-----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, Ckj71w0DuGUdgBu6ZivEHqNqcd/5JeQm9mgYtvqQv6X2xtTjRats8ZA+FnUVfTvK Drol5k6FJeqDFSRegYHCgA== 0000032621-99-000032.txt : 19991117 0000032621-99-000032.hdr.sgml : 19991117 ACCESSION NUMBER: 0000032621-99-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991115 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: 0402 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07731 FILM NUMBER: 99756117 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 9738845800 MAIL ADDRESS: STREET 1: NINE ENTIN RD CITY: PARSIPPANY STATE: NJ ZIP: 07054 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-Q 1 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 October 1, 1999 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 Indicate the number of shares outstanding of common stock as of November 5, 1999: 47,828,215. 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 Six Months Ended October 1, October 2, October 1, October 2, 1999 1998 1999 1998 Net revenues $55,531 $ 46,762 $98,978 $105,888 Costs and expenses: Cost of sales 49,409 42,273 87,680 94,161 Other operating costs and expenses 877 897 1,650 2,163 Selling, general & administrative expenses 3,563 2,599 7,427 7,497 53,849 45,769 96,757 103,821 Operating income 1,682 993 2,221 2,067 Equity in earnings of Affiliate 42 348 501 791 Write-down of investment -- (185) -- (370) Interest expense, net (619) (551) (1,193) (1,120) Income before income taxes 1,105 605 1,529 1,368 Provision for income taxes 250 22 259 21 Net income $ 855 $ 583 $ 1,270 $ 1,347 Net income per common share Basic $ .02 $ .00 $ .03 $ .02 Diluted $ .02 $ .00 $ .02 $ .02 Weighted average number of common shares outstanding Basic 47,828 50,037 47,828 50,625 Diluted 55,916 50,037 55,916 62,078
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
October 1, April 2, 1999 1999 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 2,047 $ 3,100 Available for sale securities (net of fair value adjustment of $1,665 and $1,298, respectively) 370 738 Accounts receivable (less allowances of $4,480 and $3,907, respectively) 9,675 5,143 Other receivables 6,888 6,782 Inventories 12,362 11,608 Prepaid expenses and other current assets 2,241 2,839 Total current assets 33,583 30,210 Property and equipment - (net of accumulated depreciation and amortization of $3,033 and $2,777, respectively) 1,264 1,211 Investment in Affiliate and Joint Venture 20,016 19,525 Other assets 3,010 3,449 Total Assets $ 57,873 $54,395 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 4,096 $ 2,216 Current maturities of long-term debt 75 50 Accounts payable and other current liabilities 16,834 16,759 Accrued sales returns 4,561 3,926 Income taxes payable 394 400 Total current liabilities 25,960 23,351 Long-term debt, less current maturities 20,750 20,750 Other non-current liabilities 109 97 Shareholders' Equity: Preferred shares - 10,000,000 shares authorized, 3,714 shares issued and outstand 3,343 3,343 Common shares - $.01 par value, 75,000,000 shares authorized, 51,331,615 shares issued; 47,828,215 shares outstanding 513 513 Capital in excess of par value 113,288 113,288 Cumulative translation adjustment (73) (78) Unrealized loss on marketable securities (367) -- Accumulated deficit (103,743) (104,962) Treasury stock, at cost 3,503,400 shares (1,907) (1,907) Total shareholders' equity 11,054 10,197 Total Liabilities and Shareholders' Equity $ 57,873 $54,395
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)
Six Months Ended October 1, October 2, 1999 1998 Cash Flows from Operating Activities: Net cash provided (used) by operating activities $ (2,268) $ 3,965 Cash Flows from Investing Activities: Net cash (used) by investing activities (676) (1,854) Cash Flows from Financing Activities: Net cash provided by financing activities 1,891 1,905 Net increase (decrease) in cash and cash equivalents (1,053) 4,016 Cash and cash equivalents at beginning of period 3,100 1,208 Cash and cash equivalents at end of period $ 2,047 $ 5,224 Supplemental disclosure of cash flow information: Interest paid $ 1,088 $ 1,092 Income taxes paid $ 10 $ 12
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 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 Emerson Radio Corp.'s (the "Company" or "Emerson") consolidated financial position as of October 1, 1999 and the results of operations for the three and six month periods ended October 1, 1999 and October 2, 1998. 