-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+KqpxoqAkqa/t8GpZgX5Li4wD7ZZtCYfuTDB/Bf0t7m/SLnaqdDRhUNdJC2Qxa8 ejx+4CWoWF5S562N+dWQtQ== 0000032621-98-000002.txt : 19980218 0000032621-98-000002.hdr.sgml : 19980218 ACCESSION NUMBER: 0000032621-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERSON RADIO CORP CENTRAL INDEX KEY: 0000032621 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 223285224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07731 FILM NUMBER: 98543349 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 2018845800 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-25226 EMERSON RADIO CORP. (Exact name of registrant as specified in its charter) DELAWARE 22-3285224 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 Entin Road Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip code) (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 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of common stock as of February 12, 1998: 50,491,786. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Nine Months Ended Three Months Ended December 31, December 31, 1997 1996 1997 1996 Net revenues . . . . . . . . . $123,838 $151,284 $48,295 $49,628 Costs and expenses: Cost of sales . . . . . . . 109,343 145,354 42,157 48,818 Gross Profit . . . . . . . . . 14,495 5,930 6,138 810 Other operating costs and expenses. . . . . . . . . 2,302 2,111 799 488 Selling, general & administrative expenses . 11,364 14,698 4,210 4,993 Restructuring and other nonrecurring charges. . . 52 2,811 0 77 Operating Profit (loss). . . . 777 (13,690) 1,129 (4,748) Equity in Earnings (loss) of Affiliate 1,084 0 (5) 0 Interest expense . . . . . . . 2,018 2,525 619 867 Earnings (loss) before income taxes . . . . . . . . . . . (157) (16,215) 505 (5,615) Provision for income taxes . . 53 194 12 28 Net Earnings (loss). . . . . . $ (210) $(16,409) $ 493 $(5,643) Basic Earnings (loss) per share . . . . . . . . . . . $ (.01) $ (.42) $ .01 $ (.14)
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
Dec. 31, March 31, 1997 1997 (Unaudited) ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . $ 2,912 $ 2,640 Accounts receivable (less allowances of $4,584 and $6,001, respectively) . . . . . 5,824 12,452 Inventories . . . . . . . . . . . . . . . . 13,036 13,329 Prepaid expenses and other current assets . 9,034 6,497 Total current assets . . . . . . . . . . . 30,806 34,918 Property and equipment - (at cost less accumulated depreciation and amortization of $3,526 and $3,521, respectively). . . . . 1,551 2,130 Investment in unconsolidated affiliate . . . . 16,997 16,033 Other assets . . . . . . . . . . . . . . . . . 5,145 5,687 Total Assets . . . . . . . . . . . . . . . $54,499 $ 58,768 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable . . . . . . . . . . . . . . . $ 662 $ 5,689 Current maturities of long-term debt . . . . 89 85 Accounts payable and other current liabilities . . . . . . . . . . . . . . . 12,913 13,053 Accrued sales returns . . . . . . . . . . . 4,505 2,730 Income taxes payable . . . . . . . . . . . . 120 103 Total current liabilities . . . . . . . . 18,289 21,660 Long-term debt . . . . . . . . . . . . . . . . 20,778 20,856 Other non-current liabilities . . . . . . . . 190 223 Shareholders' Equity: Preferred stock - $.01 par value, 10,000,000 shares authorized, 5,887 and 10,000 shares issued and outstanding, respectively . . . . 5,298 9,000 Common stock - $.01 par value, 75,000,000 shares authorized, 49,226,529 and 40,335,642 shares issued and outstanding, respectively. 492 403 Capital in excess of par value . . . . . . . . 112,634 109,278 Accumulated deficit . . . . . . . . . . . . . (103,380) (102,843) Cumulative translation adjustment . . . . . . 198 191 Total shareholders' equity . . . . . . . 15,242 16,029 Total Liabilities and Shareholders' Equity $54,499 $ 58,768
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands of dollars)
Nine Months Ended December 31, 1997 1996 Cash Flows from Operating Activities: Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 5,387 $ 11,317 Cash Flows from Investing Activities: Investment in unconsolidated company. . . . . - $(14,398) Additions to property and equipment . . . . . (14) (218) Other . . . . . . . . . . . . . . . . . . . . - 112 Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . (14) (14,504) Cash Flows from Financing Activities: Net repayments under line of credit facility . . . . . . . . . . . . . . . . . (5,027) (6,418) Other. . . . . . . . . . . . . . . . . . . . (74) (407) Net cash used by financing activities . . . . . . . . . . . . . . . . (5,101) (6,825) Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . 272 (10,012) Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . 2,640 16,133 Cash and cash equivalents at end of period . . $ 2,912(a) $ 6,121(a) Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . . . . . $ 1,622 $ 2,532 Income taxes paid . . . . . . . . . . . . . $ 51 $ 15 (a) The balances at December 31, 1997 and 1996 include $1.0 million and $4.0 million, respectively, of cash and cash equivalents pledged to assure the availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BUSINESS These 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 Emerson Radio Corp.'s (the "Company" or "Emerson") consolidated financial position as of December 31, 1997 and the results of operations for the three and nine month periods ended December 31, 1997 and 1996. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in the Company's annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended March 31, 1997, included in the Company's annual report on Form 10-K. The consolidated financial statements include the accounts of the Company and all of its majority owned subsidiaries. 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 differ from those estimates. Due to the seasonal nature of the Company's consumer electronics business, the results of operations for the three and nine month periods ended December 31, 1997 are not necessarily indicative of the results of operations that may be expected for the full year ending March 31, 1998. NOTE 2 - EARNINGS (LOSS) PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("FAS 128"), which requires companies to adopt a method for reporting basic and diluted earnings per share. All earnings per share amounts for all periods have been presented and where necessary, restated to conform to the Statement No. 128 requirements. The following table sets forth the computation of basic earnings (loss) per share: (In thousands, except per share amount)
