SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004 __________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-25226 ____________________________________
DELAWARE 22-3285224
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
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(Address of principal executive offices) (Zip code)
(973) 884-5800
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated Filer (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Indicate the number of shares outstanding of common stock as of January 24, 2005: 27,103,164.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
Three Months Ended Nine Months Ended
----------------------- -----------------------
December December December December
31, 2004 31, 2003 31, 2004 31, 2003
--------- --------- --------- ---------
NET REVENUES $ 94,679 $ 76,345 $ 250,738 $ 209,389
COSTS AND EXPENSES:
Cost of sales 80,108 62,992 204,637 171,381
Other operating costs
and expenses 1,127 1,414 4,057 3,963
Selling, general and
administrative expenses 10,249 10,564 31,183 29,964
Acquisition costs (29) (19) (204) 595
Stock based costs -- 487 1,563 523
--------- --------- --------- ---------
91,455 75,438 241,236 206,426
--------- --------- --------- ---------
OPERATING INCOME 3,224 907 9,502 2,963
Interest expense, net (458) (322) (1,133) (1,144)
Minority interest in net
(income) loss of
consolidated subsidiary 839 (272) (239) (190)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS 3,605 313 8,130 1,629
Provision for income taxes 1,632 653 3,363 1,628
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING 1,973 (340) 4,767 1
OPERATIONS
Income from discontinued
operations, net of tax -- 3,153 -- 3,048
--------- --------- --------- ---------
NET INCOME $ 1,973 $ 2,813 $ 4,767 $ 3,049
========= ========= ========= =========
BASIC NET INCOME (LOSS)
PER SHARE:
Continuing operations $ 0.07 $ (0.01) $ 0.18 $ --
Discontinued operations -- 0.11 -- 0.11
--------- --------- --------- ---------
$ 0.07 $ 0.10 $ 0.18 $ 0.11
========= ========= ========= =========
DILUTED NET INCOME (LOSS)
PER SHARE:
Continuing operations $ 0.07 $ (0.01) $ 0.17 $ --
Discontinued operations -- 0.11 -- 0.11
--------- --------- --------- ---------
$ 0.07 $ 0.10 $ 0.17 $ 0.11
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 27,103 27,189 26,938 27,388
Diluted 27,319 27,189 27,284 28,259
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The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December March 31,
31, 2004 2004
----------- ----------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 2,727 $ 6,369
Cash and cash equivalents - restricted 7,740 2,950
Accounts receivable (less allowances of $4,838 and
$3,653, respectively) 35,052 19,948
Other receivables 2,282 2,821
Inventories 54,314 46,997
Prepaid expenses and other current assets 3,211 2,394
Deferred tax assets 5,113 5,887
--------- ---------
TOTAL CURRENT ASSETS 110,439 87,366
Property and equipment - (net of accumulated depreciation
and amortization of $8,852 and $7,442, respectively) 8,097 7,822
Deferred catalog expenses 1,175 1,695
Trademarks and other intangible assets (net of accumulated
amortization of $4,184 and $3,845, respectively) 5,186 5,168
Deferred tax assets 12,546 15,263
Other assets 1,496 1,355
--------- ---------
TOTAL ASSETS $ 138,939 $ 118,669
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term borrowings $ 109 $ 58
Short-term borrowings 21,987 4,762
Revolver - current 11,300 --
Accounts payable and other current liabilities 30,278 32,787
Accrued sales returns 2,663 2,521
Income taxes payable 352 509
--------- ---------
TOTAL CURRENT LIABILITIES 66,689 40,637
Long-term borrowings 2,681 15,027
Minority interest 16,032 15,793
Shareholders' Equity:
Preferred shares - 10,000,000 shares authorized, 3,677
shares issued and outstanding 3,310 3,310
Common shares - $.01 par value, 75,000,000 shares
authorized; 52,783,131 shares issued and
27,103,164 shares outstanding 528 523
Capital in excess of par value 117,862 116,304
Accumulated other comprehensive losses (88) (83)
Accumulated deficit (44,243) (49,010)
Treasury stock, at cost, 25,679,967 shares (23,832) (23,832)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 53,537 47,212
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 138,939 $ 118,669
========= =========
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The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
-----------------------
December December
31, 2004 31, 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 4,767 $ 1
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest 239 190
Depreciation and amortization 2,249 2,769
Stock based costs 1,563 523
Deferred tax expenses 3,491 3,875
Asset allowances, reserves and other 1,832 628
Changes in assets and liabilities:
Cash and cash equivalents - restricted (4,790) --
Accounts receivable (17,157) (7,580)
Other receivables 539 1,072
Inventories (7,100) 2,367
Prepaid expenses and other current assets (297) 2,341
Other assets (474) (21)
Accounts payable and other current liabilities (2,340) 1,235
Income taxes payable (157) (740)
--------- ---------
Net cash provided (used) by continuing operations (17,635) 6,660
Net cash provided (used) by discontinued operations (27) 469
--------- ---------
Net cash provided (used) by operating activities (17,662) 7,129
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (continuing
operations) (2,210) (323)
Proceeds from sale of discontinued operations -- 10,517
--------- ---------
Net cash provided (used) by investing activities (2,210) 10,194
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 17,701 2,132
Purchase of common stock -- (2,943)
Exercise of stock options and warrants -- (242)
Long-term borrowings 106,669 114,010
Repayments of long-term borrowings (108,140) (134,753)
--------- ---------
Net cash provided (used) by financing activities 16,230 (21,796)
--------- ---------
Net decrease in cash and cash equivalents (3,642) (4,473)
Cash and cash equivalents at beginning of year 6,369 11,413
--------- ---------
Cash and cash equivalents at end of period $ 2,727 $ 6,940
========= =========
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The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Emerson Radio Corp. ("Emerson", consolidated - the "Company") and its majority-owned subsidiaries, including Sport Supply Group, Inc. ("SSG"), which has been 53.2% owned since February 2002. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes; actual results could materially differ from those estimates.
The Company operates in two business segments: consumer electronics and sporting goods. The consumer electronics segment designs, sources, imports and markets a variety of consumer electronic products and licenses the "[EMERSON LOGO ]" trademark for a variety of products domestically and internationally to certain licensees. The sporting goods segment, which is operated through SSG, manufactures and markets sports related equipment and leisure products primarily to institutional customers in the United States.
From July 2003 through November 2003, certain of SSG's team dealer locations were discontinued. In November 2003, SSG sold all of the issued and outstanding capital stock of its wholly-owned subsidiary, Athletic Training Equipment Company, Inc. ("ATEC"). Collectively, SSG refers to these operations as "Discontinued Operations" and accordingly, the accompanying financial statements reflect these as discontinued operations. (See Note 11)
The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of our consolidated financial position as of December 31, 2004 and the results of operations for the three and nine month periods ending December 31, 2004 and 2003. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in our annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2004 ("fiscal 2004"), included in our annual report on Form 10-K for fiscal 2004.
Certain reclassifications were made to conform the prior year's financial statements to the current presentation.
Due to the seasonal nature of both segments, the results of operations for the three and nine month periods ending December 31, 2004 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the full year ending March 31, 2005 ("fiscal 2005").
