UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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)
(201) 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. [ ] Yes
[ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 and 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
September 30, 1995: 40,252,772,
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
Six Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales .............................. 144,406 334,778 87,348 197,638
Costs and Expenses:
Cost of sales....................... 130,692 311,751 79,807 182,845
Other operating costs and expenses.. 2,545 4,867 929 2,115
Selling, general & administrative
expenses......................... 10,995 16,177 5,752 8,322
144,232 332,795 86,488 193,282
Operating profit ..................... 174 1,983 860 4,356
Interest expense ..................... 1,294 1,174 671 720
Earnings (loss) before income taxes... (1,120) 809 189 3,636
Provision for income taxes............ 154 114 63 47
Net Earnings (loss)................... $(1,274) $ 695 $ 126 $ 3,589
Net Earnings (loss) per common share.. $ (.04) $ .02 $ .00 $ .08
Weighted average number of
common and common equivalent shares
outstanding ........................ 40,253 45,332 40,253 44,875
</TABLE>
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)
Sept. 30, March 31,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 14,301 $ 17,020
Accounts receivable (less allowances of
$6,972 and $9,350, respectively) . . . . 37,187 34,309
Inventories . . . . . . . . . . . . .. . . 33,205 35,336
Prepaid expenses and other current assets . 11,014 15,715
Total current assets . . . . . . . . . . . 95,707 102,380
Property and equipment - (at cost less
accumulated depreciation and amortization
of $6,282 and $7,102, respectively) . . . . . 4,520 4,676
Other assets. . . . . . . . . . . . . . . . . . 9,396 6,913
Total Assets . . . . . . . . . . . . . . . $109,623 $113,969
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . $ 11,991 $ 27,296
Current maturities of long-term debt . . . . 459 508
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . 17,222 18,982
Accrued sales returns . . . . . . . . . . . . 6,706 12,713
Income taxes payable. . . . . . . . . . . . . 237 283
Total current liabilities . . . . . . . . 36,615 59,782
Long-term debt . . . . . . . . . . . . . . . 20,931 214
Other non-current liabilities . . . . . . . 315 322
Shareholders' Equity:
Preferred stock - $.01 par value,
1,000,000 shares authorized, 10,000
shares issued and outstanding. . . . . . 9,000 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 40,252,772. . . . . . . .
shares issued and outstanding. . . . . . . . 403 403
Capital in excess of par value . . . . . . . . . 107,969 107,969
Accumulated deficit . . . . . . . . . . . . . (65,710) (64,086)
Cumulative translation adjustment . . . . . . 100 365
Total shareholders' equity . . . . . . . 51,762 53,651
Total Liabilities and Shareholders' Equity $ 109,623 $ 113,969
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
September 30,
1995 1994
Cash Flows from Operating Activities:
Net cash used by operating activities. . . . $ (4,295) $(26,907)
Cash Flows from Investing Activities:
Redemption of certificates of deposit. . . . 45 8,482
Additions to property and equipment. . . . . (1,145) (2,444)
Other. . . . . . . . . . . . . . . . . . . . (521) 12
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . . (1,621) 6,050
Cash Flows from Financing Activities:
Net proceeds from private placement of
Senior Subordinated Convertible Debentures. 19,233 -
Net borrowings (repayments) under
line of credit facility. . . . . . . . . . . . . . (15,305) 9,337
Net proceeds from public offering of
common stock. . . . . . . . . . . . . . . . . . . - 5,648
Other . . . . . . . . . . . . . . . . . . . . . . . (731) (1,123)
Net cash provided by financing activities . . . . . 3,197 13,862
Net decrease in cash and cash equivalents . . . . (2,719) (6,995)
Cash and cash equivalents at beginning of year. . . 17,020 21,623
Cash and cash equivalents at end of period. . . . . $ 14,301(a)$ 14,628(a)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . $ 1,564 $ 1,245
Income taxes paid . . . . . . . . . . . . . . . $ 133 $ 275
(a) The balances at September 30, 1995 and 1994 include $9.1 million and
$3.0 million, respectively, of cash and cash equivalents pledged to assure
the availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements reflect all
adjustments that management believes are necessary to present fairly the
results of operations for the periods being reported. 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 Emerson Radio Corp. (the "Company") annual consolidated financial
statements. It is suggested that these unaudited interim consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the year ended March 31,
1995, included in the Company's annual Form 10-K filing. Due to the
seasonal nature of the Company's consumer electronics business, the results
of operations for the three and six month periods ended September 30,
1995 are not necessarily indicative of the results of operations for the
full year ending March 31, 1996.