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 fiscal year ended April 2, 1999 ("Fiscal 1999"), 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 materially differ from those estimates. Due to the seasonal nature of the Company's consumer electronics business, the results of operations for the three and six month periods ended October 1, 1999 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, 2000 ("Fiscal 2000"). The management of the Company considers the Company to have one reportable segment, consumer electronics, and assesses performance on a single segment basis. Certain amounts in the prior period's consolidated financial statements have been reclassified to conform to current period's presentation. NOTE 2 - COMPREHENSIVE INCOME (LOSS) The Company's total comprehensive income (loss) for the three and six month periods ended October 1, 1999 and October 2, 1998 are as follows (in thousands): Three Months Six Months Ended Ended October October October October 1,1999 2,1998 1,1999 2,1998 Net income $ 855 $ 583 $1,270 $1,347 Currency translation adjustment 4 -- 4 -- Unrealized losses on securities, net (119) (770) (367) (770) Comprehensive income (loss) $ 740 $ (187) $ 907 $ 577 NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts): For the Three For the Six Months Ended Months Ended October 1, October 2, October 1, October 2, 1999 1998 1999 1998 Numerator: Net income $ 855 $ 583 $ 1,270 $ 1,347 Less: preferred stock dividends 26 446 52 500 Numerator for basic earnings per share - income available to common stockholders 829 137 1,218 847 Add back to effect assumed conversions: Preferred stock dividends 26 -- 52 93 Numerator for diluted earnings per share $ 855 $ 137 $ 1,270 $ 940 Denominator: Denominator for basic earnings per share - weighted average shares 47,828 50,037 47,828 50,625 Effect of dilutive securities: Preferred shares 8,088 -- 8,088 11,453 Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 55,916 50,037 55,916 62,078 Basic earnings per share $ .02 $ .00 $ .03 $ .02 Diluted earnings per share $ .02 $ .00 $ .02 $ .02
NOTE 4 - CAPITAL STRUCTURE The outstanding capital stock of the Company at October 1, 1999 consisted of common stock and Series A convertible preferred stock. The preferred shares are convertible to common shares until March 31, 2002. During the quarters ended October 1, 1999 and October 2, 1998, no conversions of Series A Preferred Stock were made. During August 1998, the Company repurchased directly 1,423 preferred shares. If all existing outstanding preferred shares were converted at October 1, 1999, approximately 8.1 million additional common shares would be issuable. The dividend rates on the Series A Preferred Stock at October 1, 1999 and October 2, 1998 were 2.8% and 4.2%, with $879,000 and $762,000 of dividends in arrears, respectively. The dividend rate declines by 1.4% each succeeding year until March 31, 2001, when no further dividends are payable. At October 1, 1999, the Company had outstanding approximately 1.1 million options with exercise prices ranging from $1.00 to $1.10. Approximately 987,000 outstanding warrants are convertible into an equal number of shares of common stock at conversion prices ranging between $1.30 and $4.00. The Company also has outstanding approximately $20.8 million of Senior Subordinated Convertible Debentures due in 2002. See "Note 9 - Long Term Debt" and "Note 11 - Letter of Intent". NOTE 5 - INCOME TAXES Income tax provisions for the quarterly periods ended October 1, 1999 and October 2, 1998 consist of taxes related to international operations. The Company does not recognize tax benefits for losses incurred by its domestic operations. NOTE 6 - INVENTORY Inventories are comprised primarily of finished goods which are stated at the lower of cost (first-in, first-out) or market. NOTE 7 - AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are stated at fair value, with the unrealized gains and losses reported in a separate component of shareholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary are included in earnings. The following is a summary of available-for-sale equity securities at October 1, 1999 and October 2, 1998 (in thousands): Gross Gross Estimate Unrealized Unrealized Fair Cost Gains Losses Value Equity Securities: October 1,1999 $2,035 $-- $1,665 $370 October 2,1998 1,810 -- 770 1,040
NOTE 8 - INVESTMENT IN SPORT SUPPLY GROUP, INC. The Company owns 2,269,500 (approximately 31% of the outstanding) shares of common stock of Sport Supply Group, Inc. ("SSG") that it purchased in 1996 at an aggregate cost of $15,728,000. In addition, the Company owns warrants, acquired in 1996 for $500,000 to purchase an additional 1 million shares of SSG at $7.50 per share ("SSG Warrants"). If the Company exercises all of the SSG Warrants, it will beneficially own approximately 40% of the SSG common shares. Effective March 1997, the Company entered into a Management Services Agreement with SSG, under which SSG provides various managerial and administrative services to the Company. The investment in and results of operations of SSG are accounted for by the equity method. The Company's investment in SSG includes goodwill of $6,530,000 which is being amortized on a straight line basis over 40 years. At October 1, 1999, the aggregate market value quoted on the New York Stock Exchange of SSG common shares equivalent in number to those owned by Emerson was approximately $18.7 million. Summarized financial information derived from SSG's financial reports to the Securities and Exchange Commission was as follows (in thousands): October 1, 1999 April 2, 1999 (Audited) (Unaudited) Current assets $ 44,587 $ 44,322 Property, plant and equipment and other assets 26,560 30,252 Current liabilities 8,083 14,966 Long-term debt 20,956 19,045 Stockholders' Equity 42,108 40,563
For the 6 Months For the 6 Months Ended Ended October 1, 1999 October 2, 1998 Net sales $ 56,722 $ 50,607 Gross profit 21,744 19,950 Net income 2,163 2,994
