SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(973)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of common stock as of November
5, 1999: 47,828,215.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)
<CAPTION>
Three Months Ended Six Months Ended
October 1, October 2, October 1, October 2,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenues $55,531 $ 46,762 $98,978 $105,888
Costs and expenses:
Cost of sales 49,409 42,273 87,680 94,161
Other operating costs and
expenses 877 897 1,650 2,163
Selling, general &
administrative expenses 3,563 2,599 7,427 7,497
53,849 45,769 96,757 103,821
Operating income 1,682 993 2,221 2,067
Equity in earnings of
Affiliate 42 348 501 791
Write-down of investment -- (185) -- (370)
Interest expense, net (619) (551) (1,193) (1,120)
Income before income taxes 1,105 605 1,529 1,368
Provision for income taxes 250 22 259 21
Net income $ 855 $ 583 $ 1,270 $ 1,347
Net income per common share
Basic $ .02 $ .00 $ .03 $ .02
Diluted $ .02 $ .00 $ .02 $ .02
Weighted average number of
common shares outstanding
Basic 47,828 50,037 47,828 50,625
Diluted 55,916 50,037 55,916 62,078
</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)
<CAPTION>
October 1, April 2,
1999 1999
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,047 $ 3,100
Available for sale securities (net of fair
value adjustment of $1,665 and $1,298,
respectively) 370 738
Accounts receivable (less allowances of
$4,480 and $3,907, respectively) 9,675 5,143
Other receivables 6,888 6,782
Inventories 12,362 11,608
Prepaid expenses and other current assets 2,241 2,839
Total current assets 33,583 30,210
Property and equipment - (net of
accumulated depreciation and amortization
of $3,033 and $2,777, respectively) 1,264 1,211
Investment in Affiliate and Joint Venture 20,016 19,525
Other assets 3,010 3,449
Total Assets $ 57,873 $54,395
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 4,096 $ 2,216
Current maturities of long-term debt 75 50
Accounts payable and other current
liabilities 16,834 16,759
Accrued sales returns 4,561 3,926
Income taxes payable 394 400
Total current liabilities 25,960 23,351
Long-term debt, less current maturities 20,750 20,750
Other non-current liabilities 109 97
Shareholders' Equity:
Preferred shares - 10,000,000
shares authorized, 3,714
shares issued and outstand 3,343 3,343
Common shares - $.01 par value, 75,000,000
shares authorized, 51,331,615 shares issued;
47,828,215 shares outstanding 513 513
Capital in excess of par value 113,288 113,288
Cumulative translation adjustment (73) (78)
Unrealized loss on marketable securities (367) --
Accumulated deficit (103,743) (104,962)
Treasury stock, at cost 3,503,400 shares (1,907) (1,907)
Total shareholders' equity 11,054 10,197
Total Liabilities and Shareholders' Equity $ 57,873 $54,395
</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)
<CAPTION>
Six Months Ended
October 1, October 2,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash provided (used) by operating
activities $ (2,268) $ 3,965
Cash Flows from Investing Activities:
Net cash (used) by investing
activities (676) (1,854)
Cash Flows from Financing Activities:
Net cash provided by financing
activities 1,891 1,905
Net increase (decrease) in cash and cash
equivalents (1,053) 4,016
Cash and cash equivalents at beginning
of period 3,100 1,208
Cash and cash equivalents at end of period $ 2,047 $ 5,224
Supplemental disclosure of cash flow information:
Interest paid $ 1,088 $ 1,092
Income taxes paid $ 10 $ 12
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BUSINESS
The unaudited interim consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present a fair statement of Emerson Radio Corp.'s (the
"Company" or "Emerson") consolidated financial position as of October 1,
1999 and the results of operations for the three and six month periods
ended October 1, 1999 and October 2, 1998. The unaudited interim
consolidated financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission and accordingly
do not include all of the disclosures normally made in the Company's annual
consolidated financial statements. It is suggested that these unaudited
interim consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year
ended April 2, 1999 ("Fiscal 1999"), included in the Company's annual
report on Form 10-K.
The consolidated financial statements include the accounts of the
Company and all of its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The preparation of the unaudited interim consolidated
financial statements requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes; actual results could materially differ from those
estimates.
Due to the seasonal nature of the Company's consumer electronics
business, the results of operations for the three and six month periods
ended October 1, 1999 are not necessarily indicative of the results of
operations that may be expected for any other interim period or for the
full year ending March 31, 2000 ("Fiscal 2000").