Nine Months Ended Three Months Ended December 31, December 31, 1997 1996 1997 1996 Income (loss) . . . . . . . $ (210) $(16,409) $ 493 $(5,643) Less: Preferred Stock Dividends. . . . . . . . . 327 525 89 175 Income (loss) available to Common Stockholders (numerator). . . . . . . . (537) (16,934) 404 (5,818) Weighted average shares (denominator) . . . . . . 43,463 40,281 47,394 40,295 Basic earnings (loss) per share . . . . . . . . . . $ (.01) $ (.42) $ .01 $ (.14)
Options and warrants to purchase approximately 1.1 million(a) and 670,000 shares of Common Stock at $1.00 to $2.88 and $1.10 to $4.00 per share, respectively, were outstanding during the period ending December 31, 1997 but were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. Convertible preferred stock equivalent to 15.8 million common shares, Convertible Senior Subordinated Debentures equivalent to 5.2 million common shares if converted are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. (a) Excludes 600,000 options issued to Eugene I. Davis, a former executive, subject to litigation as more fully explained in Note 8. NOTE 3 - CAPITAL STRUCTURE In February 1997 the Financial Accounting Standards Board issued Statement No. 129 "Disclosure of Information About Capital Structure" which requires companies to adopt a method for reporting an entity's capital structure and relevant information in summary format. The following disclosure sets forth the required information. The Company maintains various securities at December 31, 1997 and December 31, 1996 that are summarized as follows. PREFERRED CONVERTIBLE STOCK - The Company issued 10 million shares of Series A Convertible Preferred Stock in conjunction with the Company's Plan of Reorganization completed March 31, 1994. The preferred shares are convertible to common shares at any time beginning March 31, 1997 and through March 31, 2002. The conversion rate is equal to 80% of the average daily market price of the Company's common stock for the 60 consecutive days immediately preceding the conversion date. During the three and nine months ended December 31, 1997, the Company issued 5.1 million and 8.9 million shares of common stock, respectively, upon conversion of 2,129 and 4,113 shares of Series A Preferred Stock for which no consideration was received by the Company. If all existing outstanding Preferred shares were converted at December 31, 1997, 15.8 million additional common shares would be issued. Dividends for the Preferred Stock accrue and are payable quarterly at 7% up to March 31, 1997 then declining by 1.4% each succeeding year until March 31, 2001 when no further dividends are payable. The dividend rate is presently 5.6%. As of December 31, 1998 $810,000 of dividends were in arrears of which $83,000 have since been paid. Preferred shareholders have liquidation rights subordinated to the Company's Senior Secured Lender and 8 1/2% Senior Subordinated Convertible Debentures. 8 1/2% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES - The Company has outstanding $20.8 million of Senior Subordinated Convertible Debentures due in 2002 and pay interest quarterly. The Debentures are redeemable, in whole or in part, at the Company's option at the following redemption price: AUGUST 15 REDEMPTION (YEAR) PRICE 1998 104% 1999 103% 2000 102% 2001 101%
Holders may redeem the Debentures at any time at a conversion price of $3.9875 per share of common stock, subject to certain adjustments which would result in 5.2 million additional common shares being issued. If a change in control of the Company occurs, subject to certain circumstances, debenture holders can require the Company to offer to repurchase all outstanding Debentures, in whole or in part, at 100% for their principal amount plus accrued interest. The debentures are subordinated to all existing and future senior indebtedness. OPTIONS AND WARRANTS - The Company has outstanding approximately 1.1 million(a) options with exercise prices ranging from $1.00 to $2.88. If the options were exercised, the holders would have rights similar to common share holders. (a) Excludes 600,000 options issued to Eugene I. Davis, a former executive, subject to litigation as more fully explained in Note 8. Outstanding warrants total approximately 670,000 which have conversion prices ranging from $1.10 to $4.00. If the warrants were exercised, the holders would have rights similar to common share holders. NOTE 4 - INCOME TAXES The provision for income taxes for the three and nine month periods ended December 31, 1997 and 1996 consist primarily of taxes related to international operations. The Company did not recognize tax benefits for losses incurred by its domestic operations during the nine months ended December 31, 1997, nor was a tax liability recorded for the net income earned during the three months ended December 31, 1997. NOTE 5 - INVENTORY Spare parts inventories, net of reserves, aggregating $1.2 million and $1.5 million at December 31, 1997 and March 31, 1997, respectively, are included in "Prepaid expenses and other current assets." NOTE 6 - INVESTMENT IN UNCONSOLIDATED AFFILIATE On December 10, 1996, the Company purchased from Sport Supply Group, Inc. ("SSG") 1.6 million 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 1.0 million 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 $4.2 million in open market transactions. Based upon the Company's purchase of the SSG Stock as set forth above, net of the effect of SSG's open market repurchases of stock through December 31, 1997, the Company owns approximately 28% of the outstanding shares of SSG stock. If the Company exercises all of the SSG Warrants, it