See "Note 11 - Letter of Intent". NOTE 9 - LONG TERM DEBT As of October 1, 1999 and April 2, 1999, long-term debt consisted of the following (in thousands of dollars): October 1, April 2, 1999 1999 8 1/2% Senior Subordinated Convertible Debentures Due 2002 $20,750 $20,750 Equipment notes and other 75 50 20,825 20,800 Less current obligations 75 50 Long term debt $20,750 $20,750
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were issued in August 1995, bear interest at the rate of 8 1/2% per annum, payable quarterly, and mature on August 15, 2002. The Debentures are convertible into shares of the Company's common stock at any time prior to redemption or maturity at a conversion price of $3.9875 per share, subject to adjustment under certain circumstances. Beginning August 15, 1998, at the option of the Company, the Debentures are redeemable in whole or in part at an initial redemption price of 104% of principal, decreasing by 1% per year until maturity. The Debentures are subordinated to all existing and future senior indebtedness (as defined in the Indenture governing the Debentures). The Debentures restrict, among other things, the amount of senior indebtedness and other indebtedness that the Company, and, in certain instances, its subsidiaries, may incur. Each Debenture holder has the right to cause the Company to redeem the Debentures if certain designated events (as defined) should occur. See "Note 11 - Letter of Intent". NOTE 10 - LEGAL PROCEEDINGS The Company is involved in a number of legal proceedings and claims of various types, the most significant of which are described in "Part I Item 3. Legal Proceedings" of the Company's Form 10-K for the fiscal year ended April 2, 1999 and Form 8-K dated August 6, 1999. While any such litigation contains an element of uncertainty, management presently believes that the outcome of such proceedings and claims will not have a material adverse effect on the Company's consolidated financial position. NOTE 11 - LETTER OF INTENT On August 3, 1999, the Company and Geoffrey P. Jurick, the Company's Chairman of the Board, Chief Executive Officer and President, entered into a letter of intent with Oaktree Capital Management Corp. and certain of its affiliated entities ("Oaktree"). The letter of intent sets forth a proposed series of transactions which, if consummated, would result in the following: - - The Company would sell its entire ownership in SSG to Oaktree. Under the terms of the letter of intent, Oaktree would purchase from Emerson 2,269,500 shares of SSG common stock and warrants to purchase one million shares for a purchase price consisting of $15 million in cash, the surrender of approximately $13.9 million face amount of Emerson's convertible debentures presently owned by Oaktree and an exit consent amending certain provisions of the Indenture governing the Company's convertible debentures. - - The Company would purchase up to $23 million of its outstanding common stock through a self-tender offer at a price of not less than $1.00 per share. The $15 million cash proceeds from the sale of the SSG securities would be utilized by Emerson to fund, in part, a partial tender offer. The remainder of the $23 million would come from additional borrowings. - - The resolution of litigation between Mr. Jurick, Emerson's Chairman and largest shareholder, and certain of his creditors. Pursuant to the terms of the letter of intent and an option agreement, Oaktree would acquire all claims held by certain creditors of Mr. Jurick for $20 million. The claims to be acquired by Oaktree have been the subject of litigation in the U.S. District Court for the District of New Jersey. Under the terms of the transactions, Mr. Jurick would use amounts received by him pursuant to Emerson's self-tender, together with certain other funds, to acquire those claims from Oaktree, thereby eliminating the need for him to sell his Emerson shares. Subject to approval by SSG's Board, Mr. Jurick also intends to assign options to acquire 300,000 shares of SSG's common stock to Oaktree. Completion of the transaction described is contingent upon a number of conditions being satisfied. No assurances can be made that this transaction will be consummated. Item 2. Management's Discussion and Analysis ofResults of Operations and Financial Condition GENERAL 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 fiscal quarters ending in September and December and receives the largest amount of customer returns in the fiscal quarters ending in March and June. Therefore, the results of operations discussed below are not necessarily indicative of the Company's results for any subsequent periods or for the year ending March 31, 2000. The Company expects its United States sales for the quarter ended December 31, 1999 to increase as compared to the quarter ended January 1, 1999 due to increased product sales. RESULTS OF OPERATIONS NET REVENUES Consolidated net revenues for the three and six month periods ended October 1, 1999 increased $8.8 million (18.8%) and decreased $6.9 million (6.5%) as compared to the same periods in the fiscal year ended April 2, 1999 ("Fiscal 