The management of the Company considers the Company to have one
reportable segment, consumer electronics, and assesses performance on a
single segment basis.
Certain amounts in the prior period's consolidated financial
statements have been reclassified to conform to current period's
presentation.
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) for the three and six
month periods ended October 1, 1999 and October 2, 1998 are as follows (in
thousands):
<TABLE>
Three Months Six Months Ended
Ended
October October October October
1,1999 2,1998 1,1999 2,1998
<S> <C> <C> <C> <C>
Net income $ 855 $ 583 $1,270 $1,347
Currency translation adjustment 4 -- 4 --
Unrealized losses on securities,
net (119) (770) (367) (770)
Comprehensive income (loss) $ 740 $ (187) $ 907 $ 577
NOTE 3 - EARNINGS PER SHARE
</TABLE>
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 1, October 2, October 1, October 2,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Net income $ 855 $ 583 $ 1,270 $ 1,347
Less: preferred stock
dividends 26 446 52 500
Numerator for basic earnings
per share - income available
to common stockholders 829 137 1,218 847
Add back to effect assumed
conversions:
Preferred stock dividends 26 -- 52 93
Numerator for diluted
earnings per share $ 855 $ 137 $ 1,270 $ 940
Denominator:
Denominator for basic earnings
per share - weighted
average shares 47,828 50,037 47,828 50,625
Effect of dilutive securities:
Preferred shares 8,088 -- 8,088 11,453
Denominator for diluted earnings
per share - adjusted
weighted average shares and
assumed conversions 55,916 50,037 55,916 62,078
Basic earnings per share $ .02 $ .00 $ .03 $ .02
Diluted earnings per share $ .02 $ .00 $ .02 $ .02
</TABLE>
NOTE 4 - CAPITAL STRUCTURE
The outstanding capital stock of the Company at October 1, 1999
consisted of common stock and Series A convertible preferred stock. The
preferred shares are convertible to common shares until March 31, 2002.
During the quarters ended October 1, 1999 and October 2, 1998, no
conversions of Series A Preferred Stock were made. During August 1998, the
Company repurchased directly 1,423 preferred shares. If all existing
outstanding preferred shares were converted at October 1, 1999,
approximately 8.1 million additional common shares would be issuable. The
dividend rates on the Series A Preferred Stock at October 1, 1999 and
October 2, 1998 were 2.8% and 4.2%, with $879,000 and $762,000 of dividends
in arrears, respectively. The dividend rate declines by 1.4% each
succeeding year until March 31, 2001, when no further dividends are
payable.
At October 1, 1999, the Company had outstanding approximately 1.1
million options with exercise prices ranging from $1.00 to $1.10.
Approximately 987,000 outstanding warrants are convertible into an equal
number of shares of common stock at conversion prices ranging between $1.30
and $4.00.
The Company also has outstanding approximately $20.8 million of Senior
Subordinated Convertible Debentures due in 2002. See "Note 9 - Long Term
Debt" and "Note 11 - Letter of Intent".
NOTE 5 - INCOME TAXES
Income tax provisions for the quarterly periods ended October 1, 1999
and October 2, 1998 consist of taxes related to international operations.
The Company does not recognize tax benefits for losses incurred by its
domestic operations.
NOTE 6 - INVENTORY
Inventories are comprised primarily of finished goods which are stated
at the lower of cost (first-in, first-out) or market.
NOTE 7 - AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are stated at fair value, with the
unrealized gains and losses reported in a separate component of
shareholders' equity. Realized gains and losses and declines in value
judged to be other-than-temporary are included in earnings.
The following is a summary of available-for-sale equity securities at
October 1, 1999 and October 2, 1998 (in thousands):
<TABLE>
Gross Gross Estimate
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity Securities:
October 1,1999 $2,035 $-- $1,665 $370
October 2,1998 1,810 -- 770 1,040
</TABLE>
NOTE 8 - INVESTMENT IN SPORT SUPPLY GROUP, INC.
The Company owns 2,269,500 (approximately 31% of the outstanding)
shares of common stock of Sport Supply Group, Inc. ("SSG") that it
purchased in 1996 at an aggregate cost of $15,728,000. In addition, the
Company owns warrants, acquired in 1996 for $500,000 to purchase an
additional 1 million shares of SSG at $7.50 per share ("SSG Warrants"). If
the Company exercises all of the SSG Warrants, it will beneficially own
approximately 40% of the SSG common shares. Effective March 1997, the
Company entered into a Management Services Agreement with SSG, under which
SSG provides various managerial and administrative services to the Company.
