-----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, U4hrM8DRvPa80ZhMAB8ODuKI5F3HVHzjN15yd2A+YCuhhOfN3KoEIcPymT1siWXB JwXlWpbiERUzF7l3eCOM4w== 0000905718-98-000415.txt : 19981118 0000905718-98-000415.hdr.sgml : 19981118 ACCESSION NUMBER: 0000905718-98-000415 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981002 FILED AS OF DATE: 19981116 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: 98752021 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 10-Q 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 2, 1998 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 November 9, 1998: 48,621,815. PART I - FINANCIAL INFORMATION Item 1. Financial Statements EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Six Months Ended October 2, September 30, October 2, September 30, 1998 1997 1998 1997 Net revenues $ 46,762 $ 45,100 $105,888 $ 75,543 Costs and expenses: Cost of sales 42,273 38,787 94,161 67,186 Other operating costs and expenses 897 637 2,163 1,503 Selling, general & administrative expenses 2,599 3,527 7,497 7,154 ------ ------ ------- ------ 45,769 42,951 103,821 75,843 ------ ------ ------- ------ Operating income (loss) 993 2,149 2,067 (300) Equity in earnings of Affiliate 348 528 791 1,037 Write-down of investment in Joint Venture (185) -- (370) -- Interest expense, net (551) (658) (1,120) (1,399) ----- ------ --------- ------ Income (loss) before income taxes 605 2,019 1,368 (662) Provision for income taxes 22 -- 21 41 ------ ------ --------- --------- Net income (loss) $ 583 $ 2,019 $ 1,347 $ (703) ======= ========= ========= ========= Net income (loss) per common share Basic $ .01 $ .06 $ .03 $ (.02) ======= ========= ========= ========= Diluted $ .01 $ .04 $ .03 $ (.02) ======= ========= ========= ========= Weighted average number of common shares outstanding Basic 50,037 42,372 50,625 41,486 ====== ====== ====== ====== Diluted 64,326 64,888 64,914 41,486 ====== ====== ====== ====== 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) October 2, April 3, 1998 1998 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 6,624 $ 2,608 Available for sale securities (net fair value adjustment of ($770) and $0, respectively) 1,040 -- Accounts receivable (net allowances of $5,862 and $4,884, respectively) 7,381 6,287 Other receivables 6,554 6,474 Inventories 11,472 11,375 Prepaid expenses and other current assets 2,541 2,503 ------ ------ Total current assets 35,612 29,247 Property and equipment - (net of accumulated depreciation and amortization of $3,069 and $3,152, respectively) 1,200 1,381 Investment in Affiliate and Joint Venture 18,357 17,522 Other assets 4,155 4,810 ------ ------ Total Assets 59,324 $ 52,960 ====== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 5,134 $ -- Current maturities of long-term debt 58 85 Accounts payable and other current liabilities 16,220 13,296 Accrued sales returns 5,552 4,511 Income taxes payable 109 191 ------ ------ Total current liabilities 27,073 18,083 Long-term debt, net of current maturities 20,750 20,750 Other non-current liabilities 166 179 Shareholders' Equity: Preferred shares - 10,000,000 shares authorized, 3,714 and 5,237 shares issued and outstanding, respectively 3,343 4,713 Common shares - $.01 par value, 75,000,000 shares authorized, 51,331,615 and 51,044,730 shares issued; 48,701,015 and 51,044,730 shares outstanding, respectively 513 510 Treasury stock, at cost, 2,630,600 shares and 0 shares respectively. (1,409) -- Capital in excess of par value 113,287 113,201 Unrealized losses on securities (770) -- Accumulated deficit (103,826) (104,673) Cumulative translation adjustment 197 197 ------- -------- Total shareholders' equity 11,335 13,948 ------- -------- Total Liabilities and Shareholders' Equity $ 59,324 $ 52,960 ======= ======== 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)
Six Months Ended October 2, September 30, 1998 1997 Cash Flows from Operating Activities: Net cash provided by operating activities $ 3,965 $ 2,005 -------- ------- Cash Flows from Investing Activities: Net cash provided (used) by investing activities. (1,854) 13 -------- ------- Cash Flows from Financing Activities: Net borrowings (repayments) under line of credit facility 5,134 (1,859) Other (3,229) (73) -------- ------- Net cash used by financing activities 1,905 (1,932) -------- ------- Net increase in cash and cash equivalents 4,016 86 Cash and cash equivalents at beginning of year 2,608 2,640 ------- ------- Cash and cash equivalents at end of period(a) $ 6,624 $ 2,726 ======= ======= Supplemental disclosure of cash flow information: Interest paid $ 551 $ 1,399 ======= ======= Income taxes paid $ 12 $ 31 ======= =======