1999"), respectively. The increase in revenues for the three months ended October 1,1999 resulted primarily from increases in unit sales of microwave ovens and Digital Video Disc (DVD) products, partially offset by a reduction in audio products. The decrease in revenues for the six months ended October 1, 1999 resulted primarily from decreased unit sales of audio products, partially offset by the increased unit sales of microwave ovens and the introduction of the DVD product line. Revenues earned from the licensing of the Emerson and G Clef trademark were $878,000 and $1.6 million in the three and six month periods ended October 1, 1999 as compared to $978,000 and $1.6 million in the same periods in Fiscal 1999, 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. COST OF SALES Cost of sales, as a percentage of consolidated net revenues, was 89.0% and 88.6% for the three and six month periods ended October 1, 1999 as compared to 90.4% and 88.9% for the same periods in Fiscal 1999, respectively. The decrease in the cost of sales as a percentage of sales for the three months ended October 1, 1999, as compared to the prior fiscal year, was primarily attributable to a change in the product mix to higher margin products. OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses for the three month period ended October 1, 1999 as compared to the same period in Fiscal 1999 were substantially unchanged in absolute dollars. For the six month period ended October 1, 1999 as compared to the same period in the prior year, other operating costs decreased by approximately $513,000 due primarily to a reduction in handling charges on returns. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A increased by $964,000 for the three month period ended October 1, 1999, and for the six month period ended October 1, 1999 decreased by $70,000 as compared to the same period in Fiscal 1999. The increase of $964,000 in S,G&A for the three month period was primarily attributable to an increase in advertising costs; an increase in charges related to bad debts and professional fees. The decrease of $70,000 in S,G&A for the six month period was primarily attributable to a decrease in charges related to bad debts, offset by an increase in advertising costs and professional fees. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE The Company's share in the earnings of SSG amounted to $42,000 and $501,000 in the three and six month periods ended October 1,1999 as compared to $348,000 and $791,000 for the same periods in the prior fiscal year, respectively. INTEREST EXPENSE Interest expense increased by $68,000 and $73,000 in the three and six month periods ended October 1, 1999 as compared to the same periods in Fiscal 1999, respectively. The increase was attributable to an increase in short term average borrowings and interest rate increases. The increase in short term borrowings was due to an increase in working capital requirements. NET INCOME As a result of the foregoing factors, the Company generated net income of $855,000 and $1,270,000 for the three and six month periods ended October 1, 1999, as compared to net earnings of $583,000 and $1,347,000 for the same periods in Fiscal 1999, respectively. LIQUIDITY AND CAPITAL RESOURCES Net cash utilized by operating activities was $2.3 million for the six months ended October 1, 1999. Cash was utilized primarily by increases in accounts receivable and inventory, partially offset by an increase in the profitability of the Company. Net cash utilized by investing activities was $676,000 for the six months ended October 1, 1999. In the six months ended October 1, 1999, the Company's financing activities provided $1.9 million primarily from the increased borrowings under the Company's U.S. line of credit facility. The Company maintains an asset-based $10 million U.S. line of credit facility. In addition, the Company maintains 2 credit facilities with a Hong Kong based bank: a $3.5 million letter of credit facility and a $25 million back-to-back letter of credit facility. At October 1, 1999, the $3.5 million letter of credit facility was fully utilized and $17.5 million was outstanding under the $25 million letter of credit facility. At present, management believes that future cash flow from operations and its existing 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 the Company achieving its operating plan. The Company's proposed sale of its ownership interest in SSG would initially reduce its existing long-term debt by approximately $13.9 million. However, the Company would need an additional facility of approximately $8 million to fund the $23 million partial self-tender. See "Note 11 - Letter of Intent". As of October 1, 1999 the Company had no material commitments for capital expenditures. INFLATION AND FOREIGN CURRENCY Neither inflation nor currency fluctuations had a significant effect on the Company's results of operations during the three or six months ended October 1,1999. The Company's exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders, and by sourcing production in more than one country. The Company purchases virtually all of its products from manufacturers located in various