SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2005______ _____________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to____________________
Commission file number 0-25226
---------------------------------------------------------
EMERSON RADIO CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(973) 884-5800
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Indicate the number of shares outstanding of common stock as of February 13,
2006: 27,047,666.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
Three Months Ended Nine Months Ended
December 31 December 31
------------------------------------ ---------------------------------------
2005 2004 2005 2004
--------------- ---------------- ----------------- ------------------
NET REVENUES $ 76,514 $ 80,345 $ 192,737 $ 188,051
COSTS AND EXPENSES:
Cost of sales 66,555 69,607 167,577 160,010
Other operating costs
and expenses 1,823 1,127 4,663 4,057
Selling, general and
administrative expenses 5,588 4,621 14,810 13,626
Acquisition costs recovered -- (29) -- (204)
Stock based compensation 90 68 260 168
--------------- ---------------- ----------------- ------------------
74,056 75,394 187,310 177,657
--------------- ---------------- ----------------- ------------------
OPERATING INCOME 2,458 4,951 5,427 10,394
Interest expense, net 370 400 976 964
--------------- ---------------- ----------------- ------------------
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS 2,088 4,551 4,451 9,430
Provision for income taxes 693 1,632 1,638 3,590
--------------- ---------------- ----------------- ------------------
INCOME FROM CONTINUING
OPERATIONS 1,395 2,919 2,813 5,840
--------------- ---------------- ----------------- ------------------
Income (loss) from discontinued
operations, net of tax -- (1,014) 271 31
Gain on sale of Sport Supply
Group, Inc., net of tax -- -- 12,646 --
--------------- ---------------- ----------------- ------------------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS -- (1,014) 12,917 31
--------------- ---------------- ----------------- ------------------
NET INCOME $ 1,395 $ 1,905 $ 15,730 $ 5,871
=============== ================ ================= ==================
BASIC NET INCOME (LOSS) PER SHARE:
Continuing operations $ 0.05 $ 0.11 $ 0.10 $ 0.22
Discontinued operations -- (0.04) 0.48 0.00
--------------- ---------------- ----------------- ------------------
$ 0.05 $ 0.07 $ 0.58 $ 0.22
=============== ================ ================= ==================
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing operations $ 0.05 $ 0.11 $ 0.10 $ 0.22
Discontinued operations -- (0.04) 0.48 0.00
--------------- ---------------- ----------------- ------------------
$ 0.05 $ 0.07 $ 0.58 $ 0.22
=============== ================ ================= ==================
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 27,048 27,103 27,089 26,938
Diluted 27,149 27,239 27,182 27,241
The accompanying notes are an integral part of the interim consolidated
financial statements.
2
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31, 2005 March 31, 2005
----------------- --------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 13,379 $ 1,817
Cash securing bank loans 3,004 5,620
Accounts receivable (less allowances of $5,324 and
$3,783, respectively) 25,416 15,940
Other receivables 1,275 1,544
Inventories 38,513 38,156
Prepaid expenses and other current assets
3,011 3,300
Deferred tax assets 3,258 3,666
Current assets of discontinued operations -- 31,972
--------- ---------
TOTAL CURRENT ASSETS 87,856 102,015
Property and equipment - (net of accumulated depreciation
and amortization of $4,397 and $4,011, respectively) 2,560 2,292
Trademarks and other intangible assets (net of accumulated
amortization of $4,441 and $4,322,respectively) 482 600
Deferred tax assets 6,122 11,245
Other assets 759 477
Noncurrent assets of discontinued operations -- 14,539
--------- ---------
TOTAL ASSETS $ 97,779 $ 131,168
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 85 $ 85
Short-term borrowings 1,777 13,044
Accounts payable and other current liabilities 23,942 17,500
Accrued sales returns 1,915 1,919
Income taxes payable 374 243
Current liabilities of discontinued operations -- 13,108
--------- ---------
TOTAL CURRENT LIABILITIES 28,093 45,899
Long-term borrowings 597 11,960
Noncurrent liabilities of discontinued operations -- 3,010
Minority interest in discontinued operations -- 16,696
Shareholders' Equity:
Preferred shares - 10,000,000 shares authorized, 3,677
shares issued and outstanding 3,310 3,310
Common shares - $.01 par value, 75,000,000 shares
authorized; 52,883,631 and 52,883,131 shares issued,
27,047,666 and 27,203,164 shares outstanding,
respectively 529 529
Capital in excess of par value 116,920 116,788
Accumulated other comprehensive losses (71) (87)
Accumulated deficit (27,375) (43,105)
Treasury stock, at cost, 25,835,965 and 25,679,967
Shares outstanding, respectively (24,224) (23,832)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 69,089 53,603
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 97,779 $ 131,168
========= =========
The accompanying notes are an integral part of the interim consolidated
financial statements.
3
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
------------------------------------
December 31, December 31,
2005 2004
------------ ------------
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Income from continuing operations $ 2,813 $ 5,840
Adjustments to reconcile income from continuing
operations to net cash used by continuing
operations:
Depreciation and amortization 921 633
Stock based costs 260 168
Deferred tax expenses 1,312 3,130
Asset allowances, reserves and other 2,808 2,085
changes in assets and liabilities:
Cash securing bank loans 2,616 (4,790)
Accounts receivable (11,898) (22,853)
Other receivables 269 344
Inventories (747) (8,685)
Prepaid expenses and other current assets 289 (773)
Other assets (699) (477)
Accounts payable and other current liabilities 6,442 2,312
Income taxes payable 131 431
--------- ---------
Net cash provided by (used by) continuing operations 4,517 (22,635)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (continuing
operations) (654) (1,630)
--------- ---------
Net cash used by investing activities (654) (1,630)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net foreign short-term borrowings (11,267) 17,225
Short-term borrowings 7,500 11,300
Repayments of short-term borrowings (7,500) --
Purchase of treasury stock (392) --
Long-term borrowings 34,702 30,374
Repayments of long-term borrowings (46,050) (37,650)
--------- ---------
Net cash (used by) provided by financing activities (23,007) 21,249
--------- ---------
EFFECT OF DISCONTINUED OPERATIONS (BEING PROCEEDS FROM
THE SALE OF SSG) 30,706 --
--------- ---------
Net increase (decrease) in cash and cash equivalents 11,562 (3,016)
Cash and cash equivalents at beginning of year 1,817 5,213
--------- ---------
Cash and cash equivalents at end of period 13,379 2,197
========= =========
The accompanying notes are an integral part of the interim consolidated
financial statements.
4
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Emerson
Radio Corp. ("Emerson", consolidated - the "Company"), which operates in the
consumer electronics business. On July 1, 2005, Emerson sold its 53.2% ownership
in Sport Supply Group, Inc. ("SSG"), which was previously reported as the
Company's Sporting Goods Segment, to Collegiate Pacific Inc. ("Collegiate") for
net proceeds of $30.7 million, after disposition costs, which resulted in a net
gain of $12.6 million, or $0.47 per share, that was reported in the Company's
results for the quarter ended September 30, 2005. Such gain was net of total
estimated income taxes of $4.2 million. As a result of the sale, the financial
position and results of operations of SSG have been presented as discontinued
operations for all periods shown in the accompanying financial statements (see
Note 10), and the Company now operates in one segment, the consumer electronics
segment. The consumer electronics business includes the design, sourcing,
importing and marketing of a variety of consumer electronic products and the
licensing of the "Emerson" trademark for a variety of
products domestically and internationally to certain licensees.
The unaudited interim consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present a fair statement of our consolidated financial position as
of December 31, 2005 and the results of operations for the three and nine month
periods ended December 31, 2005 and 2004. All significant intercompany accounts
and transactions have been eliminated in consolidation. The preparation of the
unaudited interim consolidated financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes; actual results could materially differ from
those estimates. The unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and accordingly do not include all of the disclosures
normally made in our annual consolidated financial statements. Accordingly,
these unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
fiscal year ended March 31, 2005 ("fiscal 2005"), included in our annual report
on Form 10-K, as amended, for fiscal 2005.
Due to the seasonal nature of Emerson's business, the results of
operations for the three and nine month periods ended December 31, 2005 are not
necessarily indicative of the results of operations that may be expected for any
other interim period or for the full year ending March 31, 2006 ("fiscal 2006").
Certain reclassifications were made to conform the prior
year's financial statements to the current presentation.