The investment in and results of operations of SSG are accounted for
by the equity method. The Company's investment in SSG includes goodwill of
$6,530,000 which is being amortized on a straight line basis over 40 years.
At October 1, 1999, the aggregate market value quoted on the New York Stock
Exchange of SSG common shares equivalent in number to those owned by
Emerson was approximately $18.7 million. Summarized financial information
derived from SSG's financial reports to the Securities and Exchange
Commission was as follows (in thousands):
<TABLE>
October 1, 1999 April 2, 1999
(Audited) (Unaudited)
<S> <C> <C>
Current assets $ 44,587 $ 44,322
Property, plant and
equipment and other assets 26,560 30,252
Current liabilities 8,083 14,966
Long-term debt 20,956 19,045
Stockholders' Equity 42,108 40,563
</TABLE>
<TABLE>
For the 6 Months For the 6 Months
Ended Ended
October 1, 1999 October 2, 1998
<S> <C> <C>
Net sales $ 56,722 $ 50,607
Gross profit 21,744 19,950
Net income 2,163 2,994
</TABLE>
See "Note 11 - Letter of Intent".
NOTE 9 - LONG TERM DEBT
As of October 1, 1999 and April 2, 1999, long-term debt consisted of
the following (in thousands of dollars):
<TABLE>
October 1, April 2,
1999 1999
<S> <C> <C>
8 1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $20,750
Equipment notes and other 75 50
20,825 20,800
Less current obligations 75 50
Long term debt $20,750 $20,750
</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. See "Note 11 - Letter of
Intent".
NOTE 10 - LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings and claims of
various types, the most significant of which are described in "Part I
Item 3. Legal Proceedings" of the Company's Form 10-K for the fiscal year
ended April 2, 1999 and Form 8-K dated August 6, 1999. While any such
litigation contains an element of uncertainty, management presently
believes that the outcome of such proceedings and claims will not have a
material adverse effect on the Company's consolidated financial position.
NOTE 11 - LETTER OF INTENT
On August 3, 1999, the Company and Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President, entered into
a letter of intent with Oaktree Capital Management Corp. and certain of its
affiliated entities ("Oaktree"). The letter of intent sets forth a
proposed series of transactions which, if consummated, would result in the
following:
- - The Company would sell its entire ownership in SSG to Oaktree. Under
the terms of the letter of intent, Oaktree would purchase from Emerson
2,269,500 shares of SSG common stock and warrants to purchase one million
shares for a purchase price consisting of $15 million in cash, the
surrender of approximately $13.9 million face amount of Emerson's
convertible debentures presently owned by Oaktree and an exit consent
amending certain provisions of the Indenture governing the Company's
convertible debentures.
- - The Company would purchase up to $23 million of
its outstanding common stock through a self-tender
offer at a price of not less than $1.00 per share.
The $15 million cash proceeds from the sale of the
SSG securities would be utilized by Emerson to fund,
in part, a partial tender offer. The remainder of
the $23 million would come from additional
borrowings.
- - The resolution of litigation between Mr. Jurick, Emerson's Chairman
and largest shareholder, and certain of his creditors.
Pursuant to the terms of the letter of intent and an option agreement,
Oaktree would acquire all claims held by certain creditors of Mr. Jurick
for $20 million. The claims to be acquired by
Oaktree have been the subject of litigation in the
U.S. District Court for the District of New Jersey.
Under the terms of the transactions, Mr. Jurick
would use amounts received by him pursuant to
Emerson's self-tender, together with certain other
funds, to acquire those claims from Oaktree,
thereby eliminating the need for him to sell his
Emerson shares. Subject to approval by SSG's
Board, Mr. Jurick also intends to assign options
to acquire 300,000 shares of SSG's common stock to
Oaktree.
Completion of the transaction described is contingent upon a number of
conditions being satisfied. No assurances can be made that this
transaction will be consummated.
Item 2. Management's Discussion and Analysis ofResults of
Operations and Financial Condition
GENERAL
The Company's operating results and
liquidity are impacted by the seasonality of its
business. The Company records the majority of its
annual sales in the fiscal quarters ending in
September and December and receives the largest
amount of customer returns in the fiscal quarters
ending in March and June. Therefore, the results of
operations discussed below are not necessarily
indicative of the Company's results for any
subsequent periods or for the year ending March 31,
2000. The Company expects its United States sales
for the quarter ended December 31, 1999 to increase
as compared to the quarter ended January 1, 1999
due to increased product sales.
