EMERSON RADIO CORP - Annual Report: 2004 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

OR

[    ]               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to

Commission File Number 0-25226

EMERSON RADIO CORP.

Registrant’s telephone number, including area code: (973) 884-5800

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

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. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) [   ] YES [X] NO.

Aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates of the registrant at September 30, 2003 (computed by reference to the last reported sale price of the Common Stock on the American Stock Exchange on such date): $66,015,866.

Number of Common Shares outstanding at June 16, 2004: 26,630,383

DOCUMENTS INCORPORATED BY REFERENCE:

Table of Contents

PART I

     This Annual Report on Form 10-K contains, in addition to historical information, “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. See “Business- Forward-Looking Statements.”

Item 1. BUSINESS

The Company

     We operate in two business segments:

     The consumer electronics segment designs, sources, imports and markets a variety of consumer electronic products and licenses its trademarks for a variety of products world wide. The sporting goods segment, which is operated through our 53% ownership of Sport Supply Group, Inc., distributes and markets sports related equipment and leisure products primarily to institutional customers in the United States.

     Emerson was originally formed in the State of New York in 1956 under the name Major Electronics Corp. In 1977, we reincorporated in the State of New Jersey and changed our name to Emerson Radio Corp. In 1994, we were reincorporated in the State of Delaware. Our principal executive offices are located at Nine Entin Road, Parsippany, New Jersey 07054-0430. Our telephone number in Parsippany, New Jersey, is (973) 884-5800.

     Unless the context otherwise requires, the term:

     For additional disclosures of our business segments and major customers, as well as financial information about geographical areas, see Item 8 – “Financial Statements and Supplemental Data” -Note 14 of Notes to Consolidated Financial Statements.

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Supervision and Regulation

     We file reports and other information with the Securities and Exchange Commission (“SEC”) pursuant to the information requirements of the Securities Exchange Act of 1934. Readers may read and copy any document we file at the SEC’s public reference room at 450 Fifth St. N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operations of the public reference room. Our filings are also available to the public from commercial document retrieval services and at the SEC’s website at www.sec.gov.

     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 our website is not incorporated by reference in this report.

     On March 5, 2004, SSG filed a Form 15 with the Securities and Exchange Commission giving notice of the termination of the registration of its securities and the suspension of duty to file periodic reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934. As a result, SSG is no longer required to file annual reports on Form 10-K, quarterly reports on Form 10-Q or current reports on form 8-K with the SEC.

Consumer Electronics Segment

     General

     Emerson, directly and through several subsidiaries, designs, sources, imports, markets, sells and licenses to certain licensees a variety of consumer electronic products, both domestically and internationally, under the Emerson® and HH Scott® brand names. These products include:

     Emerson also licenses a variety of specialty themed logos and marks from third parties for use on audio products that bear the names of these third parties. We refer to these licenses as inward licenses.

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     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. See “Consumer Electronics Segment - Licensing and Related Activities.”

     Emerson believes it possesses an advantage over its competitors due to the combination of:

     Emerson intends to continue leveraging its core competencies to offer a broad variety of current and new consumer electronic products to customers. In addition, Emerson intends to enter into additional licenses of third party trade names and trademarks by third parties (“inward licenses”), as well as licenses for the use of Emerson’s trade names and trademarks (“outward licenses”) and distribution agreements that take advantage of Emerson’s trademarks and utilize the logistical and sourcing advantages for products that are more efficiently marketed through these agreements. We continuously evaluate potential licenses and distribution agreements. In March 2003, Emerson entered into a license agreement with Nickelodeon to license the Nickelodeon name, trademark and logo, along with several other of Nickelodeon trademarks and logos. See - “ Consumer Electronics Segment – Licensing and Related Activities”.

     Emerson’s core business consists of selling, distributing, and licensing various low to moderately priced categories of consumer electronic products. The majority of Emerson’s marketing and sales efforts are concentrated in the United States and, to a lesser extent, certain other international regions. Major competitors in these markets are foreign-based manufacturers and distributors. See “Consumer Electronics Segment - Competition.”

Products

     Emerson’s current product and branded categories consist of the following:

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     Growth Strategy

     We believe growth opportunities exist through the implementation of the following:

     In connection with Emerson’s strategic focus, Emerson may acquire an equity position in other corporate entities.

     Emerson believes that the “[Emerson logo]” trademark is recognized in many countries. A principal component of Emerson’s growth strategy is to utilize this global brand name recognition together with its 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. Emerson believes that it 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 its current product line and augmenting its product line with complimentary products. Emerson intends to pursue such plans either independently or by forging new relationships, including license arrangements, distributorship agreements and joint ventures. See “Consumer Electronics Segment - Licensing and Related Activities.”

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     Sales and Distribution

     Emerson’s Direct Import Program allows its customers to import and receive product directly from Emerson’s manufacturers located outside the United States. Under the Direct Import Program, title for its products passes in the country of origin upon shipment of the product by the manufacturer. Emerson also sells product to customers from its U.S. based finished goods inventory, which is referred to as its Domestic Program. Under the Domestic Program, title for its products primarily passes at the time of shipment. Under both programs, we recognize revenues at the time title passes to the customer. See Item 7 - “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

     Emerson has an integrated system to coordinate the purchasing, sales and distribution aspects of its operations. Emerson receives orders from its major accounts electronically, via electronic data interface (EDI), facsimile, telephone or mail. Emerson does not have long-term contracts with any of its customers, but rather receives orders on an ongoing basis. Products imported by Emerson, 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. All inventory is monitored by Emerson’s electronic inventory system. As a purchase order is received and filled from inventory, 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, Emerson markets its products primarily through:

     In fiscal 2004 and 2003, Wal-Mart Stores accounted for approximately 25% of our consolidated net revenues and Target Stores accounted for approximately 15% and 17% of our consolidated net revenues, respectively, and in fiscal 2003, K-Mart accounted for approximately 12% of our consolidated net revenues. No other customer accounted for more than 10% of our consolidated net revenues in either period. Management believes that a loss, or a significant reduction of sales to Wal-Mart or Target would have a material adverse effect on our business and results of operations.

     Approximately 49% and 59% of the net consumer electronics revenues in fiscal 2004 and 2003, respectively, were made through third party sales representative organizations that receive sales commissions and work in conjunction with Emerson’s own sales personnel. With Emerson’s permission, third party sales representative organizations may sell competitive

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products in addition to Emerson’s products. In most instances, either party may terminate a sales representative relationship on 30 days prior notice by Emerson and 90 days prior notice by the sales representative organization in accordance with customary industry practice. Emerson utilizes approximately 24 sales representative organizations, including two through which approximately 15% and 10% of the net consumer electronics revenues were made in fiscal 2004. For fiscal 2003, two sales organizations accounted for approximately 23% and 19% of the net consumer electronics revenues. No other sales representative organization accounted for more than 10% of the consumer electronics net revenues in either year. The remainder of Emerson’s sales are serviced by its sales personnel. Management does not believe that the loss of one or more sales representative organizations would have a material adverse effect on our business and results of operations.