(a) Includes $1.4 million and $1.7 million as of October 2, 1998 and September 30, 1997, 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) (In thousands, except earnings per share data) 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 2, 1998 and the results of operations for the three and six month periods ended October 2, 1998 and September 30, 1997. 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 3, 1998 ("Fiscal 1998"), 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 2 1998 are not necessarily indicative of the results of operations that may be expected for the full year ending April 2, 1999 ("Fiscal 1999"). Beginning in Fiscal 1998, the Company changed its financial reporting year to a 52/53 week year ending on the Friday closest to March 31. Accordingly, the current fiscal year will end on April 2, 1999. Such change in the Company's financial reporting year will not have a material effect on the Company's results of operations. Certain amounts in the prior period's consolidated financial statements have been reclassified to conform to current periods presentation. NOTE 2 - EARNINGS (LOSS) 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 2, September 30, October 2, September 30, 1998 1997 1998 1997 Numerator: Net income (loss) $ 583 $ 2,019 $ 1,347 $ (703) Less: preferred stock dividends 538 109 592 245 ----- ----- ----- -------- Numerator for basic earnings per share - income available to common stockholders 45 1,910 755 (948) Added effect of assumed conversions: Interest on convertible debentures 441 441 882 -- Preferred stock dividends 39 109 93 -- ----- ----- ----- ------- Numerator for diluted earnings (loss) per share $ 525 $ 2,460 $ 1,730 $ (948) ====== ======= ======= ======== Denominator: Denominator for basic earnings per share - weighted average shares 50,037 42,372 50,625 41,486 Effect of dilutive securities: Convertible debentures 5,204 5,204 5,204 -- Preferred shares 9,085 17,312 9,085 -- ------ ------ ----- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 64,326 64,888 64,914 41,486 ======= ====== ====== ======== Basic earnings (loss) per share $ .01 $ .06 $ .03 $ (.02) ======= ======= ======== ========= Diluted earnings (loss) per share $ .01 $ .04 $ .03 $ (.02) ======= ======= ========= ========
NOTE 3- CAPITAL STRUCTURE The outstanding capital stock of the Company at October 2, 1998 consisted of common stock and Series A convertible preferred stock. The preferred shares are convertible to common shares until March 31, 2002. During the quarter ended September 30, 1997, 1,434 shares of Series A Preferred Stock were converted into 2,990,011 shares of common stock. There were no conversions of Series A Preferred Stock for the quarter ended October 2, 1998. During August 1998, the Company repurchased directly 1,423 preferred shares. If all existing outstanding preferred shares were converted at October 2, 1998, an estimated 9.1 million additional common shares would be issuable. Dividends for the preferred stock accrued and were payable quarterly at a 7% annual rate until March 31, 1997; dividend rates decline by 1.4% each succeeding year until March 31, 2001 when no further dividends are payable. The dividend rates at October 2, 1998 and September 30, 1997 were 4.2% and 5.6%, with $762,000 and $615,000 of dividends in arrears respectively. At October 2, 1998, the Company had outstanding approximately 1.2 million options with exercise prices ranging from $1.00 to $1.10. Approximately 737,000 outstanding warrants are convertible into approximately 670,000 shares of common stock at conversion prices ranging between $1.20 and $4.00. The Company also has outstanding $20.8 million of Senior Subordinated Convertible Debentures due in 2002. See "Note 8 - Long Term Debt." NOTE 4 - INCOME TAXES Income tax provisions and benefits for the quarterly periods ended October 2, 1998 and September 30, 1997 consist of taxes related to international operations. The Company does not recognize tax benefits for losses incurred by its domestic operations. NOTE 5 - INVENTORY Inventories are comprised primarily of finished goods. Spare parts inventories, net of reserves, aggregating $281,000 and $384,000 at October 2, 1998 and April 3, 1998, respectively, are included in "Prepaid expenses and other current assets." NOTE 6 - 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 2, 1998 (in thousands): Cost Gross Gross Estimated Unrealized Unrealized Fair Gains Losses Value Equity Securities $1,810 $-- $770~ $1,040 NOTE 7 - INVESTMENT IN SPORT SUPPLY GROUP, INC. The Company owns 2,274,500 (29% of the outstanding) shares of common stock of Sport Supply Group, Inc. ("SSG") which it purchased in 1996 at an aggregate cost of $15,728,000 or $ 6.92 per share. In addition, the Company owns warrants to purchase an additional 1 million shares of SSG's common stock for $7.50 per share ("SSG Warrants") which the Company purchased in 1996 at an aggregate cost of $500,000 or $.50 per SSG warrant. If the Company exercises all of the SSG Warrants, it will beneficially own approximately 42% of the SSG common shares. The investment in and results of operations of SSG are accounted for by the equity method. In January 1997, SSG changed its financial reporting year end from October 