SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(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.
The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of its
Quarterly Report on Form 10-Q pursuant to the Securities and
Exchange Act of 1934, as amended, for the quarterly period
ended October 2, 1998, as set forth in the pages attached
hereto: Part I, Item 1 and Part II, Item 6, as they pertain to
earnings per share data.
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 MonthsEnded
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 $ .00 $ .05 $ .02 $ (.02)
Diluted $ .00 $ .03 $ .02 $ (.02)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic 50,037 42,372 50,625 41,486
Diluted 50,037 61,630 62,078 41,486
</TABLE>
The accompanying notes are an integral part of the interim
consolidated financial statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
October 2, April 3,
1998 1998
ASSETS (Unaudited)
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the interim
consolidated financial statements.
<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.
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):
<TABLE>
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 446 109 500 245
Numerator for basic earnings
per share-income available
to common stockholders 137 1,910 847 (948)
Add back to effect
assumed conversions:
Preferred stock dividends -- 109 93 --
Numerator for diluted
earnings (loss) per
share $ 137 $ 2,019 $ 940 $ (948)
DENOMINATOR:
Denominator for basic earnings
per share - weighted
average shares 50,037 42,372 50,625 41,486
Effect of dilutive
securities:
Preferred shares -- 19,258 11,453 --
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed
conversions 50,037 61,630 62,078 41,486
Basic earnings (loss)
per share $ .00 $ .05 $ .02 $ (.02)
Diluted earnings (loss)
per $ .00 $ .03 $ .02 $ (.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):
<TABLE>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity Securities $1,810 $ -- $770 $1,040
</TABLE>
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):
<TABLE>
October 2, 1998 April 3,1998
(Audited) (Unaudited)
<S> <C> <C>
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
</TABLE>
<TABLE>
(Unaudited)
For the 6 Months For the 6 Months
Ended Ended
October 2, 1998 August 1, 1997
<S> <C> <C>
Net sales $ 50,607 $ 51,536
Gross profit 19,950 20,239
Net income 2,994 3,950
</TABLE>
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):
<TABLE>
October 2, April 3,
1998 1998
<S> <C> <C>
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
</TABLE>
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 and G Clef 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-tovendor
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 backto-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 AFGElektronik 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: February 23, 1999 /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman, Chief Executive Officer
and President
Date: February 23, 1999 /s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
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