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.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
October 2, September 30, October 2, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
October 2, April 3,
1998 1998
ASSETS (Unaudited)
Current Assets:
<S> <C> <C>
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.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands of dollars)
<CAPTION>
Six Months Ended
October 2, September 30,
1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
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
======= =======
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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):
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
October 2, September 30, October 2, September 30,
1998 1997 1998 1997
Numerator:
<S> <C> <C> <C> <C>
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)
======= ======= ========= ========
</TABLE>
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
======= =======
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
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]
<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
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)
<PAGE>
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.
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.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 FOR THIRD QUARTER 10-Q
</LEGEND>
<CIK> 0000032621
<NAME> EMERSON RADIO CORP.
<MULTIPLIER> 1000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-02-1999
<PERIOD-END> OCT-02-1998
<EXCHANGE-RATE> 1
<CASH> 6,624
<SECURITIES> 1,040
<RECEIVABLES> 13,243
<ALLOWANCES> 5,862
<INVENTORY> 11,472
<CURRENT-ASSETS> 35,612
<PP&E> 4,269
<DEPRECIATION> 3,069
<TOTAL-ASSETS> 59,324
<CURRENT-LIABILITIES> 27,073
<BONDS> 20,750
0
3,343
<COMMON> 513
<OTHER-SE> 7,479
<TOTAL-LIABILITY-AND-EQUITY> 59,324
<SALES> 45,762
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<CGS> 42,273
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<OTHER-EXPENSES> 3,655
<LOSS-PROVISION> (159)
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> 605
<INCOME-TAX> 22
<INCOME-CONTINUING> 583
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<NET-INCOME> 583
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</TABLE>