Emerson and SSG have elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees: ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, if the exercise price of employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Emerson and SSG have adopted the disclosure-only provisions under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). For the purposes of SFAS 123 pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. Our pro forma information for the three and nine months ended December 31, 2004 and 2003 is as follows (in thousands, except for per share amounts):
Three Months Ended Nine Months Ended
December 31 December 31
----------------------- -------------------------
2004 2003 2004 2003
--------- --------- ---------- ----------
(Unaudited) (Unaudited)
Net income:
As reported $ 1,973 $ 2,813 $ 4,767 $ 3,049
Add: Employee stock-based
compensation expense, as recorded, net of tax -- -- 1,247 8
Less: Pro-forma employee
stock-based compensation
expense (86) (10) (219) (17)
--------- --------- --------- ---------
Pro forma $ 1,887 $ 2,803 $ 5,795 $ 3,040
========= ========= ========= =========
Net income per common share:
Basic - as reported $ 0.07 $ 0.10 $ 0.18 $ 0.11
Basic - pro forma $ 0.07 $ 0.10 $ 0.22 $ 0.11
Diluted - as reported $ 0.07 $ 0.10 $ 0.17 $ 0.11
Diluted - pro forma $ 0.07 $ 0.10 $ 0.21 $ 0.11
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NOTE 2 - COMPREHENSIVE INCOME
Our comprehensive income for the three and nine months ended December 31, 2004 and 2003 is as follows (in thousands):
Three Months Ended Nine Months Ended
December 31 December 31
------------------ -------------------
2004 2003 2004 2003
------- ------- ------- -------
(Unaudited) (Unaudited)
Net income $ 1,973 $ 2,813 $ 4,767 $ 3,049
Interest rate swap -- (4) (4) (12)
Unrealized loss on securities, net -- (23) (1) (26)
Recognition of unrealized losses
related to investments
included in net income -- -- -- 42
------- ------- ------- -------
Comprehensive income $ 1,973 $ 2,786 $ 4,762 $ 3,053
======= ======= ======= =======
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NOTE 3 - NET EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
December 31 December 31
------------------------ ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
NUMERATOR:
Net earnings (loss) from continuing
operations for basic and diluted
earnings per share $ 1,973 $ (340) $ 4,767 $ 1
========== ========== ========== ==========
DENOMINATOR:
Denominator for basic earnings
per share - weighted average
shares 27,103 27,189 26,938 27,388
Effect of dilutive securities:
Options and warrants 216 -- 346 871
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share -
weighted average shares and
assumed conversions 27,319 27,189 27,284 28,259
========== ========== ========== ==========
Basic earnings (loss) per share:
Continuing operations $ 0.07 $ (0.01) $ 0.18 $ --
Discontinued operations -- 0.11 -- 0.11
---------- ---------- ---------- ----------
Basic earnings per share $ 0.07 $ 0.10 $ 0.18 $ 0.11
========== ========== ========== ==========
Diluted earnings (loss) per share:
Continuing operations $ 0.07 $ (0.01) $ 0.17 $ --
Discontinued operations -- 0.11 -- 0.11
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.07 $ 0.10 $ 0.17 $ 0.11
========== ========== ========== ==========
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NOTE 4- SHAREHOLDERS' EQUITY
Our outstanding capital stock at December 31, 2004 consisted of common stock and Series A convertible preferred stock in which the conversion feature expired effective March 31, 2002.
At December 31, 2004, Emerson had outstanding approximately 732,000 options with exercise prices ranging from $1.00 to $3.26 and SSG had outstanding approximately 556,000 options with exercise prices ranging from $0.95 to $9.44.
On August 1, 2002, in connection with a consulting agreement, Emerson granted 200,000 warrants with an exercise price of $2.20, of which 100,000 warrants vested after six months and 100,000 warrants vested one year from date of grant. In February 2003, 100,000 of these warrants were exercised. In November 2003, the remaining 100,000 of these warrants were exercised under a cashless exercise and 45,544 shares of common stock were issued. The warrants were valued using the Black-Scholes valuation model and were charged to earnings over the related service period of the consulting agreement with approximately $396,000 and $421,000 being charged to operations for the three and nine months ended December 31, 2003, respectively.
In September 2003, the Company publicly announced the Emerson Radio Corp. common stock repurchase program. The program provides for share repurchase of up to 2,000,000 shares of Emerson's outstanding common stock. As of December 31, 2004, the Company had repurchased 1,111,625 shares under this program. During the quarter ended December 31, 2004, there were no shares repurchased under this program. Repurchase of the Company's shares are subject to certain conditions under Emerson's banking facility.
On October 7, 2003, in connection with a consulting agreement, Emerson granted 50,000 warrants with immediate vesting and an exercise price of $5.00 per share with an expiration date of October 2008. These warrants were valued using the Black-Scholes valuation model, which resulted in $90,500 being charged to earnings during the quarter ended December 31, 2003. For the three and nine months ended December 31, 2004, no expense was charged to operations for these warrants. As of December 31, 2004, these warrants had not been exercised.
On August 1, 2004, in connection with a consulting agreement, Emerson granted 50,000 warrants with immediate vesting and an exercise price of $3.00 per share with an expiration date of August 2009. These warrants were valued using the Black-Scholes valuation model, which resulted in $88,500 being charged to earnings during the quarter ended September 30, 2004 and the nine month period ended December 31, 2004. As of December 31, 2004, these warrants had not been exercised.
During the quarter ended September 30, 2004, 725,000 of Emerson's stock options were exercised in a cashless manner, resulting in 472,781 shares of Emerson's common stock being issued. Such exercises were accounted for in accordance with Emerging Issues Task Force Issue 84-18: Stock Option Pyramiding (EITF 84-18), which resulted in a non-cash, pre-tax charge of approximately $1.5 million in the quarter ended September 30, 2004 and the nine month period ended December 31, 2004.
NOTE 5 - INVENTORY
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for the consumer electronics segment and the average cost method is used for the sporting goods segment. As of December 31, 2004 and March 31, 2004, inventories consisted of the following (in thousands):
December March 31,
31, 2004 2004
-------- --------
(Unaudited)
Raw materials $ 1,305 $ 1,138
Work-in-process 41 67
Finished goods 55,682 48,878
-------- --------
57,028 50,083
Less inventory allowances (2,714) (3,086)
-------- --------
$ 54,314 $ 46,997
======== ========
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NOTE 6 - INCOME TAXES
We have tax net operating loss carry forwards included in net deferred tax assets that are available to offset future taxable income and can be carried forward for 15 to 20 years. Although realization is not assured, we believe it is more likely than not that all of the net deferred tax assets will be realized through tax planning strategies available in future periods and through future profitable operating results. The amount of the deferred tax assets considered realizable, however, could be reduced or eliminated if certain tax planning strategies are not successfully executed or estimates of future taxable income during the carryforward period are reduced. If we determine that we would not be able to realize all or part of the net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.
NOTE 7 - RELATED PARTY TRANSACTIONS
Effective March 1997, Emerson entered into a Management Services Agreement with SSG, under which each company provides various managerial and administrative services to the other company for fees at terms which reflect arms length transactions. These charges have been eliminated in consolidation, but are included in the determination of net income in the segment information presented in Note 9.
NOTE 8 - BORROWINGS
As of December 31, 2004 and March 31, 2004, short-term borrowings consisted of the following (in thousands):
December 31, March 31,
2004 2004
------------ ------------
(Unaudited)
Foreign bank loans $ 21,987 $ 4,762
=========== ============
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As of December 31, 2004 Emerson's foreign subsidiaries had four letter of credit facilities totaling $30.0 million which are used for inventory purchases. In order to maintain the availability of these facilities $7.7 million in short term certificates of deposit has been pledged as collateral, and is presented as restricted cash on the accompanying balance sheet as of December 31, 2004.
As of December 31, 2004 and March 31, 2004, borrowings under long-term facilities consisted of the following (in thousands):
December 31, March 31,
2004 2004
------------ -----------
(Unaudited)
Emerson Revolver $ 11,300 $ 8,000
Sport Supply Revolver 2,000 6,972
Mortgage Payable 732 --
Equipment notes and other 58 113
---------- ----------
14,090 15,085
Less Emerson Revolver - current (11,300) --
Less current maturities (109) (58)
---------- ----------
Long term debt and notes payable $ 2,681 $ 15,027
========== ==========
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Emerson Credit Facility - On June 28, 2002, Emerson entered into a $40 million Revolving Credit and Term Loan Agreement (the "Emerson Loan Agreement") with several U.S. financial institutions. The Emerson Loan Agreement provides for a $25 million revolving line of credit (the "Emerson Revolver"). The Emerson Loan Agreement also provided for a $15 million term loan, which was repaid in full in fiscal 2004. The $25 million revolving line of credit replaced Emerson's $15 million senior secured facility and provides for revolving loans, subject to individual maximums which, in the aggregate, are not to exceed the lesser of $25 million or a "Borrowing Base" as defined in the Emerson Loan Agreement. The Borrowing Base amount is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime plus 0.50% to 1.25% or, at Emerson's election, LIBOR plus 2.00% to 2.75% depending on certain financial covenants. The interest rate charged on the Term Loan ranged from prime plus 1.00% to 1.75% or, at Emerson's election, LIBOR plus 2.5% and 3.25% depending on certain financial covenants and amortized over a three-year period. Pursuant to the Emerson Loan Agreement, Emerson is restricted from, among other things, paying certain cash dividends, repurchasing Emerson's common stock and entering into certain transactions without the lender's prior consent and is subject to certain net worth and leverage financial covenants. Amounts outstanding under the Emerson Loan Agreement are secured by substantially all of Emerson's tangible assets.