Asian countries. These countries are emerging from an economic and financial market crisis that, to date, has not adversely affected the Company's ability to purchase product. If the economic recovery currently in progress should reverse its trend, it could adversely affect the Company's relationship with its suppliers and its ability to acquire products. Additional financial turmoil in the South American economies may have an adverse impact on the Company's South American licensee. YEAR 2000 The Year 2000 issue is primarily the result of computer programs or databases using a two-digit format, as opposed to four digits, to represent a calendar year. Some computer systems will be unable to correctly interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in the operation or accuracy of such systems. The Company has recently completed a company-wide study and testing program to locate and cure any Year 2000 issues in the products or systems on which it relies and in the products it offers for sale at a cost of approximately $500,000. To date, the Company has not identified any such problems requiring corrective action that will result in a material adverse impact on the Company, and believes that it is Year 2000 compliant. However, there can be no assurance that the companies with which the Company does business will achieve Year 2000 compliance in a timely fashion, or that such failure to comply by another company will not have a material adverse effect on the Company. The Company believes the products it currently offers for sale or license are all Year 2000 compliant, and that the cost to remediate any previously sold product that is not Year 2000 compliant will not be material. The Company has incurred and will incur internal but not incremental staff costs related to the above initiative. Potential sources of risk include: (a) the inability of principal suppliers to be Year 2000 ready, which could result in delays in product deliveries from such suppliers; (b) disruption of the distribution channel, including transportation vendors; (c) customer problems that could affect revenue demand; and (d) undiscovered issues related to Year 2000 compatibility which could have a material adverse impact. The Company's Year 2000 assessment is ongoing and the consideration of contingency plans will continue to be evaluated as new information becomes available. At this stage, however, the Company has not developed a comprehensive contingency plan to address situations that may result if any of the third parties upon which the Company is dependent is unable to achieve Year 2000 compliance. The need for such a contingency plan will be evaluated throughout 1999. Based on the assessment effort to date, the Company does not believe that the Year 2000 issue will have a material adverse effect on its financial condition, results of operations, or cash flows. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for the Company for Fiscal 2001, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Company has not yet determined the effects, if any, of implementing SFAS No. 133 on its reporting of financial information. FORWARD-LOOKING INFORMATION This report contains various forward-looking statements under the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and information that is based on Management's beliefs as well as assumptions made by and information currently available to Management. When used in this report, the words "anticipate", "estimate", "expect", "predict", "project", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected or projected. Among the key factors that could cause actual results to differ materially are as follows: (i) the ability of the Company to continue selling products to its largest customers whose net revenues represented 52% and 24% of Fiscal 1999 net revenues; (ii) competitive factors such as competitive pricing strategies utilized by retailers in the domestic marketplace that negatively impacts product gross margins; (iii) the ability of the Company to maintain its suppliers, primarily all of whom are located in the Far East; (iv) the outcome of litigation; (v) the ability of the Company to comply with the restrictions imposed upon it by its outstanding indebtedness; (vi) the Year 2000 Issue (as described above); (vii) general economic conditions; and (viii) the ability of the Company to execute its proposed plan involving the sale of its ownership interest in SSG and the partial self-tender for the Company's shares of common stock. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not material. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. For further information on litigation to which the Company is a party, reference is made to Part 1 Item-3- Legal Proceedings in the Company's most recent annual report on Form 10-K, and on Form 8-K dated August 6,1999. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. 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: (10)(a) Supplemental Letter of Employment for Marino Andriani, dated as of October 11, 1999.* (10)(b) License Agreement dated as of October 29, 1999 by and between Daewoo Electronics Co. LTD and Emerson.* (27) Financial Data Schedule for quarter ended October 1, 1999.* (b) Reports on Form 8-K - Current report on Form 8-K dated August 6, 1999, reporting a letter of intent to resolve certain litigation and ownership issues. ____________________________ *Filed herewith. 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: November 5, 1999 /s/ Geoffrey P.Jurick Geoffrey P. Jurick Chairman, Chief Executive Officer and President Date: November 5, 1999 /s/John P. Walker John P. Walker Executive Vice President and Chief Financial Officer EX-27 2