     Foreign Marketing

     Emerson primarily markets and distributes its products in the United States. Accordingly, foreign sales account for less than 10% of total revenues and are not considered material. Emerson intends to expand its existing worldwide customer base through its foreign distribution agreements and direct selling, particularly in Europe and Asia.

     Licensing and Related Activities

     Emerson has several license agreements that allow licensees to use our trademarks for the manufacture and/or the sale of consumer electronics and other products and are referred to as outward licenses. These license agreements allow the licensee to use our trademarks by a specific product category, or by a specific geographic area that primarily includes some or all the countries located in North America, South America, Mexico and parts of Europe, or by a specific customer base, or by any combination of the above, or any other category that might be defined in the license agreement. These license agreements are subject to renewal at the initial expiration of the agreements and are governed by the laws of the United States, and have expiration dates ranging from November 2004 through January 2007. Total license revenues recognized and earned in fiscal 2004, 2003, and 2002 were approximately $10,973,000, $10,388,000, and $6,952,000, respectively. Emerson records licensing revenues as earned over the term of the related agreements.

     Effective January 1, 2001, Emerson entered into a license agreement (“Video License Agreement”) with Funai Corporation, Inc. (“Funai”), which was amended, to extend the Video License Agreement to December 31, 2005. The Video License Agreement provides that Funai will manufacture, market, sell and distribute specified products bearing the “[Emerson logo]” trademark to customers in U.S. and Canadian markets. Under the terms of the agreement, Emerson will receive non-refundable minimum annual royalty payments of $4.3 million each calendar year and a license fee on sales of products subject to the Video License Agreement in excess of the minimum annual royalties. During fiscal 2004, 2003 and 2002, license revenues of $8,759,000, $8,520,000 and $5,624,000, respectively, were recorded under this agreement.

     Throughout various parts of the world, Emerson maintains distribution and outward license agreements that encompass various Emerson branded products into defined geographic areas.

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     Emerson intends to pursue additional licensing and distribution 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 -“Forward Looking Information” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

     Effective March 2003, Emerson entered into a license agreement with MTV Networks to license the Nickelodeon name, trademark and logo, along with several of Nickelodeon’s trademarks and logos. The initial term of the agreement expires in December 2005, and includes an option to extend the initial period by one year. Additionally, Emerson entered into a second contract with MTV Networks for increased Nickelodeon character trademarks and logos, along with expanded product categories. The term of this second contract expires in December 2006. These licenses provide Emerson with the rights to use such marks in the United States, and require certain minimum royalties to be paid to MTV Networks.

     Design and Manufacturing

     Emerson’s products are manufactured by several original equipment manufacturers in accordance with Emerson’s specifications. During fiscal 2004 and 2003, 100% of Emerson’s purchases consisted of imported finished goods from manufacturers primarily located in:

     Emerson’s design team is responsible for product development and works closely with Emerson’s suppliers. Emerson’s engineers determine the detailed cosmetic, electronic and other features for new products, which typically incorporate commercially available electronic parts to be assembled according to their design. Accordingly, the exterior designs and operating features of the products reflect Emerson’s judgment of current styles and consumer preferences. Emerson’s designs are tailored to meet the consumer preferences of the local market, particularly in the case of its international markets.

     The following summarizes Emerson’s purchases from its major suppliers:

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     No other supplier accounted for more than 10% of Emerson’s total purchases in fiscal 2004 or 2003. Emerson considers its relationships with its suppliers to be satisfactory and believes that, barring any unusual material or part shortages or economic, fiscal or monetary conditions Emerson could develop, as it already has, alternative suppliers. No assurance can be given that ample supply of product would be available at current prices if Emerson were 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. 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.”

     Warranties

     Emerson offers limited warranties for its consumer electronics, comparable to those offered to consumers by its competitors in the United States. Such warranties typically consist of a 90 day period for audio products and one year period for microwave products, under which Emerson will pay for labor and parts, or offer a new or similar unit in exchange for a non-performing unit.

     Returned Products

     Emerson’s customers return product to Emerson for a variety of reasons, including:

     Emerson has entered into agreements with the majority of its suppliers that require the supplier to accept returned defective product. Emerson pays a fee to the supplier and in exchange receives a unit.

     Backlog

     We do not believe that backlog is a significant factor in our consumer electronics segment. The ability of management to correctly anticipate and provide for inventory requirements is essential to the successful operation of our consumer electronics business.

     Trademarks

     Emerson owns the:

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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 Emerson, those registered in the United States and Canada must be renewed at various times through 2011 and 2014, respectively. Emerson’s trademarks are also registered in various other countries, which registrations must be renewed at various times. Emerson intends to renew all trademarks necessary for its business. Emerson considers the “[Emerson logo]” and HH Scott® trademarks to be of material importance to its business and, to a lesser degree, the remaining trademarks. Emerson licenses the “[Emerson logo]” and HH Scott® trademark to third parties, the scope of which is on a limited product and geographic basis and for a period of time. See “Consumer Electronics Segment - Licensing and Related Activities.”

     Competition

     As published in the Consumer Electronics Association Market Research report, the market segments of the consumer electronics industry in which Emerson competes generates approximately $21 billion of factory sales annually and is highly fragmented, cyclical and very competitive. The industry is characterized by the short life cycle of products, which requires continuous design and development efforts.

     Emerson primarily competes in the low to medium-priced sector of the consumer electronics market. Management estimates that Emerson has several dozen competitors that are manufacturers and/or distributors, many of which are much larger and have greater financial resources than Emerson. Emerson competes primarily on the basis of:

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     Emerson also competes at the retail level for shelf space and promotional displays, all of which have an impact on its established and proposed distribution channels.

     Seasonality

     Emerson generally experiences stronger demand from its customers for its products in the fiscal quarters ending September and December. However, during the last several years, this revenue pattern has been less prevalent due to the need for retailers to plan earlier for the winter holiday selling season and our management’s ability to obtain additional orders to meet additional product demand during the March and June fiscal quarters.

     Working Capital

     Our consumer electronics segment is impacted by its seasonality in that it generally records the majority of annual sales in the quarters ending September and December, requiring it to maintain higher inventory levels during the quarters ending June and September, therefore increasing the working capital needs during these periods. Management believes that the outward license agreements, sales margin stability and the policies in place for returned products should continue to favorably impact our cash flow. Management believes that anticipated cash flow from operations and the financing presently in place will provide sufficient liquidity to meet its operating and debt service cash requirements in the year ahead. Management believes the company’s working capital practices are similar to those of its competitors.

