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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Year ended March 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 Identification Number)
incorporation or organization)
Nine Entin Road, Parsippany, NJ 07054
- --------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
- ------------------- ------------------------
which registered
- ----------------
Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Series A Preferred Stock and Warrants
Section 12(g) of the Act: -------------------------------------
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
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at June 22, 2000 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $12,919,000.
Number of Common Shares outstanding at June 22, 2000: 39,377,615
DOCUMENTS INCORPORATED BY REFERENCE:
Document Part of the Form 10-K
Proxy Statement for Annual Meeting of
Stockholders to be held on August 10,
2000 Part III
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PART I
Item 1. BUSINESS
General
Emerson Radio Corp. ("Emerson" or the "Company"), a consumer
electronics distributor, directly and through subsidiaries, designs, sources,
imports and markets a variety of television, video products including digital
video disc (DVD) and video cassette recorders (VCR), microwave ovens, audio,
home office, home theater, multi-media, specialty and other consumer electronic
products. The Company also licenses the "[OBJECT OMITTED]" trademark for a
variety of products domestically and internationally to certain licensees (See
"Business-Licensing and Related Activities"). The Company distributes its
products primarily through mass merchants, discount retailers, distributors and
specialty catalogers leveraging the strength of its "[OBJECT OMITTED]"
trademark, a nationally recognized trade name in the consumer electronics
industry. The trade name "Emerson Radio" dates back to 1912 and is one of the
oldest and most well respected names in the consumer electronics industry.
The Company believes it possesses an advantage over its competitors due
to the combination of (i) the "[OBJECT OMITTED]" brand recognition, (ii) its
distribution base and established customer relations, (iii) its sourcing
expertise and established vendor relations, (iv) an infrastructure with
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel, and (v) its extensive experience in
establishing license agreements with licensees on a global basis for a variety
of products. Emerson intends to continue to leverage its core competencies to
offer a broad variety of current and new consumer products to retail customers.
In addition, the Company has in the past and intends in the future to form joint
ventures and enter into licensing and distributor agreements that take advantage
of the Company's trademarks and utilize the Company's logistical and sourcing
advantages for products that are more efficiently marketed with the assistance
of these partners.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories of consumer electronic
products. The majority of the Company's marketing and sales efforts is
concentrated in the United States and, to a lesser extent, certain other
international regions. Emerson's major competitors in these markets are
foreign-based manufacturers and distributors. (See "Business - Competition.")
The Company was originally formed in the State of New York in 1956 under
the name Major Electronics Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. In 1994, the
Company was reincorporated in Delaware. References to "Emerson" or the "Company"
refer to Emerson Radio Corp. and its predecessor and its consolidated
subsidiaries, unless the context otherwise indicates. The Company's principal
executive offices are located at Nine Entin Road, Parsippany, New Jersey
07054-0430. The Company's telephone number in Parsippany, New Jersey, is (973)
884-5800.
Products
The Company directly and through subsidiaries designs, sources, imports
and markets a variety of video, audio and other consumer electronic products,
primarily on the strength of its "[OBJECT OMITTED]" trademark, an
internationally recognized symbol in the consumer electronics industry. The
Company's current product categories consist of the following core products:
Video Products Audio Products Other
Color televisions CD stereo systems Home office
Color specialty televisions Digital clock radios Home theater
Digital video disc (DVD) Portable audio, cassette & CD systems Microwave ovens
Specialty video cassette players Personal audio, cassette & CD systems Multi-media
Video cassette recorders (VCR) Shelf systems
Specialty clock radios
All of the Company's products offer various features. Microwave ovens
range in size from 0.6 cubic feet to 1.6 cubic feet containing features such as
key pad touch controls, multi-power levels, auto defrost and turntables. The
newly developed Omni Wave Cooking System(TM) microwaves feature quicker and
more concentrated cooking. The Pop & Sizzle(TM) line of microwaves are specially
colored to match any kitchen design imaginable including the sophisticated
stainless steel look. The portable audio systems incorporate AM/FM radios and/or
cassettes and/or CD players in a variety of models. Emerson has entered into a
license agreement for use of the Hello Kitty(R) logo on selected products. The
specialty clock radios include the SmartSet(TM) clock, which is designed to
automatically convert to the correct time, date and month regardless of time
zone due to microprocessor technology that also allows it to reset itself after
a power failure, thus eliminating the "blinking light". The Company's H. H.
Scott division markets Home Theater products that utilize proprietary
CinemaSurround(R) technology that offers a dynamic 3-dimensional sound supplied
from any stereo source, without the need for any decoding electronics, and
innovative sound speakers including multi-media speakers.
Growth Strategy
The Company's strategic focus is to: (i) develop and expand its
distribution of consumer electronic products in the domestic marketplace to
existing and new customers; (ii) develop and sell new products, such as home
office products and products utilizing popular theme characters and logos such
as Hello Kitty(R); (iii) capitalize on opportunities to license the "[OBJECT
OMITTED]" trademark; (iv) leverage and exploit its sourcing capabilities, buying
power and logistics expertise in the Far East either for itself or on behalf of
third parties; (v) expand international sales and distribution channels; (vi)
further develop its direct to consumer sales channel; and (vii) expand through
strategic mergers and acquisitions of full or controlling interests in other
companies. In connection with the Company's strategic focus, the Company may
from time to time take an equity position in various corporate entities. (See
Item 8 - "Financial Statements and Supplementary Data - Note 3 of Notes
to the Consolidated Financial Statements.")
The Company believes that the "[OBJECT OMITTED]" trademark is
recognized in many countries. A principal component of the Company's growth
strategy is to utilize this global brand name recognition together with the
Company's reputation for quality and cost competitive products to aggressively
promote its product lines within the United States and targeted geographic areas
on an international basis. The Company's management believes the Company will be
able to compete more effectively in the highly competitive consumer electronics
and microwave oven industries, domestically and internationally, by combining
innovative approaches to the Company's current product line and augmenting its
product line with complementary products. The Company intends to pursue such
plans either independently or by forging new relationships, including license
arrangements, distributorship agreements and joint ventures. (See
"Business-Licensing and Related Activities.")
Sales and Distribution
The Company makes available to its customers a direct import program,
pursuant to which products bearing the "[OBJECT OMITTED]" trademark are imported
directly by the Company's customers. In Fiscal 2000 and Fiscal 1999, products
representing approximately 82% and 84% of net revenues, respectively, were
imported directly from manufacturers to the Company's customers. If the Company
experiences a decline in sales effected through direct imports and a
corresponding increase in domestic sales, the Company will require increased
working capital in order to purchase inventory to fulfill such sales. This
increase in working capital may affect the liquidity of the Company. (See Item 7
- - "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Forward-Looking Information.")
The Company has an integrated system to coordinate the purchasing,
sales and distribution aspects of its operations. The Company receives orders
from its major accounts electronically, via facsimile, telephone or mail. The
Company does not have long-term contracts with any of its customers, but rather
receives orders on an ongoing basis. Products imported by the Company (generally
from the Far East) are shipped by ocean and/or inland freight and then stored in
contracted public warehouse facilities for shipment to customers. This also
includes the use of an affiliate's warehouse pursuant to a Management Services
Agreement between the Company and the affiliate. (See Item 8 - "Financial
Statements and Supplementary Data - Note 3 of Notes to the Consolidated
Financial Statements.") All inventory is monitored by the Company's electronic
inventory system. As a purchase order is received and filled, warehoused product
is labeled and prepared for outbound shipment to customers by common, contract
or small package carriers for sales made from inventory.
Domestic Marketing
In the United States, the Company markets its products primarily
through mass merchandisers and discount retailers. Wal-Mart Stores accounted for
approximately 55% and 52%, and Target Stores accounted for approximately 21% and
24% of the Company's net revenues in Fiscal 2000 and Fiscal 1999, respectively.
No other customer accounted for more than 10% of the Company's net revenues in
either period. Management believes that any loss or material reduction in sales
from either of these customers would have a material adverse affect on the
Company's results of operations.
Approximately 38% and 39% of the Company's net revenues in Fiscal 2000
and Fiscal 1999, respectively, were made through sales representative
organizations that receive sales commissions and work closely with the Company's
sales personnel. The sales representative organizations sell, in addition to the
Company's products, similar, but generally non-competitive, products. In most
instances, either party may terminate a sales representative relationship on 30
days' prior notice in accordance with customary industry practice. The Company
utilizes approximately 30 sales representative organizations, including one
through which approximately 25% and 26% of the Company's net revenues were made
in Fiscal 2000 and Fiscal 1999, respectively. No other sales representative
organization accounted for more than 10% of the Company's net revenues in either
year. The remainder of the Company's sales is made to retail customers serviced
by the Company's sales personnel.
Foreign Marketing
Approximately 3% of the Company's net revenues in Fiscal 2000 and
Fiscal 1999 were derived from customers based in foreign countries through
license and distribution agreements primarily in South America and Canada. (See
Item 8 - "Financial Statements and Supplementary Data - Note 14 of Notes to the
Consolidated Financial Statements" and Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition.")
Licensing and Related Activities
The Company has several license agreements in place that allow licensees to
use the "[OBJECT OMITTED]" trademark for the manufacture and/or the sale of
consumer electronics and other products. The license agreements cover various
countries throughout the world and are subject to renewal at the initial
expiration of the agreements. Additionally, the Company has entered into several
sourcing and inspection agreements that require the Company to provide these
services in exchange for a fee. License revenues recognized in Fiscal 2000,
1999, and 1998 were $3,143,000, $3,633,000, and $5,597,000, respectively,
including $4,000,000 in Fiscal 1998 from a major supplier whose licensing
agreement expired March 31, 1998. The Company records licensing revenues as
earned over the term of the related agreements.