NOTE 2
Net earnings (loss) per common share for the three and six month
periods ended September 30, 1995 are based on the net earnings (loss) and
deduction of preferred stock dividend requirements (resulting in a loss
attributable to common shareholders) and the weighted average number of shares
of common stock outstanding during the periods. These per share amount do not
include common stock equivalents assumed outstanding since they are anti-
dilutive. Net earnings per common share for the three and six month
periods ended September 30, 1994 are based on the weighted average number of
shares outstanding of common stock and common stock equivalents outstanding
during each period. Common stock equivalents include shares issuable
upon conversion of the Company's Series A Preferred Stock and shares issued
(in February 1995) for the three and six month periods ended
September 30, 1994 to former creditors primarily to satisfy an anti-dilution
provision.
NOTE 3
The provision for income taxes for the three and six month periods ended
September 30, 1995 and 1994 consists primarily of taxes related to
international operations. The Company did not recognize tax benefits for
losses incurred by its domestic operations (after tax recognition of
prior year book deductions) during the same periods.
EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS -CONTINUED
(Unaudited)
NOTE 4
Spare parts inventories, net of reserves, aggregating $2,522,000
and $2,763,000 at September 30, 1995 and March 31, 1995, respectively,
are included in "Prepaid expenses and other current assets".
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
Sept. 30, March 31,
1995 1995
8-1/2% Senior Subordinated Convertible
Debentures Due 2002. . . . . $ 20,750 $ -
Notes payable to unsecured
creditors . . . . . . . . . . . 358 465
Equipment notes and other . . . . . 282 257
______ ___
21,390 722
Less current obligations. . . . . 459 508
______ ___
$20,931 $ 214
______ ___
The 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the
"Debentures") were issued in August 1995. The Debentures bear interest at
the rate of 8-1/2% per annum, payable quarterly on March 15, June
15, September 15 and December 15, in each year. The Debentures mature
on August 15, 2002. The Debentures are convertible into shares of the
Company's Common Stock at any time prior to redemption or maturity at an
initial conversion price of $3.9875 per share, subject to adjustment
under certain circumstances. The Debentures are redeemable, at the
option of the Company, after the expiration of three years from the date
of issuance, in whole or in part, at an initial redemption price of 104% of
principal, decreasing by 1% per year until maturity. The Debentures are
subordinated to all existing and future Senior Indebtedness (as defined
in the Indenture governing the Debentures). The Debentures restrict,
among other things, the amount of Senior Indebtedness and other indebtedness
that the Company and, in certain instances, its subsidiaries, may incur.
Each holder of Debentures has the right to cause the Company to redeem
the Debentures if certain Designated Events (as defined) should occur.
The Debentures are subject to certain restrictions on transfer.