Sporting Goods Segment

     General

     Management believes SSG is a leading direct mail marketer of sports related equipment and leisure products for sale primarily to the institutional market in the United States.

     From July 2003 through October 2003, certain of SSG’s team dealer locations were discontinued. In November 2003, SSG sold all of the issued and outstanding capital stock of it’s wholly-owned subsidiary, Athletic Training Equipment Company, Inc. (“ATEC”). Collectively, SSG refers to these as “Discontinued Operations” and accordingly, the accompanying financial statements reflect these as discontinued operations. These transactions helped reduce the overhead of SSG along with providing funds to reduce the debt of SSG.

     Products

     Management believes SSG manufactures and distributes one of the broadest lines of sporting goods, physical educational, recreational and leisure products to the institutional market. SSG offers over 10,000 products, of which SSG manufactures approximately 1,000 of these products and the remainder are purchased from other manufacturers. The SSG product lines include: archery; baseball; softball; basketball; camping; football; tennis and other racquet sports; gymnastics; indoor recreation; game tables and physical education; soccer; field and floor

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hockey; lacrosse; track and field; volleyball; weight lifting; fitness equipment; outdoor playground equipment; and early childhood development products.

     Management believes brand recognition is important to the institutional market. Most of SSG’s products are marketed under trade names or trademarks owned or licensed by SSG and include the following:

     Growth Strategy

          SSG believes it is well positioned to grow its business due to:

     One of the most important contributions of SSG’s information technology platform is that the order processing and fulfillment capabilities are integrated throughout the operations of SSG, including all of SSG’s websites. Each website is strategically targeted to a specific customer group or product line. The continued migration of SSG’s customers to its websites is important to SSG’s growth and success.

     Sales and Distribution

     SSG’s websites enable its customers to place orders, access account information, track orders, and perform routine customer service inquiries on a real-time basis, twenty-four hours a day, seven days a week. This functionality allows for more convenience and added flexibility for its customers.

     SSG’s sourcing, warehousing, distribution and fulfillment capabilities and its fully integrated information system, provide the necessary capacities, logistics, information and technological capabilities to meet the demands and growth potential of commerce.

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     Domestic Marketing

     SSG offers products directly to the institutional market primarily through:

     SSG’s marketing efforts are supported by a database of over 250,000 customers, a call center, a custom-designed distribution center and several manufacturing facilities. SSG currently offers approximately 10,000 sports related equipment products to over 100,000 customers, which include: public and private schools; colleges; universities and military academies; municipal and governmental agencies; military facilities; churches; clubs; camps; hospitals; youth sports leagues; non-profit organizations; team dealers; and certain large retail sporting goods chains.

     SSG believes that its customer base in the United States is the largest in the institutional direct mail market for sports related equipment.

     Licensing and Related Activities

     SSG has inward licenses for certain well-known names and trademarks that allow it to manufacture, sell, and distribute specified sport related products and equipment to institutional customers using the licensed names for specified royalty fees paid to licensors. See “Business-Sporting Goods Segment - Trademarks.”

     Design and Manufacturing

     SSG manufactures, assembles and distributes many of its products at its facilities. See Item 2 - “Properties.”

     Most of SSG’s manufactured products are standardized. Certain products manufactured by SSG are custom made; such as tumbling mats ordered in color or size specifications. The principal raw materials used by SSG in manufacturing are, for the most part, readily available from several different sources. No one supplier accounts for more than 10% of the total raw materials supplied to SSG. Such raw materials include: foam; vinyl; nylon thread; steel and aluminum tubing.

     Items not manufactured by SSG are purchased from various suppliers primarily located in the United States, Taiwan, Australia, the Philippines, Thailand, China, Pakistan, Sweden and Canada. SSG has no significant purchase contracts with any major supplier of finished products, and most products purchased from suppliers are available from other sources. Purchases of most finished products are made in U.S. dollars and are, therefore, not subject to direct foreign exchange rate differences.

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     Warranties

     SSG typically offers limited warranties for its sporting goods, which are comparable to its competitors.

     Returned Products

     In most instances, SSG’s customers have the right to return product within 30 days. Returned products in the sporting goods segment are less frequent than the consumer electronics segment, and are not considered a significant factor in SSG’s operations.

     Backlog

     SSG had a backlog of approximately $2.2 million at March 31, 2004, $2.9 million at March 31, 2003, and $2.0 million at March 31, 2002.

     Trademarks

     SSG licenses certain well known trade names and trademarks allowing it to manufacture, sell, and distribute specified sport related products and equipment to institutional customers using these names for specified royalty fees. These license agreements have expiration dates ranging from December 2004 through 2040, in some cases with renewable terms and include our license with MacGregor®, which expires in 2040 and allows us to manufacture, promote, sell and distribute specified products and equipment under the MacGregor® name.

     Competition

     SSG competes in the institutional sporting goods market principally with:

     SSG has identified approximately 15 other direct mail and internet companies in the institutional market most of whom management believes are competitors that are substantially smaller than SSG in terms of geographic coverage, products, e-commerce capability, customer base and revenues.

     SSG competes in the institutional market principally on the basis of brand, price, product availability and customer service. SSG believes it has an advantage in the institutional market over traditional sporting goods retailers and team dealers because its selling prices do not include comparable price markups attributable to traditional multi-distribution channel markups. In addition,

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SSG’s expansive product lines and the ability to control the availability of goods that SSG sources enables it to respond more rapidly to customer demand.

     Seasonality

     SSG has historically experienced strong revenues during the March, June and September quarters primarily due to volume generated by spring and summer sports, favorable outdoor weather conditions and school needs before summer closings, and weak revenues during the December quarter.

     Working Capital

     The sporting goods segment is impacted by seasonality with its March quarter being the highest sales period, and the quarter ending December being its lowest sales period. This seasonality requires the sporting goods segment to maintain higher amounts of inventory during the quarters ending March and June, therefore increasing the working capital needs during these periods.

Government Regulation

     Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and regulations promulgated there under, 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 us or limiting quantities of goods available to us from our 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 us. Additional Federal legislation and regulations regarding the importation of consumer electronics products, including the products marketed by us, have been proposed from time-to-time and, if enacted into law, could adversely affect our financial condition and results of operations.

     Many of our products are subject to Federal regulations, among other laws, which empowers the Consumer Product Safety Commission (the “CPSC”) to protect consumers from hazardous sporting goods and other articles. The CPSC has the authority to exclude from the market certain articles that are found to be hazardous and can require a manufacturer to refund the purchase price of products that present a substantial product hazard. CPSC determinations are subject to court review. Similar laws exist in some states and cities in the United States.

Product Liability and Insurance

     Because of the nature of the products sold by us, particularly those products sold by SSG, we are periodically subject to product liability claims resulting from personal injuries. We may become involved in various lawsuits incidental to our business. Additionally, significantly increased product liability claims continue to be asserted successfully against manufacturers and distributors of sports

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equipment throughout the United States resulting in general uncertainty as to the nature and extent of manufacturers’ and distributors’ liability for personal injuries. See Item 3 – “Legal Proceedings”.