As of December 31, 2004, there was approximately $11.3 million outstanding under the Emerson Revolver and Emerson was in compliance with the covenants contained in the Emerson Loan Agreement. The Emerson Revolver expires in June 2005, and accordingly, all amounts outstanding under this facility have been presented as a current liability. Prior to expiration, Emerson intends to renew its banking facility or enter into a new banking facility with similar or more favorable terms than those presently existing.
Sport Supply Credit Facility - During the quarter ended December 31, 2003, SSG amended its Loan and Security Agreement (the "SSG Loan Agreement") to finance its working capital requirements through October 31, 2007. Under this amendment, SSG's line of credit was reduced from $25 million to $20 million; its borrowing rates were reduced from LIBOR plus 2.5% to LIBOR plus 2.25%; and its inventory and accounts receivable borrowing bases were increased. The SSG Loan Agreement provides for revolving loans and letters of credit which, in the aggregate, cannot exceed the lesser of $20 million or a "Borrowing Base" amount based upon specified percentages of eligible accounts receivable and inventories. Amounts outstanding under the SSG Loan Agreement are secured by substantially all of the assets of SSG and its subsidiaries. Pursuant to the SSG Loan Agreement, SSG is restricted from, among other things, paying cash dividends and entering into certain transactions without the lender's prior consent and it is required to maintain certain net worth levels.
The SSG Loan Agreement allows its lender, under certain circumstances, to accelerate payment upon the occurrence of an event that has a material adverse affect upon the business, operations, properties, assets, goodwill, or condition (financial or otherwise) of SSG on a consolidated basis. Effective February 2004, SSG's lender amended the SSG Loan Agreement to make this clause effective only in the event that net availability under the facility falls below a certain level. Additionally, the SSG Loan Agreement requires SSG to maintain a depository account in favor of SSG's lender. As of December 31, 2004, there was approximately $2.0 million outstanding under the SSG Loan Agreement and SSG was in compliance with the covenants in the SSG Loan Agreement.
As of December 31, 2004, the carrying value of these credit facilities approximated fair value.
NOTE 9 - SEGMENT INFORMATION
The following table presents certain operating segment information for each of the three and nine months ended December 31, 2004 and 2003 (in thousands):
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
------------------------------------ ---------------------------------
Consumer Sporting Consumer Sporting
Electronics Goods Electronics Goods
----------------- ------------------ ---------------- ----------------
(Unaudited) (Unaudited)
Net revenues from
external customers $ 80,345 $ 14,334 $ 61,632 $ 14,713
Income (loss) before
income taxes and
discontinued operations $ 5,458 $ (1,853) $ 2,944 $ (2,631)
Segment assets $ 101,607 $ 37,332 $ 70,260 $ 45,042
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Nine Months Ended Nine Months Ended
December 31, 2004 December 31, 2003
----------------------------------- ------------------------------------
Consumer Sporting Consumer Sporting
Electronics Goods Electronics Goods
----------------- ----------------- ----------------- ------------------
(Unaudited) (Unaudited)
Net revenues from
external customers $ 188,051 $ 62,687 $ 149,722 $ 59,667
Income (loss) before
income taxes and
discontinued operations $ 7,796 $ 334 $ 4,448 $ (2,819)
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NOTE 10 - LEGAL PROCEEDINGS
Putative Class Actions
Between September 4, 2003 and October 30, 2003, several putative class action lawsuits were filed in the United States District Court for the District of New Jersey against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby and John Raab (the "Individual Defendants") on behalf of purchasers of Emerson's publicly traded securities between January 29, 2003 and August 12, 2003 (the "Class Period.") On December 17, 2003, the Court entered a Joint Stipulation and Order consolidating these putative class actions under the caption In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the "Consolidated Action.") Further to that Stipulation and Order, lead plaintiff was appointed and co-lead counsel and co-liaison counsel were approved by the Court in the Consolidated Action. Consistent with the Stipulation and Order, the plaintiffs filed an Amended Consolidated Complaint (the "Amended Complaint") that, among other things, added Jerome Farnum, one of Emerson's directors, as an individual defendant in the litigation.
Generally, the Amended Complaint alleges that Emerson and the Individual Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated there under, by (i) issuing certain positive statements during the Class Period regarding our ability to replace lost revenues attributable to the Hello Kitty(R) license and (ii) omitting to disclose that Emerson suffered allegedly soured relationships with its largest retail customers. The Amended Complaint further alleges that these statements were materially false and misleading when made because Emerson allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading. Emerson and the Individual Defendants deny all allegations and have moved to dismiss the Complaint in its entirety for failure to state a claim. The motion to dismiss was timely briefed and was submitted to the Court on October 15, 2004. The Court's decision on the motion is pending. Emerson and the Individual Defendants intend to defend the lawsuit vigorously.
Other Matters
The Company is a party to various other litigation matters, in most cases involving ordinary and routine claims incidental to its business. The Company cannot estimate with certainty its ultimate legal and financial liability with respect to such pending litigation matters. However, the Company believes, based on its examination of such matters, that its ultimate liability will not have a material adverse effect on its financial position, results of operations or cash flows.
NOTE 11 - DISCONTINUED OPERATIONS
From July 2003 through November 2003, certain of SSG's team dealer locations were closed. In November 2003, SSG sold all of the issued and outstanding capital stock of its wholly owned subsidiary, ATEC. These closures and sale of stock, and related discontinued operations resulted in income of approximately $3.2 million and $3.0 million for the three and nine months ended December 31, 2003, respectively. The results of these transactions are presented as discontinued operations in the accompanying Consolidated Statement of Operations for the three and nine month periods ended December 31, 2003. (See Note 1)
The following table summarizes the results of these discontinued operations, net of related income taxes, as applicable (in thousands). (See Note 6)
Three Months Ended Nine Months Ended
December 31 December 31
----------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net revenues-ATEC $ -- $ 1,533 $ -- $ 6,184
Net revenues-Team Dealers -- 369 -- 3,043
-------- -------- -------- --------
Net revenues-Total $ -- $ 1,902 $ -- $ 9,227
======== ======== ======== ========
Income from operations-ATEC $ -- 182 $ -- 477
Income (loss) from
operations-Team Dealers -- 48 -- (352)
Loss on sale of Team Dealers net (829) (829)
Gain on sale of ATEC 3,752 3,752
-------- -------- -------- --------
Total discontinued
operations, net of tax $ -- $ 3,153 $ -- $ 3,048
======== ======== ======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operation is presented in three parts: consolidated operations, the consumer electronics segment and the sporting goods segment.
The following discussion of our operations and financial condition should be read in conjunction the Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. Accordingly, all amounts are approximations.
FORWARD-LOOKING INFORMATION
This report contains various forward-looking statements made pursuant to the safe harbor provisions 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. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. When used in this report, the words "anticipate", "believe", "estimate", "expect", "predict", "project", and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date hereof, and should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the statements under "Risk Factors" set forth in our Form 10-K for the fiscal year ended March 31, 2004 and other filings with the Securities and Exchange Commission (the "SEC"). We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
We make available through our internet website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by us with the SEC, as soon as practicable after we electronically file such reports and filings with the SEC. Our website address is www.emersonradio.com. The information contained in this website is not incorporated by reference in this report.