NOTE 6
The 30 million shares of Common Stock issued to GSE Multimedia
Technologies Corporation, Fidenas International Limited L.L.C. and Elision
International, Inc. on March 31, 1994, pursuant to the Company's bankruptcy
restructuring plan, are the subject of certain legal proceedings. Transfer
of certain shares owned by Fidenas International Limited L.L.C. have been
enjoined by court orders issued in the United States Bankruptcy Court for the
Southern District of New York and the Commonwealth of the Bahamas. The
Company is not a party to any of the proceedings described herein; it is
possible that a court of competent jurisdiction may order the turnover of
all or a portion of the shares of Common Stock owned by such persons
to a third party. A turnover of a substantial portion of the Common Stock
could result in a "change of controlling ownership" prohibited pursuant to the
terms of the Company's loan and security agreement with its primary United
States lender and pursuant to the terms of the Debentures. Additionally,
such a change in controlling ownership could result in a second "ownership
change" under Internal Revenue Code Section 382, which could affect the
Company's ability to use its net operating loss and tax credit carryforwards
and may cause an adjustment of the conversion price of the Debentures.
The Company does not believe the litigation or the results thereof will
have a material adverse effect on the Company or on the Company's financial
position. The Company has filed a shelf registration statement covering
5,000,000 shares of common stock owned by Fidenas International Limited L.L.C.
which has reserved the right to sell certain of the shares to be registered
to Elision International, Inc. and/or GSE Multimedia Technologies
Corporation to finance a settlement of the litigation. The shares covered
by the shelf registration are subject to certain contractual restrictions
and may be offered for sale or sold only by means of a prosepctus following
registration under the Securities Act of 1933. The Company is presently
engaged in litigation regarding several bankruptcy claims which have not
been resolved since the restructuring of the Company's debt. The largest
claim was filed July 25, 1994 in connection with the rejection of certain
executory contracts with two Brazilian entities, Cineral Electronica de
Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The
contracts were executed in August 1993, shortly before the Company's
filing for bankruptcy protection. The amount claimed was $93,563,457, of
which $86,785,000 represents a claim for lost profits and $6,400,000 for
plant installation and establishment of offices, which were installed
and established prior to execution of the contracts. The claim was filed
as an unsecured claim and, therefore, will be satisfied, to the
extent the claim is allowed by the Bankruptcy Court, in the manner other
allowed unsecured claims are satisfied. The Company has objected to the
claim and intends to vigorously contest such claim and believes it has
meritorious defenses to the highly speculative portion of the claim for
lost profits and the portion of the claim for actual damages for expenses
incurred prior to the execution of the contracts. Additionally, the
Company has instituted an adversary proceeding in the Bankruptcy Court
asserting damages caused by Cineral. A motion filed by Cineral to
dismiss the adversary proceeding has been denied. The adversary
proceeding and claim objection have been consolidated into one
proceeding. An adverse final ruling on the Cineral claim could have a
material adverse effect on the Company, even though it would be limited
to 18.3% of the final claim determined by a court of competent jurisdiction;
however, with respect to the claim for lost profits, in light of the
foregoing, the Company believes the chances for recovery for lost profits are
remote.
NOTE 7
The Company has a 50% investment in E & H Partners, a joint venture that
purchases, refurbishes and sells all of the Company's product returns.
The results of this joint venture are accounted for by the equity method.
The Company's equity in the earnings of the joint venture is reflected as a
reduction of cost of sales in the Company's unaudited interim Consolidated
Statements of Operations. Summarized financial information relating to the
joint venture is as follows (in thousands):
Sept. 30, March 31,
1995 1995
Accounts receivable from
joint venture (a) $16,219(a) $15,283
Six Months Ended
September 30,
1995 1994
Condensed income statement (c):
Net sales $13,556(b) $6,944
Net earnings 1,394 1,155
____________________
(a) Secured by a lien on the partnership's inventory. Such lien has been
assigned to the Company's primary lender as collateral for the U.S. line of
credit facility.
(b) Includes sales to the Company of $1,799,000 and $856,000 for the six
months ended September 30, 1995 and 1994, respectively.
(c) E&H Partners was inactive for substantially all of the three month
period ended June 30, 1994.
The Company filed suit on July 5, 1995 in the State Court of New Jersey
alleging Hopper Radio of Florida, Inc. ("Hopper"), the Company's partner in
E&H Partners, Barry Smith, the President of Hopper, and three former
employees of the Company (collectively, the "Defendants") have formed a
business entity for the purpose of engaging in the distribution of
consumer electronics and that the action of the Defendants in connection
therewith violated certain duties owed to and rights of the Company.