     In recent years, product liability insurance has become much more expensive, more restrictive and more difficult to obtain. Accordingly, there can be no assurance that our general product liability insurance will be sufficient to cover any successful product liability claims made. In our opinion, any ultimate liability arising out of currently pending product liability claims will not have a material adverse effect on the financial condition or results of operations. However, any claims substantially in excess of the insurance coverage, or any substantial claim not covered by insurance, could have a material adverse effect on our financial condition and results of operations.

Employees

     As of May 3, 2004, we had approximately 371 employees, of which 138 were employed by Emerson, and 233 were employed by SSG. None of our employees are represented by unions, and we believe our labor relations are good.

Risk Factors

     You should carefully consider these risk factors in addition to our financial statements, including the notes to such financial statements. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operating results could be adversely affected. In that case, the trading price of our common stock could decline.

Business Related Risks

The loss, or significant reduction in business of any of our key customers, including Wal-Mart and Target, could negatively affect our revenues and could decrease our earnings.

     We are highly dependent upon sales of our consumer electronic products to certain of our customers, including Wal-Mart and Target. During our fiscal years ended March 31, 2004 and 2003, Wal-Mart stores accounted for approximately 25% and 25%, respectively, Target stores accounted for approximately 15% and 17%, respectively, and for fiscal 2003, K-Mart accounted for approximately 12% of our net revenues. Although no other customer in either of our operating segments accounted for greater than 10% of our consolidated net revenues during these periods, other customers may account for more than 10% of our consolidated net revenues in future periods. All purchases of our products by customers in both of our operating segments are made through purchase orders and we do not have any long-term contracts with any of our customers. The loss of Wal-Mart or Target, or any of our other customers to which we sell a significant amount of our products or any significant portion of orders from Wal-Mart or Target, or such other customers or any material adverse change in the financial condition of such customers could negatively affect our revenues and decrease our earnings.

The failure to maintain our relationships with our licensees and distributors or the failure to obtain new licensees or distribution relationships could negatively affect our revenues and decrease our earnings.

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     We maintain license agreements that allow licensees to use our Emerson® and H.H. Scott® trademarks for the manufacture and sale of consumer electronics and other products. In addition, we maintain distribution agreements for the distribution of our consumer electronics products into defined geographic areas. Although we have entered into agreements with certain of our licensees and distributors of consumer electronics products, most of which have a term of three years or less and expire between November 2004 and December 2006, we cannot assure that such agreements will be renewed when the terms of such agreements expire, or that our relationships with our licensees or distributors will be maintained on satisfactory terms or at all. The failure to maintain our relationships with Funai and our other licensees and distributors, the failure to obtain new licensees or distribution relationships or the failure by our licensees to protect the integrity and reputation of our Emerson® and H.H. Scott® trademarks could negatively affect our licensing revenues and decrease our earnings.

     Our sporting goods business licenses certain well-known names and trademarks, including MacGregor® that expires in 2040, and allows us to manufacture, promote, sell and distribute specified products and equipment. Although the MacGregor® agreement expires in 2040, we cannot be assured that our relationship with MacGregor® will be maintained on satisfactory terms or at all. The non-renewal or termination of one or more of our material licenses in our sporting goods business could materially reduce our ability to sell products bearing such names and trademarks and decrease our earnings.

Our revenues and earnings could be negatively affected if we cannot anticipate market trends or enhance existing products or achieve market acceptance of new products.

     Our success is dependent on our ability to successfully anticipate and respond to changing consumer demands and trends in a timely manner. In addition, to increase our penetration of current markets and gain footholds in new markets for our products, we must maintain existing products and integrate them with new products. We may not be successful in developing, marketing and releasing new products that respond to technological developments or changing customer needs and preferences. We may also experience difficulties that could delay or prevent the successful development, introduction and sale of these new products. In addition, these new products may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market acceptance. If release dates of any future products or enhancements to our products are delayed, or if these products or enhancements fail to achieve market acceptance when released, our sales volume may decline and earnings could be negatively affected. In addition, new products or enhancements by our competitors may cause customers to defer or forgo purchases of our products, which could also negatively affect our revenues and earnings.

We depend on a limited number of suppliers for our components and raw materials and any interruption in the availability of these components and raw materials used in our products could reduce our revenues and adversely affect our relationship with our customers.

     We rely on a limited number of suppliers, most of which are located outside of the United States, for the components and raw materials used in our consumer electronics and sporting good products. Although there are many suppliers for each of our component parts and raw materials, we are dependent on a limited number of suppliers for many of the significant components and raw materials. This reliance involves a number of significant risks, including:

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     We do not have any long-term or exclusive purchase commitments with any of our suppliers. StarLite, Avatar Mfg., GMT Industries, Daewoo and Lasco Industries are our largest suppliers of components for our consumer electronics products, each of which accounted for more than 10% of our purchases of components for our consumer electronics products for our latest fiscal year. Our failure to maintain existing relationships with our suppliers or to establish new relationships in the future could also negatively affect our ability to obtain our components and raw materials used in our products in a timely manner. If we are unable to obtain ample supply of product from our existing suppliers or alternative sources of supply, we may be unable to satisfy our customers’ orders which could reduce our revenues and adversely affect our relationship with our customers.

The operating results of our sporting good segment may continue to be affected by budgetary restrictions of schools and government agencies.

     A substantial portion of our sporting goods product revenues are generated through sales to the institutional market, including:

As a result, our sporting goods business is substantially dependent on the budgetary allowances of schools as well as local, state and federal government agencies. Restrictions or reductions to the budgeted spending of these entities could reduce the amount of goods purchased from us and could materially adversely affect our revenues and earnings.

If our original equipment manufacturers are unable to deliver our products in the required amounts and in a timely fashion, we could experience delays or reductions in shipments to our customers which could reduce our revenues and adversely affect our relationship with our customers.

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     All of our consumer electronic products and approximately 20.0% of our sporting good products are manufactured in accordance with our specifications by original equipment manufacturers located in:

If we are unable to obtain our products from the original equipment manufacturers located in these countries in the required quantities and quality and in a timely fashion, we could experience delays or reductions in product shipments to our customers which could negatively affect our ability to meet the requirements of our customers, as well as our relationships with our customers.

Unanticipated disruptions in our operations or slowdowns by our suppliers, manufacturers and shipping companies could adversely affect our ability to deliver our products and service our customers which could reduce our revenues and adversely affect our relationship with our customers.