31 to September 30. This change in accounting period resulted in the Company now recording its share of SSG earnings on a concurrent basis. Previously, the Company recorded its share of SSG's earnings on a two month delay. The Company's investment in SSG includes goodwill of $3,973,000 which is being amortized on a straight line basis over 40 years. At October 2, 1998, the aggregate market value quoted on the New York Stock Exchange of Emerson's shares of SSG common shares was approximately $16.2 million. Summarized financial information derived from SSG's financial reports to the Securities and Exchange Commission was as follows (in thousands): October 2, 1998 April 3, 1998 (Audited) (Unaudited) Current assets $ 33,710 $ 37,282 Property, plant and equipment and other assets 21,094 19,878 Current liabilities 8,465 8,395 Long-term debt 5,161 7,498 (Unaudited) For the 6 Months Ended For the 6 Months Ended October 2, 1998 August 1, 1997 Net sales $ 50,607 $ 51,536 Gross profit 19,950 20,239 Net income 2,994 3,950 In July 1997, the Company entered into a Management Services Agreement with SSG, under which SSG provides various managerial and administrative services to the Company. NOTE 8 -LONG TERM DEBT As of October 2, 1998 and April 3, 1998 long-term debt consisted of the following (in thousands of dollars): October 2, April 3, 1998 1998 8-1/2% Senior Subordinated Convertible Debentures Due 2002 $20,750 $20,750 Equipment notes and other 58 85 20,808 20,835 ------- ------ Less current obligations 58 85 ------- ------- 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. Note 9 --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 3, 1998 and "Part II -- Other Information Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q. 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. Item 2. Management's Discussion and Analysis of Results 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 prospective annual results. The Company expects its United States sales for the fiscal quarter ended December 1998 to be lower than the third fiscal quarter of Fiscal 1998 due to reduced product sales. Results of Operations Net Revenues - Consolidated net revenues for the three and six month periods ended October 2, 1998 increased $1.7 million (3.7%) and $30.3 million (40.2%) as compared to the same periods in the fiscal year ended March 31, 1998 ("Fiscal 1998"), respectively. The increase in revenues resulted primarily from increases in unit sales of audio products, partially offset by reductions in microwave ovens. Additionally, a significant reduction in returned product was recorded in the current period as compared to the same period in the prior year resulting from an overall more restrictive return policy by the Company's customers. Revenues earned from the licensing of the "EMERSON" trademark were $1 million and $1.6 million in the three and six month periods ended October 2, 1998 as compared to $1.5 million and $2.5 million in the same periods in Fiscal 1998, respectively. Cost of Sales - Cost of Sales, as a percentage of consolidated revenues, was 90% and 89% for the three and six month periods ended October 2, 1998 as compared to 86% and 89% for the same periods in Fiscal 1998, respectively. The increase in cost of sales as a percent of sales for the three month period ended October 2, 1998 as compared to the same period in the prior fiscal year was primarily attributable to lower margins in audio products, and a decrease in licensing revenues and marketing fees. 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 categories of the market which tend to be the most competitive and generate the lowest profit margins. The Company believes that its marketing agreements, its licensing agreements in the United States and various foreign countries and its distribution agreements in Canada, Europe and parts of Asia will have a favorable impact on the Company's gross profit. 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 continually reviews new products that 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 $260,000 and $660,000 in the three and six month periods ended October 2,1998 as compared to the same periods in Fiscal 1998, respectively, primarily as a result of the Company's return-to-vendor program. Under the return-to-vendor program, the Company, by paying a fee, is able to return defective product to its suppliers and, to receive in exchange, a replacement unit. Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage of revenues, was 5.6% and 7.1% for the three and six month periods ended October 2, 1998, as compared to 7.8% and 9.5% for the same periods in Fiscal 1998, respectively. In absolute terms, S,G&A decreased by $930,000 for the three month period ended October 2, 1998, and for the six month period ended October 2,1998 increased by $340,000 as compared to the same period in Fiscal 1998. The decrease of $930,000 in S,G&A for the three month period was primarily attributable to a decrease in advertising costs and rent expense, offset by an increase in professional fees. The increase of $340,000 in S,G&A for the six month period was primarily attributable to increased professional fees, offset by a decrease in advertising costs and a decrease in the charges incurred in the prior year for relocation costs of the Company's back office operations from New Jersey to Texas. Operating Income (Loss) - The Company reported operating income of $1.0 million and $2.0 million for the three and six months ended October 2, 1998, as compared to operating income of $2.1 million and an operating loss of $.3 million for the same periods in Fiscal 1998, respectively. Operating income for the three month period ended October 2,1998 as compared to the same period in the prior year is lower by $1.1 million mainly due to a higher cost of sales in the current period, offset by a reduction in S,G&A expenses. Operating income for the six month period ended October 2, 1998 as compared to the same period in the prior year is higher by $2.3 million primarily due to a higher revenue base of approximately $30 million. Equity In Earnings Of Unconsolidated Affiliate - The Company's share in the earnings of SSG amounted to $348,000 and $791,000 in the three and six month periods ended October 2,1998 as compared to $528,000 and $1.0 million for the same periods in the prior Fiscal year, respectively. Interest Expense - Interest expense decreased by $107,000 and $279,000 in the three and six month periods ended October 2, 1998 as compared to the same periods in Fiscal 1998, respectively. The decrease was attributable to a significant reduction in short term average borrowings. The decrease in short term borrowings was due to a reduction in working capital requirements. Net Earnings (Loss) - As a result of the foregoing factors, the Company generated net earnings of $583,000 and $1,347,000 for the three and six month periods ended October 2, 1998, as compared to net earnings of $2,019,000 and a net loss of $703,000 for the same periods in Fiscal 1998, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $4.0 million for the six months ended October 2, 1998. Cash was provided primarily by an increase in accounts payable, increased borrowings, partially offset by an increase in accounts receivable, combined with increased profitability of the Company. Net cash utilized by investing activities was $1.9 million for the six months ended October 2, 1998. In the six months ended October 2, 1998, the Company's financing activities provided $1.9 million of cash. The Company increased its borrowings under its U.S. line of credit facility by $5.1 million and utilized $3.2 million for the purchase of the Company's preferred and common stock to be held in treasury. 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 $4.2 million letter of credit facility and a $25 million back-to-back letter of credit facility. At October 2, 1998, there was $315,000 and $18.0 million of letters of credit outstanding under the $4.2 million letter of credit facility and the $25 million letter of credit facility, respectively. 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. As of October 2, 1998 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 first six months of Fiscal 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. 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, they could have a material adverse effect on the Company by inhibiting the Company's relationship with its suppliers and its ability to acquire products for resale. Year 2000 The Company has in place detailed programs to address Year 2000 readiness in its internal computer systems and its key customers and suppliers. The Company's Year 2000 readiness team includes both internal personnel and external consultants. The team's activities are designed to ensure that there will be no material adverse effects on the Company's business operations and that transactions with customers, suppliers, and financial institutions will be fully supported. The specific costs of achieving Year 2000 compliance are expected to be $300,000, of which approximately $100,000 has been expended to date. The Company has converted a significant portion of its operational software, with testing scheduled to take place in the last quarter of calendar year 1998. The balance of the Company's software is to be updated from an outside vendor, which the Company expects to take place in the first quarter of Calendar 1999. The Company expects that all critical systems will be compliant by June 1999 and fully tested by September 1999. The Company is also in the process of ensuring that its significant suppliers, customers and financial institutions have appropriate plans to ensure that they are Year 2000 compliant. Risk assessment, readiness evaluation, action plans and contingency plans related to third parties are expected to be completed during the first half of Calendar 1999. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no guarantee that all internal systems, as well as those of third parties on which the company relies, will be converted on a timely basis and will not have a material affect on the Company's operations. Recent Pronouncements of the Financial Accounting Standards Board Recent pronouncements to the Financial Accounting Standards Board ("FASB") that are not required to be adopted (and that the Company has not adopted as of October 2, 1998), include the following Statements of Financial Accounting Standards ("SFAS"): SFAS No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income (all changes in equity during a period except those resulting from investments by and distributions to owners) and its components in the financial statements. This new standard, which will be effective for the Company's April 2, 1999 financial statements, is not currently anticipated to have a significant impact on the Company's financial statements based on the current financial structure and operations of the Company. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which will be effective for the Company for Fiscal 1999, establishes standards for reporting information about operating segments in the annual financial statements, selected information about operating segments in interim financial reports and disclosures about products and services, geographic areas and major customers. This new standard requires the Company to report financial information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments, which may result in more detailed information in the notes to the Company's financial statements than is currently required and provided. The Company has not yet determined the effects, if any, of implementing SFAS No. 131 on its reporting of financial information. SFAS No. 132, "Employers Disclosures about Pension and other Postretirement Benefits," revises disclosures about pension and other postretirement benefit plans. This new standard, standardizes the disclosure requirements for pension and other postretirement benefits to the extent practicable and requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. This new standard, which will be effective for Fiscal 1999, will not have a significant impact on the Company's financial statements based on the current financial structure and operations of the Company. SFAS No. 133, "Accounting for Derivative Instructments and Hedging Activities," which will be effective for the Company for Fiscal 2000, 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 58% and 16% of Fiscal 1998 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 Company's ability to replace the licensing income from the Supplier with commission revenues from Daewoo; (v) the outcome of litigation; (vi) the availability of sufficient capital to finance the Company's operating plans; (vii) the ability of the Company to comply with the restrictions imposed upon it by its outstanding indebtedness; (viii) the effect of the worldwide volatility in the financial markets and the Company's securities that are being held as available-for-sale; and (ix) general economic conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings. During July 1998, testimony concluded on the Creditors' motion to terminate the Settlement Agreement in the Stelling litigation. No decision has been rendered by the Court. In August 1998, the Company voluntarily dismissed with prejudice its lawsuit against Grace Brothers, Ltd. On September 22,1998, Connecticut General Life Insurance Company (CGLIC) filed suit against the Company in the United States District Court, for the District of New Jersey, alleging that the Company entered into an insurance agreement and failed to honor its obligation as stated in the agreement. CGLIC is seeking damages in the amount of $785,890. While the outcome of this action is not certain at this time, the Company believes it has meritorious defenses. For further information on the Stelling litigation and other 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. ITEM 2. Changes in Securities and Use of Proceeds. In August 1998, the Company repurchased and retired 1,423 shares of its outstanding Series A Preferred Stock. During the quarter ended October 2, 1998 the Company purchased 2,364,100 shares of its common stock that is being held as treasury stock. 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) Amendment No. 8 to Financing Agreements, dated as of November 13, 1998.* (10)(b) Third Lease Modification made the 26 day of October, 1998 between Hartz Mountain Parsippany and Emerson.* (10)(c) Purchasing Agreement, dated June 30, 1998, between AFG-Elektronik GmbH and Emerson Radio International Ltd.* (27) Financial Data Schedule for quarter ended October 2, 1998.