In April 1997 in anticipation of the expiration of the license
agreement, Emerson executed a marketing agreement ("Marketing Agreement") with
Daewoo Electronics Co. Ltd., ("Daewoo"). This Marketing Agreement provided that
Daewoo manufacture and distribute television and video products bearing the
"[OBJECT OMITTED]" trademark to customers in the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo was responsible for and assumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned by the Company was
entirely dependent upon the volume of sales made that were subject to the
Marketing Agreement. Effective as of October 29, 1999, Emerson and Daewoo
entered into a three year License Agreement ("License Agreement") which replaced
the Marketing Agreement. The License Agreement includes, among other items,
minimum production quotas and subject to certain conditions, minimum annual
royalty payments each year, which in Fiscal 2001
amounts to $4,500,000. All other material aspects of the License Agreement
remain substantially similar to the terms set forth in the superceded Marketing
Agreement.
In addition, the Company has several other licensing agreements in
place with licensees primarily in the United States, Canada, Latin America,
Mexico, Eastern Asia and parts of Europe.
Throughout many parts of the world, the Company maintains
distributorship, and/or sales support and assistance agreements that allow the
distribution of the Company's product into defined geographic areas. Currently
the Company has such agreements covering the Sub-Asian Continent, North Africa,
Canada and the Middle East.
The Company intends to pursue additional licensing and distributor
opportunities and believes that such activities have had and will continue to
have a positive impact on operating results by generating income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. (See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information.")
Design and Manufacturing
The Company's products are manufactured by original equipment
manufacturers in accordance with the Company's specifications. These
manufacturers are primarily located in Hong Kong, South Korea, China, Malaysia
and Thailand.
The Company's design team is responsible for product development and
works closely with its suppliers. Company engineers determine the detailed
cosmetic, electronic and other features for new products, which typically
incorporate commercially available electronic parts to be assembled according to
its design. Accordingly, the exterior designs and operating features of the
Company's products reflect the Company's judgment of current styles and consumer
preferences. The Company's designs are tailored to meet the consumer preferences
of the local market, particularly in the case of the Company's international
markets.
During Fiscal 2000 and Fiscal 1999, 100% of the Company's purchases
consisted of imported finished goods.
The following summarizes the Company's purchases from its major
suppliers.
Fiscal Year
Supplier 2000 1999
Daewoo 30% 22%
Avatar Mfg 17% *
Imarflex 13% 12%
Tonic Electronics 11% 32%
================
* Less than 10%.
No other supplier accounted for more than 10% of the Company's total
purchases in Fiscal 2000 or Fiscal 1999. The Company considers its relationships
with its suppliers to be satisfactory and believes that, barring any unusual
shortages or economic conditions (See Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Forward-Looking
Information" and Item 7A - "Inflation and Foreign Currency"), the Company could
develop, as it already has developed, alternative sources for the products it
currently purchases. The Company has a contractual agreement with one supplier
to provide future raw materials totaling approximately $700,000. No assurance
can be given that ample supply of product would be available at current prices
if the Company was required to seek alternative sources of supply without
adequate notice by a supplier or a reasonable opportunity to seek alternate
production facilities and component parts.
Warranties
The Company offers limited warranties comparable to those offered to
consumers by its competitors in the United States. Such warranties typically
consist of a 90 day period under which the Company will pay for labor and parts,
or offer a new or similar unit in exchange for a non-performing unit.
Returned Products
Customers return product to the Company for a variety of reasons,
including liberal retailer return policies with their customers, damage to goods
in transit and occasional cosmetic imperfections and mechanical failures.
To reduce the costs associated with product returns, the Company has
entered into agreements with the majority of its suppliers. For a fee, the
Company returns defective returned product to the supplier and in exchange
receives a unit. The agreements cover certain microwave ovens, audio and video
products. The Company has realized and expects to continue to realize
significant cost savings from such agreements.
In addition, the Company has an agreement with Hi Quality International
(U.S.A.) Inc. ("Hi Quality") as an outlet for much of the Company's returned
products pursuant to which Hi Quality has agreed to purchase from the Company
certain returned products in the United States that are not subject to the
vendor agreements discussed previously. Hi Quality will refurbish them, if
feasible, and sell them as either refurbished or "As-Is" product.
Backlog
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the
Company's business.
Trademarks
The Company owns the "[OBJECT OMITTED]", "Emerson Research(TM)",
"Emerson Interactive (sm)", "H.H. Scott(R)" and "Scott(R)" trademarks for
certain of its home entertainment and consumer electronic products in the United
States, Canada, Mexico and various other countries. Of the trademarks owned by
the Company, those registered in the United States must be renewed at various
times through 2010 and those registered in Canada must be renewed at various
times through 2014. The Company's trademarks are also registered on a worldwide
basis in various countries, which registrations must be renewed at various
times. The Company intends to renew all trademarks necessary for its business.
The Company considers the "[OBJECT OMITTED]" trademark to be of material
importance to its business and owns several other trademarks, none of which is
currently considered by the Company to be of material importance to its
business. The Company has licensed certain applications of the " [OBJECT
OMITTED]" trademark to several licensees on a limited basis and for a definitive
period of time. (See Item 1 - "Business - Licensing and Related Activities.")
Competition
The market segment of the consumer electronics industry in which the
Company competes generates approximately $15 billion of factory sales annually
and is highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.
The industry is characterized by the short life cycle of products, which
requires continuous design and development efforts.
The Company primarily competes in the low to medium-priced sector of
the consumer electronics market. Management estimates that the Company has
several dozen competitors that are manufacturers and/or distributors, many of
which are much larger and have greater financial resources than the Company. The
Company competes primarily on the basis of its products' reliability, quality,
price, design, consumer acceptance of the "[OBJECT OMITTED]" trademark, and
quality service to retailers and their customers. The Company's products also
compete at the retail level for shelf space and promotional displays, all of
which have an impact on the Company's established and proposed distribution
channels. (See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition.")
Seasonality
The Company generally experiences stronger demand from its customers
for its products in the fiscal quarters ending September and December, but
during the last several years this revenue pattern has been less prevalent due
to the retailers need to plan earlier for the Christmas selling season and
management's ability to obtain additional orders during the slower times of the
year. On a corresponding basis, the Company still experiences increased returns
during the quarters ending March and June, which adversely affects the Company's
collection activities and liquidity during such periods. Operating results may
fluctuate due to other factors such as the timing of the introduction of new
products, price changes by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, seasonal
cost increases and general economic conditions.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974
and regulations promulgated thereunder, the United States government charges
tariff duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
Employees
As of June 22, 2000, the Company had approximately 104 employees. The
Company considers its labor relations to be generally satisfactory. The Company
has no union employees.
Item 2. PROPERTIES
The Company leases warehouse and office space in New Jersey, Hong Kong,
and Texas under leases expiring at various times.
A lease for office space at its Corporate offices in New Jersey for
21,509 square feet expires on October 31, 2003. Lease agreements for 10,132
square feet of office space in Hong Kong expire July 31, 2003. There is also
34,000 square feet of warehouse and office space in Texas, rented from an
affiliate pursuant to a Management Services Agreement which can be terminated by
either party upon 60 days notice.
The Company utilizes public warehouse space. Such public warehouse
commitments are evidenced by contracts with terms of up to one year. The cost
for the public warehouse space is primarily based on a fixed percentage of the
Company's sales from each respective location. The Company does not presently
own any real property.
Item 3. LEGAL PROCEEDINGS
As previously reported, the Company has resolved substantially all of
the litigation against it and has accrued the net cost thereof as an expense in
its fiscal year ended March 31, 2000. All that remains is a previously reported
claim by Gerhard Eisenbach, which has remained dormant during the year and as to
which the Company believes it has meritorious defenses, litigation arising in
the ordinary course of business, in the opinion of management, will not have a
material adverse effect on the Company's consolidated financial position if
resolved on unfavorable terms to the Company and the implementation, as to Petra
Stelling only, of the Court ordered termination of the Stipulation of Settlement
entered into in 1996 (the "Stipulation") among Geoffrey P. Jurick, the Company's
Chairman, three of his creditors, the Company, and certain other parties. While
such implementation may have a material adverse effect on Mr. Jurick, it is the
opinion of management that termination of the Stipulation will not adversely
affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on February
24, 2000, at which time the shareholders elected the following slate of nominees
to remain on the Board of Directors: Peter G. Bunger, Robert H. Brown, Jr.,
Stephen H. Goodman, Jerome H. Farnum and Geoffrey P. Jurick. Election of the
Board of Directors was the only matter submitted for shareholder vote. There
were 47,828,215 shares of outstanding capital stock of the Company entitled to
vote at the record date for this meeting and there were present at such meeting,
in person or by proxy, stockholders holding 44,427,428 shares of the Company's
Common Stock which represented 92.88% of the total capital stock outstanding and
entitled to vote. There were 44,427,428 shares voted on the matter of the
election of directors. The result of the votes cast regarding each nominee for
office was:
Nominee for Director Votes For Votes Withheld
Robert H. Brown, Jr. 44,203,390 224,038
Peter G. Bunger 44,203,390 224,038
Jerome H. Farnum 44,203,742 223,686
Stephen H. Goodman 44,178,290 249,138
Geoffrey P. Jurick 43,428,094 999,334
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange
since December 22, 1994 under the symbol MSN. The following table sets forth the
range of high and low sales prices for the Company's Common Stock as reported by
the American Stock Exchange during the last two fiscal years.
Fiscal 2000 Fiscal 1999
------------------------- --------------------
High Low High Low
First Quarter $ 7/8 $ 1/2 $ 5/8 $ 3/8
Second Quarter 3/4 1/2 11/16 3/8
Third Quarter 11/16 7/16 5/8 1/4
Fourth Quarter 1 1/2 7/8 7/16
There is no established trading market for the Company's Common Stock
Purchase Warrants or Series A Convertible Preferred Stock.
(b) Holders
At June 22, 2000, there were approximately 458 stockholders of record
of the Company's Common Stock and 12 holders of the Warrants.