will beneficially own approximately 36% of the outstanding SSG stock. In connection with such purchase, SSG elected 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. The investment in and results of operations of SSG are accounted for by the equity method. SSG's fiscal year end has been changed from October 31 to September 30, and the Company's equity in earnings (losses) of SSG is being recorded on a three-month delay basis. The Company's investment in SSG includes goodwill of $4.0 million which is being amortized on a straight line basis over 40 years. Equity in earnings (loss) of SSG was $(5,000) and $1.1 million for the three and nine month periods ended December 31, 1997. At December 31, 1997, the aggregate market value quoted on the New York Stock Exchange of Emerson's shares of the SSG Common Stock owned by the Company was approximately $16.8 million excluding the value of the SSG warrants. Summarized financial information derived from SSG's audited financial statements filed with the Securities and Exchange Commission is as follows (in thousands): AS OF SEPTEMBER 26, 1997 Current assets $31,114 Property, plant and equipment and other assets 19,370 Current liabilities 7,109 Long-term debt 4,396
FOR THE 11 MONTH FISCAL PERIOD ENDED SEPTEMBER 26, 1997 Net revenues $79,109 Gross Profit 31,404 Earnings from continuing operations 3,552 Loss from discontinued operations (2,574) Net earnings 2
NOTE 7 - LONG-TERM DEBT Long-term debt consists of the following: (In thousands of dollars)
Dec. 31, March 31, 1997 1997 8 1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). . . . . . . $20,750 $20,750 Other . . . . . . . . . . . . . . 117 191 20,867 20,941 Less current obligations. . . . . 89 85 $20,778 $20,856
NOTE 8 - LEGAL PROCEEDINGS Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994, 30 million shares of the Company's Common Stock were issued to GSE Multimedia Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the "Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's Chairman of the Board, Chief Executive Officer and President. On June 11, 1996, a Stipulation of Settlement and Order (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 the Affiliated Entities (the "Creditors"), to be paid from the proceeds of the sale of certain of the 29.2 million shares of Emerson common stock (the "Settlement Shares") owned by the Affiliated Entities. In addition, Mr. Jurick is to be paid the sum of $3.5 million from the sale of the Settlement Shares. The Settlement Shares are to be sold over an indeterminate period of time by a financial advisor, initially TM Capital (the "Advisor"). The Advisor is continuing to formulate and refine 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 have been divided into two pools. The Pool A Shares currently consist of 15.3 million shares of Emerson's common stock. The Pool B Shares currently consist of the number of Emerson shares with respect to which Mr. Jurick must retain beneficial ownership of voting power to avoid an event of default arising out of a change of control pursuant to the terms of the Company's Loan and Security agreement with a U.S. financial institution (the "Lender") and/or the Indenture governing the Company's 8 1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales may be made of the Settlement Shares pursuant to a registered offering if the sales price is not less than 90% of the average of the three most recent closing prices (the "Average Closing Price"), or, other than in a registered offering, of up to 1% per quarter of the Emerson common stock outstanding, if the sales price is not less than 90% of the Average Closing Price. Any other attempted sales are subject to the consent of the Company, Mr. Jurick, the Creditors, and, if necessary, the United States District Court in Newark, New Jersey. All of the Settlement Shares secure payment of the $49.5 million owed to the Creditors on a first priority basis. Any Creditor may apply to the Court for an order to terminate the Settlement Agreement if certain events occur. Such events include, without limitation, delisting of the Settlement Shares from a national securities exchange or a determination that there is no reasonable prospect that the goals contemplated by the Settlement Agreement can be achieved. On November 26, 1997, Petra Stelling and Barclays Bank filed a motion with the Court for an order (i) terminating the Settlement Agreement on the ground that there is no reasonable prospect that the goals contemplated by the Settlement Agreement can be accomplished, and (ii) granting the Creditors authorization to exercise all the rights and remedies provided by the Settlement and Pledge Agreements in the event of termination including authorizing the Collateral Agent to sell the Emerson Shares to fund payment of the Settlement Amount and to vote the Emerson Shares pending such sale, directing the entry and release of the Consent Judgments, authorizing Petra Stelling to enforce the Swiss Judgment and for such other relief as the Court deems appropriate. The time for the Company and Mr. Jurick to respond to the motion is presently scheduled for February 19, 1997, the Creditors then have an opportunity to reply and the Court will schedule a hearing thereafter. If the Court enters an order terminating the Settlement Agreement, the Creditors may take any action permitted by law to execute the Consent Judgments given to them in connection with the Settlement Agreement to collect the unpaid balance (including, without limitation, foreclosing on the Settlement Shares). If the Creditors foreclose on the Settlement Shares and such foreclosure results in a change of control (as defined in the Indenture governing the Debentures) of the Company, such foreclosure will be deemed an event of default under the Company's Senior Secured Credit Facility and under the Indenture pursuant to which the Debentures were issued. Such default entitles the debtholders, under certain circumstances, to accelerate payment of all such indebtedness. Any such acceleration would have a material adverse effect on the Company. 