     Our ability to provide high quality customer service, process and fulfill orders and manage inventory depends on:

Any material disruption or slowdown in the operation of our call center, distribution center, manufacturing facilities or management information systems, or comparable disruptions or slowdowns suffered by our principal manufacturers, suppliers and shippers could cause delays in our ability to receive, process and fulfill customer orders and may cause orders to be canceled, lost or delivered late, goods to be returned or receipt of goods to be refused. Our sporting goods segment ships approximately 70% of its products using United Parcel Service. A strike by UPS or any of our other major carriers or any other disruption in our ability or our customer's ability to receive our products as a result of a strike or otherwise could materially adversely affect our results of operations as a result of our failure to deliver our products in a timely manner and using other more expensive freight carriers.

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The operations of our sporting goods segment are subject to high fixed costs, which could adversely affect our earnings.

     The operations and maintenance of our call center, distribution center, manufacturing facilities and management information systems related to our sporting goods segment involve substantial fixed costs. Paper and postage are significant components of our sporting goods segment operating costs. Catalog mailings entail substantial paper, postage, and costs associated with catalog development, each of which is subject to price fluctuations. If net revenues are substantially below expectations, these fixed costs may not be proportionately reduced and could materially adversely affect the earnings of our sporting goods segment and, in turn, our consolidated earnings.

Our revenues and earnings could be adversely affected by foreign regulations and changes in the political, public health and economic conditions in the foreign countries in which we operate our business.

     We derive a significant portion of our revenues from sales of products manufactured by third parties located primarily in China, South Korea, Malaysia and Thailand. In addition, third parties located in these and other countries located in the same region produce and supply many of the components and raw materials used in our products. Conducting an international business inherently involves a number of difficulties and risks that could adversely affect our ability to generate revenues and could subject us to increased costs. The main factors that may adversely affect our revenues and increase our costs are:

In addition, the prior outbreak of severe acute respiratory syndrome, or SARS, which had particular impact in China, Hong Kong and Singapore, had a negative effect on our consumer electronics operations. Our operations, including our ability to obtain our products in a timely fashion, could be impacted again, including disrupting the operation of our suppliers, manufacturers and shipping companies, each of which could adversely affect our earnings, should SARS reoccur in the future.

     We have experienced, and may in the future experience, many of these risks and cannot predict the impact of any particular risk on our operations. However, any of these factors may materially adversely affect our revenues and/or increase our operating expenses.

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The seasonality of our business, as well as changes in consumer spending and economic conditions, may cause our quarterly operating results to fluctuate and cause our stock price to decline.

     Our net revenue and operating results may vary significantly from quarter to quarter. The main factors that may cause these fluctuations are:

In addition, our quarterly operating results could be materially adversely affected by political instability, war, acts of terrorism or other disasters.

     Sales of our consumer electronics products are somewhat seasonal due to consumer spending patterns, which tend to result in significantly stronger sales in our September and December fiscal quarters, especially as a result of the holiday season. Our sporting goods segment is also somewhat seasonal due to stronger demand for its products during the March fiscal quarter due to volume generated by spring and summer sports, favorable outdoor weather conditions and school needs before summer closings and weaker revenues during the December fiscal quarter. These patterns will probably not change significantly in the future. Although we believe that the seasonality of our business is based primarily on the timing of consumer demand for our products, fluctuations in operating results can also result from other factors affecting us and our competitors, including new product developments or introductions, availability of products for resale, competitive pricing pressures, changes in product mix and pricing and product reviews and other media coverage. Due to the seasonality of our business, our results for interim periods are not necessarily indicative of our results for the year.

     Our sales and earnings can also be affected by changes in the general economy since purchases of consumer electronics and sporting goods are generally discretionary for consumers and subject to budgetary constraints by schools and government agencies. Our success is influenced by a number of economic factors affecting disposable consumer income, such as employment levels,

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business conditions, budgetary restrictions of schools and government agencies, interest rates and taxation rates. Adverse changes in these economic factors, among others, may restrict consumer spending or increase budgetary restrictions at schools and government agencies, thereby negatively affecting our sales and profitability.

     As a result of these and other factors, revenues for any quarter are subject to significant variation, which may adversely affect the market price for our common stock.

If our third party sales representatives fail to adequately promote, market and sell our consumer electronic products, our revenues could significantly decrease.

     A portion of our consumer electronic product sales are made through third party sales representative organizations, whose members are not our employees. Our level of sales depends on the effectiveness of these organizations, as well as the effectiveness of our own employees. Some of these third party representatives may sell, with our permission, competitive products manufactured by other third parties as well as our products. During our fiscal years ended March 31, 2004 and 2003, these organizations were responsible for approximately 49% and 59%, respectively, of our net consumer electronics revenues during such periods. In addition, two of these representative organizations were responsible for a significant portion of these revenues. If any of our third party sales representative organizations engaged by us, especially our two largest, fails adequately to promote, market and sell our consumer electronics products, our revenues could be significantly decreased until a replacement organization or distributor could be retained by us. Finding replacement organizations and distributors could be a time consuming process during which our revenues could be negatively impacted.

The ownership of our common stock by Geoffrey P. Jurick, our Chairman, Chief Executive Officer and President, substantially reduces the influence of our other stockholders.

     Geoffrey Jurick, our Chairman, Chief Executive Officer and President, owns approximately 36.0% of our outstanding common stock. As a result, Geoffrey Jurick currently has the ability to influence significantly the actions that require stockholder approval, including:

As a result, our other stockholders may have little or no influence over matters submitted for stockholder approval. In addition, the selling stockholder’s influence could preclude any unsolicited acquisition of us and consequently materially adversely affect the price of our common stock. However, in March 2003, a judgment was entered against Mr. Jurick in favor of Petra Stelling in the amount of approximately $13.9 million, plus interest, and in connection with such judgment 4,188,975 shares of our common stock, or 15.7% of our outstanding common stock, registered in the name of Mr. Jurick were placed in escrow with Mr. Jurick’s counsel for the benefit of the parties.

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We may seek to make acquisitions that prove unsuccessful or strain or divert our management’s attention and our capital resources.

     We may seek to grow our business through acquisitions of related businesses. Such acquisitions present risks that could materially adversely affect our earnings, including:

If we make such acquisitions, we cannot predict whether:

In addition, future acquisitions by us may result in:

We continuously evaluate potential acquisitions of related businesses. However, competition for such potential acquisitions is intense and we have not reached any agreement or arrangement with respect to any particular acquisition and we may not be able to complete any acquisitions on favorable terms or at all.

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We are subject to intense competition in the industries in which we operate which could cause material reductions in the selling price of our products or losses of our market share.