5 1,000 3-MOS MAR-31-2000 OCT-01-1999 2,047 370 14,155 4,480 12,362 33,583 4,297 3,033 57,873 25,960 20,750 0 3,343 513 7,198 57,873 54,653 55,531 49,409 49,409 4,205 235 619 1,105 250 855 0 0 0 855 .02 .02
EX-1 3 October 11, 1999 Mr. Marino Andriani 6 Willow Hill Upper Saddle River, New Jersey 07458 SUPPLEMENTAL LETTER RE EMPLOYMENT BY EMERSON RADIO CONSUMER PRODUCTS CORPORATION Dear Marino: This will confirm our recent conversations during which we agreed on the following points, subject to the approval of the Emerson Radio Corp. Board of Directors and its Compensation and Personnel Committee, which supplement the bonus and stock option provisions of the letter agreement regarding your employment, dated January 29, 1996 ("Letter Agreement"): 1.) You shall be paid a one-time $120,000. cash bonus, payable immediately. 2.) You shall be paid an annual incentive bonus of ten percent (10%) of any incremental net income reported in any fiscal year by the Consumer Products Division over which you have supervision ("Consumer Products Division") above the $1,672,000 Normalized Income reported by the Consumer Products Division for the fiscal year ended April 2, 1999, as set forth in the schedule attached hereto. For purposes of this letter agreement, "Normalized Income" shall be defined as that income which the Consumer Products Division generates directly, excludes one-time adjustments for non-recurring events not attributable to the daily operations of the Consumer Products Division and shall be based on the satisfactory completion of the annual audited financial statements of Emerson Radio Corp. Typically, the annual audit is completed within approximately 75 days of the fiscal year end. As such, calculation of the annual incentive bonus shall be determined at that time and payment shall be made as soon as practicable thereafter. 3.) You shall be paid a special incentive bonus, as determined on a case by case basis by the Board of Directors and its Compensation and Personnel Committee and measured on a semi-annual basis (i.e. October 1 through March 31 and April 1 though September 30), of 10% of net income generated by the Consumer Products Division from new, non-core business. As any such new, non-core business to be developed is difficult to define in advance, we shall discuss these opportunities as they arise and the Compensation Committee shall determine any applicability of such sales to a special incentive bonus. Currently, it is understood that a.) core products not applicable to the special incentive bonus provision provided herein are the current Emerson (Registered Trademark) branded audio, video (including DVD) and microwave oven product categories and b.) new, non-core business which are applicable to the special incentive bonus provision provided herein includes shredder products and Hello Kitty (Registered Trademark) branded products. It is also understood that the financial results of new, non-core business as set forth herein shall not be removed from the Normalized Income set forth above. 4.) You shall not be entitled to any bonus for a.) H.H. Scott(Registered Trademark) branded product, International or Internet sales, or b.) licensing/sourcing fees and royalties. 5.) You shall be granted an additional 225,000 options, at a purchase price of $1.00 per share, to purchase Emerson Radio Corp. common stock, as determined by the Board of Directors and its Compensation and Personnel Committee, under and in accordance with the terms of the Emerson Radio Corp. Stock Compensation Program. 6.) This agreement shall expire on March 31, 2001, unless extended by mutual written consent. In addition to entitlement to base salary, you must be employed as of the measurement and payment dates for entitlement to the compensation set forth in Items 1, 2 and 3 above. Except as otherwise set forth herein or as may hereinafter be mutually agreed to in writing, all other terms and conditions of the Letter Agreement remain in full force and effect. Marino, as I stated earlier, it is the Company's intention to reward you for the increase of our present business as well as for any new business or earnings achieved by Emerson as a result of your efforts. Please indicate your agreement and acceptance of the above by signing below where indicated and returning a signed copy to me. Thank you. I will advise you when the Board of Directors and its Compensation and Personnel Committee have considered the above. Very truly yours, /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman of the Board, Chief Executive Officer and President ACKNOWLEDGED, AGREED AND ACCEPTED By: /s/ Marino Andriani Marino Andriani (Date) EX-2 4 LICENSE