CONSOLIDATED OPERATIONS:
The following table sets forth, for the periods indicated, certain items related to our consolidated statements of operations as a percentage of net revenues for the three and nine months ended December 31, 2004 and 2003. A detailed discussion of the material changes in operating results is set forth under the discussion of our two operating segments: consumer electronics and sporting goods.
Three Months Ended Nine Months Ended
December 31 December 31
------------------------------ -----------------------------
2004 2003 2004 2003
------------ ------------- ------------- ------------
(Unaudited) (Unaudited)
Net revenues (in thousands) $ 94,679 $ 76,345 $ 250,738 $ 209,389
100.0% 100.0% 100.0% 100.0%
Cost of sales 84.6% 82.5% 81.6% 81.9%
Other operating costs and
expenses 1.2% 1.9% 1.6% 1.9%
Selling, general and
administrative expenses 10.8% 13.8% 12.4% 14.3%
Acquisition costs --% --% --% 0.3%
Stock based costs --% 0.6% 0.6% 0.2%
----------- ------------ ------------ -----------
Operating income 3.4% 1.2% 3.8% 1.4%
Interest expense 0.5% 0.4% 0.5% 0.5%
Minority interest 0.9% (0.4)% (0.1)% (0.1)%
Provision for income taxes 1.7% 0.8% 1.3% 0.8%
Income from discontinued
operations --% 4.1% --% 1.5%
----------- ------------ ------------ ------------
Net income 2.1% 3.7% 1.9% 1.5%
=========== ============ ============ ============
|
Net Revenues - Consolidated net revenues for the three and nine month periods ended December 31, 2004 increased to $94.6 million from $76.3 million ($18.3 million or 24.0%) and to $250.7 million from $209.4 million ($41.3 million or 19.7%) respectively, as compared to the same periods ended December 31, 2003. The increase for the three month period ended December 31, 2004 is attributable to increases of $18.7 million in the consumer electronics segment offset by a decrease of approximately $0.4 million in the sporting goods segment. The increase for the nine month period ended December 31, 2004 is attributable to increases of $38.3 million in the consumer electronics segment and $3.0 million in the sporting goods segment. Increases in both segments for the three and nine month periods were due primarily to increases in units sold, and to a lesser degree, higher pricing agreements.
Cost of Sales - Cost of sales, as a percentage of consolidated net revenues, increased to 84.6% from 82.5% and decreased to 81.6% from 81.9% for the three and nine month periods ended December 31, 2004, respectively, as compared to the same periods in the prior year. The increase in cost of sales as a percentage of net revenues for the three months ended December 31, 2004 was primarily the result of decreased licensing revenues and lower margin sales in the consumer electronics segment partially offset by higher margin sales in the sporting goods segment. For the nine months ended December 31, 2004 the decrease in costs of sales on a relative basis was due to higher licensing revenues in the consumer electronic segment as well as higher margins in both the consumer electronic and sporting goods segments. In absolute terms, cost of sales increased to $80.1 million from $63.0 million ($17.1 million or 27.2%) and to $204.6 million from $171.4 million ($33.2 million or 19.4%) for the three and nine month periods of fiscal 2005 as compared to the same periods in fiscal 2004. The increases for both periods were primarily due to higher sales volumes.
Other Operating Costs and Expenses - Other operating costs and expenses are associated with the consumer electronics segment. As a percentage of consolidated net revenues, other operating costs and expenses decreased to 1.2% from 1.9% for the three months ended December 31, 2004 as compared to the same period in the prior year, and decreased to 1.6% from 1.9% for the nine month period ended December 31, 2004 as compared to the same period in fiscal 2004. In absolute terms, other operating costs and expenses decreased to $1.1 million from $1.4 million ($0.3 million or 20.3%) and increased to $4.1 million from $4.0 million ($0.1 million or 2.4%) for the three and nine month periods of fiscal 2005 as compared to the same periods in fiscal 2004. These decreases were primarily due to lower returned product servicing costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage of consolidated net revenues, decreased to 10.8% for the three months ended December 31, 2004 as compared to 13.8% for the three months ended December 31, 2003, and decreased to 12.4% from 14.3% for the nine month period ended December 31, 2004 as compared to the same period in fiscal 2004. In absolute terms, S,G&A expenses decreased to $10.3 million from $10.6 million ($0.3 million or 3.0%) for the three month period ended December 31, 2004 as compared to the same period in fiscal 2004, and increased to $31.2 million from $30.0 million ($1.2 million or 4.1%) for the nine month period ended December 31, 2004 as compared to the prior year period. The decrease for the three month period was due to the sporting goods segment, partially offset by increases in the consumer electronics segment. For the nine month period, the increase was due to a $2.0 million increase in the consumer electronics segment, offset by a decrease of $0.8 million in the sporting goods segment.
Acquisition Costs - Acquisition costs are associated with the consumer electronics segment. For the three and nine month periods ended December 31, 2004, adjustments to acquisition costs incurred in the prior year were recorded in fiscal 2005, resulting in a reduction in such costs of $29,000 and $204,000, respectively. For the three month period ended December 31, 2003, there was a reduction to acquisition costs of $19,000, and for the nine month period ended December 31, 2003, acquisition costs totaled $595,000, or 0.3% of consolidated net revenues.
Stock Based Costs - Stock based costs are associated with the consumer electronics segment and relate to the cost of warrants associated with consulting service agreements and stock options exercised in a cashless manner (See Note 4 to accompanying financial statements). In absolute terms, stock based costs were approximately $1.6 million for the nine month period ended December 31, 2004, as compared to $523,000 for the same period in the prior year. For the three month period ended December 31, 2004 there were no costs as compared to $487,000 for the three months ended December 31, 2003.
Interest Expense, Net - Interest expense increased $136,000 to $458,000 (0.5% of net revenues) from $322,000 (0.4% of net revenues) for the three months ended December 31, 2004 as compared to the same period in fiscal 2004. For the nine months ended December 31, 2004, interest expense remained relatively unchanged at $1.1 million (0.5% of net revenues) from the same period in fiscal 2004. The increase in interest expense for the three month period ended December 31, 2004 was primarily the result of higher average borrowings and borrowing costs in the consumer electronics segment.
Minority Interest in Net (Income) Loss of Consolidated Subsidiary - Minority interest in net (income) loss of consolidated subsidiary represents that portion of the sporting goods segment net (income) loss for the three and nine month periods ended December 31, 2004 and 2003 that was attributable to SSG shareholders other than Emerson, and therefore not included in the consolidated statements of operations. (See Note 1)
Provision for Income Taxes - The provision for income taxes increased $979,000, to $1.6 million for the three months ended December 31, 2004 from approximately $653,000 for the three months ended December 31, 2003. For the nine months ended December 31, 2004, the provision for income taxes increased $1.7 million to $3.4 million as compared to approximately $1.6 million for the nine months ended December 31, 2003. The increase in the provision for income taxes for the nine months ended December 31, 2004 was primarily due to an increase in pre-tax profit in the consumer electronics segment.
Income from Discontinued Operations - From July 2003 through November 2003, SSG ceased operating several of its Team Dealer locations. In November 2003, SSG sold all of the issued and outstanding shares of capital stock of its wholly owned subsidiary - ATEC. There were no amounts recorded for these operations (the "discontinued operations") for the three and nine month periods ended December 31, 2004 as compared to income of approximately $3.2 million and $3.0 million for the three and nine month periods ended December 31, 2003, respectively.
Net Income - As a result of the foregoing factors, we earned net income of approximately $2.0 million (2.1% of net revenues) and approximately $4.8 million (1.9% of net revenues) for the three and nine months ended December 31, 2004 as compared to $2.8 million (3.7% of net revenues) and $3.0 million (1.5% of net revenues) for the same periods in fiscal 2004.