RESULTS OF OPERATIONS
NET REVENUES Consolidated net revenues
for the three and six month periods ended October
1, 1999 increased $8.8 million (18.8%) and decreased
$6.9 million (6.5%) as compared to the same periods in
the fiscal year ended April 2, 1999 ("Fiscal 1999"),
respectively. The increase in revenues for the three
months ended October 1,1999 resulted primarily from
increases in unit sales of microwave ovens and
Digital Video Disc (DVD) products, partially offset
by a reduction in audio products. The decrease in
revenues for the six months ended October 1, 1999
resulted primarily from decreased unit sales of
audio products, partially offset by the increased
unit sales of microwave ovens and the introduction of
the DVD product line. Revenues earned from the
licensing of the Emerson and G Clef trademark were
$878,000 and $1.6 million in the three and six month
periods ended October 1, 1999 as compared to $978,000
and $1.6 million in the same periods in Fiscal 1999,
respectively.
The Company reports royalty and commission
revenues earned from its licensing arrangements,
covering various products and territories, in lieu of
reporting the full dollar value of such sales and
associated costs.
COST OF SALES Cost of sales, as a percentage
of consolidated net revenues, was 89.0% and 88.6%
for the three and six month periods ended
October 1, 1999 as compared to 90.4% and 88.9%
for the same periods in Fiscal 1999, respectively.
The decrease in the cost of sales as a percentage
of sales for the three months ended October 1, 1999, as compared
to the prior fiscal year, was primarily attributable
to a change in the product mix to higher margin
products.
OTHER OPERATING COSTS AND EXPENSES Other
operating costs and expenses for the three month
period ended October 1, 1999 as compared to the
same period in Fiscal 1999 were substantially
unchanged in absolute dollars. For the six month
period ended October 1, 1999 as compared to the same
period in the prior year, other operating costs
decreased by approximately $513,000 due primarily to
a reduction in handling charges on returns.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ("S,G&A") S,G&A increased by $964,000 for
the three month period ended October 1, 1999, and for
the six month period ended October 1, 1999 decreased
by $70,000 as compared to the same period in
Fiscal 1999. The increase of $964,000 in S,G&A
for the three month period was primarily attributable
to an increase in advertising costs; an increase
in charges related to bad debts and professional
fees. The decrease of $70,000 in S,G&A for the
six month period was primarily attributable to a
decrease in charges related to bad debts, offset
by an increase in advertising costs and professional fees.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE
The Company's share in the earnings of SSG amounted
to $42,000 and $501,000 in the three and six month
periods ended October 1,1999 as compared to $348,000
and $791,000 for the same periods in the prior fiscal
year, respectively.
INTEREST EXPENSE Interest expense increased by
$68,000 and $73,000 in the three and six month
periods ended October 1, 1999 as compared to
the same periods in Fiscal 1999, respectively.
The increase was attributable to an increase in short term average
borrowings and interest rate increases. The
increase in short term borrowings was due to an
increase in working capital requirements.
NET INCOME As a result of the foregoing
factors, the Company generated net income of
$855,000 and $1,270,000 for the three and six month periods ended
October 1, 1999, as compared to net earnings of
$583,000 and $1,347,000 for the same periods in Fiscal
1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash utilized by operating activities was
$2.3 million for the six months ended October 1,
1999. Cash was utilized primarily by increases in
accounts receivable and inventory, partially offset by
an increase in the profitability of the Company.
Net cash utilized by investing activities was
$676,000 for the six months ended October 1, 1999.
In the six months ended October 1, 1999, the
Company's financing activities provided $1.9
million primarily from the increased borrowings under
the Company's U.S. line of credit facility.
The Company maintains an asset-based $10
million U.S. line of credit facility. In addition,
the Company maintains 2 credit facilities with a
Hong Kong based bank: a $3.5 million letter of credit
facility and a $25 million back-to-back letter of
credit facility. At October 1, 1999, the $3.5
million letter of credit facility was fully utilized
and $17.5 million was outstanding under the $25
million letter of credit facility.
At present, management believes that future cash
flow from operations and its existing institutional
financing noted above will be sufficient to fund all
of the Company's cash requirements for the next
twelve months. However, the adequacy of future cash
flow from operations is dependent upon the Company
achieving its operating plan. The Company's proposed
sale of its ownership interest in SSG would initially
reduce its existing long-term debt by approximately
$13.9 million. However, the Company would need an
additional facility of approximately $8 million to
fund the $23 million partial self-tender. See
"Note 11 - Letter of Intent".