(c) Dividends
The Company's policy has been to retain all available earnings, if any,
for the development and growth of its business. The Company has not paid cash
dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock (as more fully described below), prohibits Common Stock
dividends unless the Series A Preferred Stock dividends are paid or put aside.
The Series A Preferred Stock accrues dividends, payable on a quarterly basis, at
a 2.8% dividend rate and declines by a 1.4% dividend rate each year until March
31, 2001 when no further dividends are payable. The Company is in compliance
with the default provisions of its Series A Preferred Stock, and currently owes
dividends in arrears of $925,000. (See Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition.")
(d) Unregistered Securities
The Company authorized 10 million shares and issued 10,000 shares of Series
A Convertible Preferred Stock ("Series A Preferred Stock") on March 31, 1994. As
of March 31, 2000, there were 3,677 shares of Series A Preferred Stock
outstanding.
The Series A Preferred Stock is convertible into shares of the Company's
common stock at any time during the period beginning on March 31, 1997 and
ending on March 31, 2002. The conversion rate is equal to 80% times the average
of the daily market prices of a share of the Company's common stock for the 60
consecutive days immediately preceding the conversion date.
During the year ended March 31, 2000, the Company repurchased 37 shares of
its Series A Preferred Stock. There were no conversions of the Company's Series
A Preferred Stock into common stock for the year ended March 31, 2000.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for the five years ended March 31, 2000. For the years ended April
3, 1998 through March 31, 2000, 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 ended on March 31, 2000. The selected consolidated financial
data should be read in conjunction with the Company's Consolidated Financial
Statements, including the notes thereto, and Item 7 - "Management's Discussion
and Analysis of Results of Operations and Financial Condition".
------------- ------------- --------------- -------------- ---------------
March 31, April 2, April 3, March 31, March 31,
2000 1999 1998 1997 1996
------------- ------------- --------------- -------------- ---------------
Summary of Operations:
Net Revenues $ 204,956 $ 158,730 $162,730 $ 178,708 $ 245,667
Operating Income (Loss) $ 5,334 $ 3,278 $ 524 $ (20,243) $ (10,088)
Net Income (Loss) $ 3,620 $ 289 $ (1,430) $ (23,968) $ (13,389)
Balance Sheet Data at Period End:
Total Assets $ 57,996 $ 54,395 $ 54,767 $ 58,768 $ 96,576
Current Liabilities 24,542 23,351 19,890 21,660 35,008
Long-Term Debt 20,891 20,847 20,929 21,079 20,886
Shareholders' Equity 12,563 10,197 13,948 16,029 40,382
Working Capital 9,854 6,859 9,610 13,258 48,434
Current Ratio 1.4 to 1 1.3 to 1 1.5 to 1 1.6 to 1 2.4 to 1
Per Common Share: (1)
Net Income (Loss) Per Common Share - Basic $ .07 $ (.01) $ (.04) $ (0.61) $ (0.35)
Net Income (Loss) Per Common Share - Diluted $ .07 $ (.01) $ (.04) $ (0.61) $ (0.35)
Weighted Average Shares Outstanding:
Basic 47,632 49,398 45,167 40,292 40,253
Diluted 53,508 49,398 45,167 40,292 40,253
Common Shareholders' Equity per
Common Share (2) $ 0.19 $ 0.13 $ 0.19 $ 0.15 $ .75
(1) For Fiscal 2000 dilutive securities include 5,876,000 shares assuming
conversion of Series A Preferred Stock at a price equal to 80% of the
weighted average market value of a share of Common Stock, determined as of
March 31, 2000. Per common share data is based on the net income or loss
and deduction of preferred stock dividend requirements (resulting in a loss
attributable to common stockholders for Fiscal 1999-1996) and the weighted
average of Common Stock outstanding during each fiscal year. Loss per share
does not include potentially dilutive securities assumed outstanding since
the effects of such conversion would be anti-dilutive.
(2) Calculated based on common shareholders' equity divided by actual shares of
Common Stock outstanding. Common shareholders' equity for Fiscal Years
2000, 1999, and 1998 is equal to total shareholders' equity less
$3,677,000, $3,714,000 and 5,237,000, respectively, and for Fiscal Years
1997 and 1996 is equal to total shareholders' equity less $10 million for
the liquidation preference of the Series A Preferred Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations - Fiscal 2000 compared with Fiscal 1999
Net Revenues Net revenues for Fiscal 2000 increased $46.2 million (29%)
as compared to Fiscal 1999. The increase in net revenues resulted primarily from
increases in unit sales of microwave ovens and audio products as well as the
introduction of the DVD and home office product category. In addition, the
favorable trend of declining returned product as a percentage of sales continued
for Fiscal 2000, resulting from continuing a more restrictive return policy by
the Company's customers. Revenues earned from the licensing of the "[OBJECT
OMITTED]" trademark were $3.1 million for Fiscal 2000 as compared to $3.6
million for Fiscal 1999. The decrease is attributable to the continued
transition towards the Daewoo License Agreement. For Fiscal 2001, this trend is
expected to reverse because Emerson entered into a new Licensing Agreement with
Daewoo which provides for minimum royalty payments which exceeds the royalty
revenue recorded for Fiscal 2000.
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. The Company
expects its U.S. gross sales on its core products to increase and its margins on
such sales to also improve due to the change in product mix to higher margin
products, a reduction in returned product and through the continued introduction
of theme products through the use of current and newly developed license
agreements such as Hello Kitty(R) .
Cost of Sales Cost of sales, as a percentage of consolidated net
revenues, was 86.9% and 87.3% in Fiscal 2000 and Fiscal 1999, respectively.
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 category of
the market, which has a tendency to be the most competitive and generate the
lowest profits. The Company believes that the combination of its (i) Daewoo
License Agreement; (ii) various other license agreements; (iii) the introduction
of higher margin products and (iv) use of license agreements such as Hello
Kitty(R) and (v) reduced product returns will have a favorable impact on the
Company's gross profit. The Company continues to promote its direct import
programs to limit its working capital risks. In addition, the Company continues
to focus on its higher margin products and is reviewing new products that can
generate higher margins than its current business, either through license
arrangements, acquisitions and joint ventures or on its own.
Other Operating Costs and Expenses Other operating costs and expenses
as a percentage of net revenues decreased from 2.5% in Fiscal 1999 to 2.2% in
Fiscal 2000. The decrease was primarily due to decreases in freight charges.
Selling, General and Administrative Expenses ("S,G&A") S,G&A, as a
percentage of net revenues, were 8.3% in Fiscal 2000 as compared to 8.2% in
Fiscal 1999. The increase is primarily due to increased litigation and
cooperative advertising costs, offset somwehat by the effect of a higher sales
base.
Equity In Earnings Of Affiliate The Company's 33% share in the earnings
of an Affiliate amounted to $277,000 for Fiscal 2000 and $1.5 million for Fiscal
1999. The Company's ownership investment in the Affiliate increased to 33% from
31% in Fiscal 1999 due to an additional investment by Emerson of SSG's shares
and through a reduction of SSG shares outstanding resulting from a SSG stock
buyback program.
Write-down of Investment in and Advances to Joint Ventures Write-down
of investment in and advances to Joint Ventures was $135,000 for Fiscal 2000 as
compared to $900,000 for Fiscal 1999. This was attributable to the finalization
of the Joint Venture in Fiscal 2000.
Loss on Marketable Securities The loss on marketable securities results
from the sale of marketable securities which are classified as
"available-for-sale".
Interest Expense Interest expense did not change significantly from
Fiscal 1999 to Fiscal 2000. The Company's reduced average borrowings were offset
by higher borrowing costs.
Provision for Income Taxes The Company's income tax benefit was
$577,000 for Fiscal 2000 as compared to a provision of $207,000 for Fiscal 1999.
The income tax benefit recorded for Fiscal 2000 was the result of a favorable
resolution of a tax claim and the acceptance of a compromise offer in Hong Kong.
(See Item 8- "Financial Statements and Supplementary Data - Note 7 of Notes to
the Consolidated Financial Statements".)
Net Income As a result of the foregoing factors, the Company generated
net income of $3.6 million for Fiscal 2000 as compared to $289,000 for Fiscal
1999.
Results of Operations - Fiscal 1999 compared with Fiscal 1998
Net Revenues Consolidated net revenues for Fiscal 1999 decreased $4.0
million (2.5%) as compared to Fiscal 1998. The decrease in net revenues resulted
primarily from decreases in unit sales of microwave ovens and home theater
products. The reduced revenues were offset by increased sales of audio products,
particularly CD/radio/cassette products and CD shelf systems. This decrease in
product sales was partially offset by a significant reduction in returned
product resulting from an overall more restrictive return policy by the
Company's customers. Revenues earned from the licensing of the "[OBJECT
OMITTED]" trademark were $3.6 million for Fiscal 1999 as compared to $5.6
million for Fiscal 1998. The decrease is attributable to the first year
transition of a marketing agreement with Daewoo Electronics, Ltd. implemented to
replace a previous license agreement.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories. (See Item 1 -
Business - "Licensing and Related Activities").
Cost of Sales Cost of Sales, as a percentage of consolidated net
revenues, was 87.3% and 87.5% in Fiscal 1999 and Fiscal 1998.
Other Operating Costs and Expenses Other operating costs and expenses
decreased $344,000 in Fiscal 1999 as compared to Fiscal 1998, primarily as a
result of reduced freight costs on returns, offset by increased return-to-vendor
program fees as this program was fully implemented this fiscal year.
Selling, General and Administrative Expenses ("S,G&A") S,G&A, as a
percentage of net revenues, were 8.2% in Fiscal 1999 as compared to 9.5% in
Fiscal 1998. In absolute terms, S,G&A decreased by $2.5 million in Fiscal 1999
as compared to Fiscal 1998. The decrease in S,G&A as a percentage of net
revenues and in absolute terms was primarily attributable to a reduction in
co-op advertising and a reduction in charges related to bad debts, partially
offset by an increase in professional and consulting fees.