CONSUMER ELECTRONICS SEGMENT:
The following table summarizes certain financial information relating to the consumer electronics segment for the three and nine month periods ended December 31, 2004 and 2003 (in thousands):
Three Months Ended December 31 Nine Months Ended December 31
------------------------------ -----------------------------
2004 2003 2004 2003
------------ -------------- ------------- --------------
(Unaudited) (Unaudited)
Net revenues $ 80,345 $ 61,632 $ 188,051 $ 149,722
Cost of sales 69,607 52,027 160,010 127,696
Other operating costs 1,127 1,414 4,057 3,963
Selling, general and
administrative costs 4,621 4,300 13,626 11,572
Acquisition costs (29) (19) (204) 595
Stock based costs -- 487 1,563 523
----------- ------------ ----------- -----------
Operating income 5,019 3,423 8,999 5,373
Interest expense, net 400 207 964 735
----------- ------------ ----------- -----------
Income before
income taxes 4,619 3,216 8,035 4,638
Provision for
income taxes 1,632 653 3,363 1,628
----------- ------------ ----------- -----------
Net income $ 2,987 $ 2,563 $ 4,672 $ 3,010
=========== ============ =========== ===========
|
Net Revenues - Consumer electronics net revenues for the three months ended December 31, 2004 increased $18.7 million, or 30.4%, to $80.3 million from $61.6 million for the three months ended December 31, 2003. For the nine months ended December 31, 2004, net revenues increased $38.3 million, or 25.6%, to $188.0 million from $149.7 million for the nine months ended December 31, 2003. Consumer electronics net revenues are comprised of Emerson(R) branded product sales, themed product sales and licensing revenues. Emerson(R) branded product sales are earned from the sale of products bearing the Emerson(R) or HH Scott(R) brand name; themed product sales represent products sold bearing a certain theme or character; and licensing revenues are derived from licensing the Emerson(R) and HH Scott(R) brand names to licensees for a fee. The increase in net revenues for the three and nine month periods was comprised of:
i) An increase in revenues from the sale of Emerson(R) branded product of $13.8 million, or 25.5%, to $68.0 million from $54.2 million for the three months ended December 31, 2004 as compared to the same period in fiscal 2004. Revenues for the nine months ended December 31, 2004 of Emerson(R) branded product increased $34.1 million, or 25.9%, to $165.5 million from $131.4 million for the same period in fiscal 2004. These revenue increases were primarily due to increased orders from primary customers and the expansion of our customer base.
ii) An increase in themed product sales to $9.9 million and $13.4 million from $4.5 million and $10.2 million for the three and nine months ended December 31, 2004 and December 31, 2003, respectively. These increases were primarily due to the continued increase in sales of Nickelodeon(R) themed products.
iii) Licensing revenues decreased by approximately $529,000, or 18.1% to approximately $2.4 million for the third quarter of fiscal 2005 from $2.9 million in the third quarter of fiscal 2004, which was primarily due to the timing of sales between the September and December 2004 quarters by the licensees. For the nine month period ended December 31, 2004, licensing revenues increased by approximately $969,000, or 11.9%, to $9.1 million as compared to $8.1 in the same period of fiscal 2004, primarily due to increased video sales volume.
Cost of Sales - Cost of sales, as a percentage of consumer electronics net revenues, increased for the three months ended December 31, 2004 to 86.7% from 84.4% for the three months ended December 31, 2003. For the nine months ended December 31, 2004 cost of sales decreased to 85.1% from 85.3% for the nine months ended December 31, 2003. In relative terms, the increase in cost of sales for the three month period was primarily due to decreased licensing revenues and lower margin sales. For the nine months ended December 31, 2004 the decrease in cost of sales was primarily due to an increase in licensing revenue as well as higher margin sales. Higher margins for the nine months were also partially due to a continuing shift in sales from our direct import to our domestic business. In absolute terms, cost of sales for the three months ended December 31, 2004 increased $17.6 million, or 33.8%, to $69.6 million from $52.0 million for the three months ended December 31, 2003. For the nine months ended December 31, 2004, cost of sales increased $32.3 million, or 25.3%, to $160.0 million from $127.7 million for the nine months ended December 31, 2003.
Gross profit margins continue to be subject to competitive pressures arising from lower pricing of the product categories in the consumer electronics market in which Emerson competes. Emerson's branded products are generally placed in the low-to-medium priced category of the market.
Other Operating Costs and Expenses - Other operating costs and expenses, as a percentage of consumer electronics net revenues, decreased to 1.4% from 2.3% for the three month period ended December 31, 2004 and December 31, 2003, respectively, and decreased to 2.2% for the nine month period of fiscal 2005 compared to 2.6% for the same period in fiscal 2004. In absolute terms, other operating costs and expenses decreased to $1.1 million from $1.4 million ($287,000 or 20.3%) and increased to $4.1 million from $4.0 million ($94,000 or 2.4%) for the three and nine month periods ended December 31, 2004 and December 31, 2003, respectively. The decrease for the three and nine month periods was primarily due to a decrease in returned product servicing costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, increased
approximately $321,000 or 7.5%, to $4.6 million (5.7% of the consumer
electronics net revenues) from $4.3 million (7.0% of the consumer electronics
net revenues) for the three months ended December 31, 2004 as compared to the
three months ended December 31, 2003. For the nine months ended December 31,
2004, S,G&A expenses increased $2.0 million, or 17.8%, to $13.6 million (7.2% of
the consumer electronics net revenues) from $11.6 million (7.7% of the consumer
electronics net revenues). The increase in absolute terms for the three months
ended December 31, 2004, was primarily due to increased advertising, payroll
related costs and freight expenditures of approximately $185,000, $125,000 and
$445,000, respectively, partially offset by a decrease of $212,000 in
professional fees as well as decreases in various other S,G&A costs. The
increase in absolute terms for the nine months ended December 31, 2004,
primarily resulted from: (i) advertising and promotional expenses of
approximately $770,000; (ii) payroll related costs of approximately $335,000;
(iii) sales commission expenses of approximately $295,000; and (iv) freight
costs of approximately $812,000, partially offset by decreases in other S,G&A
costs.
Acquisition Costs - For the three and nine month periods ended December 31, 2004, adjustments to acquisition costs incurred in the prior year were recorded in fiscal 2005, resulting in a reduction in such costs of $29,000 and $204,000, respectively. For the three month period ended December 31, 2003, there was a reduction to acquisition costs of $19,000, and for the nine month period ended December 31, 2003, acquisition costs totaled $595,000, or 0.4% of consumer electronics net revenues. These costs were associated with contemplated acquisition transactions in fiscal 2004 that were not completed.
Stock Based Costs - Stock based costs relate to the cost of warrants issued in exchange for consulting services and, in the second quarter of fiscal 2005, to stock options exercised in a cashless manner (See Note 4 to accompanying financial statements).
Interest Expense, net - Interest expense increased $193,000, or 93.2%, to $400,000 for the three months ended December 31, 2004, from $207,000 for the three months ended December 31, 2003. For the nine months ended December 31, 2004, interest expense increased $229,000, or 31.2%, to $964,000 from $735,000 for the same period ended December 31, 2003. The increases in interest expense for the three and nine month periods were the result of higher average borrowings and higher borrowing costs. The higher average borrowings were used for increased inventory in preparation for the traditionally higher demand holiday season, and increasing inventory balances resulting from the continuing shift from our direct import to our domestic business.
Provision for Income Taxes - The provision for income taxes was approximately $1.6 million and $3.4 million for the three and nine months ended December 31, 2004, respectively, as compared to $653,000 and $1.6 million for the three and nine month periods ended December 31, 2003. The increase in the provision for both the three and nine month periods ended December 31, 2004 was primarily the result of higher pre-tax profit as compared to the same periods in fiscal 2004.
Net Income - As a result of the foregoing factors, the consumer electronics segment earned net income of $3.0 million (3.7% of net revenues) for the three months ended December 31, 2004 as compared to $2.6 million (4.2% of net revenues) for the three months ended December 31, 2003. For the nine months ended December 31, 2004 the consumer electronics segment earned $4.7 million (2.5% of net revenues) as compared to $3.0 million (2.0% of net revenues) for the nine months ended December 31, 2003.