5
During the fourth quarter of fiscal 2005, the Company elected to
early-adopt SFAS No. 123R, "Share-Based Payment" ("SFAS 123R") under the
modified retrospective approach applied only to prior interim periods in fiscal
2005. As a result, the Company has applied SFAS 123R to new awards and to awards
modified, repurchased, or cancelled after April 1, 2004. Additionally,
compensation cost for the portion of awards for which the requisite service had
not been rendered that were outstanding as of April 1, 2004 are being recognized
as the requisite service is rendered on or after April 1, 2004 (generally over
the remaining option vesting period). The compensation cost for that portion of
awards has been based on the grant-date fair value of those awards as calculated
for pro forma disclosures under Statement 123. As a result of the early
adoption, under the provision of SFAS 123R, the Company has recorded
compensation costs of approximately $90,000 and $260,000 in income from
continuing operations for the three and nine months ended December 31, 2005
compared to approximately $68,000 and $79,000 for the three and nine months
ended December 31, 2004.
NOTE 2 - COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended December 31,
2005 and 2004 is as follows (in thousands):
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
December 31 December 31
--------------------------- ----------------------------
2005 2004 2005 2004
--------- -------- --------- --------
(Unaudited) (Unaudited)
Net income $ 1,395 $ 1,905 $ 15,730 $ 5,871
Interest rate swap -- -- -- (4)
Unrealized gain (loss) on
securities, net 1 -- 16 (1)
--------- -------- --------- --------
Comprehensive income $ 1,396 $ 1,905 $ 15,746 $ 5,866
========= ======== ========= ========
NOTE 3 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
December 31 December 31
--------------------------- ----------------------------
2005 2004 2005 2004
--------- -------- --------- --------
(Unaudited) (Unaudited)
NUMERATOR:
Net earnings from continuing
operations for basic and
diluted earnings per share $ 1,395 $ 2,919 $ 2,813 $ 5,840
========= ======== ========= ========
DENOMINATOR:
Denominator for basic earnings
per share - weighted average
shares 27,048 27,103 27,089 26,938
Effect of dilutive securities:
Options and warrants 101 136 93 303
--------- -------- --------- --------
Denominator for diluted
earnings per share -
weighted average shares and
assumed conversions 27,149 27,239 27,182 27,241
========= ======== ========= ========
Earnings from continuing operations
Basic and diluted earnings per
share $ 0.05 $ 0.11 $ 0.10 $ 0.22
========= ======== ========= ========
6
NOTE 4- SHAREHOLDERS' EQUITY
Outstanding capital stock at December 31, 2005 consists of common stock
and Series A convertible preferred stock from which the conversion feature
expired effective March 31, 2002.
At December 31, 2005, Emerson has outstanding approximately 757,000
options with exercise prices ranging from $1.00 to $3.26.
In September 2003, the Company publicly announced the Emerson Radio
Corp. common stock repurchase program. The program provides for share repurchase
of up to 2,000,000 shares of Emerson's outstanding common stock. As of December
31, 2005, the Company has repurchased 1,267,623 shares under this program.
During the quarter ended December 31, 2005, there were no shares repurchased
under this program. Repurchases of the Company's shares are subject to certain
conditions under Emerson's banking facility.
On August 1, 2004, in connection with a consulting agreement, Emerson
granted 50,000 warrants with immediate vesting and an exercise price of $3.00
per share with an expiration date of August 2009. These warrants were valued
using the Black-Scholes valuation model, which resulted in $88,500 being charged
to earnings during the quarter ended September 30, 2004. As of December 31,
2005, these warrants have not been exercised.
NOTE 5 - INVENTORY
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. As of December 31, 2005 and
March 31, 2005, inventories consisted of the following (in thousands):
7
December 31, March 31,
2005 2005
------------ ---------
(Unaudited)
Finished goods $ 40,193 $ 39,446
Less inventory allowances (1,680) (1,290)
---------- ---------
$ 38,513 $ 38,156
========== =========
NOTE 6 - INCOME TAXES
The Company has tax net operating loss carry forwards included in net
deferred tax assets that are available to offset future taxable income and can
be carried forward for 15 to 20 years. Although realization is not assured,
management believes it is more likely than not that all of the net deferred tax
assets will be realized through tax planning strategies available in future
periods and through future profitable operating results. The amount of the
deferred tax asset considered realizable could be reduced or eliminated if
certain tax planning strategies are not successfully executed or estimates of
future taxable income during the carryforward period are reduced. If management
determines that the Company would not be able to realize all or part of the net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period such determination was made.
NOTE 7 - RELATED PARTY TRANSACTIONS
Effective March 1997, and as subsequently amended on July 1, 2005,
Emerson entered into a Management Services Agreement with SSG, under which each
company provided various managerial and administrative services to the other
company for fees at terms which reflect arms length transactions. These charges
totaled a net expense in continuing operations of approximately $22,000 and
$20,000 for the three and nine month periods ended December 31, 2005 and
approximately $63,000 and $201,000 for the three and nine month periods ended
December 31, 2004, respectively, with corresponding income reflected in
discontinued operations.
On December 5, 2005, The Grande Group (Hong Kong) Limited ("Grande")
purchased approximately 37% (10,000,000 shares) of the Company's outstanding
common stock from the Company's Chairman and Chief Executive Officer, Geoffrey
P. Jurick. In January 2006, Emerson commenced leasing office space in Hong Kong
from Grande on terms which Emerson management believes reflect arms length
transactions. In addition, Grande is also providing services in connection with
this office space rental on terms that Emerson management believes reflect arms
length transactions. As of December 31, 2005, no amounts were paid or expensed
to operations under these arrangements.
8
NOTE 8 - BORROWINGS
SHORT-TERM BORROWINGS
Short-term borrowings consisted of amounts outstanding under the
Company's foreign bank facilities held by its foreign subsidiaries. Availability
under this facility totals $10.2 and $21.0 million as of December 31, 2005 and
March 31, 2005, and is maintained by the pledge of bank deposits of
approximately $3.0 million and $5.6 million as of December 31, 2005 and March
31, 2005, respectively.
December 31, March 31,
2005 2005
------------ ----------
(In thousands)
(Unaudited)
Foreign bank loans $ 1,777 $ 13,044
======== =========
On December 5, 2005, to bridge the termination of its prior lending
agreement and the finalization of its new Revolving Credit Agreement with
Wachovia, the Company secured from its CEO and Chairman an $8.0 million credit
line available to satisfy any financing needs during the bridge period. The
Company did not have need for or utilize the $8.0 million credit line during the
bridge period.
LONG-TERM BORROWINGS
As of December 31, 2005 and March 31, 2005, borrowings under long-term
facilities consisted of the following:
December 31, March 31,
2005 2005
------------ ---------
(In thousands)
(Unaudited)
Emerson Revolver $ -- $ 11,300
Mortgage payable 660 715
Equipment notes and other 22 30
------ ---------
682 12,045
Less current maturities 85 85
------ ---------
Long term debt and notes payable $ 597 $ 11,960
====== =========
9
Emerson Credit Facility - On December 23, 2005, Emerson entered into a
$45.0 million Revolving Credit Agreement with Wachovia Bank, National
Association. The loan agreement provides for a $45.0 million revolving line of
credit which replaced Emerson's prior $35.0 million credit facility under
substantially the same terms and conditions. The $45.0 million revolving line of
credit facility provides for revolving loans subject to individual maximums
which, in the aggregate, are not to exceed the lesser of $45 million or a
"Borrowing Base" as defined in the loan agreement. The Borrowing Base amount is
established by specified percentages of eligible accounts receivables and
inventories and bears interest ranging from Prime (0.50% as of December 31,
2005) plus 0.00% to 0.50% or, at Emerson's election, LIBOR (2.00% as of December
31, 2005) plus 1.25% to 2.25% depending on excess availability. Pursuant to the
Revolving Credit Agreement, Emerson is restricted from, among other things,
paying certain cash dividends, and entering into certain transactions without
the lender's prior consent and is subject to certain leverage financial
covenants. Amounts outstanding under the loan agreement will be secured by
substantially all of Emerson's tangible assets.
As of December 31, 2005, there were no borrowings outstanding under the
facility and Emerson was in compliance with the covenants contained in the loan
agreement.
As of December 31, 2005, the carrying value of this credit facility
approximated fair value.
NOTE 9 - LEGAL PROCEEDINGS
Putative Class Actions
On December 15, 2005, Jeffrey S. Abraham, as Trustee of the Law Offices
of Jeffrey S. Abraham Money Purchase Plan dated December 31, 1999 F/B/O Jeffrey
S. Abraham ("Plaintiff"), on behalf of himself and all common shareholders of
Sport Supply Group, Inc. ("Sport Supply"), filed a putative class action and
derivative complaint against Emerson, Geoffrey P. Jurick, Arthur J. Coerver,
Harvey Rothenberg, Collegiate Pacific, Inc. and Michael J. Blumenfeld and
nominal defendant Sport Supply in the Court of Chancery of the State of
Delaware, Civil Action No. 1845-N.