Equity In Earnings Of Affiliate The Company's 31% share in the earnings
of an Affiliate amounted to $1.5 million for Fiscal 1999, which was
approximately the same as for Fiscal 1998.
Write-down of Investment In And Advances to Joint Ventures Write-down
of investment in and advances to Joint Ventures was $900,000 for Fiscal 1999 as
compared to $714,000 for Fiscal 1998. For Fiscal 1999 the write-down consisted
of a charge of $230,000 for the continuing liquidation of a joint venture and a
$670,000 charge for the write-down of a foreign investment. For Fiscal 1998 the
charge of $714,000 was entirely for the joint venture.
Loss on Marketable Securities Loss on marketable securities is due to
the write-down of marketable securities which are classified as
"available-for-sale", net of gains on completed sales.
Interest Expense Interest expense decreased by $238,000 in Fiscal 1999
as compared to Fiscal 1998. The decrease was attributable to the amortization of
closing costs associated with a borrowing which were fully amortized in the
prior year, along with a reduction in short-term average borrowings due to a
reduction in working capital requirements.
Provision for Income Taxes The Company's provision for income taxes was
$207,000 for Fiscal 1999 as compared to $254,000 for Fiscal 1998. The provision
for income taxes consisted primarily of foreign tax for both years.
Net Income As a result of the foregoing factors, the Company generated
net income of $289,000 for Fiscal 1999 as compared to a net loss of
approximately $1.4 million for Fiscal 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $6.4 million for Fiscal
2000. Cash was primarily provided by an increase in the profitability of the
Company, a reduction of other receivables partially offset by an increase in
inventory.
Net cash used by investing activities was $538,000 for Fiscal 2000.
Cash was utilized primarily for additional purchases of shares in its
unconsolidated Affiliate (See Item 8 - "Financial Statements and Supplementary
Data - Note 3 of Notes to the Consolidated Financial Statements."), and computer
related capital additions, partially offset by the sale of marketable
securities.
Net cash used for financing activities was $390,000 primarily for the
purchase of the Company's stock for treasury, partially offset by increased
borrowings.
The Company maintains an asset-based $10 million U. S. line of credit.
The facility provides for revolving loans and letters of credit, subject to
certain limits which, in the aggregate, cannot exceed the lesser of $10 million
or a "Borrowing Base" amount based on specified percentages of eligible accounts
receivable and inventories. The Company is required to maintain a certain net
worth level, and is in compliance with this requirement. At March 31, 2000,
there was $2,914,000 of borrowings under the facility, and no outstanding
letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $23.5 million with a bank in Hong Kong
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for inventory purchases and (ii) a $20
million credit facility with seasonal over - advances, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit. At March 31, 2000, the Company's Hong Kong subsidiary pledged $1 million
in certificates of deposit to this bank to assure the availability of the $3.5
million credit facility. At March 31, 2000, there were approximately $3,442,000
and $24,566,000, respectively, of letters of credit outstanding under these
credit facilities.
The Company has continued to enter into licensing agreements for
existing core business products and new products, and intends to pursue
additional licensing opportunities. The Company believes that such licensing
activities will have a continued positive impact on net operating results by
generating royalty income with minimal costs, if any, and without the necessity
of utilizing working capital or accepting customer returns. (See Item 1 -
Business -"Licensing and Related Activities").
ShortTerm Liquidity. Cash increased to $8.5 million as of March 31,
2000 from $3.1 million as of April 2, 1999, primarily from its operations. At
present, management believes that future cash flow from operations and the
institutional financing noted above will be sufficient to fund all of the
Company's cash requirements for the next fiscal year. In Fiscal 2000, products
representing approximately 82% of net revenues were directly imported from
manufacturers to the Company's customers. The direct import program implemented
by the Company is critical in providing sufficient working capital to meet its
liquidity objectives. If the Company is unable to maintain its existing level of
direct sales volume, it may not have sufficient working capital to finance its
operating plan.
The Company is currently in arrears on $925,000 of dividends on its
Series A Preferred Stock.
The Company's liquidity is impacted by the seasonality of its business.
The Company generally records the majority of its annual sales in the quarters
ending September and December. This requires the Company to open higher amounts
of letters of credit during the quarters ending June and September, therefore
increasing the Company's working capital needs during these periods.
Additionally, the Company receives the largest percentage of customer returns in
the quarter ending March. The higher level of returns during this period
adversely impacts the Company's collection activity, and therefore its
liquidity. The Company believes that the license agreements as discussed above,
and the arrangements it has implemented concerning returned merchandise, should
favorably impact the Company's cash flow over their respective terms.
Long-Term Liquidity. The Company has discontinued certain lower margin
product lines and believes that this, together with its various license
agreements and the introduction of higher margin products will result in
continued profitability, thus reversing the trend of losses reported in prior
fiscal years. The senior secured credit facility with the Lender was amended in
March 1998 and extended to March 31, 2001 and imposes a financial covenant on
the Company. Non-compliance of the covenant could materially affect the
Company's future liquidity. Management believes that its direct import program
and the anticipated cash flow from operations and the financing noted above will
provide sufficient liquidity to meet the Company's operating and debt service
cash requirements on a longterm basis.
There were no substantial commitments for purchase orders outside the
normal purchase orders used to secure product as of March 31, 2000. See Item 8 -
"Financial Statements and Supplementary Data - Note 13 of Notes to the
Consolidated Financial Statements" for disclosure on material cash commitment
subsequent to March 31, 2000.
Year 2000
Emerson successfully completed its program to ensure Year 2000 readiness.
As a result, the Company had no Year 2000 problems that affected its business,
results of operations or financial condition. Emerson incurred expenses of
$400,000 related to its Year 2000 program.
Recently-Issued Financial Accounting Pronouncements
During the second quarter of 1998 the Financial Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133 by one
year. SFAS No. 133 will be effective for the Company for Fiscal 2001 and
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 55% and
21% of Fiscal 2000 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; and (vi) general
economic conditions. Due to these uncertainties and risks, readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inflation and Foreign Currency
Neither inflation nor currency fluctuations had a significant effect on
the Company's results of operations during Fiscal 2000. 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. Financial turmoil in the South American
economies may have an adverse impact on the Company's South American Licensee.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT
AUDITORS
To the Board of Directors and Shareholders
of Emerson Radio Corp.
We have audited the accompanying consolidated balance sheets of Emerson Radio
Corp. and Subsidiaries as of March 31, 2000 and April 2, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(1).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance regarding whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Emerson
Radio Corp. and Subsidiaries at March 31, 2000 and April 2, 1999, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
May 30, 2000
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2000, April 2, 1999, and April 3, 1998
(In thousands, except per share data)
2000 1999 1998
----------------- ------------- -------------
Net revenues $ 204,956 $ 158,730 $ 162,730
Costs and expenses:
Cost of sales 178,125 138,502 142,372
Other operating costs and expenses 4,501 4,007 4,351
Selling, general and administrative expenses 16,996 12,943 15,483
----------------- ------------ --------------
199,622 155,452 162,206
----------------- ------------ --------------
Operating income 5,334 3,278 524
Equity in earnings of affiliate 277 1,499 1,524
Write-down of investment in and advances to joint
venture (135) (900) (714)
Loss on marketable securities, net (149) (1,109) --
Interest expense, net (2,284) (2,272) (2,510)
----------------- ------------- -------------
3,043 496 (1,176)
Income (loss) before income taxes
Provision (benefit) for income taxes ( 577) 207 254
----------------- ------------------ ----------------
Net income (loss) $ 3,620 $ 289 $ (1,430)
================= ================== ================
Net income (loss) per common share
Basic $ .07 $ ( .01) $ (.04)
Diluted .07 ( .01) (.04)
Weighted average shares outstanding
Basic 47,632 49,398 45,167
Diluted 53,508 49,398 45,167
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and April 2, 1999
(In thousands, except share data)
ASSETS 2000 1999
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 8,539 $ 3,100
Available for sale securities 37 738
Accounts receivable (less allowances of $3,977 and $3,907, respectively) 4,756 5,143
Other receivables 4,027 6,782
Inventories 14,384 11,608
Prepaid expenses and other current assets 2,653 2,839
---------- ------
Total current assets 34,396 30,210
Property and equipment 1,034 1,211
Investment in affiliates and joint venture 20,277 19,525
Other assets 2,289 3,449
---------- --------
Total Assets $ 57,996 $ 54,395
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 2,914 $ 2,216
Current maturities of long-term debt 97 50
Accounts payable and other current liabilities 16,499 16,759
Accrued sales returns 4,897 3,926
Income taxes payable 135 400
----------------- ---------------
Total current liabilities 24,542 23,351
Long-term debt, less current maturities 20,750 20,750
Other non-current liabilities 141 97
Shareholders' Equity:
Preferred shares -- 10,000,000 shares authorized; 3,677 and 3,714
shares issued and outstanding, respectively 3,310 3,343
Common shares -- $.01 par value, 75,000,000 shares authorized;
51,331,615 shares issued; 46,477,615 and 47,828,215
shares outstanding, respectively 513 513
Capital in excess of par value 113,289 113,288
Cumulative translation adjustment (76) (78)
Accumulated deficit ( 101,445) (104,962)
Treasury stock, at cost, 4,854,000 and 3,503,400 shares, respectively (3,028) (1,907)
----------------- ---------------
Total shareholders' equity 12,563 10,197
----------------- ---------------
Total Liabilities and Shareholders' Equity $ 57,996 $ 54,395
================= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31,
2000, APRIL 2, 1999 AND APRIL 3, 1998
(In thousands, except share data)
Common Shares Issued Capital Cumulative Total
Preferred Number Par Treasury In excess of Translation Accumulated Shareholders
Stock of Shares Value Stock Par Value Adjustment Deficit Equity
Balance--March 31, 1997 $ 9,000 40,335,642 $ 403 $ -- $ 109,278 $ 191 $ (102,843) $ 16,029