SPORTING GOODS SEGMENT:
The following table summarizes certain financial information relating to the sporting goods segment as reported by SSG for the three and nine months ended December 31, 2004 and 2003 (in thousands):
Three Months Ended Nine Months Ended
December 31 December 31
------------------------------- -----------------------------
2004 2003 2004 2003
-------------- ------------ ------------- ------------
(Unaudited (Unaudited)
Net revenues $ 14,334 $ 14,713 $ 62,687 $ 59,667
Cost of sales 10,501 10,965 44,627 43,685
Selling, general and
administrative 5,628 6,264 17,557 18,392
------------ ----------- ----------- -----------
Operating income (loss) (1,795) (2,516) 503 (2,410)
Interest expense, net 58 115 169 409
----------- ----------- ----------- -----------
Income (loss) before
income taxes and
discontinued operations (1,853) (2,631) 334 (2,819)
Provision for
income taxes -- -- -- --
Income from discontinued
operations -- 3,153 -- 3,048
----------- ----------- ----------- -----------
Net income (loss) $ (1,853) $ 522 $ 334 $ 229
=========== =========== =========== ===========
|
Net Revenues - Net revenues decreased $379,000, or 2.6%, to $14.3 million from $14.7 million and increased $3.0 million, or 5.1%, to $62.7 million from $59.7 million for the three and nine month periods ended December 31, 2004 and December 31, 2003, respectively. The three month decrease in net revenues was primarily due to fewer shipping days as compared to the same period of fiscal 2004, while the increase for the nine month period was primarily the result of higher sales resulting from our increased marketing and selling efforts in a very competitive marketplace, and the resulting increases in unit volume.
Cost of Sales - Cost of sales decreased by approximately $464,000 (4.2%) and increased $942,000 (2.2%) for the three and nine month periods ended December 31, 2004 as compared to same periods in the prior fiscal year. As a percentage of sporting goods net revenues, cost of sales decreased to 73.3% from 74.5%, and to 71.2% from 73.2% for the three and nine month periods ended December 31, 2004 as compared to the same periods in the prior fiscal year. The improvements in cost of sales as a percentage of net revenues in both periods were the result of improved product margins.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A decreased approximately $636,000 (10.2%) and $835,000 (4.5%) for the three and nine month periods ended December 31, 2004, respectively. As a percentage of sporting goods net revenues, SG&A decreased to 39.3% from 42.6% and to 28.0% from 30.8% for the three and nine month periods ended December 31, 2004 as compared to the same periods of fiscal 2004. The decrease in SG&A expenses for the three month period was primarily due to decreases of approximately $299,000 in legal fees, $75,000 in staff related costs, $75,000 in facility expenses, $59,000 in insurance costs and $128,000 in other operating expenses. For the nine month period, the decrease in SG&A expenses was primarily due to decreases of approximately $309,000 in legal fees, $231,000 in facility expenses, $103,000 in license and royalty expenses, $110,000 in staff related costs and $80,000 in other operating expenses.
Interest Expense, net - Interest expense decreased $57,000 and $240,000 for the three and nine month periods ended December 31, 2004 and 2003, respectively. The cash received from the sale of SSG's ATEC subsidiary in November 2003 resulted in a reduction of SSG's debt and reduced interest expense.
Provision for Income Taxes - For the three and nine month periods ended December 31, 2004, SSG recorded no income tax provision due to the existence of prior net operating losses to offset current income, and no change in management's estimate of the extent to which deferred tax assets are realizable. (See Note 6)
Income from Discontinued Operations - For the three and nine month periods ended December 31, 2003, discontinued operations reflect net operating losses or gains as well as the proceeds related to the sale of certain Team Dealer operations and of SSG's ATEC subsidiary. (See Note 11)
Net Income (Loss) - As a result of the foregoing factors, the sporting goods segment generated a net loss of approximately $1.9 million for the three months ended December 31, 2004 as compared to net income of $522,000 for the three months ended December 31, 2003. For the nine months ended December 31, 2004 the sporting goods segment earned net income of $334,000, or 0.5% of net revenues, as compared to net income of $229,000, or 0.4% of net revenues, for the nine months ended December 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, we had cash and cash equivalents of approximately $2.7 million compared to approximately $6.4 million at March 31, 2004. Working capital decreased to $43.8 million at December 31, 2004 as compared to $46.8 million at March 31, 2004. The decrease in cash and cash equivalents of approximately $3.7 million was primarily due to increases in cash used by operating and investing activities, partially offset by increases in cash provided by financing activities, as described below.
Cash flows used in continuing operating activities were approximately $17.6 million for the nine months ended December 31, 2004, primarily related to increases in accounts receivable and inventories due to the higher level of sales in the current fiscal year, and the continuing shift from the direct import to domestic business.
Net cash used by investing activities was approximately $2.2 million for the nine months ended December 31, 2004, which consisted of acquisition of real property, trademark investments, and machinery and office equipment purchases.
Net cash provided from financing activities was approximately $16.2 million for the nine months ended December 31, 2004, due primarily to the net increase in working capital needs described above.
Emerson and SSG maintain credit facilities as described in Note 8 to our consolidated financial statements - Borrowings. At December 31, 2004, there were approximately $13.3 million of borrowings outstanding under these facilities and no letters of credit outstanding. Approximately $11.3 million of borrowings were outstanding under the Emerson Loan Agreement and $2.0 million of borrowings were outstanding under the SSG Loan Agreement. At December 31, 2004, Emerson and SSG were in compliance with the covenants in each of the loan agreements. The Emerson Revolver expires in June 2005, and accordingly, all amounts outstanding under this facility have been presented as a current liability. Emerson intends to renew its banking facility or enter into a new banking facility with similar or more favorable terms than those presently existing.
Our foreign subsidiaries maintain various credit facilities, aggregating $85.0 million, consisting of the following:
o four letter of credit facilities totaling $30.0 million which is used for inventory purchases; and
o five back-to-back letter of credit facilities totaling $55 million.
At December 31, 2004, our foreign subsidiaries pledged approximately $7.7 million in certificates of deposit to these banks to assure the availability of the $30.0 million of credit facilities. At December 31, 2004, there were approximately $7.4 million of letters of credit outstanding under these credit facilities. These letter of credit facilities require the foreign subsidiary to meet a net worth covenant which was complied with at December 31, 2004.
At present, we believe that future cash flows from operations and our existing institutional financing noted above will be sufficient to fund all of our cash requirements for the next twelve months.
The following summarizes our obligations at December 31, 2004 for the periods shown (in thousands):
PAYMENT DUE BY PERIOD
---------------------------------------------------------------------
LESS THAN 1 MORE THAN 5
TOTAL YEAR 1 - 3 YEARS 3 - 5 YEARS YEARS
------------ ------------- ------------- -------------- -------------
Notes and
mortgages payable $ 14,033 $ 11,374 $ 148 $ 2,147 $ 364
Capital lease
obligations 57 35 22 -- --
Leases 8,330 1,804 4,204 2,002 320
------------ ------------- ------------- -------------- -------------
Total $ 22,420 $ 13,213 $ 4,374 $ 4,149 $ 684
============ ============= ============= ============== =============
|
There were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product as of December 31, 2004.
CRITICAL ACCOUNTING POLICIES
For the nine month period ended December 31, 2004, there were no significant changes to our accounting policies from those reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2004.
INFLATION, FOREIGN CURRENCY, AND INTEREST RATES
Neither inflation nor currency fluctuations had a significant effect on our results of operations during the first three quarters of fiscal 2005. Our 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 consumer electronics segment purchases virtually all of its products from manufacturers located in various Asian countries.
The interest on borrowings under our credit facilities is based on the prime and LIBOR rates. Given the present economic climate, interest rates, while expected to continue to rise, are not expected to increase significantly during the coming year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes from items disclosed in Form 10-K for the fiscal year ended March 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting.