The complaint asserts two causes of action: The first cause of action
is a purported class claim against Emerson and Mr. Jurick for breach of
fiduciary duty to the minority shareholders of Sport Supply by selling Emerson's
controlling stake in Sport Supply to Collegiate at a premium, allegedly knowing
that Collegiate intended to use for its own benefit the proprietary assets of
Sport Supply. The second cause of action asserts a purported derivative claim
against Collegiate and Messrs. Coerver and Rothenberg for alleged breaches of
fiduciary duty and unjust enrichment. Plaintiff alleges that in connection with
the purchase of Emerson's controlling block of Sport Supply's stock, Collegiate
and Messrs. Coerver and Rothenberg breached their fiduciary duties of loyalty
and good faith to Sport Supply's shareholders by transferring assets and
technology to Collegiate without compensation to Sport Supply's shareholders.
Plaintiff further alleges that Collegiate was unjustly enriched through the use
and transfer of Sport Supply's assets.
10
The defendants are currently required to respond to the complaint on or
before March 15, 2006. Emerson and Mr. Jurick believe that the claims against
them are without merit and intend to defend this lawsuit vigorously. Based on
the expectation that the defendants will prevail in their defense, no loss has
been accrued in this matter as of December 31, 2005.
For the past two years, Emerson has been defending a
consolidated putative class action captioned In Re Emerson Radio Corp.
Securities Litigation, 03cv4201 (JLL) (the "Consolidated Action") filed in the
United States District Court for the District of New Jersey. The class action
complaint asserted claims against Emerson and Messrs. Geoffrey Jurick, Kenneth
Corby, John Raab and Jerome Farnum (the "Individual Defendants") on behalf of
purchasers of Emerson's publicly traded securities between January 29, 2003 and
August 12, 2003 (the "Class Period"). By a December 19, 2005 Opinion and Order,
the Court granted the defendants' motion to dismiss the complaint without
prejudice and granted the plaintiffs leave to amend their pleading consistent
with the rulings in the Court's Opinion and Order.
Generally, the complaint had alleged that Emerson and the Individual
Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated thereunder, by (i) issuing certain positive
statements during the Class Period regarding our ability to replace lost
revenues attributable to the Hello Kitty(R) license and (ii) omitting to
disclose that Emerson suffered allegedly soured relationships with its largest
retail customers. Emerson and the Individual Defendants continue to deny all
allegations and intend to defend any amended complaint vigorously. Based on the
expectation that the defendants will ultimately prevail in their defense, no
loss has been accrued in this matter as of December 31, 2005.
Other Matters
The Company is a party to various other litigation matters, in most
cases involving ordinary and routine claims incidental to its business. We
cannot estimate with certainty our ultimate legal and financial liability with
respect to such pending litigation matters. However, we believe, based on our
examination of such matters, that our ultimate liability will not have a
material adverse effect on our financial position, results of operations or cash
flows.
11
NOTE 10 - DISCONTINUED OPERATIONS
On July 1, 2005, Emerson sold its 53.2% interest in SSG to Collegiate.
After disposition costs, Emerson realized and reported in the quarter ended
September 30, 2005, a gain of approximately $12.6 million, net of estimated
deferred taxes of $4.2 million. Proceeds from the sale were used to pay down
$18.5 million of indebtedness.
The following table represents the results of the discontinued
operations, net of minority interest, and net of income taxes for which there
was no provision or recovery in either period.
Three Months Ended Nine Months Ended
December 31 December 31
Discontinued Operations(SSG) 2005 2004 2005 2004
------------ --------- --------- ---------
Net revenues $ -- $ 14,334 $ 23,218 $ 62,687
============ ========= ========= =========
Operating income -- (1,853) 561 215
============ ========= ========= =========
Net income $ -- $ (1,014) $ 271 $ 31
============ ========= ========= =========
Gain on sale of SSG, net of tax $ -- $ -- $ 12,646 $ --
============ ========= ========= =========
Net assets related to discontinued operations of $13.7 million are
reported on the accompanying March 31, 2005 balance sheet and consist of:
----------------------
Cash and cash equivalents $ 1,137
Accounts receivable 13,770
Inventories, net 15,361
Deferred tax assets 3,387
Property, plant and
equipment, net 5,983
Intangible assets, net 4,478
Other assets 2,395
----------------------
Total assets $ 46,511
======================
Account payable and other
accrued liabilities $ 13,083
Bank borrowings 3,035
Minority interest 16,696
----------------------
Total liabilities and
Minority interest $ 32,814
======================
Net assets $ 13,697
======================
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion of our operations and financial condition
should be read in conjunction with the Financial Statements and notes thereto
included elsewhere in this Quarterly Report on Form 10-Q.
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. Accordingly, all amounts are approximations.
FORWARD-LOOKING INFORMATION
COMPANY FILINGS
This report contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
Forward-looking statements include statements with respect to Emerson's
beliefs, plans, objectives, goals, expectations, anticipations, assumptions,
estimates, intentions, and future performance, and involve known and unknown
risks, uncertainties and other factors, which may be beyond Emerson's control,
and which may cause Emerson's actual results, performance or achievements to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements.
All statements other than statements of historical fact are statements
that could be forward-looking statements. You can identify these forward-looking
statements through Emerson's use of words such as "may," "will," "can,"
"anticipate," "assume," "should," "indicate," "would," "believe," "contemplate,"
"expect," "seek," "estimate," "continue," "plan," "project," "predict," "could,"
"intend," "target," "potential," and other similar words and expressions of the
future. These forward-looking statements may not be realized due to a variety of
factors, including, without limitation:
o the loss of any of our key customers or reduction in the purchase of
our products by any such customers;
o the failure to maintain our relationships with our licensees and
distributors or the failure to obtain new licensees or distribution
relationships on favorable terms;
o our inability to anticipate market trends, enhance existing products
or achieve market acceptance of new products;
13
o our dependence on a limited number of suppliers for our components
and raw materials;
o our dependence on third party manufacturers to manufacture and
deliver our products;
o the seasonality of our business, as well as changes in consumer
spending and economic conditions;
o the failure of third party sales representatives to adequately
promote, market and sell our products;
o our inability to protect our intellectual property;
o the effects of competition;
o changes in foreign laws and regulations and changes in the political
and economic conditions in the foreign countries in which we
operate;
o changes in accounting policies, rules and practices; and
o the other factors listed under "Risk Factors" in this Form 10-Q, as
well as our Form 10-K, as amended, for the fiscal year ended March
31, 2005 and other filings with the Securities and Exchange
Commission (the "SEC").
All forward-looking statements are expressly qualified in their
entirety by this cautionary notice. You are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of the date of
this prospectus or the date of the document incorporated by reference into this
prospectus. We have no obligation, and expressly disclaim any obligation, to
update, revise or correct any of the forward-looking statements, whether as a
result of new information, future events or otherwise. We have expressed our
expectations, beliefs and projections in good faith and we believe they have a
reasonable basis. However, we cannot assure you that our expectations, beliefs
or projections will result or be achieved or accomplished.
We make available through our internet website free of charge our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, amendments to such reports and other filings made by us with the SEC,
as soon as practicable after we electronically file such reports and filings
with the SEC. Our website address is www.emersonradio.com. The information
contained in this website is not incorporated by reference in this report.
14
RESULTS OF OPERATIONS
As a result of the sale of SSG, the results of operations of SSG have
been presented as discontinued operations for all periods presented, and we now
operate in one segment, the consumer electronics segment. Accordingly, only the
consumer electronics segment is presented in the following Management's
Discussion and Analysis.
The following table summarizes certain financial information for the
three and nine month periods ended December 31, 2005 (fiscal 2006) and the three
and nine month periods ended December 31, 2004 (fiscal 2005) (in thousands):
Three Months Ended December 31 Nine Months Ended December 31
---------------------------------- ------------------------------------
2005 2004 2005 2004
---------------- -------------- ---------------- ----------------
(Unaudited) (Unaudited)
Net revenues $ 76,514 $ 80,345 $ 192,737 $ 188,051
Cost of sales 66,555 69,607 167,577 160,010
Other operating costs 1,823 1,127 4,663 4,057
Selling, general and
administrative costs 5,588 4,621 14,810 13,626
Acquisition costs
recovered -- (29) -- (204)
Stock based costs 90 68 260 168
---------------- -------------- ---------------- ----------------
Operating income 2,458 4,951 5,427 10,394
Interest expense, net 370 400 976 964
---------------- -------------- ---------------- ----------------
Income before income taxes 2,088 4,551 4,451 9,430
Provision for income taxes 693 1,632 1,638 3,590
---------------- -------------- ---------------- ----------------
Net income from continuing
operations $ 1,395 $ 2,919 $ 2,813 $ 5,840
================ ============== ================ ================
Net Revenues - Net revenues for the third quarter of fiscal 2006 decreased $3.8
million, or 4.8%, to $76.5 million from $80.3 million for the third quarter of
fiscal 2005. For the nine month period of fiscal 2006, net revenues increased
$4.7 million, or 2.5%, to $192.7 million from $188.0 million for the nine month
period of fiscal 2005. Net revenues are comprised of Emerson(R) branded product
sales, themed product sales and licensing revenues. Emerson(R) branded product
sales are earned from the sale of products bearing the Emerson(R) or HH Scott(R)
brand name; themed product sales represent products sold bearing a certain theme
or character; and licensing revenues are derived from licensing the Emerson(R)
and HH Scott(R) brand names to licensees for a fee. The variations in net
revenue for the three and nine month periods were comprised of:
i) A decrease in revenues from the sale of Emerson(R) branded product of
$13.1 million, or 19.3%, to $54.9 million from $68.0 million for the
third quarter of fiscal 2006 as compared to the same period in fiscal
2005. Revenues for the nine month period of fiscal 2006 of Emerson(R)
branded product decreased $25.3 million, or 15.3%, to $140.2 million
from $165.5 million for the same period in fiscal 2005. The decreases
for the three and nine month periods were primarily due to decreases in
the number of units sold in the audio category of the Emerson(R)
product group.