E & H Partners has continued to operate since the filing of said lawsuit.
However, the Company cannot predict at this time how this suit will, if
at all, affect the joint venture or the Company.
EMERSON RADIO CORP. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
On August 30, 1995, the Company completed a private placement of
$20,750,000 aggregate principal amount of Debentures, resulting in net
proceeds to the Company of approximately $19,233,000 after
the payment of commissions and other expenses of such offering. The
proceeds of this offering were initially applied against the Company's
United States secured credit facility to reduce present working capital
costs. See Note 5 of Notes to Interim Consolidated Financial Statements
included elsewhere in this Form 10-Q. Management's intention is to utilize
its new capital to repay an intercompany balance with a foreign subsidiary,
exploit new business opportunities via product line additions and
extensions and the expansion of its distribution base and acquisitions.
The Company also amended its United States secured credit facility
effective as of August 24, 1995. The amendment includes, among other things, a
reduction of 1% in the interest rate charged on borrowings, down to 1.25%
above the stated prime rate, an extension on the term of the facility for
one additional year to March 1998, an increase in working capital
requirements, a reduction of other loan fees and charges under such
facility and the release of the Lender's security interests in the trademarks
of the Company. The trademarks are subject to a negative pledge covenant.
The modifications to its United States secured credit facility, together with
the net proceeds from the sale of the Debentures should enable the Company to
significantly reduce its costs of borrowings while permitting the Company to
expand its product lines and distribution base.
On February 22, 1995, the Company and Otake Trading Co. Ltd. and certain
affiliates ("Otake"), previously the Company's largest supplier, entered into
two mutually contingent agreements (the "Agreements"). Effective March 31,
1995, the Company granted a license of certain trademarks to Otake for a
three-year term. The license permits Otake to manufacture and sell certain
video products under the Emerson trademark to Wal-Mart Stores, Inc.
("Wal-Mart"), the Company's largest customer, in the U.S. and Canada.
As a result, the Company will receive royalties attributable to such sales
over the three-year term of the Agreements in lieu of reporting the full
dollar value of such sales and associated costs. The Company will continue
to supply other products to Wal-Mart directly. Further, the Agreements
provide that Otake will supply the Company with certain video products for
sale to other customers at preferred prices for a three-year term. Under
the terms of the Agreement, the Company will receive non-refundable minimum
annual royalties from Otake to be credited against royalties earned from sales
of video cassette recorders and players, television/video cassette recorder
and player combination units, and color televisions to Wal-Mart. In
addition, effective August 1, 1995, Otake assumed responsibility for returns
and after-sale and warranty services on all video products manufactured by
Otake and sold to Wal-Mart, including video products sold by the Company
prior to August 1, 1995. As a result, the impact of sales returns on the
Company's net sales and operating results are expected to be significantly
reduced, effective with the quarter ended September 30, 1995 ("Fiscal
1996"). The Company expects to report lower direct sales in the fiscal
year ending March 31, 1996 ("Fiscal 1996") as a result of the Agreements,
but no negative material impact is expected on its net operating results
for such year. The Company expects to realize a more stable cash flow
over the three-year term of the Agreements, and expects to reduce short-
term borrowings used to finance accounts receivable and inventory,
thereby reducing interest costs.
The Company reported a significant decline in its net direct sales
for the first and second quarters of Fiscal 1996 as compared to the same
periods in the fiscal year ended March 31, 1995 ("Fiscal 1995") primarily
due to the licensed video sales. However, the Company's United States sales
to other customers also declined due to increased price competition,
primarily in video product categories, higher retail stock levels, a
slowdown in retail activity and the extremely high level of sales achieved in
the first six months of Fiscal 1995. The Company expects its United
States sales for the third quarter of Fiscal 1996 to be lower than the third
quarter of Fiscal 1995, exclusive of the licensed video sales, due to the
continuing weak retail climate and the increased level of price competition in
video product categories. Net sales of video product to Wal-Mart in the
third quarter of Fiscal 1995 (quarter ended December 31, 1994) were
$86,625,000 or 45% of consolidated net sales.