Issuance of common stock
upon conversion of
preferred stock (4,287) 10,709,088 107 4,180
Cancellation of common
stock warrants (257) (257)
Preferred stock dividends
declared (400) (400)
Comprehensive loss:
Net loss for the year (1,430) (1,430)
Currency translation
adjustment 6 6
Comprehensive loss (1,424)
------ ---------- --- ------- ------ ---- -------- -------
Balance--April 3, 1998 4,713 51,044,730 510 113,201 197 (104,673) 13,948
Issuance of common stock
upon conversion of
preferred stock (90) 286,885 3 87
Purchase of treasury stock (1,907) (1,907)
Purchase of preferred stock (1,280) (407) (1,687)
Preferred stock dividends
declared
(171) (171)
Comprehensive income:
Net income for the year 289 289
Currency translation adjustment (275) (275)
-------
Comprehensive income 14
----- ---------- --- ------ ------ ---- -------- ------
Balance - April 2, 1999 3,343 51,331,615 513 (1,907) 113,288 (78) (104,962) 10,197
Purchase of treasury stock (1,121) (1,121)
Purchase of preferred stock (33) 1 (32)
Preferred stock dividends
declared (103) ( 103)
Comprehensive income:
Net income for the year 3,620 3,620
Currency translation adjustment 2 2
-------
Comprehensive income 3,622
--------- ------------- ----- --------- --------- ---------- ---------- --------
Balance - March 31, 2000 $ 3,310 51,331,615 $513 $(3,028) $113,289 $ (76) $(101,445) $12,563
========= ============= ===== ========= ========= ========== ========== ========
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS For The Years
Ended March 31, 2000, April 2, 1999,
and April 3, 1998
(In thousands)
2000 1999 1998
------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net income (loss) $ 3,620 $ 289 $ (1,430)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,306 1,245 1,759
Equity in earnings of affiliate (277) (1,499) (1,524)
Write-down of investment in joint venture 153 900 714
Loss on marketable securities 149 1,298 --
Asset valuation and loss reserves 626 (1,375) (3,092)
Other 2 (275) (251)
Changes in assets and liabilities:
Accounts receivable (45) 2,642 4,543
Other receivables 2,755 (308) (4,357)
Inventories (2,970) 1,021 4,505
Prepaid expenses and other current assets 186 (460) (241)
Other assets 493 699 (71)
Accounts payable and other current liabilities 634 900 2,739
Income taxes payable (265) 209 88
------------------ ------------------ ----------------
Net cash provided by operations 6,367 5,286 3,382
------------------ ------------------ ---------------
Cash Flows from Investing Activities:
Proceeds from (investment in) marketable securities 552 (2,036) --
Investment in affiliates (841) (91) 2,709
Additions to property and equipment (462) (413) (27)
Distributions from joint venture 213 241 --
------------------ ------------------ ---------------
Net cash (used) provided by investing activities (538) (2,299) 2,682
------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of credit facility 698 2,216 (5,689)
Retirement of long-term debt 47 (35) (106)
Payment of dividend on preferred stock (26) (407) (257)
Purchase of preferred and common stock (1,153) (3,187) --
Other 44 (82) (44)
------------------ ------------------ ----------------
Net cash used by financing activities (390) (1,495) (6,096)
------------------ ------------------ ---------------
Net increase (decrease) in cash and cash equivalents 5,439 1,492 (32)
Cash and cash equivalents at beginning of year 3,100 1,608 1,640
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 8,539 $ 3,100 $ 1,608
================== ================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 273 $ 203 $ 316
================== ================== ===============
Cash paid for income taxes $ 11 $ 32 $ 152
================== ================== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Note 1 -- Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of Emerson Radio
Corp. and its majorityowned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. The Company's
investment in an affiliate and ownership in a joint venture are accounted for by
the equity method.
The preparation of the financial statements in conformity with generally
accepted accounting principles 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.
Certain reclassifications were made to conform prior years financial statements
to the current presentation.
Cash and Cash Equivalents
Shortterm investments with original maturities of three months or less at the
time of purchase are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
Fair Values of Financial Instruments
The estimated fair values of financial instruments have been determined by the
Company using available market information, including current interest rates,
and the following valuation methodologies:
Cash and cash equivalents and accounts receivable -- the carrying amounts
reported in the balance sheet for cash and cash equivalents approximate their
fair values because of the short maturity of these instruments.
The fair value of other receivables is estimated on the basis of discounted cash
flow analyses, using appropriate interest rates for similar instruments.
Notes payable and long-term debt -- the fair value is estimated on the basis of
rates available to the Company for debt of similar maturities.
Inventories
Inventories are stated at the lower of cost (first in, first out) or
market.
Investments
The Company determines the appropriate classifications of securities at the
time of purchase. The investments held by the Company at March 31, 2000 and
April 2, 1999 were classified as "available-for-sale." Realized gains and losses
are reported separately as a component of income. Declines in the market value
of securities deemed to be other than temporary are included in earnings (See
Note 10 - Available-for-Sale Securities).
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable represent sales to retailers
and distributors of consumer electronics throughout the United States and
Canada. The Company periodically performs credit evaluations of its customers
but generally does not require collateral.
Depreciation, Amortization and Valuation of Property and Intangibles
Property and equipment, stated at cost, are being depreciated by the
straightline method over their estimated useful lives. Leasehold improvements
are amortized on a straightline basis over the shorter of the useful life of the
improvement or the term of the lease.
Goodwill (resulting from the investment in an affiliate) and trademarks are
amortized using the straight-line method, principally over 40 years. Management
periodically evaluates the recoverability of goodwill and trademarks. The
carrying value of goodwill and trademarks would be reduced if it is probable
that management's best estimate of future operating income before amortization
of goodwill and trademarks will be less than the carrying value over the
remaining amortization period.
Foreign Currency
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Losses
resulting from foreign currency transactions are included in the Consolidated
Statements of Operations.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
Recently Issued Accounting Pronouncements
During the second quarter of 1998 the Financial Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133 by one
year. SFAS No. 133 will be effective for the Company for Fiscal 2001 and
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.
Change in Accounting Period
The Company's financial reporting year ended on the Friday closest to March
31. Accordingly, the current fiscal year ended on March 31, 2000. Beginning in
Fiscal 2001, the Company is changing its financial reporting year to end March
31.
Note 2 -- Inventories:
Inventories are comprised primarily of finished goods.
Note 3 -- Investment in Unconsolidated Affiliate:
The Company owns 2,386,000 (33% of the issued and outstanding) shares
of common stock of Sport Supply Group, Inc. ("SSG") , of which 2,269,500 shares
were purchased in 1996, and the balance was purchased in Fiscal 2000, at a total
cost of $ 16,569,000. 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.
If the Company exercises all of the SSG Warrants, it will beneficially own
approximately 41% of the SSG common shares. The warrants are scheduled to expire
in December 2001. 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 for a fee.
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 $7,355,000
which is being amortized on a straight line basis over 40 years. At March 31,
2000, 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
$14 million. Summarized financial information derived from the annual and
quarterly financial reports as filed with the Securities and Exchange Commission
was as follows (in thousands):
Unaudited
------------------- --------------------
March 31, 2000 April 2, 1999
------------------- --------------------
Current assets $ 50,488 $ 44,322
Property, plant and equipment
and other assets 30,158 30,252
Current liabilities 38,450 14,965
Long-term debt 252 19,045
Stockholders' Equity 41,945 40,563
Unaudited
----------------------
For the 12 Months For the 12 Months
Ended Ended
March 31, 2000 April 2, 1999
---------------------- -------------------
Net sales $ 110,552 $ 100,953
Gross profit 39,598 39,090
Net income 2,083 5,454
Note 4 - Property and Equipment
As of March 31, 2000 and April 2, 1999, property and equipment is comprised of
the following:
2000 1999
------------ -------------
(In thousands)
Furniture and fixtures. . . . . . . . . . . . . $ 3,555 $ 3,228
Machinery and equipment . . . . . . . . . . . . 614 493
Leasehold improvements. . . . . . . . . . . . . 267 267
------------ --------------
4,436 3,988
Less accumulated depreciation and amortization 3,402 2,777
------------ --------------
$ 1,034 $ 1,211
============ ==============
Depreciation and amortization of property and equipment amounted to
$638,700, $583,000, and $776,000 for the years ended March 31, 2000, April 2,
1999, and April 3, 1998, respectively.
Note 5 -- Credit Facility:
On March 31, 1998, the Company amended its existing Loan and Security
Agreement (the "Loan and Security Agreement"), which includes a senior secured
credit facility with a U.S. financial institution. The amendment to the facility
reduced the facility to $10 million from $35 million and amended certain
financial covenants as defined below. The facility provides for revolving loans
and letters of credit, subject to individual maximums which, in the aggregate,
cannot exceed the lesser of $10 million or a "Borrowing Base" amount based on
specified percentages of eligible accounts receivable and inventories. Amounts
outstanding under the senior credit facility are secured by substantially all of
the Company's U.S. and Canadian assets except for trademarks, which are subject
to a negative pledge covenant, and a portion of its minority interest of its
investment in an unconsolidated affiliate. At March 31, 2000 and April 2, 1999,
the weighted average interest rate on the outstanding borrowings was 9.36% for
both years, which is the prime rate of interest plus 1.25%. Interest paid
totaled $273,000, $203,000, and $316,000 for the years ended March 31, 2000,
April 2, 1999, and April 3, 1998, respectively. Pursuant to the Loan and
Security Agreement, the Company is restricted from, among other things, paying
cash dividends (other than on the Series A Preferred Stock), redeeming stock,
and entering into certain transactions without the lender's prior consent and is
required to maintain certain net worth levels. An event of default under the
credit facility would trigger a default under the Company's 8 1/2% Senior
Subordinated Convertible Debentures Due 2002. At March 31, 2000 and April 2,
1999, there were $2,914,000 and $2,216,000, respectively, outstanding borrowings
under the facility, and no outstanding letters of credit issued for inventory
purchases.