CONTRACT This License Contract is entered into as of October 29, 1999 ("Effective date") by and among Daewoo Electronics Co. LTD. ("Daewoo"), a corporation duly organized and existing under the law of the Republic of Korea, having its principal office at 686, Ahyon-dong, Mapo-gu, Seoul, Korea; and Emerson Radio Corp. ("Emerson"), a corporation duly organized and existing under the law of the State of Delaware, U.S.A., having its principal office at 9 Entin Road, Parsippany, New Jersey 07054-0430, U.S.A. 1. Emerson will continue to be the entity to procure business in the U.S. for Daewoo for the products listed on the attached Exhibit ("product") which Daewoo, as independent contractor, manufactures to be shipped under the Emerson(Registered) trademark. Emerson and Daewoo each shall, during the continuance of this agreement, diligently and faithfully fulfill their obligations under this agreement and shall undertake to use reasonable efforts to maximize the sales of the products in the U.S.A. and shall maintain and safeguard the goodwill, reputation, prestige and interest of the other and shall not do anything that will prevent such sale or interfere with the development of the product in the U.S.A. In accordance with past practice, Emerson shall keep Daewoo informed upon request of Daewoo of market conditions within the U.S.A. for the products and activities and prices of competitors and provide available information relevant for the purpose of furthering the sale of the products. Emerson shall render to Daewoo, during the term of this agreement, and thereafter, such assistance as Daewoo may reasonably request in support of Daewoo's efforts to receive, collect, recover or sue for payment due from purchasers of the products under orders solicited by Emerson. 2. All orders for product will continue to be written directly to Daewoo which will be responsible for order processing, shipment, credit, collections, and after sales services. Daewoo will also continue to be responsible for returns and returns processing for all products sold under this program, and all sales will be subject to Daewoo's return for credit policy. Emerson shall not, without the written consent and the authority of Daewoo, collect any monies from any customers of the products. 3. Daewoo will pay Emerson the commissions as set forth on the attached Exhibit for Emerson's sales and marketing services as follows: A. Commissions will be calculated on net sales, less actual returns. B. Commencing April 1, 2000, Daewoo will also pay Emerson the minimum commissions also set forth on the attached Exhibit. C. Emerson will continue to be responsible for any commissions it pays to its sales representatives to acquire the business covered by this agreement. D. Any commissions stipulated and paid hereunder shall be deemed to cover all the costs, fees, charges and expenses incurred by Emerson in connection with the respective sale of the products. 4. This agreement shall remain in effect from the Effective date through and including March 31, 2003, unless otherwise provided herein ("term"). 5. Emerson will continue to have, in its sole discretion, the right to take any action regarding its exclusively owned trademark, including that necessary to protect the integrity of its mark (which would include, among other things, the right to receive and approve samples and literature to assure quality and proper usage of its mark). Emerson shall not, in the U.S.A., deal in any of the products set forth on the attached Exhibit on its own behalf or as a representative of any other supplier or manufacturer. Daewoo agrees that it shall comply with all action required by Emerson to protect its mark, notify Emerson promptly of any alleged infringement of its rights in and to its trademarks and cooperate with Emerson in the enforcement of its trademark(s). Emerson represents and warrants that it is the owner of the trademarks applicable to the products and has the right to authorize Daewoo to sell the products in the U.S., and Emerson shall indemnify and hold Daewoo harmless from and against any costs, legal fees or damages finally awarded in connection with a breach of this warranty. Upon termination or expiration, Daewoo shall have no further right to sell products with the Emerson trademark, except that Daewoo (utilizing Emerson's sales and marketing services as defined in this agreement) shall be permitted to sell products or components bearing the trademark which are in stock, on hand, or on order as previously confirmed by Emerson, at the time of termination or expiration, for a period of time not to exceed six (6) months from such date of expiration or termination, at prevailing market prices. Commissions shall be due on all such sales. In the event that all such product is not sold within such six (6) month period, Emerson has the right to purchase such remaining product at Daewoo's factory cost. Any such product not purchased by Emerson may only be sold by Daewoo without the Emerson trademark. 