As of October 1, 1999 the Company had no
material commitments for capital expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had
a significant effect on the Company's results of
operations during the three or six months ended
October 1,1999. The Company's exposure to currency
fluctuations has been minimized by the use of U.S.
dollar denominated purchase orders, and by sourcing
production in more than one country. The Company
purchases virtually all of its products from
manufacturers located in various Asian countries.
These countries are emerging from an economic and
financial market crisis that, to date, has not
adversely affected the Company's ability to
purchase product. If the economic recovery
currently in progress should reverse its trend, it
could adversely affect the Company's relationship
with its suppliers and its ability to acquire
products. Additional financial turmoil in the South
American economies may have an adverse impact on the
Company's South American licensee.
YEAR 2000
The Year 2000 issue is primarily the result of
computer programs or databases using a two-digit
format, as opposed to four digits, to represent a
calendar year. Some computer systems will be
unable to correctly interpret dates beyond the year
1999, which could cause a system failure or other
computer errors, leading to a disruption in the
operation or accuracy of such systems. The Company
has recently completed a company-wide study and
testing program to locate and cure any Year 2000
issues in the products or systems on which it relies
and in the products it offers for sale at a cost of
approximately $500,000. To date, the Company has not
identified any such problems requiring corrective
action that will result in a material adverse impact
on the Company, and believes that it is Year 2000
compliant. However, there can be no assurance that
the companies with which the Company does
business will achieve Year 2000 compliance in a
timely fashion, or that such failure to comply by
another company will not have a material adverse
effect on the Company. The Company believes the
products it currently offers for sale or license are
all Year 2000 compliant, and that the cost to
remediate any previously sold product that is not
Year 2000 compliant will not be material. The
Company has incurred and will incur internal but
not incremental staff costs related to the above
initiative.
Potential sources of risk include: (a) the
inability of principal suppliers to be Year 2000
ready, which could result in delays in product
deliveries from such suppliers; (b) disruption of the
distribution channel, including transportation
vendors; (c) customer problems that could affect
revenue demand; and (d) undiscovered issues
related to Year 2000 compatibility which could
have a material adverse impact. The Company's Year
2000 assessment is ongoing and the consideration of
contingency plans will continue to be evaluated as
new information becomes available. At this stage,
however, the Company has not developed a
comprehensive contingency plan to address situations
that may result if any of the third parties upon
which the Company is dependent is unable to achieve
Year 2000 compliance. The need for such a
contingency plan will be evaluated throughout
1999.
Based on the assessment effort to date, the
Company does not believe that the Year 2000 issue will
have a material adverse effect on its financial
condition, results of operations, or cash flows.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING
STANDARDS BOARD
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging
Activities," which will be effective for the
Company for Fiscal 2001, establishes accounting
and reporting standards for derivative instruments,
including certain derivative instruments embedded in
other contracts, and hedging activities. The
Company has not yet determined the effects, if any,
of implementing SFAS No. 133 on its reporting
of financial information.
FORWARD-LOOKING INFORMATION
This report contains various forward-looking
statements under the Private Securities Litigation
Reform Act of 1995 (the "Reform Act") and
information that is based on Management's beliefs as
well as assumptions made by and information
currently available to Management. When used in this
report, the words "anticipate", "estimate",
"expect", "predict", "project", and similar
expressions are intended to identify forward-looking
statements. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties
materialize, or should underlying assumptions
prove incorrect, actual results may vary materially
from those anticipated, expected or projected. Among
the key factors that could cause actual results to
differ materially are as follows: (i) the ability of
the Company to continue selling products to its
largest customers whose net revenues represented 52%
and 24% of Fiscal 1999 net revenues; (ii)
competitive factors such as competitive pricing
strategies utilized by retailers in the domestic
marketplace that negatively impacts product gross
margins; (iii) the ability of the Company to
maintain its suppliers, primarily all of whom are
located in the Far East; (iv) the outcome of
litigation; (v) the ability of the Company to comply with
the restrictions imposed upon it by its outstanding
indebtedness; (vi) the Year 2000 Issue (as described
above); (vii) general economic conditions; and
(viii) the ability of the Company to execute its
proposed plan involving the sale of its ownership
interest in SSG and the partial self-tender for the
Company's shares of common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not material.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For further information on
litigation to which the Company is a
party, reference is made to Part 1 Item-3-
Legal Proceedings in the Company's most
recent annual report on
Form 10-K, and on Form 8-K dated August
6,1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(10)(a) Supplemental Letter of Employment
for Marino Andriani, dated as of October 11, 1999.*
(10)(b) License Agreement dated as of
October 29, 1999 by and between
Daewoo Electronics Co. LTD and Emerson.*
(27) Financial Data Schedule for quarter
ended October 1, 1999.*
(b) Reports on Form 8-K - Current report
on Form 8-K dated August 6, 1999,
reporting a letter of intent to
resolve certain litigation and
ownership issues.