Note 6 -- Long-Term Debt:
As of March 31, 2000 and April 2, 1999, long-term debt consisted of the
following:
2000 1999
------------- --------------
(In thousands)
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 . . . . . . . . . . . $ 20,750 $ 20,750
Equipment notes and other . . . . . . . . 97 50
------------- --------------
20,847 20,800
Less current obligations . . . . . . . . 97 50
------------- --------------
Long-term debt $ 20,750 $ 20,750
============= ==============
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were
issued in August 1995. The Debentures 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 an initial conversion price of $3.9875 per share,
subject to adjustment under certain circumstances. The Debentures are presently
redeemable in whole or in part at the Company's option at a redemption price of
103% 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 consolidated subsidiaries, may incur.
Each holder of Debentures has the right to cause the Company to redeem the
Debentures if certain designated events (as defined) should occur. The
Debentures are subject to certain restrictions on transfer, although the Company
has registered the offer and sale of the Debentures and the underlying common
stock.
Note 7 - Income Taxes:
The income tax provision for the years ended March 31, 2000, April 2, 1999, and
April 3, 1998 consisted of the following:
2000 1999 1998
---------- ---------- ----------
(In thousands)
Current:
Federal $ 47 $ -- $ 13
Foreign, state and other (624) 207 241
---------- ----------- ----------
$ (577) $ 207 $ 254
========== =========== ==========
The difference between the effective rate reflected in the provision for income
taxes and the amounts determined by applying the statutory U.S. rate of 34% to
earnings (loss) before income taxes for the years ended March 31, 2000, April 2,
1999, and April 3, 1998 are analyzed below:
2000 1999 1998
--------------- --------------- ---------------
(In thousands)
Statutory provision (benefit) $ 1,035 $ 169 $ (400)
Federal valuation allowance (1,076) (177) 454
Foreign income taxes (642) 207 223
Other, net 106 8 (23)
--------------- --------------- ---------------
Total income tax (benefit) provision $ (577) $ 207 $ 254
=============== =============== ===============
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd. was
assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in May
1998. The assessment related to the Fiscal 1993 to Fiscal 1998 tax years and
asserted that certain revenues reported as non-taxable by Emerson Radio (Hong
Kong) Ltd. were subject to a profits tax. In Fiscal 1999, the Company accrued
$256,000 equaling its compromise offer, and in June 1999, the IRD accepted the
offer in which the Company and the IRD settled, without prejudice, the
assessment for the amount accrued.
Emerson Radio (Hong Kong) Ltd. was also in litigation with the IRD regarding the
deductibility of certain expenses that related to Fiscal 1992 to Fiscal 1999. In
December 1999, the Company received a favorable ruling from the Hong Kong Court
of Final Appeals regarding this matter and a tax credit of $619,000 has been
recorded in the Company's financial results for Fiscal 2000.
As of March 31, 2000 and April 2, 1999, the significant components of the
Company's deferred tax assets and liabilities are as follows:
2000 1999
-------------- -----------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,243 $ 4,699
Inventory reserves 235 2,243
Federal loss carryforwards 13,753 16,207
State loss carryforwards 4,746 5,257
Other 449 1,016
-------------- ------------
Total deferred tax assets 24,426 29,422
Valuation allowance for
deferred tax assets (22,537) ( 28,054)
-------------- ------------
Net deferred tax assets 1,889 1,368
Deferred tax liabilities (1,889) (1,368)
-------------- ------------
Net deferred taxes $ -- $ --
============== ============
Total deferred tax assets of the Company at March 31, 2000, and April 2, 1999,
include the tax effected net operating loss carryforwards subject to annual
limitations (as discussed below), and tax effected deductible temporary
differences. The Company has established a valuation reserve against any
expected future benefits.
Cash paid for income taxes was $11,400, $32,000, and $152,000 for the years
ended March 31, 2000, April 2, 1999, and April 3, 1998, respectively.
Income of foreign subsidiaries before taxes was $1,578,000, $1,492,000, and
$3,065,000 for the years ended March 31, 2000, April 2, 1999, and April 3, 1998,
respectively. It is the policy of the Company to permanently reinvest all the
earnings of its foreign subsidiaries.
As of March 31, 2000, the Company has a federal net operating loss carry forward
of approximately $130,813,000, of which $29,160,000, $13,385,000, $50,193,000,
$18,201,000, $18,954,000 and $920,000 will expire in 2006, 2007, 2009, 2011,
2012 and 2019, respectively. The utilization of these net operating losses are
limited based on Sections 382 and 383, respectively, of the Internal Revenue
Code. The Company's annual limitation is approximately $2.2 million for net
operating losses which expire in 2006, 2007 and 2009.
Note 8 -- Commitments and Contingencies:
Leases:
The Company leases warehouse and office space with annual commitments as follows
(in thousands):
Fiscal Years Amount
------------ ------
2001 $ 890
2002 803
2003 803
2004 268
2005 --
Rent expense, net of rental income, aggregated $1,326,000, $1,304,000, and
$1,570,000 for Fiscal 2000, 1999, and 1998, respectively. Rental income from the
sublease of warehouse and office space aggregated $238,000 in Fiscal 1998.
Letters of Credit:
There were no letters of credit outstanding under the Loan and Security
Agreement (See Note 5) as of March 31, 2000, or April 2, 1999. The Company's
Hong Kong subsidiary also currently maintains various credit facilities
aggregating $23.5 million with a bank in Hong Kong subject to annual review
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for inventory purchases, and (ii) a $20
million credit facility with seasonal over - advances, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit with the Company's largest customer. At March 31, 2000, the Company's
Hong Kong subsidiary had pledged $1 million in certificates of deposit to this
bank to assure the availability of the $3.5 million credit facility. At March
31, 2000, there were $3,442,000 and $24,566,000 of letters of credit outstanding
under these credit facilities, respectively.
Note 9 -- Shareholders' Equity:
In July 1994, the Company adopted a Stock Compensation Program ("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth. The maximum
aggregate number of shares of common stock available pursuant to the Program is
2,000,000 shares and the Program is comprised of four parts--the Incentive Stock
Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights
Plan and the Stock Bonus Plan. A summary of transactions during the last three
years is as follows:
Number of Price Aggregate
Shares Per Share Price
------------------- --------------------- -----------------
Outstanding--March 31, 1997 1,590,000 $1.00 - $2.88 $1,927,000
Granted 207,000 $1.00 207,000
Canceled (790,000) $1.00 - $2.88 (1,067,000)
------------------- ---------------
Outstanding--April 3, 1998 1,007,000 $1.00 - $1.10 1,067,000
Granted 23,000 $1.00 23,000
------------------- ---------------
Outstanding - April 2, 1999 1,030,000 $1.00 - $1.10 1,090,000
Granted 300,000 $1.00 300,000
Canceled (18,000) $1.00 (18,000)
------------------- ----------------
Outstanding - March 31, 2000 1,312,000 $1.00 - $1.10 $1,372,000
=================== =================
Subject to the terms set forth in each option agreement, generally, the term of
each option is ten years, except for options issued to any person who owns more
than 10% of the voting power of all classes of capital stock, for which the term
is five years. Options may not be exercised during the first year after the date
of the grant. Thereafter, each option becomes exercisable on a pro rata basis on
each of the first through third anniversaries of the date of the grant. The
exercise price of options granted must be at least equal to the fair market
value of the shares on the date of the grant, except that the option price with
respect to an option granted to any person who owns more than 10% of the voting
power of all classes of capital stock shall not be less than 110% of the fair
market value of the shares on the date of the grant. As of March 31, 2000 and
April 2, 1999, approximately 993,000 and 964,000 options were exercisable,
respectively.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation expense.
Had compensation cost been determined based upon the fair value at grant date
for awards consistent with the methodology prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income would have decreased approximately $19,000 and
$25,000 for the years ended March 31, 2000 and April 2, 1999, respectively, and
the net loss would have increased approximately $21,000 for the year ended April
3, 1998.
The fair value of these options, and all other options and warrants of the
Company, was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for the years ended March 31, 2000, April
2, 1999, and April 3, 1998: risk-free interest rate of 5%, an expected life of
10 years and a dividend yield of zero. For the years ended March 31, 2000, April
2, 1999 and April 3, 1998, volatility was 57%, 15%, and 56%, respectively. The
effects of applying SFAS 123 and the results obtained are not likely to be
representative of the effects on future pro-forma income.
In October 1994, the Company's Board of Directors adopted, and the stockholders
subsequently approved, the 1994 Non-Employee Director Stock Option Plan. The
maximum number of shares of common stock available under such plan is 300,000
shares. A summary of transactions under the plan for the three years ending
March 31, 2000 is as follows:
Number of Price Aggregate
Shares Per Share Price
----------------- ----------------- -----------------
Outstanding--March 31, 1997,
April 3, 1998, and April 2, 1999 150,000 $1.00 $ 150,000
Canceled (50,000) $1.00 (50,000)
----------------- -----------------
Outstanding - March 31, 2000 100,000 $1.00 $ 100,000
================= =================
The provisions for exercise price, term and vesting schedule are the same as
noted above for the Stock Compensation Program.
The Company has issued and outstanding 3,677 shares of Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face value of
$3,677,000 and an estimated fair market value of approximately $3,309,000. The
Preferred Stock is convertible into Common Stock through March 31, 2002 at a
price per share of Common Stock equal to 80% of the defined average market value
of a share of Common Stock on the date of conversion. The preferred stock bears
dividends, on a cumulative basis currently at 2.8% and declines by 1.4% each
June 30th until no dividends are payable.