* (b) Reports on Form 8-K - During the three month period ended October 2, 1998, no Form 8-K was filed. ____________________________ *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 13, 1998 /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman, Chief Executive Officer and President Date: November 13, 1998 /s/ John P. Walker John P. Walker Executive Vice President and Chief Financial Officer EX-10 2 AMENDMENT 8 TO FINANCING AGREEMENT AMENDMENT NO. 8 TO FINANCING AGREEMENTS as of November 13, 1998 Emerson Radio Corp. Majexco Imports, Inc. 9 Entin Road Parsippany, New Jersey 07054 Gentlemen: Congress Financial Corporation ("Lender"), Emerson Radio Corp. ("Emerson") and Majexco Imports, Inc., ("Majexco"; and together with Emerson, individually and collectively, the "Borrower") have entered into certain financing arrangements pursuant to the Loan and Security Agreement, dated March 31, 1994, by and between Lender and Borrower, as amended by Amendment No. 1 to Financing Agreements, dated August 24, 1995, Amendment No. 2 to Financing Agreements, dated February 13, 1996, Amendment No. 3 to Financing Agreements, dated August 20, 1996, Amendment No. 4 to Financing Agreements, dated November 14, 1996, Amendment No. 5 to Financing Agreements, dated February 18, 1997, Amendment No. 6 to Financing Agreements, dated August 14, 1997 and Amendment No. 7 to Financing Agreements, dated as of March 31, 1998 (as amended, the "Loan Agreement"), together with various other agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Financing Agreements"). All capitalized terms used herein and not herein defined shall have the meanings given to them in the Loan Agreement. Borrower has requested that Lender agree to certain amendments to the Financing Agreements, and Lender is willing to agree to such amendments, subject to the terms and conditions set forth herein. In consideration of the foregoing, the mutual agreements and covenants contained herein and other good and valuable consideration, the parties hereto agree as follows: 1. Amendments. (a) Working Capital Covenant. Section 9.13 of the Loan Agreement shall be deleted in its entirety, effective as of September 30, 1998. (b) Adjusted Net Worth Covenant. Section 9.14 of the Loan Agreement, as previously amended, shall be deleted in its entirety and replaced with the following, effective as of September 30, 1998: "9.14 ADJUSTED NET WORTH. Emerson shall, at all times, maintain, on a consolidated basis with its subsidiaries, Adjusted Net Worth of not less than $20,000,000." 2. Conditions Precedent. The effectiveness of the other terms and conditions contained herein shall be subject to: (a) the receipt by Lender of an original of this Amendment, duly authorized, executed and delivered by Borrower and consented and agreed to by the other Obligors; and (b) after giving effect to the amendments set forth in Section 1 hereof, no Event of Default shall exist or have occurred and be continuing, and no event or condition, which with the giving of notice or passage of time, or both, would constitute an Event of Default, shall exist or have occurred and be continuing. 3. Fee. In consideration of Lender's entering into this Amendment, Borrower shall pay Lender an amendment fee in the amount of $5,000, payable simultaneously with the execution hereof, which fee is fully earned as of the date hereof. Such fee may, at Lender's option, be charged directly to any of Borrower's Revolving Loan accounts maintained by Lender under the Financing Agreements. 4. Miscellaneous. (a) Entire Agreement; Ratification and Confirmation of the Financing Agreements. This Amendment contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous term sheets, proposals, discussions, negotiations, correspondence, commitments and communications between or among the parties concerning the subject matter hereof. This Amendment may not be modified or any provision waived, except in writing signed by the party against whom such modification or waiver is sought to be enforced. Except as specifically modified pursuant hereto, the Loan Agreement and the other Financing Agreements are hereby ratified, restated and confirmed by the parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment, the Loan Agreement and the other Financing Agreements, the terms of this Amendment shall control. (b) Governing Law. This Amendment and the rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York. (c) Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. (d) Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. By the signatures hereto of each of their duly authorized officers, all of the parties hereto mutually covenant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: /s/Thomas Grabosky Title: Assistant Vice President [SIGNATURES CONTINUED ON THE NEXT PAGE] [SIGNATURES CONTINUED FROM THE PREVIOUS PAGE] AGREED AND ACCEPTED: EMERSON RADIO CORP. By: /s/ John Walker Title EVP, CFO MAJEXCO IMPORTS, INC. By: /s/ John Walker Title: SVP - Finance - Treasurer CONSENTED TO AND AGREED: H. H. SCOTT, INC. EMERSON COMPUTER CORP. By: /s/ John Walker Title: SVP - Finance - Treasurer EMERSON RADIO