____________________________
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: November 5, 1999 /s/ Geoffrey P.Jurick
Geoffrey P. Jurick
Chairman, Chief
Executive Officer and
President
Date: November 5, 1999 /s/John P. Walker
John P. Walker
Executive Vice President
and Chief Financial Officer
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0
3,343
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<TOTAL-LIABILITY-AND-EQUITY> 57,873
<SALES> 54,653
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<CGS> 49,409
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<INCOME-PRETAX> 1,105
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October 11, 1999
Mr. Marino Andriani
6 Willow Hill
Upper Saddle River, New Jersey 07458
SUPPLEMENTAL LETTER RE EMPLOYMENT BY
EMERSON RADIO CONSUMER PRODUCTS CORPORATION
Dear Marino:
This will confirm our recent conversations during which we agreed on the
following points, subject to the approval of the Emerson Radio Corp. Board of
Directors and its Compensation and Personnel Committee, which supplement the
bonus and stock option provisions of the letter agreement regarding your
employment, dated January 29, 1996 ("Letter Agreement"):
1.) You shall be paid a one-time $120,000. cash bonus, payable immediately.
2.) You shall be paid an annual incentive bonus of ten percent (10%) of any
incremental net income reported in any fiscal year by the Consumer Products
Division over which you have supervision ("Consumer Products Division")
above the $1,672,000 Normalized Income reported by the Consumer Products
Division for the fiscal year ended April 2, 1999, as set forth in the
schedule attached hereto.
For purposes of this letter agreement, "Normalized Income" shall be defined
as that income which the Consumer Products Division generates directly,
excludes one-time adjustments for non-recurring events not attributable to
the daily operations of the Consumer Products Division and shall be based
on the satisfactory completion of the annual audited financial statements
of Emerson Radio Corp. Typically, the annual audit is completed within
approximately 75 days of the fiscal year end. As such, calculation of the
annual incentive bonus shall be determined at that time and payment shall
be made as soon as practicable thereafter.
3.) You shall be paid a special incentive bonus, as determined on a case by
case basis by the Board of Directors and its Compensation and Personnel
Committee and measured on a semi-annual basis (i.e. October 1 through
March 31 and April 1 though September 30), of 10% of net income generated
by the Consumer Products Division from new, non-core business. As any
such new, non-core business to be developed is difficult to define in
advance, we shall discuss these opportunities as they arise and the
Compensation Committee shall determine any applicability of such sales
to a special incentive bonus. Currently, it is understood that a.)
core products not applicable to the special incentive bonus
provision provided herein are the current Emerson (Registered Trademark)
branded audio, video (including DVD) and microwave oven product
categories and b.) new, non-core business which are applicable to the
special incentive bonus provision provided herein includes shredder
products and Hello Kitty (Registered Trademark) branded products.
It is also understood that the financial results of new, non-core
business as set forth herein shall not be removed from the Normalized
Income set forth above.
4.) You shall not be entitled to any bonus for a.) H.H. Scott(Registered
Trademark) branded product, International or Internet sales, or b.)
licensing/sourcing fees and royalties.
5.) You shall be granted an additional 225,000 options, at a purchase price of
$1.00 per share, to purchase Emerson Radio Corp. common stock, as
determined by the Board of Directors and its Compensation and Personnel
Committee, under and in accordance with the terms of the Emerson Radio
Corp. Stock Compensation Program.
6.) This agreement shall expire on March 31, 2001, unless extended by mutual
written consent. In addition to entitlement to base salary, you must be
employed as of the measurement and payment dates for entitlement to the
compensation set forth in Items 1, 2 and 3 above.
Except as otherwise set forth herein or as may hereinafter be mutually agreed to
in writing, all other terms and conditions of the Letter Agreement remain in
full force and effect.
Marino, as I stated earlier, it is the Company's intention to reward you for the
increase of our present business as well as for any new business or earnings
achieved by Emerson as a result of your efforts. Please indicate your agreement
and acceptance of the above by signing below where indicated and returning a
signed copy to me.