During the year ended March 31, 2000, the Company repurchased 37 shares of its
Series A Preferred Stock. There were no conversions of the Company's Preferred
Stock into Common Stock for the year ended March 31, 2000.
The Preferred Stock is non-voting. However, the terms of the Preferred
Stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the Preferred Stock dividends are in default for
six consecutive quarters. At March 31, 2000, the Company is in compliance with
these default provisions and currently owes dividends in arears of $925,000.
The Company issued warrants on March 31, 1994 for the purchase of approximately
750,000 shares of Common Stock which are exercisable at $1.30 per share and
expire on March 31, 2001.
The Company issued warrants in August 1995 for the purchase of 500,000 shares
of common stock that are exercisable through August 2000 at an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances. In
December 1995, the Company issued warrants for the purchase of 250,000 shares of
Common Stock at an exercise price of $4.00 per share. The warrants may be
exercised until December 8, 2000, when such warrants shall expire.
In November 1995, the Company filed a shelf registration statement covering
5,000,000 shares of common stock owned by Fidenas International Limited, LLC to
finance a settlement of the litigation regarding certain outstanding common
stock. The shares covered by the shelf registration are subject to certain
contractual restrictions and may be offered for sale or sold only by means of an
effective prospectus following registration under the Securities Act of 1933, as
amended.
In May 1998, the Company modified its existing stock repurchase program to
permit the repurchase of up to $2 million of common shares, from time to time,
in the open market. Pursuant to this plan, the Company repurchased 3,503,400
shares in Fiscal 1999 for $ 1,907,000, completing the repurchase program. The
Board authorized a second repurchase program in January 2000 for an additional 5
million shares. In fiscal 2000, the Company repurchased 1,350,600 shares for
$1,121,000 pursuant to this program. The shares repurchased during Fiscal 2000
and Fiscal 1999 were funded by working capital.
Of the 46,477,615 common shares outstanding at March 31, 2000, approximately
29.2 million shares were held directly or indirectly by affiliated entities of
Geoffrey P. Jurick, Chairman, Chief Executive Officer and President of the
Company. The Company agreed with Mr. Jurick that such shares would not be
subject to the repurchase plans. Subsequent thereto, Mr. Jurick's shareholdings
were reduced and so were the total number of outstanding common shares. (See
Item 8 - "Financial Statements and Supplementary Data - Note 13 of Notes to the
Consolidated Financial Statements".)
Note 10 -- 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 market value judged to be
other-than-temporary, are included in earnings. During the fourth quarter of
Fiscal 1999, the Company recorded a loss of $1,298,000 in earnings for
securities whose decline in value was deemed to be other-than-temporary. During
Fiscal 2000, the Company recorded a realized loss of $149,000 from the sale of
securities for less than their carrying value.
The following is a summary of available-for-sale equity securities at March 31,
2000 and April 2, 1999 (in thousands):
Gross Gross Estimated
Cost Gains Losses Fair Value
March 31, 2000 $ 37 $ -- $ -- $ 37
April 2, 1999 2,036 -- 1,298 738
Note 11 -- Net Earnings (Loss) per Share:
The following table sets forth the computation of basic and diluted earnings
(loss) per share for the years ended March 31, 2000, April 2, 1999, and April 3,
1998:
(In thousands, except per share amount)
2000 1999 1998
--------------- ---------- ---------
Numerator:
Net income (loss) $ 3,620 $ 289 $ (1,430)
Less: preferred stock dividends, and repurchase
costs 103 578 400
============== ========== ===========
Numerator for basic earnings
(loss) per share - income available
to common stockholders 3,517 (289) (1,830)
Add back to effect assumed conversions:
Preferred Stock dividends 103 -- --
-------------- ------------ ------------
Numerator for diluted earnings
(loss) per share $ 3,620 $ (289) $ (1,830)
=============== =========== ============
Denominator:
Denominator for basic earnings per share -
weighted average shares 47,632 49,398 45,167
Effect of dilutive securities:
Preferred shares 5,876 -- --
--------------- ------------- --------------
Denominator for diluted earnings per share -
weighted average shares and assumed conversions
53,508 49,398 45,167
=============== ============ =============
Basic income (loss) per share $ .07 $ (.01) $ (.04)
===============
============ =============
Diluted income (loss) per share $ .07 $ (.01) $ (.04)
=============== ============ =============
Options and warrants to purchase 2,899,000, 2,667,000, and 2,644,000 shares of
common stock were not included in computing diluted earnings per share for
Fiscal 2000, 1999, and 1998, respectively, because the effect would be
antidilutive.
Preferred Stock convertible into 8,680,000 and 21,864,000 shares of Common Stock
were not included in computing diluted earnings per share for Fiscal 1999 and
1998, respectively, because the effect would be antidilutive.
Senior Subordinated Debentures convertible into 5,204,000 shares of Common Stock
if converted were not included in computing diluted earnings per share for
Fiscal 2000, 1999,and 1998, because the effect would be antidilutive.
Note 12 -- License Agreements:
The Company has several license agreements in place that allow licensees to use
the "[OBJECT OMITTED]" trademark for the manufacture and/or the sale of consumer
electronics and other products. The license agreements cover various countries
throughout the world and are subject to renewal at the initial expiration of the
agreements. Additionally, the Company has entered into several sourcing and
inspection agreements that require the Company to provide these services in
exchange for a fee. License revenues recognized in Fiscal 2000, 1999, and 1998
were $3,143,000, $3,633,000, and $5,597,000, respectively, including $4,000,000
in Fiscal 1998 from a major supplier whose licensing agreement expired March 31,
1998. The Company records licensing revenues as earned over the term of the
related agreements.
In April 1997, in anticipation of the expiration of the major supplier license
agreement, Emerson executed a marketing agreement ("Marketing Agreement") with
Daewoo Electronics Co. Ltd. ("Daewoo"). This Marketing Agreement provided that
Daewoo manufacture and distribute television and video products bearing the
"[OBJECT OMITTED]" trademark to customers in the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo was responsible for and assumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned by the Company were
entirely dependent upon the volume of sales made that were subject to the
Marketing Agreement. Effective October 29, 1999, Emerson and Daewoo entered into
a three year License Agreement ("License Agreement") which replaced the
Marketing Agreement. The License Agreement includes, among other items, minimum
production quotas and subject to certain conditions, minimum annual royalty
payments each year, which in Fiscal 2001 amounts to $4,500,000. All other
material aspects of the License Agreement remain substantially similar to the
terms set forth in the superceded Marketing Agreement.
In addition, the Company has several other licensing agreements in place with
licensees primarily in the United States, Canada, Latin America, Mexico, Eastern
Asia and parts of Europe.
Throughout many parts of the world, the Company maintains distributorship and/or
sales support and assistance agreements that allow the distribution of the
Company's products into defined geographic areas. Currently the Company has such
agreements covering the Sub-Asian Continent, North Africa, Canada and the Middle
East.
Note 13 -- Legal Proceedings:
In the last few months, the Company settled substantially all of its
outstanding litigation.
Certain Outstanding Common Stock
On May 25, 2000, the Company entered into a Termination, Settlement,
Redemption and Option Agreement, (the "Agreement") with Geoffrey P. Jurick, its
Chairman, Chief Executive Officer and President, and two of Mr. Jurick's
institutional creditors, resolving outstanding litigation between Mr. Jurick and
two of his three outside creditors.
In 1996, Mr Jurick entered into a settlement agreement (the "Settlement
Agreement") pursuant to which he agreed to pay to an individual and two
institutions the sum of $49.5 million from the proceeds of the sale of
approximately 29.2 million shares of Common Stock of the Company (the "Common
Stock") beneficially owned by him. None of the shares of Common Stock was sold
and, in March 2000, at the request of Mr. Jurick's three creditors, the Court
terminated the Settlement Agreement. To implement such termination, the Court
divided the 29.2 million shares of Common Stock among Mr. Jurick and his three
creditors in a manner insuring that Mr. Jurick would retain at least 25% of the
outstanding shares of Common Stock as required by the Company's lending
agreements and approved the Agreement. Mr. Jurick received 9.9 million shares,
the two institutions received 11.1 million shares, and the individual received
8.2 million shares.
In accordance with the Agreement, the Company, on May 25, 2000, purchased
7.0 million shares of Common Stock from the two institutional creditors for $6.0
million. The purchase price was paid by the Company using cash generated from
operations. As a result of the purchase by the Company, the outstanding shares
of Common Stock of the Company were reduced to approximately 39.4 million
shares. In addition, under the terms of the Agreement, the Company was granted a
one year option to purchase from the two institutional creditors the remaining
4.1 million shares of Common Stock owned by them for approximately $5.5 million
(the "Option Purchase Price"). The option term may be extended by the Company
for one additional year upon making a non-refundable payment of $550,000 to the
two institutions and for a second additional year upon making a payment of
$2,550,000, of which $1.9 million will be credited against the Option Purchase
Price.
In the event that the Company or its assignees do not purchase the
approximately 4.1 million shares of Common Stock owned by such institutions,
these institutions will continue to have claims against Mr. Jurick.
Implementation of the termination of the Settlement Agreement with Mr. Jurick's
remaining creditor (by settlement or court order) has not been finalized.
Other Litigation
The Company has also entered into definitive agreements to resolve
other outstanding litigation. The Company reached agreements with Cineral
Electronica de Amazonia Ltda., a former Latin American distributor, which had
brought suit for approximately $93.6 million in damages; Tanashin Denkin
Company, which had brought suit for patent infringements seeking potential
damages of approximately $12.0 million; and two former officers who sought
damages for alleged wrongful termination. Also, the Company received a jury
ruling in its suit against a former supplier and won a favorable ruling from the
Hong Kong Court of Final Appeals regarding its prior year tax filings in Hong
Kong for its foreign subsidiary.
Costs of approximately $2.8 in excess of existing reserves associated
with the resolution of all of the above mentioned litigation, including
settlement payments and legal fees, were expenses in the Company's fiscal year
ended March 31, 2000.