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 $2.5 million, 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. The Company is presently engaged in litigation regarding several bankruptcy claims which have not been resolved since the restructuring of the Company's debt in March 31, 1994. The largest claim was filed on or about July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The amount currently claimed is for $93.6 million, of which $86.8 million represents a claim for lost profits. The claim will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to the claim and intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, with respect to the claim for lost profits, the Company believes the chances for recovery for lost profits are remote. On September 24, 1997, pursuant to the terms of his Employment Agreement, as amended, Eugene I. Davis, former Vice Chairman of the Company, was requested to resign as a director. On September 25, 1997 the Company terminated Mr. Davis' employment. The circumstances surrounding such termination of employment are the subject of two proceedings filed in the Superior Court of the State of New Jersey ("Superior Court"). The Company filed an action in the Chancery Division of the Superior Court against Mr. Davis on October 2, 1997, seeking injunctive and other relief arising from claims of breach of contract, breach of good faith and fair dealing and breach of fiduciary duty. On or about October 1, 1997, Mr. Davis filed an action against the Company, SSG and various unnamed "Johns Doe" in the Law Division of the Superior Court seeking damages against the Company, its affiliates and the unnamed "Johns Doe", jointly and severally, alleging breach of contract, tortious interference with contractual relationships and compelled defamation. The Company has filed and served an answer to Mr. Davis' claims and has counterclaimed for injunctive and declaratory relief, and money damages, arising from Mr. Davis' breaches of contract and fiduciary duty, conversion, tortious interference with contract and unjust enrichment. While the outcome of these actions are not certain at this time, the Company believes it has meritorious defenses against the claims made by Mr. Davis. In any event, the Company believes the results of the litigation should not have a material adverse effect on the financial condition of the Company or on its results of operations. In June and October 1988, the Franchise Tax Board of the State of California issued a formal Notice of Action assessing an additional state income tax deficiency of approximately $664,000, in the aggregate, plus interest, for the fiscal years 1980, 1985 and 1986. 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 and a hearing is scheduled for February 26, 1998. 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. On January 19, 1998, the Company was served with a Summons and Statement of Claim arising from a lawsuit filed in the Regional Court - 21st Civil Division, Frankfurt am Main, Germany, filed by Professor Gerhard Eisenbach against the Company, Geoffrey P. Jurick, the Company's Chairman, Chief Executive Officer and President, Fidenas International Ltd. LLC, an affiliate of Mr. Jurick, and Eugene I. Davis, a former executive officer of the Company, jointly and severally, alleging breach of contractual duty, tort and investment fraud arising from Eisenbach's $1,000,000 investment in the Company, on or about March 31, 1994, in conjunction with the Company's reorganization in the Bankruptcy Court. The Statement of Claim seeks damages against the defendants in the amounts of US$1,000,000 plus 8.75% interest accruing since April 1, 1994 and DM107,850.00 plus 4% interest accruing from the date of service of the Statement of Claim as well as other costs of litigation. The time for the Company to respond has not expired and a hearing has been scheduled for June 22, 1998. While the outcome of this action is not certain at this time, the Company believes it has meritorious defenses to the claims made and intends to vigorously defend this action. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results may materially differ from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report. GENERAL 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 agreement, 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. In April 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 certain existing agreements relating to sales of video products to Wal-Mart Stores, Inc. ("Wal-Mart"), Daewoo manufacture and sell television and video products bearing the Emerson and G- Clef trademark to all customers in the U.S. market. The Company arranges sales and provides marketing services and receives commissions for such services. Such commissions are recorded as licensing revenues. Sales of television and video products to Wal-Mart are currently subject to an existing license/supply agreement which expires on March 31, 1998. The Company has presented its line of video products bearing the Emerson and G-Clef trademark to all of its accounts based in the United States and continues to receive responses from the accounts for product placement. No assurance can be made that the Company will be able to renew, renegotiate or replace such license/supply agreements on terms favorable to the Company or if at all, the loss of which would result in a loss of the licensing revenues thereon and would have a material adverse effect on the financial condition of the Company. 