6. Notwithstanding the provisions of this agreement, this agreement may be terminated: a.) by agreement in writing of the parties; b.) by the non- defaulting party, upon any default by the other party in the performance of any of its obligations under this agreement, if such default is not remedied within forty-five (45) days after receipt of notice thereof from the non-defaulting party; c.) by either party, upon the other party's: (1) making assignment of all or a substantial portion of assets for the benefit of creditors, being adjudged bankrupt, or becoming insolvent; (2) filing a petition seeking its dissolution or liquidation, not stayed or dismissed within sixty (60) days; or (3) ceasing to do business for any reason; or d.) by either party if an event of force majeure continues for more than three (3) months. Upon termination of this agreement, Emerson is entitled to receive the commission in respect of sales resulting from orders received by Daewoo and previously confirmed by Emerson up to the date of such termination or for the sale of products or components bearing the trademark which are in stock, or on hand at the time of termination as provided in paragraph 5 above. Except for claims arising from obligations set forth in paragraphs 5, 7, 8 and 9, no further amounts for indemnification or otherwise, shall be payable by either party to the other party, its officers or employees, upon or after termination of this agreement. Termination of this agreement shall not release either party from any accrued obligation hereunder. 7. Daewoo shall defend and indemnify Emerson, its subsidiaries, and their representatives from and against any and all claims, damages and costs of any nature (including attorneys' fees and expenses), directly arising from or related to Daewoo's manufacture or distribution of the products or the conduct of its business and shall maintain insurance satisfactory to Emerson. Emerson shall indemnify, protect and save Daewoo from all claims, demands, suits or actions for damage to property or persons which may be sustained by any third party directly arising from or related to the conduct of Emerson's business. 8. Each party will not disclose any confidential information to third parties without the express written consent of the other party, unless compelled by law/legal process/applicable securities/national securities exchange rules or regulations. 9. Miscellaneous. A. Each party warrants that it is validly existing, has the full power and authority to execute and perform under this agreement, shall comply with all applicable laws, rules, codes, etc. relating to the conduct of its business and its obligations hereunder, and that it and its products are and will continue to be Year 2000 compliant. B. The parties have agreed that this agreement be interpreted in the English language and may be executed in any number of counterparts or by facsimile, all of which will constitute one agreement. All notices will be delivered, in English, by facsimile to the other party at its facsimile number noted below (unless otherwise notified by facsimile) and be effective upon actual receipt. C. This agreement supersedes all other agreements, oral or written, regarding its subject matter and may not be changed, amended or waived, except in a writing signed by both parties. This agreement and every term and condition thereof shall inure to the benefit of the parties, and shall be binding upon any successors to the parties, but neither party may, in any event, assign or otherwise transfer this agreement or any rights thereunder directly or indirectly or voluntarily or by operation of law, without the prior written consent of the other party. If any provision of this agreement proves to be invalid or unenforceable under existing or future law, the remaining provisions of the agreement will remain in force in all other respects. The respective representations and covenants of the parties shall survive any termination of this agreement. D. The law of New Jersey, U.S.A., excluding its conflicts of law provisions, governs this agreement and the courts of New Jersey will have sole and exclusive jurisdiction over the parties in any dispute, except each party has the right to make application for, and seek enforcement of, injunctive relief in any court having jurisdiction. E. Daewoo shall preserve accurate records relating to the production, distribution and after sales service of the products for a period of 3 years from the expiration or termination of this agreement and shall permit, upon request, Emerson or its agents to review such records. F. Nothing herein contained shall entitle either party to enter into any obligation or commitment binding upon the other party without the prior written consent of such party which such party shall be under no obligation to give. G. Emerson agrees that it has no authority to make or give and shall not make any representation or give any guarantee or warranty in respect of the products other than as Daewoo may from time to time in writing expressly authorize. Emerson Radio Corp. Daewoo Electronics Co., Ltd. By: /s/ Geoffrey P. Jurick By: /s/ Tak-Myung Kang Geoffrey P. Jurick Tak-Myung Kang Chairman of the Board, CEO Executive Managing Director and President [Facsimile No.: (973) 428-2424] [Facsimile No.: 0118223608000] -----END PRIVACY-ENHANCED MESSAGE-----