15
ii) An increase in themed product sales to $19.9 million and $46.4
million from $9.9 million and $13.4 million for the three and nine
month periods of fiscal 2006 and fiscal 2005, respectively. These
revenue increases were primarily the result of increased sales
traction of the themed product category combined with a major holiday
program with one of our major customers.
iii) Licensing revenues decreased by approximately $767,000, or 32.0%, to
approximately $1.6 million for the third quarter of fiscal 2006 from
$2.4 million in the third quarter of fiscal 2005. For the nine months
in fiscal 2006, licensing revenues decreased by approximately $3.0
million, or 32.7%, to $6.1 million for the nine months in fiscal 2006
as compared to $9.1 million in the same period in fiscal 2005. The
decreases for the three and nine month periods were primarily due to
lower sales volumes under our video licensing agreement. This
downward trend in our video license has continued over the last
several quarters and is expected to continue in future quarters,
although we expect such licensing revenue from this video license to
be above the minimums of $4.3 million on a full fiscal year basis.
Cost of Sales - Cost of sales, as a percentage of net revenues, increased for
the third quarter of fiscal 2006 to 87.2% from 86.6% for the same period of
fiscal 2005, and to 87.0% from 85.1% for the nine month period of fiscal 2006
compared to the same period of fiscal 2005. In relative terms, the increase in
cost of sales for the three and nine month periods was primarily due to
decreased licensing revenues and decreased margins in our themed product
category. The decreased margins were attributable partially to a major holiday
program which was completed in the December quarter, and are expected to return
to a higher level in the fourth quarter of fiscal 2006. In absolute terms, costs
of sales for the third quarter of fiscal 2006 decreased $3.0 million, or 4.4%,
to $66.6 million from $69.6 million for the same period in fiscal 2005. For the
nine month period of fiscal 2006, cost of sales increased $7.6 million, or 4.7%,
to $167.6 million from $160.0 million for the same period of fiscal 2005.
Gross profit margins continue to be subject to decreased licensing revenues and
competitive pressures arising from lower pricing of the product categories in
the consumer electronics market in which Emerson competes. Emerson's branded
products are generally placed in the low-to-medium priced category of the
market.
Other Operating Costs and Expenses - Other operating costs and expenses, as a
percentage of net revenues, increased to 2.4% from 1.4% for the third quarter of
fiscal 2006 compared to the same period of fiscal 2005, respectively, and
increased to 2.4% for the nine month period of fiscal 2006 compared to 2.2% for
the same period in fiscal 2005. In absolute terms, other operating costs and
expenses increased approximately $696,000 and $606,000, to $1.8 million from
$1.1 million and to $4.7 million from $4.1 million for the three and nine month
periods of fiscal 2006 and fiscal 2005, respectively. In absolute terms, the
increase for the three and nine month periods was primarily due to higher
service fees related to inventory and returned product handling.
16
Selling, General and Administrative Expenses ("S,G&A") - S,G&A increased
approximately $967,000, or 20.9%, to $5.6 million (7.3% of net revenues) from
$4.6 million (5.8% of net revenues) for the third quarter of fiscal 2006 as
compared to the third quarter of fiscal 2005. For the nine month period of
fiscal 2006, S,G&A expenses increased $1.2 million, or 8.7%, to $14.8 million
(7.7% of net revenues) from $13.6 million (7.3% of net revenues). The increase
in absolute terms for the three month period of fiscal 2006 compared to fiscal
2005 was primarily due to increased advertising expenditures, professional fees,
freight costs and bad debt expense of approximately $110,000, $140,000, $108,000
and $410,000, respectively, partially offset by decreases in various other S,G&A
costs. The increase in absolute terms for the nine month period of fiscal 2006
compared to fiscal 2005 was primarily due to increases in commission
expenditures of $203,000, freight costs of $131,000, payroll costs of
approximately $312,000, depreciation expenses of $202,000 and bad debt expense
totaling $519,000, partially offset by decreases in professional fees and a gain
on sale of real property of approximately $90,000 and $198,000, respectively.
Acquisition Costs Recovered - In fiscal 2005, adjustments to acquisition costs
incurred in the prior year were recorded resulting in a recovery of such costs
of $29,000 and $204,000 for the three and nine month periods ended December 31,
2004, respectively. These costs were associated with contemplated acquisition
transactions in fiscal 2004 that were not completed.
Stock Based Costs - Stock based costs relate to stock option expense associated
with the adoption of SFAS 123R "Share-Based Payments." Stock based costs for the
three and nine month periods of fiscal 2006 were approximately $90,000 and
$260,000 as compared to approximately $68,000 and $168,000 for the three and
nine month periods of fiscal 2005. For the nine month period ended December 31,
2004, approximately $79,000 was associated with stock options and $89,000 was
associated with the cost of warrants issued in exchange for consulting services.
Interest Expense, net - Interest expense decreased approximately $30,000, or
7.5%, to $370,000 for the third quarter of fiscal 2006 from $400,000 for the
third quarter of fiscal 2005. For the nine month period of fiscal 2006, interest
expense increased approximately $12,000, or 1.2%, to $976,000 from $964,000 for
the same period of fiscal 2005. The decrease in interest expense for the three
month period of fiscal 2006 was the result of lower average borrowings, mainly
offset by the expensing of unamortized deferred financing costs of approximately
$300,000 which resulted from the replacement of a prior credit facility as
compared to the same period of fiscal 2005. For the nine month period of fiscal
2006, the increase in interest expenses was primarily due to the expensing of
unamortized deferred financing costs of approximately $300,000 which resulted
from the replacement of a prior credit facility and higher borrowing costs as
compared to the same period in fiscal 2005.
17
Provision for Income Taxes - The provision for income taxes was approximately
$693,000 and $1.6 million for the three and nine month periods of fiscal 2006,
respectively, as compared to $1.6 million and $3.6 million for the three and
nine month periods of fiscal 2005. The decrease in the tax provision for both
periods was primarily the result of lower pre-tax profit as compared to the same
period in fiscal 2005.
Income From Continuing Operations - As a result of the foregoing factors, net
income from continuing operations amounted to approximately $1.4 million (0.7%
of net revenues) for the third quarter of fiscal 2006 as compared to $2.9
million (1.6% of net revenues) for the same period of fiscal 2005. For the nine
month period of fiscal 2006, net income from continuing operations totaled
approximately $2.8 million (1.5% of net revenues) as compared to $5.8 million
(3.1% of net revenues) for the nine month period of fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2005, we had cash and cash equivalents of
approximately $13.4 million compared to approximately $1.8 million at March 31,
2005. Working capital increased to $59.6 million at December 31, 2005 as
compared to $56.1 million at March 31, 2005. The increase in cash and cash
equivalents of approximately $11.6 million was primarily due to proceeds
provided by the sale of SSG and an increase in cash provided by operating
activities, partially offset by increases in cash used by investing and
financing activities, as described below.
Cash flows provided by continuing operating activities were
approximately $4.5 million for fiscal 2006, primarily related to an increase in
accounts payable and accrued liabilities ($6.4 million), an increase in asset
allowances and other reserves ($2.8 million), a reduction in cash securing bank
loans ($2.6 million) and operating income of $2.8 million, offset by an increase
in accounts receivable of $11.9 million. The increase in accounts receivables
was due to the seasonality of the business.
Net cash used by investing activities was approximately $654,000 in
fiscal 2006, which consisted primarily of leasehold improvement expenditures and
acquisition of tools and equipment.
Net cash used by financing activities was approximately $23.0 million
in fiscal 2006, primarily due to the repayment of foreign and domestic
borrowings under our credit facilities as a result of the cash made available
from the sale of the Company's ownership interest in SSG.