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its
annual sales in the quarters ending September 30 and December 31 and
receives the largest percentage of customer returns in the quarters ending
March 31 and June 30. Therefore, the results of operations discussed below
are not necessarily indicative of the Company's prospective annual results
of operations.
Results of Operations
Consolidated net sales for the three and six months ended September
30, 1995 decreased $110,291,000 (or 56%) and $190,372,000 (or 57%) as
compared to the same periods in Fiscal 1995, respectively. The effects of
the Agreements described above accounted for substantially all of the
decrease in sales (approximately 98%, or $107,964,000, and 91%, or
$173,773,000, net of licensing revenues received), and as a result,
sales to Wal-Mart were reduced to 24% and 21% of consolidated net sales
for the three and the six month periods ended September 30, 1995,
respectively, as compared to 58% and 54% for the same periods in Fiscal
1995. Net sales to Wal-Mart of video products bearing the Emerson trademark
were reported by Otake to the Company to be $74,847,000 and $136,154,000 for
the three and the six month periods ended September 30, 1995, respectively,
or 28% and 18% lower than recorded by the Company in the same periods in
Fiscal 1995. In addition, sales for the three and six months ended
September 30, 1995 decreased as a result of lower unit sales of televisions
and television/video cassette recorder combination units due to increased
price competition in these product categories substantially offset by an
increase in unit sales of video cassette recorders, microwave ovens and
audio products. The Company's Canadian operations reported a decline of
$5.1 million and $6.5 million in net sales for the three and six month
periods ended September 30, 1995, respectively, due to declines in unit
volume and sales prices due to a weak Canadian economy. The Company's
European sales decreased $1.7 million and $8.2 million for the three and
six month periods ended September 30, 1995, respectively, relating to
the Company's discontinuance of its Spanish branch, and plan to sell
products in Spain through a distributor.
Cost of sales, as a percentage of consolidated sales, was 91% for
both the three and six month periods ended September 30, 1995 as
compared to 93% for the same periods in Fiscal 1995. Gross profit
margins in the three and the six month periods ended September 30,
1995 were favorably impacted by a change in product mix, the recognition
of licensing income, reduced reserve requirements for sales returns due
primarily to the Agreements with Otake, and reduced fixed costs
associated with the downsizing of the Company's foreign offices,
partially offset by lower sales prices, and lower realization on the
resale of returned product due to increased price competition.
The improvement in gross margins was also partially offset by the
accrual of $3.9 million in the quarter ended September 30, 1994 of purchase
discounts received from one of the Company's suppliers based on purchases
from the supplier in calendar 1993. Due to the increase in the value of
the Japanese Yen in 1995, and its impact on the cost of certain raw materials
and subassemblies of the Company's suppliers, the Company has not received
any purchase discounts from its suppliers in the first half of Fiscal 1996,
and the Company has also absorbed certain price increases from its suppliers.
Additionally, the Company has not been able to recover such price increases
from its customers due to the increased price competition. To mitigate the
impact of the Yen, the Company has been able to negotiate lower prices
(including purchase discounts) from various sources of supply for certain
audio products, commencing primarily in the second half of Fiscal 1996.
Other operating costs and expenses declined $1,186,000 and $2,322,000
in the three and six month periods ended September 30, 1995 as compared
to the same periods in Fiscal 1995, primarily as a result of a decrease
in compensation expense and other expenses incurred to process product
returns and after-sale services, relating to the Company's downsizing
program, lower product returns and change in the resale arrangement for
product returns (See Note 7 of Notes to Interim Consolidated Financial
Statements) and to lower warranty expense related to the decline in sales.