The Company is involved in other legal proceedings and claims of
various types in the ordinary course of business. While any such litigation to
which the Company is a party contains an element of uncertainty, management
presently believes that the outcome of each such proceeding or claim which is
pending or known to be threatened, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial position.
Note 14 -- Business Segment Information and Major Customers:
The consumer electronics business is the Company's only business segment.
Operations in this business segment are summarized below by geographic area (in
thousands):
Year Ended March 31, 2000
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 199,065 $ 5,891 $ 204,956
======= ======= ============
Income (loss) before income
taxes $ 3,075 $ (32) $ 3,043
Identifiable assets $ 55,265 $ 2,731 $ 57,996
======== ======== =============
Year Ended April 2, 1999
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 154,282 $ 4,448 $ 158,730
========== ========= =========
Income before income taxes $ 472 $ 24 $ 496
========== ========= =========
Identifiable assets $ 50,974 $ 3,421 $ 54,395
========== ========== =========
Year Ended April 3, 1998
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 159,108 $ 3,622 $ 162,730
========== ========== =============
Loss before income taxes $ (1,163) $ (13) $ (1,176)
=========== ========== =============
Identifiable assets $ 53,885 $ 912 $ 54,767
=========== ========== ============
Identifiable assets are those assets used in operations in each geographic
area. In addition to operating assets, at March 31, 2000, April 2, 1999, and
April 3, 1998, there were non-operating assets of $8,297,000, $8,348,000 and
$8,275,000, respectively, located in foreign countries.
The Company's net sales to one customer aggregated approximately 55%, 52%
and 53% of consolidated net revenues for the years ended March 31, 2000, April
2, 1999, and April 3, 1998, respectively. This customer approximated 30% of the
Company's trade accounts receivable at March 31, 2000, and has not been
collateralized. The Company's net sales to another customer aggregated 21%, 24%,
and 15% for the years ended March 31, 2000, April 2, 1999, and April 3, 1998,
respectively. Trade accounts receivable from this customer were 27% of total
trade receivables at March 31, 2000.
Note 15 - Quarterly Information (Unaudited):
The following table sets forth certain information regarding the Company's
results of operations for each full quarter within the fiscal years ended March
31, 2000 and April 2, 1999, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
Consolidated Statement Fiscal 2000 Fiscal 1999
of Operations
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------
Net revenues $43,447 $55,531 $61,319 $44,659 $59,126 $46,762 $31,588 $21,254
Operating income 539 1,682 2,152 961 1,074 993 1,122 89
Net income (loss) 415 855 1,127 1,223 764 583 310 (1,368)
Net income (loss) per
common share - basic $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Net income (loss) per
common share - diluted $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Weighted average shares
outstanding - basic 47,828 47,828 47,828 47,056 51,220 50,037 48,601 47,844
Weighted average shares
outstanding - diluted 55,197 55,916 55,609 52,932 64,253 50,037 59,010 47,844
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Securities Exchange
Commission on or before July 29, 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules:
Page No.
(1) Consolidated Statements of Operations for the years ended
March 31, 2000, April 2, 1999, and April 3, 1998 21
Consolidated Balance Sheets as of March 31, 2000 and April 2,1999 22
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2000, April 2, 1999, and April 3,1998 23
Consolidated Statements of Cash Flows for the years ended 24
March 31, 2000, April 2, 1999 and April 3, 1998
Schedule VIII--Valuation and Qualifying Accounts and Reserves 49
(2) All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
(3) See (c) below.
(b) Reports on Form 8-K - Current report on Form 8-K, dated May 25, 2000,
reporting the settlement of substantially all of the Company's
outstanding litigation.
(c) Exhibits
Exhibit Number
(3)(a) Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3)(b) Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3)(c) Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to Exhibit
(3)(a) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995).
(3)(d) By-Laws of Emerson adopted March 1994 (incorporated by reference
to Exhibit (3)(e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August
9, 1994).
(3)(e) Amendment dated November 28, 1995 to the By-Laws of Emerson
adopted March 1994 (incorporated by reference to Exhibit (3) (b)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(4)(a) Warrant Agreement to Purchase 750,000 shares of Common Stock,
dated as of March 31, 1994 (incorporated by reference to Exhibit
(4)(a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August
9, 1994).
(4)(b) Indenture, dated as of August 17, 1995 between Emerson and Bank
One, Columbus, NA, as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(4)(c) Common Stock Purchase Warrant Agreement to purchase 200,000 shares
of Common Stock, dated as of December 8, 1995 between Emerson
and Kenneth A. Orr (incorporated by reference to Exhibit (10)
(f) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995).
(10)(a) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10)(f) of
Emerson's Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9, 1994).
(10)(b) Amendment No. 1 to Financing Agreements, dated as of August 24,
1995, among Emerson, Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of Emerson's Current
Report on Form 8-K filed with the SEC on September 8, 1995).
(10)(c) Amendment No. 2 to Financing Agreements, dated as of February 13,
1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(10)(d) Amendment No. 3 to Financing Agreements, dated as of August 20,
1996 (incorporated by reference to Exhibit (10)(b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10)(e) Amendment No. 4 to Financing Agreements, dated as of November 14,
1996 (incorporated by reference to Exhibit (10)(c) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
(10)(f) Amendment No. 5 to Financing Agreements, dated as of February 18,
1997 (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10)(g) Stipulation of Settlement and Order dated June 11, 1996 by and
among the Official Liquidator of Fidenas International Bank
Limited, Petra Stelling, Barclays Bank PLC, the Official
Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick,
Fidenas International Limited, L.L.C., Elision International, Inc.,
GSE Multimedia Technologies Corporation and Emerson. (incorporated
by reference to Exhibit 10(ae) of Emerson's Annual Report on Form
10-K for the year ended March 31, 1996.)
(10)(h) Pledge Agreement dated as of February 4, 1997 by Fidenas
International Limited, L.L.C. ("FIN") in favor of TM Capital
Corp. (incorporated by reference to Exhibit (10)(a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).
(10)(i) Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10)(b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10)(j) License and Exclusive Distribution Agreement with Cargil
International Corp. dated as of February 12, 1997 (incorporated
by reference to Exhibit (10)(c) of Emerson's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1996).
(10)(k) Securities Purchase Agreement dated as of November 27, 1996, by
and between Sport Supply Group, Inc. ("SSG") and Emerson
(incorporated by reference to Exhibit (2)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10)(l) Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's
Current Report on Form 8-K dated November 27, 1996).
(10)(m) Form of Registration Rights Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(b) of
Emerson's Current Report on Form 8-K dated November 27, 1996).
(10)(n) Consent No. 1 to Financing Agreements among Emerson, certain of
its subsidiaries, and Congress (incorporated by reference to
Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
(10)(o) Amendment No. 6 to Financing Agreements, dated as of August 14,
1997 (incorporated by reference to Exhibit (10(g) of Emerson's
Quarterly Report on Form 10-Q for quarter ended September 30,
1997).
(10)(p) Amendment No. 7 to Financing Agreements, dated as of March 31,
1998 (incorporated by reference to Exhibit (10)(t) of Emerson's
Annual Report on Form 10-K for the year ended April 3, 1998).
(10)(q) Amendment No. 1 to Pledge and Security Agreement dated as of March
31, 1998 (incorporated by reference to Exhibit (10) (u) of
Emerson's Annual Report on Form 10-K for the year ended April 3,
1998).
(10)(r) Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson (incorporated by reference
to Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the
year ended April 3, 1998).
(10)(s) Amendment No. 8 to Financing Agreements, dated as of November 13,
1998 (incorporated by reference to Exhibit (10)(a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended October 2,
1998).
(10)(t) Third Lease Modification made the 26 day of October, 1998 between
Hartz Mountain Parsippany and Emerson (incorporated by reference
to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended October 2, 1998).
(10)(u) Purchasing Agreement, dated June 30, 1998, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by
reference to Exhibit (10)(c) of Emerson's Quarterly Report on Form
10-Q for the quarter ended October 2, 1998).
(10)(v) Purchasing Agreement, dated March 5, 1999, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by
reference to Exhibit (10)(aa) of Emerson's Annual Report on Form
10-K for the year ended April 2, 1999).
(10)(w) Amendment No. 9 to Financing Agreements, dated June 16, 1999,
(incorporated by reference to Exhibit (10)(ab) of Emerson's Annual
Report on Form 10-K for the year ended April 2, 1999.
(10)(x) Supplemental Letter of Employment for Marino Andriani, dated as of
October 11, 1999, (incorporated by reference to Exhibit (10)(a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
October 1, 1999).
(10)(y) License Agreement dated as of October 29, 1999 by and between
Daewoo Electronics Co. Ltd and Emerson (incorporated by reference
to Exhibit (10)(b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended October 1, 1999).
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of March 31, 2000.*
(23) Consent of Independent Auditors.*
(27) Financial Data Schedule for the fiscal year ended March 31, 2000.*
- -------------------
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: June 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, June 28, 2000
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ John P. Walker Executive Vice President, June 28, 2000
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director June 28, 2000
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director June 28, 2000
Peter G. B(nger
/s/ Jerome H. Farnum Director June 28, 2000
Jerome H. Farnum
/s/ Stephen H. Goodman Director June 28, 2000
Stephen H. Goodman
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C Column D Column E
- ------------------------------------------------------------
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions year (C)
- ------------------------------------------------------------
Allowance for doubtful accounts/chargebacks:
Year ended:
March 31, 2000 $ 2,686 $ (100) $ 139(A) $ 2,447
April 2, 1999 3,015 (152) 177 2,686
April 3, 1998 2,686 666 337 3,015
Inventory reserves:
Year ended:
March 31, 2000 $ 385 $ 708 $ 514(B) $ 579
April 2, 1999 697 1,068 1,380 385
April 3, 1998 2,161 1,507 2,971 697
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they are
not valuation reserves.