947 $19,488 $26,910
Current liabilities $ 7,476 $16,958 $23,780
Partnership equity 471 2,530 3,130
Total $7,947 $19,488 $26,910
Condensed income statement:
Net sales (b) $31,564 $27,712 $24,760
Net earnings (loss) (2,058) (600) 2,130
___________________
(a) Accounts receivable were secured by a full lien on all of the partnership's
inventory at these dates, and such lien had been assigned to the Lender as
collateral for the U.S. line of credit facility. In April 1996, the Company
agreed to equally share the lien on the partnership's inventory with the other
partner in the joint venture, in exchange for, among other things, a $5 million
loan by such partner to the joint venture and a subsequent paydown of E&H
Partners' obligation to the Company of the same amount.
(b) Includes sales to the Company of $7,058,000, $5,964,000 and $3,796,000,
respectively.
Effective January 1, 1997, the partners to the E&H Partnership mutually
agreed to dissolve the joint venture and wind down its operations The
partners may have elected to extend such wind down in order to facilitate a
more orderly liquidation of the joint venture.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C Column D Column E
Balance Charged Balance
at to costs at end
beginning and of year
Decription of year expenses Deductions (C)
Allowance for doubtful
accounts/chargebacks:
Year ended:
March 31, 1997 $ 2,831 $ 2,558 $2,703(A) $ 2,686
March 31, 1996 4,150 1,111 2,430 2,831
March 31, 1995 3,349 1,306 505 4,150
Inventory reserves:
Year ended:
March 31, 1997 $1,222 $5,081 $4,142(B) $2,161
March 31, 1996 470 1,087 335 1,222
March 31, 1995 644 251 425 470
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed
as "allowances" on the Consolidated Balance Sheets since they are not
valuation
reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN
SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
(2) Confirmation Order and Fourth Amended Joint Plan of
Reorganization of Emerson Radio Corp. ("Old Emerson")
and certain subsidiaries under Chapter 11 of the
United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
Securities and Exchange Commission ("SEC") on August
9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated
by reference to Exhibit (3) (a) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred
Stock (incorporated by reference to Exhibit (3) (b)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware)
Corp. (incorporated by reference to Exhibit (3) (c)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by
reference to Exhibit (3) (d) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate
of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated
by reference to Exhibit (3) (e) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of
Emerson adopted March 1994 (incorporated by reference
to Exhibit (3) (b) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of
Common Stock, dated as of March 31, 1994
(incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between
Emerson and Bank One, Columbus, NA, as Trustee
(incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the
SEC on September 8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Michael Metter
(incorporated by reference to Exhibit (10) (e) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase
200,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Kenneth A. Orr
(incorporated by reference to Exhibit (10) (f) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (a) Agreement, dated as of November 14, 1973, between
National Union Electric Corporation ("NUE") and
Emerson (incorporated by reference to Exhibit (10)
(a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (b) Trademark User Agreement, dated as of February 28,
1979, by and between NUE and Emerson (incorporated by
reference to Exhibit (10) (b) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(10) (c) Agreement, dated July 2, 1984, between NUE and
Emerson (incorporated by reference to Exhibit (10)
(c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (d) Agreement, dated September 15, 1988, between NUE and
Emerson (incorporated by reference to Exhibit (10) (d)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (e) Form of Promissory Note issued to certain Pre-
Petition Creditors (incorporated by reference to
Exhibit (10) (e) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31, 1994, by
and among Emerson, Majexco Imports, Inc. and Congress
Financial Corporation ("Congress") (incorporated by
reference to Exhibit (10) (f) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(10) (g) Amendment No. 1 to Financing Agreements, dated as of
August 24, 1995, among Emerson, Majexco Imports, Inc.
and Congress (incorporated by reference to Exhibit (2)
of Emerson's Current Report on Form 8-K filed with the
SEC on September 8, 1995).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of
February 13, 1996 (incorporated by reference to Exhibit
(10) (c) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995).
(10) (i) Amendment No. 3 to Financing Agreements, dated as of
August 20, 1996 (incorporated by reference to Exhibit
(10) (b) of Emerson's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1995).
(10) (j) Amendment No. 4 to Financing Agreements, dated as of
November 14, 1996 (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).
(10) (k) Amendment No. 5 to Financing Agreements, dated as of
February 18, 1997 (incorporated by reference to Exhibit
(10) (e) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996).