Selling, general and administrative expenses ("S,G & A") as a
percentage of sales, was 7% and 8% for the three and six month periods
ended September 30, 1995, as compared to 4% and 5% for the same periods
in Fiscal 1995. In absolute terms, S,G & A decreased by $2,570,000 and
$5,182,000 in the three and six month periods ended September 30, 1995
as compared to the same periods in Fiscal 1995. The decrease for the
three months ended September 30, 1995 was primarily attributable to
lower selling expenses attributable to the lower sales, lower professional
fees due to bankruptcy costs incurred in the prior year and a reduction
in fixed overhead costs relating to the Company's downsizing program in both
the U.S. and in its foreign offices. Additionally, the decrease for the six
months ended September 30, 1995 also included lower compensation expense
relating to the downsizing. The increase in the S,G & A percentage of
sales is due primarily to the allocation of fixed S,G & A costs over a
significantly lower sales base resulting from the licensing of video sales.
Additionally, the Company's exposure to foreign currency fluctuations,
primarily in Canada and Spain, resulted in the recognition of net foreign
currency exchange gains aggregating $239,000 and $671,000 in the three
and six month periods ended September 30, 1995 as compared to $431,000 and
$832,000 in the same periods in Fiscal 1995, respectively.
Interest expense decreased by $49,000 in the three month period ended
September 30, 1995 as compared to the same period in Fiscal 1995. The
decrease in interest expense was attributable to the paydown of $19.2 million
of the Company's borrowings under its United States secured credit facility
with the proceeds of the lower rate Debentures, partially offset by a higher
average interest rate on these borrowings. Interest expense for the six
months ended September 30, 1995 increased $120,000 due to higher average
borrowings under this credit facility at a higher average interest rate
on these borrowings.
As a result of the foregoing factors, the Company generated net
earnings of $126,000 and incurred a net loss of $1,274,000 for the three
and six month periods ended September 30, 1995, compared to a net earnings
of $3,589,000 and $695,000 for the same periods in Fiscal 1995, respectively.
Liquidity and Capital Resources
Net cash utilized by operating activities was $4,295,000 for the
six months ended September 30, 1995. Cash was used to fund the loss
from operations and higher accounts receivable balances, partially offset
by the receipt of funds for purchase discounts accrued in Fiscal
1995.
Net cash utilized by investing activities was $1,621,000 for the six
months ended September 30, 1995. Investing activities consisted primarily
of capital expenditures for the purchase of new product molds. In
the six months ended September 30, 1995, the Company's financing
activities provided $3,197,000 of cash. Cash was provided by the private
placement of $20,750,000 aggregate principal amount of Debentures. The
proceeds of approximately $19,233,000, net of issuance costs, was
initially used to reduce borrowings under the U.S. line of credit
facility.
The Company maintains an asset-based revolving line of credit facility
with a U.S. financial institution (the "Lender"). The facility provides
for revolving loans and letters of credit, subject to individual maximums
and, in the aggregate, not to exceed the lesser of $60 million or a
"Borrowing Base" amount based on specified percentages of eligible accounts
receivable and inventories. All credit extended under the line of credit is
secured by all U.S. and Canadian assets of the Company except for trademarks,
which are subject to a negative pledge covenant. The interest rate on all
borrowings is 1.25% above the prime rate. At September 30, 1995, there
were approximately $12.0 million outstanding on the Company's revolving
loan facility, and approximately $6.7 million of letters of credit
outstanding issued for inventory purchases. Based on the "Borrowing
Base" amount at September 30, 1995, $16.1 million of the credit facility
was not utilized. Pursuant to the terms of the credit facility the Company
is required to maintain a minimum net worth of $42,000,000 excluding net
proceeds ($5.7 million through September 30, 1995) received by the
Company from the sale of equity securities. This minimum will increase
to $50,000,000 effective January 1, 1996. However, no assurance can be
given that the Company will be able to meet the increased net worth
requirement.