18
On December 23, 2005, Emerson entered into a $45.0 million Revolving
Credit Agreement with Wachovia Bank, National Association. The loan agreement
provides for a $45 million revolving line of credit. The $45.0 million revolving
line of credit replaced Emerson's prior $35.0 million credit facility which
contained substantially the same terms and conditions as the Revolving Credit
Agreement. The $45.0 million revolving line of credit facility provides for
revolving loans subject to individual maximums which, in the aggregate, are not
to exceed the lesser of $45 million or a "Borrowing Base" as defined in the loan
agreement. The Borrowing Base amount is established by specified percentages of
eligible accounts receivables and inventories and bears interest ranging from
Prime plus 0.00% to 0.50% or, at Emerson's election, LIBOR plus 1.25% to 2.25%
depending on excess availability. Pursuant to the loan agreement, Emerson is
restricted from, among other things, paying certain cash dividends, and entering
into certain transactions without the lender's prior consent and is subject to
certain leverage financial covenants. Amounts outstanding under the loan
agreement will be secured by substantially all of Emerson's tangible assets.
On December 5, 2005, to bridge the termination of its prior lending
agreement and the finalization of its new Revolving Credit Agreement with
Wachovia, the Company secured from its CEO and Chairman an $8.0 million credit
line available to satisfy any financing needs during the bridge period. The
Company did not have need for or utilize the $8.0 million credit line during the
bridge period.
As of December 31, 2005, there were no borrowings outstanding under the
facility and Emerson was in compliance with the covenants contained in the loan
agreement. The loan agreement expires in December 2010, and accordingly, all
amounts outstanding under this facility have been presented as long-term.
Our foreign subsidiaries maintain various credit facilities,
aggregating $19.5 million, consisting of the following:
o Two letter of credit facilities totaling $12.0 million which are
used for inventory purchases; and
o Two back-to-back letter of credit facilities totaling $7.5 million.
At December 31, 2005, our foreign subsidiaries pledged approximately
$3.0 million in certificates of deposit to this bank to assure the availability
of the $12.0 million of credit facilities. At December 31, 2005, there were
approximately $7.5 million of letters of credit outstanding under these credit
facilities.
We believe that our present cash position, future cash flow from
operations and our existing institutional financing noted above will be
sufficient to fund all of our cash requirements for the next twelve months.
19
The following summarizes our obligations at December 31, 2005 for the
periods shown (in thousands):
PAYMENT DUE BY PERIOD
-----------------------------------------------------------------------------------------
LESS THAN MORE THAN 5
TOTAL 1 YEAR 1 - 3 YEARS 3 - 5 YEARS YEARS
-----------------------------------------------------------------------------------------
Notes and
mortgages payable $ 660 $ 74 $ 148 $ 148 $ 290
Capital lease
obligations 22 11 11 -- --
Leases 6,346 1,492 2,786 1,938 130
-----------------------------------------------------------------------------------------
Total $ 7,028 $ 1,577 $ 2,945 $ 2,086 $ 420
=========================================================================================
There were no material capital expenditure commitments and no
substantial commitments for purchase orders outside the normal purchase orders
used to secure product as of December 31, 2005.
CRITICAL ACCOUNTING POLICIES
For the nine month period ended December 31, 2005, there were no
significant changes to our accounting policies from those reported in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2005.
INFLATION, FOREIGN CURRENCY, AND INTEREST RATES
Neither inflation nor currency fluctuations had a significant effect on
our results of operations during the first three quarters of fiscal 2006. Our
exposure to currency fluctuations has been minimized by the use of U.S. dollar
denominated purchase orders, and by sourcing production in more than one
country. The consumer electronics segment purchases virtually all of its
products from manufacturers located in various Asian countries.
The interest on borrowings under our credit facilities is based on the
prime and LIBOR rate. We believe that given the present economic climate,
interest rates, while expected to rise, are not expected to increase
significantly during the coming year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes from items disclosed in Form
10-K for the fiscal year ended March 31, 2005.
20
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures.
During the nine month period of fiscal 2006, our management, including
the principal executive officer and principal financial officer, evaluated our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) related to the recording, processing,
summarization and reporting of information in our reports that we file with the
SEC. These disclosure controls and procedures have been designed to ensure that
material information relating to us, including our subsidiaries, is made known
to our management, including these officers, by other of our employees, and that
this information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the SEC's rules and forms. Due
to the inherent limitations of control systems, not all misstatements may be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. Our controls and procedures can only provide
reasonable, not absolute, assurance that the above objectives have been met.
Based on their evaluation as of December 31, 2005, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective to reasonably ensure
that the information required to be disclosed by us in the reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
(b) Changes in internal controls over financial reporting.
There have been no changes in our internal controls over financial
reporting that occurred during our last fiscal quarter to which this Quarterly
Report on Form 10-Q relates that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Putative Class Actions
On December 15, 2005, Jeffrey S. Abraham, as Trustee of the Law Offices
of Jeffrey S. Abraham Money Purchase Plan dated December 31, 1999 F/B/O Jeffrey
S. Abraham ("Plaintiff"), on behalf of himself and all common shareholders of
Sport Supply Group, Inc. ("Sport Supply"), filed a putative class action and
derivative complaint against Emerson, Geoffrey P. Jurick, Arthur J. Coerver,
Harvey Rothenberg, Collegiate Pacific, Inc. and Michael J. Blumenfeld and
nominal defendant Sport Supply in the Court of Chancery of the State of
Delaware, Civil Action No. 1845-N.
21
The complaint asserts two causes of action: The first cause of action
is a purported class claim against Emerson and Mr. Jurick for breach of
fiduciary duty to the minority shareholders of Sport Supply by selling Emerson's
controlling stake in Sport Supply to Collegiate at a premium, allegedly knowing
that Collegiate intended to use for its own benefit the proprietary assets of
Sport Supply. The second cause of action asserts a purported derivative claim
against Collegiate and Messrs. Coerver and Rothenberg for alleged breaches of
fiduciary duty and unjust enrichment. Plaintiff alleges that in connection with
the purchase of Emerson's controlling block of Sport Supply's stock, Collegiate
and Messrs. Coerver and Rothenberg breached their fiduciary duties of loyalty
and good faith to Sport Supply's shareholders by transferring assets and
technology to Collegiate without compensation to Sport Supply's shareholders.
Plaintiff further alleges that Collegiate was unjustly enriched through the use
and transfer of Sport Supply's assets.
The defendants are currently required to respond to the complaint on or
before March 15, 2006. Emerson and Mr. Jurick believe that the claims against
them are without merit and intend to defend this lawsuit vigorously
For the past two years, Emerson has been defending a consolidated
putative class action captioned In Re Emerson Radio Corp. Securities Litigation,
03cv4201 (JLL) (the "Consolidated Action") filed in the United States District
Court for the District of New Jersey. The class action complaint asserted claims
against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby, John Raab and Jerome
Farnum (the "Individual Defendants") on behalf of purchasers of Emerson's
publicly traded securities between January 29, 2003 and August 12, 2003 (the
"Class Period"). By a December 19, 2005 Opinion and Order, the Court granted the
defendants' motion to dismiss the complaint without prejudice and granted the
plaintiffs leave to amend their pleading consistent with the rulings in the
Court's Opinion and Order.
Generally, the complaint had alleged that Emerson and the Individual
Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated thereunder, by (i) issuing certain positive
statements during the Class Period regarding our ability to replace lost
revenues attributable to the Hello Kitty(R) license and (ii) omitting to
disclose that Emerson suffered allegedly soured relationships with its largest
retail customers. Emerson and the Individual Defendants continue to deny all
allegations and intend to defend any amended complaint vigorously.
22
For other information on litigation to which the Company is a party,
reference is made to Part 1 Item 3 - Legal Proceedings in our most recent annual
report on Form 10-K.
ITEM 1.A RISK FACTORS.
As a result of the sale of our interest in SSG in July 2005, the sale
of Geoffrey Jurick's shares of Emerson common stock to a subsidiary of The
Grande Holdings Limited and other business developments, the risk factors
contained in our Annual Report on Form 10-K for the fiscal year ended March 31,
2005 have been updated as set forth below. You should carefully consider these
risk factors in addition to our financial statements and the notes to such
financial statements included elsewhere in this Form 10-Q. Additional risks that
we do not yet know of or that we currently think are immaterial may also impair
our business operations. If any of the following risks occur, our business,
financial condition or operating results could be adversely affected. In that
case, the trading price of our common stock could decline.
Business Related Risks
THE LOSS, OR SIGNIFICANT REDUCTION IN BUSINESS OF ANY OF OUR KEY CUSTOMERS,
INCLUDING WAL-MART AND TARGET, COULD MATERIALLY AND ADVERSELY AFFECT OUR
REVENUES AND EARNINGS.