(10) (l) Emerson Radio Corp. Stock Compensation Program
(incorporated by reference to Exhibit (10) (i) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (m) Employment Agreement between Emerson and Eugene I.
Davis (incorporated by reference to Exhibit 6(a)(4) of
Emerson's Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (n) Extension of Employment Agreement between Emerson and
Eugene I. Davis dated April 16, 1997.*
(10) (o) Employment Agreement between Emerson and Geoffrey P.
Jurick (incorporated by reference to Exhibit 6(a)(6) of
Emerson's Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (p) Employment Agreement between Emerson Radio (Hong Kong)
Ltd. and Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly Report on
Form 10-Q for quarter ended June 30, 1992).
(10) (q) Employment Agreement between Emerson Radio
International Ltd. (formerly Emerson Radio (B.V.I.),
Ltd.) and Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly Report on
Form 10-Q for quarter ended June 30, 1992).
(10) (r) Extension of Employment Agreement between Emerson and
Geoffrey P. Jurick dated April 16, 1997.*
(10) (s) Lease Agreement dated as of March 26, 1993, by and
between Hartz Mountain Parsippany and Emerson with
respect to the premises located at Nine Entin Road,
Parsippany, NJ (incorporated by reference to Exhibit
(10) (ww) of Emerson's Annual Report on Form 10-K for
the year ended December 31, 1992).
(10) (t) Employment Agreement, dated April 1, 1994, between
Emerson and John Walker (incorporated herein by
reference to Exhibit (10)(ee) of Emerson's Statement on
Form S-1, Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (u) Amendment No. 1 to Employment Agreement between Emerson
and John P. Walker dated April 16, 1997.*
(10) (v) Employment Agreement, dated January 29, 1996 between
Emerson and Marino Andriani (incorporated herein by
reference to Exhibit (10) (a) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996).
(10) (w) Partnership Agreement, dated April 1, 1994, between
Emerson and Hopper Radio of Florida, Inc (incorporated
by reference to Exhibit (10) (q) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 1995).
(10) (x) Sales Agreement, dated April 1, 1994, between Emerson
and E & H Partners (incorporated by reference to
Exhibit (10) (r) of Emerson's Annual Report on Form 10-
K for the year ended March 31, 1995).
(10) (y) Agreement, dated as of April 24, 1996 by and among
Emerson and E & H Partners relating to amendments of
the Partnership Agreement dated April 1, 1994 and the
Sales Agreement dated April 1, 1994 and the settlement
of certain outstanding litigation.
(10) (z) License Agreement, dated February 22, 1995, between
Emerson and Otake Trading Co. Ltd. and certain
affiliates ("Otake") (incorporated by reference to
Exhibit 6(a)(1) of Emerson's Quarterly Report on Form
10-Q for quarter ended December 31, 1994).
(10) (aa) Supply Agreement, dated February 22, 1995, between
Emerson and Otake (incorporated by reference to Exhibit
6(a)(2) of Emerson's Quarterly Report on Form 10-Q for
quarter ended December 31, 1994).
(10) (ab) 1994 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit (10) (y) of
Emerson's Annual Report on Form 10-K for the year ended
March 31, 1995).
(10) (ac) Consulting Agreement, dated as of December 8, 1995
between Emerson and First Cambridge Securities
Corporation (incorporated by reference to Exhibit (10)
(d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ad) License Agreement, dated as of August 23, 1996 between
Emerson and REP Investment Limited Liability Company
(incorporated by reference to Exhibit (10) (d) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).
(10) (ae) Distribution Agreement, dated as of September 11, 1996
between Emerson, Emerson Radio Canada Ltd. and AVS
Technologies Inc. (incorporated by reference to Exhibit
(10) (e) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996).
(10) (af) Stipulation of Settlement and Order dated June 11, 1996
by and among the Official Liquidator of Fidenas
International Bank Limited, Petra Stelling, Barclays
Bank PLC, the Official Liquidator of Fidenas Investment
Limited, Geoffrey P. Jurick, Fidenas International
Limited, L.L.C., Elision International, Inc., GSE
Multimedia Technologies Corporation and Emerson.
10) (ag) Pledge Agreement dated as of February 4, 1997 by
Fidenas International Limited, L.L.C. ("FIN") in favor
of TM Capital Corp. (incorporated by reference to
Exhibit (10) (a) of Emerson's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
(10) (ah) Registration Rights Agreement dated as of February 4,
1997 by and among Emerson, FIN, the Creditors, FIL and
TM Capital Corp. (incorporated by reference to Exhibit
(10) (b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996).