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 for sale exclusively to certain retail chains located in Asia. In February 1998, this agreement was amended to extend the term from 18 months to 24 months. Emerson provides sourcing and inspection services for at least 50% of World Wide One's purchase requirements. The Company's operating results and liquidity are impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31 and receives the largest percentage of customer returns in the quarters ending March 31 and June 30. Therefore, the results of operations discussed below are not necessarily indicative of the Company's prospective annual results of operations. RESULTS OF OPERATIONS NET REVENUES Consolidated net revenues for the three and nine month periods ended December 31, 1997 decreased $1.3 million (3%) and $27.4 million (18%) as compared to the same periods in the fiscal year ended March 31, 1997 ("Fiscal 1997"), respectively. The decrease in revenues resulted primarily from decreases in unit sales of video cassette recorders, televisions and television/video cassette recorder combination units due to the Company's agreement with Daewoo described above. The decrease also resulted from decreases in unit sales of (i) home audio products, due to a reduction in the variety of products offered and (ii) car audio products, which were discontinued in Fiscal 1998. Furthermore, the Company's Canadian and European sales decreased $1.8 and $5.9 million for the three and nine month periods ended December 31, 1997, respectively, as a result of the closure of these operations in favor of independent distributors. The reduced revenues were partially offset by increased sales of microwave ovens and the introduction of the Company's new home theater product, CinemaSurround(TM), into foreign markets as well as the U.S. market. Revenues earned from the licensing of the Emerson and G-Clef trademark were $1 million and $3.4 million in the three and nine month periods ended December 31, 1997 as compared to $1 million and $3 million in the same periods in Fiscal 1997, respectively. The Company reports royalty and commission revenues earned from its licensing arrangements, covering various products and territories, in lieu of reporting the full dollar value of such sales and associated costs. Consequently, the Company's future related revenues, as compared to pre-Fiscal 1997, are expected to be lower but the Company's gross profit margins should improve. The Company expects its U.S. gross sales on its Core Products to improve and its margins on such sales to also improve due to the change in product mix to higher margin products. GROSS PROFIT Gross profit, as a percentage of consolidated revenues, was 13% and 12% for the three and nine month periods ended December 31, 1997 as compared to 2% and 4% for the same periods in Fiscal 1997, respectively. In absolute dollars, gross profit increased by $5.3 million (658%) and $8.6 million (144%) for the three and nine month periods ended December 31, 1997 as compared to the same periods in Fiscal 1997. The significant improvement in gross profit in absolute dollars and as a percent of sales for the three and nine month periods ended December 31, 1997 as compared to the same periods in the prior Fiscal year were primarily attributable to the change in product mix to higher margin products and the reduction of inventory overhead costs due to the Company's successful efforts to shift a higher proportion of its sales to its customers on a direct import basis. For the three and nine month periods ended December 31, 1997, products representing approximately 79% and 84% of net revenues were directly imported from manufacturers to the Company's customers as compared to 43% and 48% for the same periods in the prior fiscal year, respectively. The Company's gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the category of the consumer electronics market in which the Company competes. The Company's products are generally placed in the low-to-medium priced category of the market which tend to be the most competitive and generate the lowest profits. The Company believes that the combination of the (i) arrangement with Daewoo, (ii) license agreement with Cargil, (iii) introduction of its new home theater product, CinemaSurround (TM), and (iv) distributor agreements in Canada, Europe and parts of Asia will all have a favorable impact on the Company's gross profit margins. The Company continues 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 continues to focus on its higher margin products and is reviewing new products which can generate higher margins than its current business, either through license arrangements, acquisitions, joint ventures or on its own. OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses increased $.3 million and $.2 million in the three and nine month periods ended December 31, 1997 as compared to the same periods in Fiscal 1997, respectively, primarily as a result of the Company's inventory servicing costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A, as a percentage of revenues, was 9% for the three and nine month periods ended December 31, 1997, as compared to 10% for the same periods in Fiscal 1997, respectively. In absolute terms, S,G&A decreased by $.8 million and $3.3 million in the three and nine month periods ended December 31, 1997 as compared to the same period in Fiscal 1997, respectively. In the three and nine month periods ended December 31, 1997, the decrease was primarily attributable to the following: a) A decrease in salary expense associated with the Company's reduction in staffing levels; b) A decrease in professional fees; and c) A decrease in depreciation expense. RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company recorded charges of $2.8 million in the nine month period ended December 31, 1996. The charges recorded in the nine month period ended December 31, 1997 include costs for employee severances relating to further downsizing of the Company's U.S. operations. The charges recorded for the nine months ended December 31, 1996 included (i) costs for employee severance, asset writedowns, and the cost of facility closings and equipment lease write-offs totaling $1.0 million related to the conversion of the Company's local Canadian office to an independent distributor, and (ii) $1.8 million of professional and finance expenses related to the unsuccessful acquisition of International Jensen Incorporated. OPERATING PROFIT (LOSS) The Company reported operating profit of $1.1 million and $777,000 for the three and nine months ended December 31, 1997, respectively, compared to losses of $4.8 million and $13.7 million for the same