Thank you. I will advise you when the Board of Directors and its Compensation
and Personnel Committee have considered the above.
Very truly yours,
/s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board, Chief Executive
Officer and President
ACKNOWLEDGED, AGREED AND
ACCEPTED
By: /s/ Marino Andriani
Marino Andriani (Date)
LICENSE CONTRACT
This License Contract is entered into as of October 29, 1999 ("Effective date")
by and among Daewoo Electronics Co. LTD. ("Daewoo"), a corporation duly
organized and existing under the law of the Republic of Korea, having its
principal office at 686, Ahyon-dong, Mapo-gu, Seoul, Korea; and Emerson Radio
Corp. ("Emerson"), a corporation duly organized and existing under the law of
the State of Delaware, U.S.A., having its principal office at 9 Entin Road,
Parsippany, New Jersey 07054-0430, U.S.A.
1. Emerson will continue to be the entity to procure business in the U.S. for
Daewoo for the products listed on the attached Exhibit ("product") which Daewoo,
as independent contractor, manufactures to be shipped under the
Emerson(Registered) trademark.
Emerson and Daewoo each shall, during the continuance of this agreement,
diligently and faithfully fulfill their obligations under this agreement and
shall undertake to use reasonable efforts to maximize the sales of the products
in the U.S.A. and shall maintain and safeguard the goodwill, reputation,
prestige and interest of the other and shall not do anything that will prevent
such sale or interfere with the development of the product in the U.S.A.
In accordance with past practice, Emerson shall keep Daewoo informed upon
request of Daewoo of market conditions within the U.S.A. for the products and
activities and prices of competitors and provide available information relevant
for the purpose of furthering the sale of the products. Emerson shall render to
Daewoo, during the term of this agreement, and thereafter, such assistance as
Daewoo may reasonably request in support of Daewoo's efforts to receive,
collect, recover or sue for payment due from purchasers of the products under
orders solicited by Emerson.
2. All orders for product will continue to be written directly to Daewoo which
will be responsible for order processing, shipment, credit, collections, and
after sales services. Daewoo will also continue to be responsible for returns
and returns processing for all products sold under this program, and all sales
will be subject to Daewoo's return for credit policy. Emerson shall not, without
the written consent and the authority of Daewoo, collect any monies from any
customers of the products.
3. Daewoo will pay Emerson the commissions as set forth on the attached
Exhibit for Emerson's sales and marketing services as follows:
A. Commissions will be calculated on net sales, less actual returns.
B. Commencing April 1, 2000, Daewoo will also pay Emerson the minimum
commissions also set forth on the attached Exhibit.
C. Emerson will continue to be responsible for any commissions it pays to
its sales representatives to acquire the business covered by this
agreement.
D. Any commissions stipulated and paid hereunder shall be deemed to cover
all the costs, fees, charges and expenses incurred by Emerson in
connection with the respective sale of the products.
4. This agreement shall remain in effect from the Effective date through and
including March 31, 2003, unless otherwise provided herein ("term").
5. Emerson will continue to have, in its sole discretion, the right to take
any action regarding its exclusively owned trademark, including that necessary
to protect the integrity of its mark (which would include, among other things,
the right to receive and approve samples and literature to assure quality and
proper usage of its mark). Emerson shall not, in the U.S.A., deal in any of the
products set forth on the attached Exhibit on its own behalf or as a
representative of any other supplier or manufacturer. Daewoo agrees that it
shall comply with all action required by Emerson to protect its mark, notify
Emerson promptly of any alleged infringement of its rights in and to its
trademarks and cooperate with Emerson in the enforcement of its trademark(s).
Emerson represents and warrants that it is the owner of the trademarks
applicable to the products and has the right to authorize Daewoo to sell the
products in the U.S., and Emerson shall indemnify and hold Daewoo harmless from
and against any costs, legal fees or damages finally awarded in connection with
a breach of this warranty. Upon termination or expiration, Daewoo shall have no
further right to sell products with the Emerson trademark, except that Daewoo
(utilizing Emerson's sales and marketing services as defined in this agreement)
shall be permitted to sell products or components bearing the trademark which
are in stock, on hand, or on order as previously confirmed by Emerson, at the
time of termination or expiration, for a period of time not to exceed six (6)
months from such date of expiration or termination, at prevailing market prices.
Commissions shall be due on all such sales.