We are highly dependent upon sales of our consumer electronic products
to certain of our customers, including Wal-Mart and Target. During our fiscal
years ended March 31, 2005 and 2004, Wal-Mart stores accounted for approximately
30% and 25%, respectively, and Target stores accounted for approximately 12% and
15%, respectively, of our consolidated net revenues. Although no other customer
in either of our operating segments accounted for greater than 10% of our
consolidated net revenues during these periods, other customers may account for
more than 10% of our consolidated net revenues in future periods. All purchases
of our products by customers in both of our operating segments are made through
purchase orders and we do not have any long-term contracts with any of our
customers. The loss of Wal-Mart or Target, or any of our other customers to
which we sell a significant amount of our products or any significant portion of
orders from Wal-Mart or Target, or such other customers or any material adverse
change in the financial condition of such customers could materially and
adversely affect our revenues and earnings.
THE FAILURE TO MAINTAIN OUR RELATIONSHIPS WITH OUR LICENSEES, LICENSORS AND
DISTRIBUTORS OR THE FAILURE TO OBTAIN NEW LICENSEES, LICENSORS OR DISTRIBUTION
RELATIONSHIPS COULD MATERIALLY AND ADVERSELY AFFECT OUR REVENUES AND EARNINGS.
23
We maintain license agreements that allow licensees to use our
Emerson(R) and H.H. Scott(R) trademarks for the manufacture and sale of consumer
electronics and other products. In addition, we maintain distribution agreements
for the distribution of our consumer electronics products into defined
geographic areas. Although we have entered into agreements with certain of our
licensees and distributors of consumer electronics products, most of which have
a term of three years or less and expire between March 2006 and February 2010,
including our agreement with Funai, we cannot assure that such agreements will
be renewed when the terms of such agreements expire, or that our relationships
with our licensees or distributors will be maintained on satisfactory terms or
at all. The failure to maintain our relationships with Funai and our other
licensees and distributors on terms satisfactory to us, the failure to obtain
new licensees or distribution relationships or the failure by our licensees to
protect the integrity and reputation of our Emerson(R) and H.H. Scott(R)
trademarks could materially and adversely affect our licensing revenues and our
earnings. In addition, we maintain license agreements with MTV Networks to
license the Nickelodeon name, trademark and logo, along with several of
Nickelodeon's trademarks and logos, each of which expire in December 2006. We
may not be able to renew the license on terms favorable to us or at all. The
failure to maintain our relationship with MTV Networks or other licensors could
materially and adversely affect our revenues and earnings.
OUR REVENUES AND EARNINGS COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE
CANNOT ANTICIPATE MARKET TRENDS OR ENHANCE EXISTING PRODUCTS OR ACHIEVE MARKET
ACCEPTANCE OF NEW PRODUCTS.
Our success is dependent on our ability to successfully anticipate and
respond to changing consumer demands and trends in a timely manner, as well as
expanding into new markets and developing new products. In addition, to increase
our penetration of current markets and gain footholds in new markets for our
products, we must maintain existing products and integrate them with new
products. We may not be successful in developing, marketing and releasing new
products that respond to technological developments or changing customer needs
and preferences. We may also experience difficulties that could delay or prevent
the successful development, introduction and sale of these new products. In
addition, these new products may not adequately meet the requirements of the
marketplace and may not achieve any significant degree of market acceptance. If
release dates of any future products or enhancements to our products are
delayed, or if these products or enhancements fail to achieve market acceptance
when released, our sales volume may decline and earnings could be materially and
adversely affected. In addition, new products or enhancements by our competitors
may cause customers to defer or forgo purchases of our products, which could
also materially and adversely affect our revenues and earnings.
24
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR OUR PRODUCTS. THE AVAILABILITY TO
SECURE OUR PRODUCTS COULD REDUCE OUR REVENUES AND ADVERSELY AFFECT OUR
RELATIONSHIP WITH OUR CUSTOMERS.
We rely on a limited number of suppliers, most of which are located
outside of the United States. Although there are many suppliers for each of our
component parts and raw materials, we are dependent on a limited number of
suppliers for many of the significant components and raw materials. This
reliance involves a number of significant risks, including:
o lack of availability of materials and interruptions in delivery of
components and raw materials from our suppliers;
o manufacturing delays caused by such lack of availability or
interruptions in delivery;
o fluctuations in the quality and the price of components and raw
materials, in particular due to the petroleum price impact on such
materials; and
o risks related to foreign operations.
We do not have any long-term or exclusive purchase commitments with any of
our suppliers. StarLite, Lasco Industries and Oxygen are our largest suppliers
of components for our consumer electronics products, each of which accounted for
more than 10% of our purchases of components for our consumer electronics
products for our latest fiscal year. Our failure to maintain existing
relationships with our suppliers or to establish new relationships in the future
could also negatively affect our ability to obtain our components and raw
materials used in our products in a timely manner. If we are unable to obtain
ample supply of product from our existing suppliers or alternative sources of
supply, we may be unable to satisfy our customers' orders which could materially
and adversely affect our revenues and our relationship with our customers.
IF OUR ORIGINAL EQUIPMENT MANUFACTURERS ARE UNABLE TO DELIVER OUR PRODUCTS IN
THE REQUIRED AMOUNTS AND IN A TIMELY FASHION, WE COULD EXPERIENCE DELAYS OR
REDUCTIONS IN SHIPMENTS TO OUR CUSTOMERS WHICH COULD MATERIALLY AND ADVERSELY
AFFECT OUR REVENUES AND OUR RELATIONSHIP WITH OUR CUSTOMERS.
All of our consumer electronic products are manufactured in accordance
with our specifications by original equipment manufacturers principally located
in China.
If we are unable to obtain our products from the original equipment
manufacturers located in China in the required quantities and quality and in a
timely fashion, we could experience delays or reductions in product shipments to
our customers which could negatively affect our ability to meet the requirements
of our customers, as well as our relationships with our customers which in turn
could materially and adversely affect our revenues and operating results.
25
UNANTICIPATED DISRUPTIONS IN OUR OPERATIONS OR SLOWDOWNS BY OUR SUPPLIERS,
MANUFACTURERS AND SHIPPING COMPANIES COULD ADVERSELY AFFECT OUR ABILITY TO
DELIVER OUR PRODUCTS AND SERVICE OUR CUSTOMERS WHICH COULD MATERIALLY AND
ADVERSELY AFFECT OUR REVENUES AND OUR RELATIONSHIP WITH OUR CUSTOMERS.
Our ability to provide high quality customer service, process and
fulfill orders and manage inventory depends on:
o the efficient and uninterrupted operation of our call center and
distribution center; and
o the timely and uninterrupted performance of third party
manufacturers and suppliers, shipping companies, and dock workers.
Any material disruption or slowdown in the operation of our call
center, distribution center, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
manufacturers, suppliers and shippers could cause delays in our ability to
receive, process and fulfill customer orders and may cause orders to be
canceled, lost or delivered late, goods to be returned or receipt of goods to be
refused. As a result, our revenues and operating results could be materially and
adversely affected
OUR REVENUES AND EARNINGS COULD BE MATERIALLY AND ADVERSELY AFFECTED BY FOREIGN
REGULATIONS AND CHANGES IN THE POLITICAL, PUBLIC HEALTH AND ECONOMIC CONDITIONS
IN THE FOREIGN COUNTRIES IN WHICH WE OPERATE OUR BUSINESS.
We derive a significant portion of our revenues from sales of products
manufactured by third parties located primarily in China. In addition, third
parties located in China and other countries located in the same region produce
and supply many of the components and raw materials used in our products.
Conducting an international business inherently involves a number of
difficulties and risks that could materially and adversely affect our ability to
generate revenues and could subject us to increased costs. The main factors that
may adversely affect our revenues and increase our costs are:
o currency fluctuations which could cause an increase in the price of
the components and raw materials used in our products and a decrease
in our profits;
o more stringent export restrictions in the countries in which we
operate which could adversely affect our ability to deliver our
products to our customers;
26
o tariffs and other trade barriers which could make it more expensive
for us to obtain and deliver our products to our customers;
o political instability and economic downturns in these countries
which could adversely affect our ability to obtain our products from
our manufacturers or deliver our products to our customers in a
timely fashion; and
o seasonal reductions in business activity in these countries during
the summer months which could adversely affect our sales.
In addition, the outbreak of severe acute respiratory syndrome, or
SARS, in prior years which had particular impact in China, Hong Kong and
Singapore, had a negative effect on our consumer electronics operations. Our
operations, including our ability to obtain our products in a timely fashion,
could be impacted again, including disrupting the operation of our suppliers,
manufacturers and shipping companies, each of which could materially and
adversely affect our earnings, should such events reoccur in the future.