     The consumer electronics industry and the institutional market for sporting goods and leisure products are highly competitive, especially with respect to pricing and the introduction of new products and features. Our consumer electronics segment competes in the low to medium-priced sector of the consumer electronics market and competes primarily on the basis of:

Our sporting goods segment competes in the institutional sporting goods market principally with local sporting goods dealers, retail sporting goods stores, other direct mail catalog marketers and providers of sporting goods on the Internet. Our sporting goods segment competes principally on the basis of:

In recent years we and many of our competitors have regularly lowered prices, and we expect these pricing pressures to continue. If these pricing pressures are not mitigated by increases in volume, cost reductions or changes in product mix, our revenues and profits could be substantially reduced. As compared to us, many of our competitors have:

As a result, our competitors may be able to:

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These factors could materially adversely affect our operations and financial condition. In addition, competition could increase if:

An increase in competition could result in material price reductions or loss of our market share.

Our business could be adversely affected if we cannot protect our intellectual property rights or if we infringe on the intellectual property rights of others.

     Our ability to compete effectively will depend on our ability to maintain and protect our proprietary rights. We own the Emerson® trademark, which is materially important to our business, as well as our other trademarks and proprietary rights that are used for certain of our home entertainment and consumer electronics products. In addition, we license names and trademarks in connection with our sporting goods business. Our trademarks are registered throughout the world, including the United States, Canada, Mexico, France, Spain, Germany and the United Kingdom. However, third parties may seek to challenge, invalidate, circumvent or render unenforceable any proprietary rights owned by or licensed to us. In addition, in the event third party licensees fail to protect the integrity of our trademarks, the value of these marks could be adversely affected.

     The laws of some foreign countries in which we operate may not protect our proprietary rights to the same extent as do laws in the United States. The protections afforded by the laws of such countries may not be adequate to protect our intellectual property rights. Our inability to protect our proprietary rights could materially adversely affect the license of our tradenames and trademarks to third parties as well as our ability to sell our products. Litigation may be necessary to:

Any such litigation, whether or not successful, could result in substantial costs and diversion of resources and management’s attention from the operation of our business.

     We may receive notice of claims of infringement of other parties’ proprietary rights. Such actions could result in litigation and we could incur significant costs and diversion of resources in defending such claims. The party making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief. Such relief could effectively block our ability

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to make, use, sell, distribute or market our products and services in such jurisdiction. We may also be required to seek licenses to such intellectual property. We cannot predict, however, whether such licenses would be available or, if available, that such licenses could be obtained on terms that are commercially reasonable and acceptable to us. The failure to obtain the necessary licenses or other rights could delay or preclude the sale, manufacture or distribution of our products and could result in increased costs to us.

We could be exposed to product liability or other claims for which our product liability or other insurance may be inadequate.

     A failure of any of the products marketed by us, particularly those products sold by our sporting goods segment, may subject us to the risk of product liability claims and litigation arising from injuries allegedly caused by the improper functioning or design of our products. Although we currently maintain product liability insurance in amounts which we consider adequate, we cannot assure that:

We and certain of our officers and directors, are party to a class action lawsuit and we cannot assure the outcome of such litigation. Although we maintain liability insurance in amounts that we consider adequate, we cannot assure that such policies will provide adequate coverage against potential liabilities. To the extent product liability or other litigation losses are beyond the limits or scope of our insurance coverage, our expenses could materially increase. See Item 3 – “Legal Proceedings”.

The inability to use our tax net operating losses could result in a charge to earnings and could require us to pay higher taxes.

     Both Emerson and SSG have substantial tax net operating losses available to reduce taxable income for federal and state income tax purposes. A portion of the benefit associated with the tax net operating losses has been recognized as a deferred tax asset in our financial statements and could be used to reduce our tax liability in future profitable periods. We believe these net deferred tax assets will be realized through tax planning strategies available in future periods and future profitable operating results. Although realization is not assured at either Emerson or SSG, we believe it is more likely than not that all of the remaining net deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced or eliminated in the near term if certain tax planning strategies are not successfully executed, or estimates of future taxable income during the carryforward period is reduced.

     In addition, transactions consummated by us or Geoffrey Jurick, that together with other transactions consummated by Emerson, SSG or Mr. Jurick or that involve the common stock of Emerson or SSG that are deemed collectively to result in a change of control of Emerson or SSG,

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respectively, under the tax code could limit the use of our tax net operating losses. In the event that either Emerson or SSG is unable to utilize its tax net operating losses in a reasonable time frame, it would be required to adjust its deferred tax asset on its financial statements which would result in a charge to earnings. Additionally, should the utilization of tax net operating losses be limited, we would be required to pay a greater amount of taxes in future periods.

Our existing indebtedness may adversely affect our ability to obtain additional funds and may increase our vulnerability to economic or business downturns.

     From time to time we incur debt in connection with our operations. As a result, we may be subject to the risks associated with indebtedness, including:

We have pledged substantially all of our assets to secure our borrowings under our credit facilities and are subject to covenants that may restrict our ability to operate our business.

     Our indebtedness under our credit facilities are secured by substantially all of our assets. If we default under the indebtedness secured by our assets, those assets would be available to the secured creditor to satisfy our obligations to the secured creditor. In addition, our credit facilities impose certain restrictive covenants, including financial, ownership, operational and net worth covenants. Failure to satisfy any of these covenants could result in all or any of the following:

Any of these consequences could significantly reduce the amount of cash and financing available to us which in turn would adversely affect our ability to operate our business, including acquiring our products from our manufacturers and distributing our products to our customers.

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Market Related Risks

The market price of our common stock has experienced significant price and volume fluctuations from time to time.

     The market price for our common stock and for securities of similar companies have from time to time experienced significant price and volume fluctuations. Factors which may affect our market price include:

Furthermore, the stock market has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. These market fluctuations may also adversely affect the market price of our common stock.

Our organizational documents and Delaware law may make it harder for us to be acquired without the consent and cooperation of our board of directors and management.

Several provisions of our organizational documents and Delaware law may deter or prevent a takeover attempt, including a takeover attempt in which the potential purchaser offers to pay a per share price greater than the current market price of our common stock. Under the terms of our certificate of incorporation, our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The ability to issue shares of preferred stock could tend to discourage takeover or acquisition proposals not supported by our current board of directors.

Forward-Looking Information

     This report contains various forward-looking statements made pursuant to the safe harbor provisions of 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. We cannot guarantee the accuracy of the forward-looking statements, and you 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

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under “Risk Factors” set forth above and “Critical Accounting Policies” set forth in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

     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 2. PROPERTIES

     The following table sets forth the material properties owned or leased by us:

     Emerson also utilizes public warehouse space, evidenced by contracts with terms typically of one year. Public warehouse expenses for Emerson varies based on a percentage of sold products shipped from the location. In addition, Emerson rents from SSG on a month to month basis approximately 75,000 sq. ft of warehousing space.

     We believe that the properties used for our operations are in satisfactory condition and adequate for our present and anticipated future operations. In addition to the facilities listed above, SSG leases space in various locations, primarily for use as sales offices, which lease terms range from month to month to three years and are not material to us.