periods ended December 31, 1996. This is attributable to improved gross profit margins due to the change in the mix of products being sold and to the reduced inventory exposure associated with reduced overall inventory levels, and reduced S,G&A expenses. EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED AFFILIATE The Company's 28% share in the earnings (loss) of SSG amounted to $(5,000) and $1.1 million in the three and nine month periods ended December 31, 1997, respectively. During the fiscal period, SSG reported two consecutive quarters of record earnings, as compared to the same periods a year ago, in its first two quarters of operation under the Company's management. INTEREST EXPENSE Interest expense decreased by $248,000 and $507,000 in the three and nine month periods ended December 31, 1997 as compared to the same periods in Fiscal 1997, respectively. The decrease was attributable to a significant reduction in borrowings on the U.S. revolving line of credit facility primarily due to the reduction in inventory and a majority of sales being on a direct import basis. The average rate in effect on the credit facility for the three month periods ended December 31, 1997 and 1996 was approximately 9.75% and 9.5%, respectively. NET EARNINGS (LOSS) As a result of the foregoing factors, the Company generated net earnings of $493,000 for the three month period ended December 31, 1997 and incurred a net loss of $210,000 for the nine month period ended December 31, 1997, as compared to net losses of $5.6 million and $16.4 million for the same periods in Fiscal 1997, respectively. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $5.4 million for the nine months ended December 31, 1997. Cash was provided by the decrease in accounts receivables partially offset by a decrease in accounts payable and other current liabilities. Net cash provided by investing activities was $14,000 for the nine months ended December 31, 1997. In the nine months ended December 31, 1997, the Company's financing activities utilized $5.1 million of cash. The Company reduced its borrowings under its U.S. line of credit facility by $5.0 million through the collection of accounts receivable. The Company maintains an asset-based revolving line of credit facility, as amended, with a U.S. financial institution (the "Lender") which expires on March 31, 1998. 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 of credit is secured by the U.S. 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 December 31, 1997, there was approximately $662,000 outstanding on the Company's revolving loan facility. At December 31, 1997, the Company's letter of credit facility was not utilized. Based on the "Borrowing Base" amount at December 31, 1997, $4.8 million of the credit facility was not utilized. Pursuant to the terms of the credit facility, as amended, the Company is required to maintain certain financial covenants. At December 31, 1997, the Company was in compliance with all such covenants. The Company plans to renegotiate its asset-based revolving line of credit facility by March 31, 1998. No assurance can be made that the Company will be able to renegotiate its credit facility with the Lender on terms favorable to it or if at all. Although the Company believes that its relationship with the Lender is good, failure by the Company to maintain an asset based lending facility would be an event of default pursuant to the terms of the Indenture governing the Debentures. Such a default, if not cured, would have a material adverse effect on the financial condition of the Company. The Company's Hong Kong subsidiary 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 December 31, 1997, the Company's Hong Kong subsidiary had pledged $1.0 million in certificates of deposit to this bank to assure the availability of these credit facilities. At December 31, 1997, there were approximately $3.5 million and $12.5 million of letters of credit outstanding on the credit facilities, respectively. The Hong Kong credit facilities are subject to an annual review in April 1998. No assurance can be made that the Company will be able to maintain these credit facilities. The Company's financial relationship with its bank has been good, however, failure by the Company to renew, renegotiate or replace these credit facilities in April 1998 may have a material adverse effect on the financial condition of the Company or on its operations. At present, management believes that future cash flow from operations and the institutional financing noted above will be sufficient to fund all of the Company's cash requirements for the next twelve months. However, the adequacy of future cash flow from operations is dependent upon (i) the Company achieving its business plan and (ii) successfully refinancing the Company's credit facilities. The Company's results of operations were substantially in line with its business plan for the nine months ended December 31, 1997. 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 continue to 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 48% 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 and was 84% for the nine months ended December 31, 1997. This increase in the direct import portion of sales is critical in providing sufficient working capital to meet its sales and liquidity objectives. There can be no assurance that the Company will be able to successfully achieve its business plan in a time frame or manner that will permit the Company to fund current operations and other planned expenditures at current and expected sales volumes. The Company purchases virtually all of its products from manufacturers that are located in various Asian countries. The economic crises in these countries and its related impact on their financial markets has not impacted the Company's ability to purchase product. Should these crises continue, it could have a material adverse effect on the Company by inhibiting its ability to acquire products for resale and its relationship with its suppliers. 