The Company's Hong Kong subsidiary maintains various credit facilities
aggregating $114.3 million with a bank in Hong Kong consisting of the
following: (i) a $12.3 million credit facility generally used for letters
of credit for a foreign subsidiary's direct import business and affiliates'
inventory purchases, (ii) a $2 million standby letter of credit facility,
and (iii) a $100 million credit facility, for the benefit of a foreign
subsidiary, which is for the establishment of back-to-back letters of credit
with the Company's largest customer. At September 30, 1995, the Company's
Hong Kong subsidiary had pledged $4 million in certificates of deposit to
this bank to assure the availability of these credit facilities. At
September 30, 1995, there were approximately $9.6 million and $10.4 million
of letters of credit outstanding on the $12.3 million and $100 million
credit facilities, respectively.
The Company's Hong Kong subsidiary maintains an additional credit
facility with another bank in Hong Kong. The facility provides for a
$10 million line of credit for documentary letters of credit and a
$10 million back-to-back letter of credit line collateralized by a $5 million
certificate of deposit. At September 30, 1995, the Company's Hong Kong
subsidiary had pledged $5.1 million in certificates of deposit to assure
the availability of these credit facilities. At September 30, 1995, there
were approximately $4.0 million of letters of credit outstanding on these
credit facilities.
In November 1995, the Company's Board of Directors approved a plan
to repurchase up to 2 million of its common shares, or about 20
percent of the Company's current float of approximately 10 million shares,
from time to time in the open market. The Company pointed out that although
there are 40,252,772 shares outstanding, approximately 30 million shares
are held directly or indirectly by its Chairman Geoffrey Jurick and the
Company has agreed with Mr. Jurick that such shares will not be subject
to repurchase. The stock repurchase program is subject to consent of
certain of the Company's lenders, price and availability of shares,
compliance with securities laws and alternative capital spending programs,
including new acquisitions. The repurchase of common shares is intended
to be funded by available working capital.
Management's strategy to compete more effectively in the highly
competitive consumer products market in the United States and Canada, is to
combine innovative approaches to the Company's current product line, such
as value-added promotions, augment its product line on its own or through
acquisitions with higher margin complementary products, including personal
and home security products, a home theater system, ready-to-assemble
furniture, clocks and watches, and car audio products. The Company also
intends to engage in the marketing of distribution, sourcing and other
services to third parties. Management believes that these new products and
services will contribute to the Company's sales and operating results
commencing in the second half of Fiscal 1996. The Company also intends to
undertake efforts to expand the international distribution of its products
into areas where management believes low to moderately priced, dependable
consumer electronics and microwave oven products will have a broad appeal.
The Company has in the past and intends in the future to pursue such plans
either on its own or by forging new relationships, including through
license arrangements, partnerships or joint ventures.
Management believes that cash flow from operations, the proceeds from the
Debentures and the institutional financing described above will be
sufficient to fund all of the Company's cash requirements for the next
year for its core business and to exploit new business opportunities. Cash
flow from operations may be negatively impacted by a decrease in the
proportion of the Company's direct import sales to consolidated sales.
A lower percentage of direct import sales may require increased use
of the Company's credit facility with the Lender and may restrict growth
of the Company's sales. However, Management believes that it has sufficient
working capital to finance its sales plan for the next year.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information required by this item is included in Notes 6 and
7 of Notes to Interim Consolidated Financial Statements filed in
Part I of Form 10-Q for the quarter ended September 30, 1995, and is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits pursuant to provisions of Item 601 of Regulation
S-K are not applicable.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K dated July 10,
1995, reporting matters under Item 5.
(2) Current Report on Form 8-K dated August 30,
1995, reporting matters under Items 5 and 7.
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 14, 1995 /s/Geoffrey P. Jurick
Geoffrey P. Jurick
Chief Executive Officer
Date: November 14 , 1995 /s/Eugene I. Davis
Eugene I. Davis
President, Interim Chief
Financial Officer
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