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Item 3. 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 us and Mssrs. Geoffrey Jurick, Kenneth Corby and John Raab (the “Individual Defendants”) on behalf of purchasers of our publicly traded securities who bought shares 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 our directors, as a defendant in the litigation.

     Generally, the Amended Complaint alleges that we 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 our Hello Kitty® license and (ii) omitting to disclose that we suffered allegedly soured relationships with our largest retail customers. The Amended Complaint further alleges that these statements were materially false and misleading when made because we allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading. We, and the Individual Defendants intend to defend the lawsuit vigorously.

Other Matters

     We are a party to various other litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results or operations or cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
             ISSER REPURCHASES OF EQUITY SECURITIES

     (a) Market Information

     Our common stock has traded on the American Stock Exchange under the symbol MSN since December 22, 1994. The following table sets forth the range of high and low sales prices for our common stock as reported by the American Stock Exchange during the last two fiscal years.

     There is no established trading market for our Series A convertible preferred stock, whose conversion feature expired as of March 31, 2002.

     (b) Holders

     At May 19, 2004, there were approximately 367 stockholders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our common stock is held of record in broker “street names.”

     (c) Dividends

     Our policy has been to retain all available earnings, if any, for the development and growth of our business. We have not paid and do not intend to pay cash dividends on our common stock. In addition, our credit facility restricts our ability to pay cash dividends on our common stock.

     (d) Unregistered Securities

     None

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     (e) Share Repurchases

     The following table summarizes our common stock share repurchase program for the quarter ending March 31, 2004. 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 March 31, 2004 quarter, we repurchased 785,325 shares under this program.

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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following table sets forth our selected consolidated financial data for the five years ended March 31, 2004. For the year ended March 31, 2000, we changed our financial reporting year to a 52/53 week year ending on the Friday closest to March 31. Beginning in fiscal 2001, we changed our financial reporting year to end on March 31. The selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, and Item 7 - “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     During fiscal 2001, Emerson increased its ownership in SSG to 50.1%. Accordingly, Emerson’s and SSG’s results of operations are consolidated for fiscal 2004, 2003 and 2002. See Item 8 – “Financial Statements and Supplementary Data – Note 1 and Note 3 of Notes to the Consolidated Financial Statements.”

     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 with the Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

     Special Note: Certain statements set forth below constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See Item 1 - “Business- Forward-Looking Statements.”

     In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations.

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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 fiscal years ended March 31. A detailed discussion of the material changes in our operating results is set forth under our discussion of our two operating segments: consumer electronics and sporting goods.

Results of Consolidated Operations - Fiscal 2004 compared with Fiscal 2003

     Net Revenues - Net revenues for fiscal 2004 decreased approximately $66.5 million, or 20.1%, to $263.8 million as compared to $330.3 million for fiscal 2003. The decrease in net revenues was primarily due to a decrease of approximately $65.3 million, or 26.6%, in the consumer electronics segment, as well as a decrease of $1.3 million, or 1.5%, in the sporting goods segment.

     Cost of Sales - Cost of sales, in absolute terms, decreased $48.6 million, or 18.4%, to $215.4 million for fiscal 2004 as compared to $264.0 million for fiscal 2003. This decrease was primarily due to a decrease of $49.1 million, or a decrease of 24.2% in the consumer electronics segment, partially offset by an increase of $474,000, or an increase of .8%, in the sporting goods segment. As a percentage of consolidated net revenues, cost of sales increased from 80.0% in fiscal 2003 to 81.7% in fiscal 2004. The percentage increase in cost of sales was primarily the result of lower margins in the consumer electronics segment for the current fiscal year.

     Other Operating Costs and Expenses - Other operating costs and expenses are associated with the consumer electronics segment and include those components as described in Note 1 of Notes to Consolidated Financial Statements. As a result of increased activity in these areas, other operating costs increased $0.9 million, or 20.8%, from $4.3 million (1.3% of consolidated net revenues) in fiscal 2003 to $5.3 million (2.0% of consolidated net revenues) in fiscal 2004.

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     Selling, General and Administrative Expenses (“S,G&A”) - In absolute terms, S,G&A expenses decreased $1.2 million, or 2.7%, to $42.0 million (15.9% of consolidated net revenues) in fiscal 2004 as compared to $43.2 million (13.0% of consolidated net revenues) in fiscal 2003. This decrease in S,G&A was primarily the result of a decrease of $1.5 million, or 8.5%, in the consumer electronics segment, partially offset by an increase of $0.3 million, or 1.2% in the sporting goods segment. As a percentage of consolidated net revenues, S,G&A expenses increased to 15.9% for fiscal 2004 as compared to 13.0% for fiscal 2003, principally as a result of the decline in revenues.

     Acquisition Costs – Acquisition costs are associated with the consumer electronics segment. Acquisition costs were $1.6 million (0.6% of consolidated net revenues) for fiscal 2004, due to two unsuccessful acquisition attempts during the year. There were no acquisition costs in fiscal 2003.

     Stock Based Costs – Stock based costs are associated with the consumer electronics segment, which relate to the value of warrants issued in exchange for consulting services. Stock based costs increased from $49,000 (less than 0.1% of consolidated net revenues) in fiscal 2003 to $511,000 (0.2% of consolidated net revenues) in fiscal 2004.

     Interest expense, net - Interest expense decreased $1.2 million, or 46.2%, from $2.5 million (0.8% of consolidated net revenues) in fiscal 2003 to $1.3 million (0.5% of consolidated net revenues) in fiscal 2004. The decrease was primarily due to lower borrowing amounts and lower interest rates, resulting in a decrease of $1.0 million, or 53.4%, in the consumer electronics segment, as well as a decrease of $0.2 million, or a 23.4% decrease in the sporting goods segment.

     Minority Interest in Net Loss of Consolidated Subsidiary - Minority interest in net loss of consolidated subsidiary represents that portion of the sporting goods segment loss for the fiscal year that relates to the ownership of SSG by shareholders other than us. See Item 8 – “Financial Statements and Supplementary Data - Note 1 of Notes to Consolidated Financial Statements.”

     Provision (Benefit) For Income Taxes – The provision for income taxes in absolute terms was $2.2 million in fiscal 2004 as compared to a tax benefit of ($9.3) million in fiscal 2003. The provision of $2.2 million in fiscal 2004 primarily represents the deferred tax charges associated with Emerson's profits in the United States. The tax benefit in fiscal 2003 was primarily the result of a reduction in the valuation reserve in the consumer electronics segment, previously established against the deferred tax assets relating to the accounts receivable and inventory temporary differences, as well as the recognition of management’s estimation of net operating loss carryforwards subject to limitations under IRC Section 382. See Item 8 – “Financial Statements and Supplementary Data - Note 7 of Notes to Consolidated Financial Statements.”