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, however, 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. The Company's liquidity could also be adversely affected by an unfavorable outcome of certain matters discussed in Note 8 to the Interim Consolidated Financial Statements included herein. There are no significant commitments for capital purchases. Year 2000 Computer Software Modification Management has initiated an evaluation of the Company's computer systems and applications to determine the extent of effort required, if any, to insure that these systems are Year 2000 compliant. A preliminary evaluation noted that the costs required are not expected to have a material effect on its financial position or results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings. The information required by this item is included in Note 8 of Notes to Interim Consolidated Financial Statements filed in Part I of Form 10-Q for the quarter ended December 31, 1997, and is incorporated herein by reference. Please refer to Part 1 Item- 3-Legal Proceedings in the Company's most recent annual report on Form 10-K. ITEM 2. Changes in Securities and Use of Proceeds. The Company's U.S. Senior Secured Credit Facility and the Indenture governing the Company's 8 1/2% Senior Subordinated Convertible Debentures due 2002 contain certain dividend payment restrictions on the Company's common stock. In addition, the Company's Certificate of Incorporation defining the rights of the Series A Preferred Stock prohibits payment of dividends on the common stock unless the Series A 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. As of December 31, 1997, the Company is in arrears on $810,000 of dividends on Series A Preferred Stock of which $83,000 have been subsequently paid. The Series A Preferred Stock is convertible into shares of the Company's common stock at any time during the period beginning on March 31, 1997 and ending on March 31, 2002. The conversion rate is equal to 80% times the average of the daily market prices of a share of the Company's common stock for the 60 consecutive days immediately preceding the conversion date. During the three and six months ended December 31, 1997, the Company issued a total of 5,134,831 and 8,890,887 shares of the common stock, respectively, upon conversion of 2,129 and 4,113 shares of Series A Preferred Stock, respectively. No consideration was received by the Company for the issuance of the shares of common stock. The shares of common stock were issued by the Company to certain of its existing holders of Series A Preferred Stock where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. The shares of common stock were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. ITEM 3. DEFAULT UPON SENIOR SECURITIES. (a) None (b) None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. ITEM 5. OTHER INFORMATION. (a) None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) 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) 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) (b) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995, among Emerson, Majexco Imports, Inc. and Congress (incorporated by reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed with the SEC on September 8, 1995). (10) (c) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (d) Amendment No. 3 to Financing Agreements, dated as of August 20, 1996 (incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (e) Amendment No. 4 to Financing Agreements, dated as of November 14, 1996 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). (10) (f) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997 (incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (g) Amendment No. 6 to Financing Agreements, dated as of August 14, 1997. (10) (h) 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) (i) 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) (j) Extension of Employment Agreement between Emerson and Eugene I. Davis dated April 16, 1997 (incorporated by reference to Exhibit (10)(n) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (k) 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) (l) 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) (m) 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) (n) Extension of Employment Agreement between Emerson and Geoffrey P. Jurick dated April 16, 1997 (incorporated by reference to Exhibit (10)(r) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (o) 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) (p) 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) (q) Amendment No. 1 to Employment Agreement between Emerson and John P. Walker dated April 16, 1997 (incorporated by reference to Exhibit (10)(u) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (r) 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) (s) 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) (t) 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) (u) 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) (v) 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) (w) 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) (x) 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) (y) 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) (z) 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) (aa) 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) (ab) 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) (ac) 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) (ad) 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) (ae) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics Co., Ltd. (incorporated by reference to Exhibit (10)(ak) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (af) 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) (ag) 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) (ah) 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) (ai) 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) (aj) License Agreement dated as of June 16, 1997 by and between World Wide One Ltd. and Emerson (incorporated by reference to Exhibit (10)(ap) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (ak) Agreement dated as of July 2, 1997 by and between Hi Quality International (U.S.A.) Inc. and Emerson (incorporated by reference to Exhibit (10)(aq) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (al) Form of Indemnification Agreement dated September 23, 1997 by and between the Company and Terrence M. Babilla. (10) (am) Consulting Agreement effective as of July 1, 1997 by and between the Company and Jerome E. Ruzicka. (10) (an) Management Services Agreement dated July 1, 1997 to be effective March 7, 1997 by and between Sport Supply Group, Inc. and Emerson (incorporated by reference to Exhibit 10(ar) of Emerson's Form 10-K/A-1 for the fiscal year ended March 31, 1997. (10) (ao) Amendment to the Management Services Agreement dated October 18, 1997.