In the event that all such product is not sold within such six (6) month
period, Emerson has the right to purchase such remaining product at Daewoo's
factory cost. Any such product not purchased by Emerson may only be sold by
Daewoo without the Emerson trademark.
6. Notwithstanding the provisions of this agreement, this agreement may be
terminated: a.) by agreement in writing of the parties; b.) by the non-
defaulting party, upon any default by the other party in the performance of any
of its obligations under this agreement, if such default is not remedied within
forty-five (45) days after receipt of notice thereof from the non-defaulting
party; c.) by either party, upon the other party's: (1) making assignment of all
or a substantial portion of assets for the benefit of creditors, being adjudged
bankrupt, or becoming insolvent; (2) filing a petition seeking its dissolution
or liquidation, not stayed or dismissed within sixty (60) days; or (3) ceasing
to do business for any reason; or d.) by either party if an event of force
majeure continues for more than three (3) months.
Upon termination of this agreement, Emerson is entitled to receive the
commission in respect of sales resulting from orders received by Daewoo and
previously confirmed by Emerson up to the date of such termination or for the
sale of products or components bearing the trademark which are in stock, or on
hand at the time of termination as provided in paragraph 5 above. Except for
claims arising from obligations set forth in paragraphs 5, 7, 8 and 9, no
further amounts for indemnification or otherwise, shall be payable by either
party to the other party, its officers or employees, upon or after termination
of this agreement. Termination of this agreement shall not release either party
from any accrued obligation hereunder.
7. Daewoo shall defend and indemnify Emerson, its subsidiaries, and their
representatives from and against any and all claims, damages and costs of any
nature (including attorneys' fees and expenses), directly arising from or
related to Daewoo's manufacture or distribution of the products or the conduct
of its business and shall maintain insurance satisfactory to Emerson.
Emerson shall indemnify, protect and save Daewoo from all claims, demands,
suits or actions for damage to property or persons which may be sustained by any
third party directly arising from or related to the conduct of Emerson's
business.
8. Each party will not disclose any confidential information to third parties
without the express written consent of the other party, unless compelled by
law/legal process/applicable securities/national securities exchange rules or
regulations.
9. Miscellaneous.
A. Each party warrants that it is validly existing, has the full power and
authority to execute and perform under this agreement, shall comply with all
applicable laws, rules, codes, etc. relating to the conduct of its business and
its obligations hereunder, and that it and its products are and will continue to
be Year 2000 compliant.
B. The parties have agreed that this agreement be interpreted in the English
language and may be executed in any number of counterparts or by facsimile, all
of which will constitute one agreement. All notices will be delivered, in
English, by facsimile to the other party at its facsimile number noted below
(unless otherwise notified by facsimile) and be effective upon actual receipt.
C. This agreement supersedes all other agreements, oral or written, regarding
its subject matter and may not be changed, amended or waived, except in a
writing signed by both parties. This agreement and every term and condition
thereof shall inure to the benefit of the parties, and shall be binding upon any
successors to the parties, but neither party may, in any event, assign or
otherwise transfer this agreement or any rights thereunder directly or
indirectly or voluntarily or by operation of law, without the prior written
consent of the other party. If any provision of this agreement proves to be
invalid or unenforceable under existing or future law, the remaining provisions
of the agreement will remain in force in all other respects. The respective
representations and covenants of the parties shall survive any termination of
this agreement.
D. The law of New Jersey, U.S.A., excluding its conflicts of law provisions,
governs this agreement and the courts of New Jersey will have sole and exclusive
jurisdiction over the parties in any dispute, except each party has the right to
make application for, and seek enforcement of, injunctive relief in any court
having jurisdiction.
E. Daewoo shall preserve accurate records relating to the production,
distribution and after sales service of the products for a period of 3 years
from the expiration or termination of this agreement and shall permit, upon
request, Emerson or its agents to review such records.
F. Nothing herein contained shall entitle either party to enter into any
obligation or commitment binding upon the other party without the prior written
consent of such party which such party shall be under no obligation to give.
G. Emerson agrees that it has no authority to make or give and shall not make
any representation or give any guarantee or warranty in respect of the products
other than as Daewoo may from time to time in writing expressly authorize.
Emerson Radio Corp. Daewoo Electronics Co., Ltd.
By: /s/ Geoffrey P. Jurick By: /s/ Tak-Myung Kang
Geoffrey P. Jurick Tak-Myung Kang
Chairman of the Board, CEO Executive Managing Director
and President
[Facsimile No.: (973) 428-2424] [Facsimile No.: 0118223608000]