There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Putative Class Actions
Between September 4, 2003 and October 30, 2003, several putative class action lawsuits were filed in the United States District Court for the District of New Jersey against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby and John Raab (the "Individual Defendants") on behalf of purchasers of Emerson's publicly traded securities between January 29, 2003 and August 12, 2003 (the "Class Period") On December 17, 2003, the Court entered a Joint Stipulation and Order consolidating these putative class actions under the caption In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the "Consolidated Action.") Further to that Stipulation and Order, lead plaintiff was appointed and co-lead counsel and co-liaison counsel were approved by the Court in the Consolidated Action. Consistent with the Stipulation and Order, the plaintiffs filed an Amended Consolidated Complaint (the "Amended Complaint") that, among other things, added Jerome Farnum, one of Emerson's directors, as an individual defendant in the litigation.
Generally, the Amended Complaint alleges that Emerson and the Individual Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated there under, by (i) issuing certain positive statements during the Class Period regarding our ability to replace lost revenues attributable to the Hello Kitty(R) license and (ii) omitting to disclose that Emerson suffered allegedly soured relationships with its largest retail customers. The Amended Complaint further alleges that these statements were materially false and misleading when made because Emerson allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading. Emerson and the Individual Defendants deny all allegations and have moved to dismiss the Complaint in its entirety for failure to state a claim. The motion to dismiss was timely briefed and was submitted to the Court on October 15, 2004. The Court's decision on this motion is pending. Emerson and the Individual Defendants intend to defend the lawsuit vigorously.
For other information on litigation to which the Company is a party, reference is made to Part 1 Item 3 - Legal Proceedings in our most recent annual report on Form 10-K.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
SHARE REPURCHASES:
For the quarter ended December 31, 2004, we did not repurchase any shares under the Emerson Radio Corp.'s common stock share repurchase program. The share repurchase program was publicly announced in September 2003 to repurchase up to 2,000,000 shares of Emerson's outstanding common stock. Share repurchases are made from time to time in open market transactions in such amounts as determined in the discretion of Emerson's management within the guidelines set forth by Rule 10b - 18 under the Securities Exchange Act. Prior to the December 31, 2004 quarter, we repurchased 1,111,625 shares under this program. As of December 31, 2004, the maximum number of shares that are available to be repurchased under Emerson Radio Corp's common share repurchase program was 888,375.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
10.12.4 Fourth Amendment to License Agreement effective December 3,2004 by and between Funai Corporation, Inc. and Emerson.*
10.13.3 Fifth Lease Modification Agreement made the 2nd day of December 2004 between Hartz Mountain Industries, Inc. and Emerson.*
10.26.3 Employment Agreement extension letter between Emerson Radio Corp., Emerson Radio International Ltd., Emerson Radio (Hong Kong) Limited and Geoffrey P. Jurick effective as of September 1, 2004.*
10.26.4 Employment Agreement extension letter between Emerson Radio Corp. and John J. Raab effective as of September 1, 2004.*
10.26.5 Employment Agreement extension letter between Emerson Radio Corp. and Elizabeth J. Calianese effective as of September 1, 2004.*
31.1 Certification of the Company's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of the Company's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32 Certification of the Company's Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
(b) REPORTS ON FORM 8-K:
Current report on Form 8-K, dated November 15, 2004, furnishing the press release announcing the Company's financial results for the quarter ended September 30, 2004.
Current report on Form 8-K, dated December 8, 2004, disclosing the entry into a material definitive agreement with Funai Corporation, Inc.
Current report on Form 8-K, dated January 18, 2005, furnishing the press release announcing the Company's preliminary net revenues for the three and nine months ended December 31, 2004.
Current report on Form 8-K, dated January 20, 2005, disclosing the borrowings of Mr. Geoffrey Jurick and the settlement of all outstanding litigation between Mr. Jurick and Ms. Stelling.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: February 3, 2005 /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
Date: February 3, 2005 /s/ Guy A. Paglinco
-------------------
Vice President and
Chief Financial Officer
(Principal Finance and
Accounting Officer)
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Exhibit 10.12.4
FOURTH ANMENDMENT TO LICENSE AGREEMENT
This Fourth Amendment to License Agreement is dated effective as of December 3, 2004 and is made by and between Emerson Radio Corp. ("Licensor") and Funai Corporation, Inc. ("Licensee").
WHEREAS, Licensor and Licensee are parties to that License Agreement dated effective January 1, 2001, as amended (collectively, the "Agreement"); and
WHEREAS, the parties hereto wish to amend the Agreement.
NOW, THEREFORE, the parties agree to the following:
1. Amendment of Section 3 of the Agreement. Section 3 of the Agreement shall be amended to read in full as follows:
"(a) Subject to the earlier expiration or termination of this Agreement as provided in Section 9 or otherwise, this Agreement shall be effective as of the Effective Date and expire as of the close of business on December 31, 2006 ("Initial Term"). The parties agree that each September, beginning September 2005, they shall meet and discuss a one-year extension of the then expiration date of the Agreement, and the minimum royalties and gross sales projections for any such extended term, provided (i) Licensee has paid to Licensor all Royalties and Minimum Royalties payable for each Contract Year as set forth herein on Third Amended Exhibit C of this Agreement, and (ii) Licensee has satisfied and/or complied with all of its obligations hereunder. Each successive renewal period shall hereinafter be referred to as a "Renewal Term." "Initial Term" and "Renewal Term" shall collectively be referred to as "Term".
"(b) Notwithstanding any language herein to the contrary, should the parties not agree pursuant to Section 3(a) herein of an extension of the then expiration date of the Agreement or should the Agreement terminate, if at least one hundred twenty (120) days prior to the actual date of expiration or termination of this Agreement Licensor shall receive an offer from a third party for a license to use the Trademark on the Goods in the Territory, then in such case Licensor shall within ten (10) days thereafter notify Licensee in writing if it wishes to be granted by Licensor a license to use the Trademark on the Goods in the Territory pursuant to the same terms and conditions as those stated in such third party's offer. If Licensee so notifies Licensor in writing within thirty (30) days of its receipt of such notice that it is exercising such right of first refusal, then Licensor and Licensee shall enter into a formal written agreement signed by both parties and Licenser shall not grant such license to such third party or any other party, if Licensee does not timely notify Licensor that it is exercising such right of first refusal, then Licensor shall have the right to accept such offer from such third party and Licensee shall no longer have any rights pursuant to this Section 3(b), except that if Licensor shall in such case not agree to such offer from such third party, then Licensee's rights pursuant to this Section 3(b) shall continue to exist."
2. Capitalized Terms. All capitalized terms not defined herein shall have the same meaning as in the Agreement.
3. Counterparts. This Fourth Amendment and any future amendments may be executed in several counterparts that together shall constitute but one and the same document.
4. All Other Provisions of the Agreement. All other provisions of the Agreement not amended herein shall continue to have their full force and effect.
IN WITNESS WHEREOF, this Fourth Amendment has been executed by the duly authorized representative of each party effective as of the date first set forth above.
EMERSON RADIO CORP. FUNAI CORPORATION, INC.
"Licensor" "Licensee"
By: /s/ John J. Raab By: /s/ Takeshi Ito
----------------------- ---------------------
Name: John J. Raab Name: Takeshi Ito
Title: COO/Senior Title: President
Executive Vice President
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Exhibit 10.13.3
FIFTH LEASE MODIFICATION AGREEMENT
THIS FIFTH LEASE MODIFICATION AGREEMENT, made this 2nd day of December 2004 by and between HARTZ MOUNTAIN INDUSTRIES, INC., a New York corporation having an office at 400 Plaza Drive, P.O. Box 1515, Secaucus, New Jersey 07096-1515 (hereinafter referred to as "Landlord") and EMERSON RADIO CORP., a Delaware corporation having an office at 9 Entin Road, Parsippany, NJ 07054-0430 (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated March 26, 1993, as amended by First Lease Modification Agreement dated July 23, 1993, Second Lease Modification Agreement dated May 15, 1998, Third Lease Modification Agreement dated October 26, 1998 and Fourth Lease Modification Agreement dated February 12, 2003, Landlord leased to Tenant and Tenant hired from Landlord 21,909 square feet of Floor Space located on the second floor of 9 Entin Road in Parsippany, New Jersey (hereinafter the "Demised Premises"); and
WHEREAS, Landlord and Tenant wish to further modify the Lease (a) to reflect an increase in the area of the Demised Premises and (b) to extend the Term of the Lease and amend the Lease accordingly;
NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants herein contained and the consideration set forth herein, the parties agree as follows:
1. All terms set forth herein are as defined in the Lease unless otherwise specifically described hereinbelow.
2. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, an additional five hundred sixty seven (567) square feet of Floor Space which Floor Space is outlined in red on the attached Exhibit A (the "Third Additional Premises"). Except as expressly provided herein, all references in the Lease to the Demised Premises shall include the Floor Space encompassed by both the Demised Premises prior to the addition of the Third Additional Premises (21,909 square feet) and the Third Additional Premises (567 square feet) for a total of 22,476 square feet.