CANADA LTD. By: /s/ John Walker Title: Treasurer EMERSON RADIO & TECHNOLOGIES N.V. By: /s/ John Walker Title: SVP - Finance - Treasurer EX-10 3 PURCHASING AGREEMENT P U R C H A S I N G A G R E E M E N T between AFG-Elektronik GmbH, Hans-Vogel-Str. 7, D - 90765 Furth - called in the following items SELLER - and EMERSON Radio International Ltd., Citco Bldg., Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands - called in the following items BUYER - 1. Based upon purchase order Nos. BVGM 1998/000083 (for 51,000 sets) and BVGM 1999/000001 (for 200,000 sets), copies of which are attached hereto and the terms of which are incorporated herein, and any amendments or alterations agreed to by the parties, and on condition that the seller sell to the buyer exclusively until October 31, 1999, the smart chips for sale in the territory of North America, the buyer has the obligation to take delivery of 250,000 smart chips from March 13, 1998 until Oct. 31, 1999. 2. For failure to take delivery of all of the goods by Oct. 31, 1999, the buyer has to pay to the seller a contract penalty of 1.00 US$ (one USD) for every smart chip not ordered, and no other monies will be due seller. Seller will give buyer a credit for the full amount of such penalty paid toward any purchase of the smart chips following October 31, 1999. Seller agrees that it will not do anything which will interfere with buyer's ability to perform under this agreement and shall indemnify and hold buyer harmless for any damages or costs buyer may incur which result from the manufacture, use or sale of the smart chips, or from any claims of patent infringement. In the event seller fails to timely ship any of the goods or ships defective goods for reasons under seller's control, buyer can cancel that part of the contract which is affected by the late shipment or the defective product without any penalty. 3. The contract parties agree upon German law as established law for all matters of this contract. 4. All possible legal differences arising from this contract will be settled in Furth, Germany, as the place of exclusive jurisdiction. In all controversies the English version of this agreement shall control. June 30, 1998 /s/ Gottfried Auer /s/ Geoffrey P. Jurick (AFG-Elektronic GmbH - seller) (Emerson Radio International Ltd. - buyer) EMERSON RADIO INTERNATIONAL, LTD. CITCO BUILDING, WICKHAMS CAY, P.O. BOX 662 ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS TEL. NO.: +1-809-494-2217 FAX NO.: +1-809-494-3917 +1-809-494-2218 PURCHASE ORDER Seller : AFG-ELEKTRONIK GMBH Purchase Order No.: BVGM1998/000083 HANS-VOGEL-STR. 7, D-90765 FURTH, Date : March 13, 1998 GERMANY Model : M44CO92 / UC348 Brand: Quantity : 51,000 SETS Unit Price : USD ********2.7500 @ SETS C.I.F. Terms of Payment : AGAINST IRREVOCABLE LETTER OF CREDIT AT SIGHT Description : CPU IN DICE VERSION "M44C092" LED DRIVER IN DICE VERSION "UC348" Packing : Inner Outer - -------------------------------------------------------------------------------- SHIPMENT - fix Latest Date May 31, 1998 1,000 SETS (FOR TESTING) Jul 01, 1998-Jul 10, 1998 50,000 SETS EARLY JULY, 98 - -------------------------------------------------------------------------------- The following schedules are an integral part of this Purchase Contract: X = ATTACHED WITH X * General Specifications (Form IMP-002) * Product Description (Form IMP-003) X * Toxic components in Packaging * Product Development Schedule (PDS) (Form IMP-004) * Tooling Information (Form IMP-005) * Bar Code Specifications (Form IMP-006) * Parts Procurement Requirement (Form IMP-007) * Service Information/Requirement (PUB1001, PUB1002) * Others: - -------------------------------------------------------------------------------- Confirming that this Contract, and all schedules refered to above, are entirely satisfactory to the Seller and to the Buyer, each party will affix his signature below. No further alterations or waivers are permitted unless approved in writing by EMERSON, in advance. SELLER: /s/ BUYER: /s/ AUTHORIZED SIGNATURE EMERSON RADIO INTERNATIONAL, LTD. EX-10 4 THIRD LEASE MODIFICATION AGREEMENT THIRD LEASE MODIFICATION AGREEMENT THIS THIRD LEASE MODIFICATION AGREEMENT, made this 26 day of October, 1998 by and between HARTZ MOUNTAIN PARSIPPANY, a New Jersey general partnership having an office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred to as "Landlord") and EMERSON RADIO CORP., a Delaware corporation having an office at 9 Entin Road, Parsippany, NJ 07054-0430 (hereinafter referred to as "Tenant"). WITNESSETH: WHEREAS, by Agreement of Lease dated March 26, 1993, as amended by First Lease Modification Agreement dated July 23, 1993, Landlord leased to Tenant and Tenant hired from Landlord approximately 40,646.75 square feet of Floor Space located on the second floor of 9 Entin Road in Parsippany, New Jersey (hereinafter the "Original Demised Premises"); and WHEREAS, pursuant to that certain Second Lease Modification