We have experienced, and may in the future experience, many of these
risks and cannot predict the impact of any particular risk on our operations.
However, any of these factors may materially and adversely affect our revenues
and/or increase our operating expenses.
THE SEASONALITY OF OUR BUSINESS, AS WELL AS CHANGES IN CONSUMER SPENDING AND
ECONOMIC CONDITIONS, MAY CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE AND
CAUSE OUR STOCK PRICE TO DECLINE.
Our net revenue and operating results may vary significantly from
quarter to quarter. The main factors that may cause these fluctuations are:
o seasonal variations in operating results;
o variations in the sales of our products to our significant
customers;
o increases in returned products in the March quarter which follows
our peak September and December selling quarters;
o variations in manufacturing and supplier relationships;
o if we are unable to correctly anticipate and provide for inventory
requirements from quarter to quarter, we may not have sufficient
inventory to deliver our products to our customers in a timely
fashion or we may have excess inventory that we are unable to sell;
27
o the discretionary nature of our customers' demands and spending
patterns;
o changes in market and economic conditions; and
o competition.
In addition, our quarterly operating results could be materially
adversely affected by political instability, war, acts of terrorism or other
disasters.
Sales of our products are somewhat seasonal due to consumer spending
patterns, which tend to result in significantly stronger sales in our September
and December fiscal quarters, especially as a result of the holiday season. This
pattern will probably not change significantly in the future. Although we
believe that the seasonality of our business is based primarily on the timing of
consumer demand for our products, fluctuations in operating results can also
result from other factors affecting us and our competitors, including new
product developments or introductions, availability of products for resale,
competitive pricing pressures, changes in product mix, pricing and product
reviews and other media coverage. Due to the seasonality of our business, our
results for interim periods are not necessarily indicative of our results for
the year.
Our sales and earnings can also be affected by changes in the general
economy since purchases of consumer electronics are generally discretionary for
consumers. - Our success is influenced by a number of economic factors affecting
disposable consumer income, such as employment levels, business conditions,
interest rates and taxation rates. Adverse changes in these economic factors,
among others, may restrict consumer spending, thereby negatively affecting our
sales and profitability.
As a result of these and other factors, revenues for any quarter are
subject to significant variation, which may adversely affect our results of
operations and the market price for our common stock.
IF OUR THIRD PARTY SALES REPRESENTATIVES FAIL TO ADEQUATELY PROMOTE, MARKET AND
SELL OUR CONSUMER ELECTRONIC PRODUCTS, OUR REVENUES COULD SIGNIFICANTLY
DECREASE.
A portion of our consumer electronic product sales are made through
third party sales representative organizations, whose members are not our
employees. Our level of sales depends on the effectiveness of these
organizations, as well as the effectiveness of our own employees. Some of these
third party representatives may sell, with our permission, competitive products
manufactured by other third parties as well as our products. During our fiscal
years ended March 31, 2005 and 2004, these organizations were responsible for
approximately 45% and 49%, respectively, of our net consumer electronics
revenues during such periods. In addition, two of these representative
organizations were responsible for a significant portion of these revenues. If
any of our third party sales representative organizations engaged by us,
especially our two largest, fails to adequately promote, market and sell our
consumer electronics products, our revenues could be significantly decreased
until a replacement organization or distributor could be retained by us. Finding
replacement organizations and distributors could be a time consuming process
during which our revenues could be negatively impacted.
28
THE SUBSTANTIAL OWNERSHIP OF OUR COMMON STOCK BY A SUBSIDIARY OF THE GRANDE
HOLDINGS LIMITED, A HONG KONG BASED GROUP OF COMPANIES, SUBSTANTIALLY REDUCES
THE INFLUENCE OF OUR OTHER STOCKHOLDERS.
A subsidiary of The Grande Holdings Limited owns approximately 37.0% of
our outstanding common stock. As a result, Grande currently has the ability to
influence significantly the actions that require stockholder approval,
including:
o the election of our directors; and
o the approval of mergers, sales of assets or other corporate
transactions or matters submitted for stockholder approval.
As a result, our other stockholders may have little or no influence
over matters submitted for stockholder approval.
WE MAY SEEK TO MAKE ACQUISITIONS THAT PROVE UNSUCCESSFUL OR STRAIN OR DIVERT OUR
MANAGEMENT'S ATTENTION AND OUR CAPITAL RESOURCES.
We may seek to grow our business through acquisitions of related
businesses. Such acquisitions present risks that could materially and adversely
affect our earnings, including:
o the diversion of our management's attention from our everyday
business activities;
o the assimilation of the operations and personnel of the acquired
business;
o the incurring of additional expenses related to such acquisitions,
whether or not such acquisitions are consummated;
o the contingent and latent risks associated with the past operations
of, and other unanticipated problems arising in, the acquired
business; and
o the need to expand management, administration and operational
systems.
If we make such acquisitions, we cannot predict whether:
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o we will be able to successfully integrate the operations of any new
businesses into our business;
o we will realize any anticipated benefits of completed acquisitions;
or
o there will be substantial unanticipated costs associated with
acquisitions.
In addition, future acquisitions by us may result in:
o potentially dilutive issuances of our equity securities;
o the incurrence of additional debt; and
o the recognition of significant charges for depreciation and
amortization related to goodwill and other intangible assets.
We continuously evaluate potential acquisitions of related businesses. However,
competition for such potential acquisitions is intense and we have not reached
any agreement or arrangement with respect to any particular acquisition and we
may not be able to complete any acquisitions on favorable terms or at all.
WE ARE SUBJECT TO INTENSE COMPETITION IN THE INDUSTRIES IN WHICH WE OPERATE,
WHICH COULD CAUSE MATERIAL REDUCTIONS IN THE SELLING PRICE OF OUR PRODUCTS OR
LOSSES OF OUR MARKET SHARE.
The consumer electronics industry is highly competitive, especially
with respect to pricing and the introduction of new products and features. Our
products compete in the low to medium-priced sector of the consumer electronics
market and compete primarily on the basis of:
o reliability;
o quality;
o price;
o design;
o consumer acceptance of the Emerson(R) trademark; and
o quality service and support to retailers and our customers.
In recent years we and many of our competitors have regularly lowered
prices, and we expect these pricing pressures to continue. If these pricing
pressures are not mitigated by increases in volume, cost reductions or changes
in product mix, our revenues and profits could be substantially reduced. As
compared to us, many of our competitors have:
30
o significantly longer operating histories;
o significantly greater managerial, financial, marketing, technical
and other competitive resources; and
o greater name recognition.
As a result, our competitors may be able to:
o adapt more quickly to new or emerging technologies and changes in
customer requirements;
o devote greater resources to the promotion and sale of their products
and services; and
o respond more effectively to pricing pressures.
These factors could materially adversely affect our operations and
financial condition. In addition, competition could increase if:
o new companies enter the market;
o existing competitors expand their product mix; or
o we expand into new markets.
An increase in competition could result in material price reductions or
loss of our market share.
OUR BUSINESS COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE CANNOT PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS OR IF WE INFRINGE ON THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS.
Our ability to compete effectively will depend on our ability to
maintain and protect our proprietary rights. We own the Emerson(R) trademark,
which is materially important to our business, as well as our licensees, other
trademarks and proprietary rights that are used for certain of our home
entertainment and consumer electronics products. Our trademarks are registered
throughout the world, including the United States, Canada, Mexico, France,
Spain, Germany and the United Kingdom. However, third parties may seek to
challenge, invalidate, circumvent or render unenforceable any proprietary rights
owned by or licensed to us. In addition, in the event third party licensees fail
to protect the integrity of our trademarks, the value of these marks could be
materially and adversely affected.
31
The laws of some foreign countries in which we operate may not protect
our proprietary rights to the same extent as do laws in the United States. The
protections afforded by the laws of such countries may not be adequate to
protect our intellectual property rights.
Our inability to protect our proprietary rights could materially
adversely affect the license of our trade names and trademarks to third parties
as well as our ability to sell our products. Litigation may be necessary to:
o enforce our intellectual property rights;
o protect our trade secrets; and
o determine the scope and validity of such intellectual property
rights.
Any such litigation, whether or not successful, could result in substantial
costs and diversion of resources and management's attention from the operation
of our business.
We may receive notice of claims of infringement of other parties'
proprietary rights. Such actions could result in litigation and we could incur
significant costs and diversion of resources in defending such claims. The party
making such claims could secure a judgment awarding substantial damages, as well
as injunctive or other equitable relief. Such relief could effectively block our
ability to make, use, sell, distribute or market our products and services in
such jurisdiction. We may also be required to seek licenses to such intellectual
property. We cannot predict, however, whether such licenses would be available
or, if available, that such licenses could be obtained on terms that are
commercially reasonable and acceptable to us. The failure to obtain the
necessary licenses or other rights could delay or preclude the sale, manufacture
or distribution of our products and could result in increased costs to us.