* (10) (ap) Form of Amendment to Geoffrey P. Jurick's Employment Agreement dated as of October 18, 1997.* (11) Computation of Primary Earnings Per Share.* (27) Financial Data Schedule for the nine months ended December 31, 1997.* (b) Reports on Form 8-K: (1) During the three month period ended December 31, 1997, Form 8-K was not filed. __________________ * Filed herewith. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION - CONTINUED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMERSON RADIO CORP. (Registrant) Date: February 17, 1998 /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman, Chief Executive Officer and President Date: February 17, 1998 /s/ John P. Walker John P. Walker Executive Vice President and Chief Financial Officer EX-27 2
5 1,000 9-MOS MAR-31-1998 DEC-31-1997 2,912 0 10,408 4,584 13,036 30,806 5,077 3,526 54,499 18,289 20,750 0 5,298 492 9,452 54,499 120,076 123,838 109,343 109,343 13,806 (88) 2,018 (157) 53 (2,10) 0 0 0 (210) .01 .01
EX-1 3 October 18, 1997 Mr. Geoffrey P. Jurick Emerson Radio Corp. Nine Entin Road Parsippany, New Jersey 07054 Dear Mr. Jurick: The purpose of this letter is to memorialize the agreement between Sport Supply Group, Inc. ("SSG") and Emerson Radio Corp. ("Emerson") to delete Section 2.2 of that certain Management Services Agreement dated July 1, 1997 to be effective as of March 7, 1997 by and between SSG and Emerson (the "Services Agreement"). The parties hereto agree that, effective as of October 18, 1997, SSG will begin paying Geoffrey P. Jurick directly as an employee of SSG and will cease paying Emerson $20,833.33 per month, as contemplated by the Services Agreement. Consequently, Section 2.2 of the Services Agreement is deleted in its entirety as of October 18, 1997 and shall be of no further force or effect. If the foregoing sets forth your understanding with respect to this matter, please sign this letter in the space provided below and return such copy to the undersigned. SPORT SUPPLY GROUP, INC. /s/ Peter S. Blumenfeld Peter S. Blumenfeld President and Chief Operating Officer ACCEPTED AND AGREED TO this 18th day of October, 1997. EMERSON RADIO CORP. /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman of the Board and Chief Executive Officer cc: John P. Walker Elizabeth Calianese Jennifer E. Thomas EX-2 4 as of October 18, 1997 Mr. Geoffrey P. Jurick c/o Emerson Radio (Hong Kong) Ltd. 705 - 711, Tower 2 The Gateway 25-27 Canton Road Kowloon, Hong Kong AMENDMENT NO. 1 TO EXTENSION OF EMPLOYMENT AGREEMENTS, DATED APRIL 16, 1997 Dear Mr. Jurick: This letter will confirm that you and Emerson Radio Corp. ("Emerson") have agreed to amend certain terms and conditions of the Employment Agreement between you and Emerson, dated July 2, 1992, as amended by Extension of Employment Agreements, dated April 16, 1997 ("Extension Agreement")(hereinafter, collectively "Emerson Employment Agreement"). Accordingly, it is hereby agreed that Section 3 (a) of the Emerson Employment Agreement is deleted in its entirety and Section 3 (c) is amended to delete reference to any Additional Benefits, as defined therein, other than life, travel or accident insurance and executive contingent compensation plans, including, without limitation, capital accumulation programs and stock purchase, restricted stock and stock option plans. The parties hereto also expressly acknowledge and agree that, except as expressly set forth herein, each of the Emerson Employment Agreement, the Extension Agreement, the two (2) Employment Agreements between you and Emerson Radio (Hong Kong) Ltd. and you and Emerson Radio (B.V.I.), Ltd., both dated July 2, 1992 and also amended by the Extension Agreement, shall not be deemed to be further amended or modified, and shall remain in full force and effect. Please indicate your agreement to the terms of this letter in the space provided below. Very truly yours, Emerson Radio Corp. Acknowledged and Agreed to as of the 18th day of By:_______________ October, 1997 (Name) _______________ ______________________ (Title) Geoffrey P. Jurick EX-11 5 Emerson Radio Corp. and Subsidiaries Exhibit 11 to Form 10-Q Computation of Basic Earnings Per Share (in thousands, except per share data)
Nine Months Ended Three Months Ended December 31, December 31, 1997 1996 1997 1996 Basic EPS Income (loss) . . . . . . . $ (210) $(16,409) $ 493 $ (5,643) Less: Preferred Stock Dividends. . . . . . . . 327 525 89 175 Income (loss) available to Common Stockholders (numerator) . . . . . . . (537) (16,934) 404 (5,818) Weighted average shares (denominator). . . . . . 43,463 40,281 47,394 40,295 Basic earnings (loss) per share(1). . . . . . . . . $ (.01) $ (.42) $ .01 $ (.14)
(1) Options and warrants to purchase approximately 1.1 million(a) and 670,000 shares of Common Stock at $1.00 to $2.88 and $1.10 to $4.00 per share, respectively, were outstanding during the period ending December 31, 1997 but were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. Convertible preferred stock equivalent to 15.8 million common shares, Convertible Senior Subordinated Debentures equivalent to 5.2 million common shares if converted are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive. (a) Excludes 600,000 options issued to Eugene I. Davis, a former executive, subject to litigation as more fully explained in Note 8. -----END PRIVACY-ENHANCED MESSAGE-----