Agreement dated May 15, 1998, Landlord and Tenant agreed, inter alia, to reduce the square footage being leased by Tenant by 21,430.75 square feet such that the Tenant, after said reduction, leased a total of 19,216 square feet of Floor Space on the second floor of the Building located at 9 Entin Road, Parsippany, New Jersey (said 19,216 square feet of Floor Space hereinafter referred to as the "Reduced Demised Premises"; the Lease of March 26, 1993, First Lease Modification Agreement dated July 23, 1993, and Second Lease Modification Agreement dated May 15, 1998, hereinafter collectively referred to as the "Lease") and to extend the Term of the Lease through and including July 31, 2003; and WHEREAS, Landlord and Tenant wish to further modify the Lease (a) to reflect an increase in the area of the Reduced Demised Premises and (b) to extend the Term of the Lease such that the Term of the Lease as it relates to all the Floor Space Leased by Tenant shall run for a period of five (5) years commencing on the Commencement Date of the Additional Premises (as those terms are defined hereinbelow) and amend the Lease accordingly; NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants herein contained and the consideration set forth herein, the parties agree as follows: 1. All terms set forth herein are as defined in the Lease unless otherwise specifically described hereinbelow. 2. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, an additional two thousand two hundred ninety three (2293) square feet of Floor Space which Floor Space is outlined in red on the attached Exhibit A (the "Additional Premises"); The Floor Space encompassed by both the Reduced Demised Premises (19,216 square feet) and the Additional Premises (2293 square feet) shall constitute and be hereinafter referred to collectively as the "Demised Premises". All reference in the Lease to the Demised Premises shall be deemed to refer to the Demised Premises as defined in the preceding sentence. 3. The Commencement Date of the Additional Premises shall be October 2, 1998. 4. The Term of the Lease of the Demised Premises (i.e., the Reduced Demised Premises and the Additional Premises) shall be for a period of five (5) years, commencing on the Commencement Date of the Additional Premises and expiring on the date that is the day before the fifth anniversary of the Commencement Date of the Additional Premises if the Commencement Date of the Additional Premises is the first day of the month, or the fifth anniversary of the last day of the month in which the Commencement Date of the Additional Premises occurs if the Commencement Date of the Additional Premises is not the first day of a month. 5. Effective upon the Commencement Date of the Additional Premises, Tenant shall pay Landlord, as and for Fixed Rent for said Additional Premises, at a rate of Twenty Three dollars ($23.00) per square foot of Floor Space of the Additional Premises per annum throughout the Term. 6. Effective upon the Commencement Date of the Additional Premises, Tenant's Fraction shall be increased by one percent (1%) to reflect the Additional Premises such that Tenant's Fraction shall, in total, be eleven percent (11%). 7. Tenant shall pay Landlord, as Additional Rent, the sum of Eight thousand and no/100 dollars ($8,000.00) as its sole contribution to Landlord's Work; said sum to be paid upon execution of this third Lease Modification Agreement. The term "Landlord's Work", as it relates to the Additional Premises shall mean the relocation of the demising wall demising the Demised Premises so as to include the Additional Premises. 8. Effective upon the Commencement Date of the Additional Premises, the number of Tenant's reserved parking spaces will be increased to nine (9). 9. Both parties represent that no broker was instrumental in bringing about or consummating this Third Lease Modification Agreement and that neither party had conversations or negotiations with any broker concerning this Third Lease Modification. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant with any broker. 10. Except as provided herein, all of the terms and conditions of the Lease as amended above are in full force and effect and are confirmed as if fully set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this Third Lease Modification Agreement to be duly executed as of the day and year first above written. ATTEST: HARTZ MOUNTAIN PARSIPPANY BY: HARTZ MOUNTAIN INDUSTRIES, INC. By: /s/ Irwin A. Horowitz Irwin A. Horowitz Executive Vice President ATTEST: EMERSON RADIO CORP. /s/ Ken Corby By: /s/ John P. Walker John P. Walker Chief Financial Officer EX-27 5 FDS --
5 ARTICLE 5 FOR THIRD QUARTER 10-Q 0000032621 EMERSON RADIO CORP. 1000 U.S. 3-MOS APR-02-1999 OCT-02-1998 1 6,624 1,040 13,243 5,862 11,472 35,612 4,269 3,069 59,324 27,073 20,750 0 3,343 513 7,479 59,324 45,762 46,762 42,273 42,273 3,655 (159) 551 605 22 583 0 0 0 583 .01 .01
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