3. The Commencement Date of the Lease with respect to the Third Additional Premises shall be the earlier of (a) the date on which both: (1) the Third Additional Premises shall be Ready for Occupancy, and (ii) actual possession of the Third Additional Premises shall have been delivered to Tenant by notice to Tenant, or (b) the date Tenant, or anyone claiming under or through Tenant, first occupies the Third Additional Premises or any part thereof for any purpose other than the performance of Tenant's Work.
4. The Term of the Lease for the entire Demised Premises (including but not limited to the Third Additional Premises) is hereby extended from October 31, 2008 to December 30, 2009 (the "Second Extension Period") on the same terms and conditions as in effect immediately prior to such Second Extension Period. The Fixed Rent for the entire Demised Premises, including the Third Additional Premises, shall be Twenty and 00/100 Dollars ($20.00) per square foot of Floor Space per annum. Tenant shall have no right to extend the Term beyond the expiration of the Second Extension Period.
5. Effective on the Commencement Date of the Third Additional Premises, Tenant's Fraction shall be increased by .003% and Tenant's Fraction of the entire Demised Premises (including but not limited to the Third Additional Premises) shall be increased to 11.73%.
6. Landlord, at its own cost and expense, shall (1) demise the space and separate the utilities; (ii) remove the existing door and sheet rock the opening; and (iii) in a manner mutually acceptable to both parties, create a new six foot wide opening from the existing telco room.
7. Both parties represent that no broker was instrumental in bringing about or consummating this Fifth Lease Modification Agreement and that neither party had conversations or negotiations with any broker concerning this Fifth Lease Modification. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant with any broker.
8. Except as provided herein, all of the terms and conditions of the Lease as amended above are in full force and effect and are confirmed as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Lease Modification Agreement to be duly executed as of the day and year first above written.
HARTZ MOUNTAIN INDUSTRIES, INC.
By: /s/ Irwin A. Horowitz
---------------------------
Irwin A. Horowitz
Executive Vice President
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EMERSON RADIO CORP.
By: /s/ Guy A. Paglinco
---------------------------
Guy A. Paglinco
Vice President,
Chief Financial Officer
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Exhibit 10.26.3
(EMERSON LOGO)
EMERSON RADIO CORP. 9 Entin Road, P.O. Box 430, Parsippany, New Jersey 07054-4430 (973) 884-5800
Mr. Geoffrey P. Jurick
c/o Emerson Radio (Hong Kong) Limited
705-711, Tower 2
The Gateway
25-27 Canton Road
Kowloon, Hong Kong
EMPLOYMENT AGREEMENTS
Dear Mr. Jurick:
This letter will serve as confirmation of our agreement that those certain Employment Agreements, each dated July 7, 1992, as amended by the Extension of Employment Agreements, dated April 16, 1997 and letter dated effective as of September 1, 2001 (collectively, the "Agreements"), by and between you and each of Emerson Radio International Ltd. (formerly known as Emerson Radio (B.V.I.) Ltd.), Emerson Radio (Hong Kong) Limited and Emerson Radio Corp., shall be and hereby are extended through and including August 31, 2007. The aggregate base salary compensation of the Agreements is presently $500,000.
Except as specifically amended hereby, the terms of each of the Agreements shall remain in full force and effect. Please indicate your agreement to the above by signing in the space provided below.
Very truly yours:
Emerson Radio International Ltd. Emerson Radio Corp.
By: /s/ John J. Raab By: /s/ John J. Raab
------------------------- ----------------------------
(Name) (Title) (Name) (Title)
John J. Raab Director John J. Raab COO-SEVP
Emerson Radio (Hong Kong) Limited
By: /s/ John J. Raab
-------------------------
(Name) (Title) ACKNOWLEDGED, UNDERSTOOD AND
John J. Raab Director AGREED TO AS OF SEPTEMBER 1, 2004
By: /s/ Geoffrey P.Jurick
-----------------------------
Geoffrey P.Jurick
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THE TRUSTED NAME IN ELECTRONICS SINCE 1912
Exhibit 10.26.4
(EMERSON LOGO)
EMERSON RADIO CORP. 9 Entin Road, P.O. Box 430, Parsippany, New Jersey 07054-4430 (973) 884-5800
Mr. John J. Raab
c/o Emerson Radio Corp.
9 Entin Road
Parsippany, New Jersey 07054
EMPLOYMENT AGREEMENT
Dear Mr. Raab:
This letter will serve as confirmation of our agreement that the Employment Agreement, dated effective as of September l, 2001 (the "Agreement"), by and between you and Emerson Radio Corp. shall be and hereby is extended through and including August 31, 2007. The base salary compensation of the Agreement is presently $275,000.
Except as specifically amended hereby, the terms of the Agreement shall remain in full force and effect. Please indicate your agreement to the above by signing in the space provided below.
Very truly yours:
Emerson Radio Corp.
By: /s/ Elizabeth J. Calianese
-----------------------------
(Name) (Title) ACKNOWLEDGED, UNDERSTOOD AND
Elizabeth J. Calianese SVP-HR AGREED TO AS OF SEPTEMBER 1, 2004
By: /s/ John J. Raab
-----------------------------
John J. Raab
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Exhibit 10.26.5
(EMERSON LOGO)
EMERSON RADIO CORP. 9 Entin Road, P.O. Box 430, Parsippany, New Jersey 07054-4430 (973) 884-5800
Ms. Elizabeth J. Calianese
c/o Emerson Radio Corp.
9 Entin Road
Parsippany, New Jersey 07054
EMPLOYMENT AGREEMENT
Dear Ms. Calianese:
This letter will serve as confirmation of our agreement that the Employment Agreement, dated effective as of September 1, 2001 (the "Agreement"), by and between you and Emerson Radio Corp. shall be and hereby is extended through and including August 31, 2007. The base salary compensation of the Agreement is presently $220,000.
Except as specifically amended hereby, the terms of the Agreement shall remain in full force and effect. Please indicate your agreement to the above by signing in the space provided below.
Very truly yours:
Emerson Radio Corp.
By: /s/ John J. Raab
-----------------------------
(Name) (Title) ACKNOWLEDGED, UNDERSTOOD AND
John J. Raab COO-SEVP AGREED TO AS OF SEPTEMBER 1, 2004
By: /s/ Elizabeth J. Calianese
-----------------------------
Elizabeth J. Calianese
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Exhibit 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002
I, Geoffrey P. Jurick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerson Radio Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 3, 2005
/s/ Geoffrey P. Jurick
----------------------
Chairman of the Board,
Chief Executive Officer and
President
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A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES - OXLEY ACT OF 2002
I, Guy A. Paglinco, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerson Radio Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 3, 2005
/s/ Guy A. Paglinco
-------------------
Vice President and
Chief Financial Officer
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A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Emerson Radio Corp. (the "Company") on Form 10-Q for the period ended December 31, 2004, filed with the Securities and Exchange Commission, Geoffrey P. Jurick, Chief Executive Officer, and Guy A. Paglinco, Chief Financial Officer, of the Company each hereby certifies pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.
Dated: February 3, 2005
By: /s/ Geoffrey P. Jurick
--------------------------
Geoffrey P. Jurick
Chief Executive Officer
By: /s/ Guy A. Paglinco
-----------------------
Vice President and
Chief Financial Officer
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.