WE COULD BE EXPOSED TO PRODUCT LIABILITY OR OTHER CLAIMS FOR WHICH OUR PRODUCT
LIABILITY OR OTHER INSURANCE MAY BE INADEQUATE.
A failure of any of the products marketed by us may subject us to the
risk of product liability claims and litigation arising from injuries allegedly
caused by the improper functioning or design of our products. Although we
currently maintain product liability insurance in amounts which we consider
adequate, we cannot assure that:
o our insurance will provide adequate coverage against potential
liabilities;
32
o adequate product liability insurance will continue to be available
in the future; or
o our insurance can be maintained on acceptable terms.
We and certain of our officers and directors, are party to a class
action lawsuit and we cannot assure the outcome of such litigation. Although we
maintain liability insurance in amounts that we consider adequate, we cannot
assure that such policies will provide adequate coverage against potential
liabilities. To the extent product liability or other litigation losses are
beyond the limits or scope of our insurance coverage, our expenses could
materially increase. See Item 3 - "Legal Proceedings".
The inability to use our tax net operating losses could result in a charge to
earnings and could require us to pay higher taxes.
Emerson has substantial tax net operating losses available to reduce
taxable income for federal and state income tax purposes. A portion of the
benefit associated with the tax net operating losses has been recognized as a
deferred tax asset in our financial statements and could be used to reduce our
tax liability in future profitable periods. We believe these net deferred tax
assets will be realized through tax planning strategies available in future
periods and future profitable operating results. Although realization is not
assured, we believe it is more likely than not that all of the remaining net
deferred tax assets will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced or eliminated in the near term
if certain tax planning strategies are not successfully executed, or estimates
of future taxable income during the carryforward period is reduced.
OUR INDEBTEDNESS MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN ADDITIONAL FUNDS AND
MAY INCREASE OUR VULNERABILITY TO ECONOMIC OR BUSINESS DOWNTURNS.
From time to time we incur substantial debt in connection with our
operations. As a result, we may be subject to the risks associated with
indebtedness, including:
o we must dedicate a portion of our cash flows from operations to pay
debt service costs and, as a result, we have less funds available
for operations and other purposes;
o it may be more difficult and expensive to obtain additional funds
through financings, if available at all;
o we are more vulnerable to economic downturns and fluctuations in
interest rates, less able to withstand competitive pressures and
less flexible in reacting to changes in our industry and general
economic conditions; and
33
o if we default under any of our existing credit facilities or if our
creditors demand payment of a portion or all of our indebtedness, we
may not have sufficient funds to make such payments.
WE HAVE PLEDGED SUBSTANTIALLY ALL OF OUR ASSETS TO SECURE OUR BORROWINGS UNDER
OUR CREDIT FACILITIES AND ARE SUBJECT TO COVENANTS THAT MAY RESTRICT OUR ABILITY
TO OPERATE OUR BUSINESS.
Our indebtedness under our credit facility is secured by substantially
all of our assets. If we default under the indebtedness secured by our assets,
those assets would be available to the secured creditor to satisfy our
obligations to the secured creditor. In addition, our credit facilities impose
certain restrictive covenants, including financial, ownership, operational and
net worth covenants. Failure to satisfy any of these covenants could result in
all or any of the following:
o acceleration of the payment of our outstanding indebtedness;
o our inability to borrow additional amounts under our existing
financing arrangements; and
o our inability to secure financing on favorable terms or at all from
alternative sources.
Any of these consequences could significantly reduce the amount of
cash and financing available to us which in turn would adversely affect our
ability to operate our business, including acquiring our products from our
manufacturers and distributing our products to our customers.
Market Related Risks
THE MARKET PRICE OF OUR COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE AND
VOLUME FLUCTUATIONS FROM TIME TO TIME.
The market price for our common stock and for securities of similar
companies has from time to time experienced significant price and volume
fluctuations. Factors which may affect our market price include:
o market conditions in the industries in which we operate;
o competition;
o sales or the possibility of sales of our common stock;
34
o our results of operations and financial condition; and
o general economic conditions.
Furthermore, the stock market has experienced significant price and
volume fluctuations unrelated to the operating performance of particular
companies. These market fluctuations may also adversely affect the market price
of our common stock.
OUR ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAY MAKE IT HARDER FOR US TO BE
ACQUIRED WITHOUT THE CONSENT AND COOPERATION OF OUR BOARD OF DIRECTORS AND
MANAGEMENT.
Several provisions of our organizational documents and Delaware law may
deter or prevent a takeover attempt, including a takeover attempt in which the
potential purchaser offers to pay a per share price greater than the current
market price of our common stock. Under the terms of our certificate of
incorporation, our board of directors has the authority, without further action
by the stockholders, to issue shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof. The
ability to issue shares of preferred stock could tend to discourage takeover or
acquisition proposals not supported by our current board of directors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
SHARE REPURCHASES:
For the quarter ended December 31, 2005, we did not repurchase any
shares under Emerson Radio Corp.'s common stock share repurchase program. The
share repurchase program was publicly announced in September 2003 to repurchase
up to 2,000,000 shares of Emerson's outstanding common stock. Share repurchases
are made from time to time in open market transactions in such amounts as
determined in the discretion of Emerson's management within the guidelines set
forth by Rule 10b-18 under the Securities Exchange Act. Prior to the December
31, 2005 quarter, the Company repurchased 1,267,623 shares under this program.
As of December 31, 2005, the maximum number of shares that are available to be
repurchased under Emerson Radio Corp.'s common share repurchase program was
732,377.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(a) None
(b) None
35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Company's shareholders was held on December
9, 2005, at which time the shareholders elected the following slate of nominees
as the Board of Directors: Michael A.B. Binney, Peter G. Bunger, Jerome H.
Farnum, Herbert A. Morey and Geoffrey P. Jurick. There were 27,047,666 shares of
outstanding capital stock of the company entitled to vote at the record date for
this meeting and there were present at such meeting, in person or by proxy,
stockholders holding 26,877,546 shares of the Company's Common Stock, which
represented 99.4% of the total capital stock outstanding and entitled to vote.
(i) There were 21,370,979 shares voted on the matter of the election of
directors. The result of the votes cast regarding each nominee for office was:
Votes For Votes Withheld
--------- --------------
Michael A. B. Binney 26,351,654 525,892
Peter G. Bunger 24,649,245 2,228,301
Jerome H. Farnum 26,305,584 571,962
Herbert A. Morey 26,359,058 518,488
Geoffrey P. Jurick 26,255,498 622,048
(ii) With respect to a proposal to ratify the appointment of BDO
Seidman, LLP as the independent registered public accounting firm for Emerson
for the fiscal year ending March 31, 2006, the votes cast were; 26,753,462 voted
in favor, 64,960 voted against, and 59,124 votes abstained from voting on the
proposal.
ITEM 5. OTHER INFORMATION.
On December 5, 2005, we announced that our Chairman and Chief
Executive Officer, Geoffrey P. Jurick, had completed the sale of 10 million of
his Emerson common shares to a subsidiary of The Grande Holdings Limited, a Hong
Kong based group of companies engaged in a number of businesses including the
manufacture, sale and distribution of audio, video and other consumer
electronics and video products. The purchase price was $5.20 per share and was
paid in a combination of cash and a convertible debenture of Grande. As a result
of the sale, Grande became the owner of approximately 37% of Emerson's
outstanding shares.
36
ITEM 6. EXHIBITS.
10.12.7 Seventh Amendment to License Agreement dated December 22, 2005
between Emerson Radio Corp. and Funai Corporation, Inc.
(incorporated by reference to Exhibit 10.1 of Emerson's Form 8-K
dated December 28, 2005).
10.13.5 Lease Agreement between Ontario Warehouse I, Inc., as Landlord
and Emerson Radio Corp., as Tenant, effective as of December 6,
2005.(incorporated by reference to Exhibit 10.1 of Emerson's
Form 8-K dated January 4, 2006).
10.27.5 Loan and Security Agreement dated as of December 23, 2005, among
Emerson Radio Corp., Emerson Radio Macao Commercial Offshore
Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd.,
and Emerson Radio International Ltd. (as Borrowers) and Wachovia
Bank, National Association.(incorporated by reference to Exhibit
10.2 of Emerson's Form 8-K dated December 28, 2005).
31.1 Certification of the Company's Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31.2 Certification of the Company's Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32 Certification of the Company's Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
- ---------------------
* filed herewith
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: February 14, 2006 /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
Date: February 14, 2006 /s/ Guy A. Paglinco
-------------------
Guy A. Paglinco
Vice President and
Chief Financial Officer
(Principal Finance and
Accounting Officer)
38