(10) (ai) License and Exclusive Distribution Agreement with
Cargil International Corp. dated as of
February 12, 1997
( incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).
(10) (aj) Supply and Inspection Agreement with Cargil
International Corp. dated as of February 12, 1996
(incorporated by reference to Exhibit (10) (d) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).
(10) (ak) Agreement dated April 10, 1997 between Emerson and
Daewoo Electronics Co., Ltd.*
10) (al) Securities Purchase Agreement dated as of November
27, 1996, by and between Sports Supply Group, Inc.
("SSG") and Emerson (incorporated by reference to
Exhibit (2)(a) of Emerson's Current Report on Form 8-K
dated November 27, 1996).
(10) (am) Form of Warrant Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(a) of
Emerson's Current Report on Form 8-K dated November 27,
1996).
(10) (an) Form of Registration Rights Agreement by and between
SSG and Emerson (incorporated by reference to Exhibit
(4)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
(10) (ao) Consent No. 1 to Financing Agreements among
Emerson, certain of its subsidiaries, and Congress
(incorporated by reference to Exhibit (10)(b) of
Emerson's Current Report on Form 8-K dated November 27,
1996).
(10) (ap) License Agreement dated as of June 16, 1997 by and
between World Wide One Ltd. and Emerson.*
(10) (aq) Agreement dated as of July 2, 1997 by and between
Hi Quality International (U.S.A.) Inc. and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined
Fixed Charges and Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant as of March 31, 1997.*
(27) Financial Data Schedule for year ended March 31, 1997.*
___________________
* Filed herewith.
EXHIBIT 11
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Computation of Primary Earnings Per Share
(in thousands, except per share data)
Years Ended March 31,
1997 1996 1995
Net earnings (loss) $(23,968) $(13,389) $ 7,375
Preferred stock dividends (700) (700) N/A
Net earnings (loss)
attributable to
common stockholders $(24,668) $(14,089) $7,375
Weighted average number of
actual shares outstanding 40,292 40,253 36,530
Additional shares assuming
conversion or exercise of:
Preferred stock (a) 9,081
Stock options and warrants 960
Weighted average number of
common and common equivalent
shares outstanding 40,292 40,253 46,571
Primary earnings (loss) per
share $(0.61) $(0.35) $0.16
___________________________
(a) Based on the assumed conversion of $10 million of Series A Preferred Stock
into Common Stock at a price per share equal to 80% of the weighted average
market value of a share of Common Stock, determined on a quarterly basis. Since
the Series A Preferred Stock was not convertible into Common Stock until March
31, 1997, the number of shares issuable upon conversion may have been
significantly different than noted above.
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratio data)
Historical
Year Year Year Year Year
Ended Ended Ended Ended Ended
Mar. Mar. Mar. Mar. Mar.
31, 31, 31, 31, 31,
1993 1994 1995 1996 1997
Pretax earnings
(loss) $(55,291) $(73,327) $7,642 $(13,363) $(23,968)
Fixed charges:
Interest 18,257 10,243 2,582 2,788 2,789
Amortization of
debt expenses -- -- 300 487 640
18,257 10,243 2,882 3,275 3,429
Pretax earnings
(loss) before
fixed charges $(37,034) $(63,084) $10,524 $(10,088) $(20,539)
Fixed charges:
Interest $ 18,257 $ 10,243 $ 2,582 $ 2,788 $ 2,789
Amortization of
debt expenses -- -- 300 487 640
Preferred stock
dividend
requirements 725(a) 700 700
$18,257 $ 10,243 $ 3,607 $ 3,975 $ 4,129
Ratio of earnings
(loss) to combined
fixed charges and
preferred stock
dividends (2.03) (6.16) 2.92 (2.54) (4.97)
Coverage
deficiency $18,257 $ 10,243 $ - $ 3,975 $ 4,129
________________________
(a) The preferred stock dividend requirements have been adjusted to reflect the
pretax earnings which would be required to cover such dividend requirements.
EXHIBIT 21
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Subsidiaries of the Registrant
Jurisdiction of Percentage
Name of Subsidiary Incorporation of Ownership
Emerson Radio (Hong Kong)
Limited. Hong Kong 100%*
Emerson Radio
International Ltd. British Virgin Islands 100%
Sport Supply Group, Inc. Delaware 27%
* One share is owned by a resident director pursuant to local law.