     Income from Discontinued Operations, Net of Tax – Income from discontinued operations, net of tax, is associated with the sporting goods segment. In July, October and November 2003, SSG ceased operations of its Team Dealer locations in Little Rock, Arkansas, Enid, Oklahoma, and Wichita, Kansas, respectively. In addition, SSG sold all of the issued and outstanding capital stock of ATEC. Income from discontinued operations increased $1.9 million to $2.7 million (1.0 % of consolidated net revenues) in fiscal 2004 from $0.8 million (0.3% of

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consolidated net revenues) in fiscal 2003. See Item 8 – “Financial Statements and Supplementary Data – Note 17 of Notes to Consolidated Financial Statements.”

     Net Income (loss) - As a result of the foregoing factors, we had a net loss of approximately $1.1 million (-0.4% of consolidated net revenues) for fiscal 2004 as compared to net income of $21.5 million (6.5% of consolidated net revenues) for fiscal 2003.

Results of Consolidated Operations – Fiscal 2003 compared with Fiscal 2002

     Net Revenues - Net revenues for fiscal 2003 increased $33.1 million, or 11.2%, to $330.3 million as compared to $297.2 million for fiscal 2002. The increase in net revenues was primarily due to an increase of approximately $32.7 million, or a 15.4% increase in the consumer electronics segment, as well as an increase of approximately $427,000, or a 0.5% increase in the sporting goods segment.

     Cost of Sales - Cost of sales, in absolute terms, increased $22.5 million, or 9.3%, to $264.0 million (80.0% of consolidated net revenues) in fiscal 2003 as compared to $241.5 million (81.3% of consolidated net revenues) for fiscal 2002. The cost of sales change was primarily due to a change of $22.9 million in the consumer electronics segment (12.7%), which was due to an increased sales base, partially offset by a decrease of approximately $354,000, or .6%, in the sporting goods segment. As a percentage of consolidated net revenues, cost of sales decreased from 81.3% in fiscal 2002 to 80.0% in fiscal 2003. The decrease in cost of sales was primarily the result of higher margins in the consumer electronics segment in fiscal 2003.

     Other Operating Costs and Expenses - Other operating costs and expenses are associated with the consumer electronics segment. Other operating costs decreased approximately $601,000, or 12.1%, from $4.9 million (1.7% of consolidated net revenues) in fiscal 2002 to $4.3 million (1.3% of consolidated net revenues) in fiscal 2003, primarily as a result of a decrease in costs related to inventory servicing costs.

     Selling, General and Administrative Expenses (“S,G&A”) - S,G&A expenses increased $2.0 million, or 4.9%, to $43.2 million (13.0% of consolidated net revenues) in fiscal 2003 from $41.2 million (13.8% of consolidated net revenues) in fiscal 2002. The increase in S,G&A in absolute terms was primarily the result of an increase of $3.2 million, or 22.5%, in the consumer electronics segment, partially offset by a decrease of $1.2 million, or 4.3%, in the sporting goods segment.

     Stock Based Costs – Stock based costs are associated with the consumer electronics segment, which relate to the cost of warrants issued in exchange for consulting services. Stock based costs for fiscal 2003 were approximately $49,000, (less than 0.1% of consolidated net revenues). There were no stock based costs recorded in fiscal 2002.

     Litigation Settlement, net - Litigation settlement in fiscal 2002 was the result of the consumer electronics segment settling litigation in the amount of $2.9 million, net of legal costs with a former trademark licensee.

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     Interest expense, net — Interest expense decreased approximately $630,000, or 20.2%, from $3.1 million (1.0% of consolidated net revenues) in fiscal 2002 to $2.5 million (0.7% of consolidated net revenues) in fiscal 2003. The decrease is primarily due to a decrease of approximately $527,000, or a decrease of 21.8%, in the consumer electronics segment, as well as a decrease of approximately $103,000, or a decrease of 14.7%, in the sporting goods segment. The decreases in both segments were the result of lower borrowing amounts and lower interest rates.

     Minority Interest in Net Loss of Consolidated Subsidiary — Minority interest in net loss of consolidated subsidiary represents that portion of the sporting goods segment loss for the fiscal year that was not included in the consolidated statements of operations. See Item 8 – “Financial Statements and Supplementary Data — Note 1 of Notes to Consolidated Financial Statements.”

     Provision (benefit) For Income Taxes — Benefit for income taxes in absolute terms increased $1.7 million, or 22.3%, to ($9.3) million in fiscal 2003 as compared to ($7.6) million in fiscal 2002. The increase in the tax benefit in fiscal 2003 was primarily the result of a reduction in a valuation reserve in the consumer electronics segment, previously established against the deferred tax assets relating to the accounts receivable and inventory temporary differences, as well as the recognition of management’s estimation of net operating loss carryforwards subject to limitations under IRC Section 382. See Item 8 – “Financial Statements and Supplementary Data – Note 7 of Notes to Consolidated Financial Statements.”

     Income from Discontinued Operations, Net of Tax — Income from discontinued operations, net of tax, are associated with the sporting goods segment. Income from discontinued operations increased $82,000, or 10.8%, to $840,000 (0.3 % of consolidated net revenues) in fiscal 2003 from $758,000 (0.2% of consolidated net revenues) in fiscal 2002. See Item 8 – “Financial Statements and Supplementary Data – Note 17 of Notes to Consolidated Financial Statements.”

     Cumulative Effect of Change in Accounting Principle — On April 1, 2002, we adopted Financial Accounting Standards Board’s Statement No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires that goodwill not be amortized, but instead be tested for impairment at least annually by reporting unit. Goodwill is required to be tested for impairment in a transitional test upon adoption and then at least annually by reporting unit. As a result of our impairment testing, we recorded a non-cash “cumulative effect of accounting change” of approximately $5.5 million due to the impairment of all of the goodwill attributed to the Company’s sporting goods segment. See Item 8 – “Financial Statements and Supplementary Data – Note 5 of Notes to Consolidated Financial Statements.”

     Net Income — As a result of the foregoing factors, we earned net income of $21.5 million (6.5% of consolidated net revenues) for fiscal 2003 as compared to $19.4 million (6.5% of consolidated net revenues) for fiscal 2002.

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Consumer Electronics Segment:

     The following table summarizes certain financial information relating to the consumer electronics segment for the fiscal years ended March 31 (in thousands):

Results of Consumer Electronics Operations — Fiscal 2004 compared with Fiscal 2003

     Net Revenues — Net revenues for fiscal 2004 decreased $65.3 million, or 26.6%, to $180.0 million as compared to $245.2 million for fiscal 2003. Consumer electronics net revenues are comprised of Emerson branded product sales, themed product sales and licensing revenues. Emerson branded product sales are earned from the sale of products bearing the Emerson or HH Scott brand name; themed product sales represent products sold bearing a certain theme or character; and licensing revenues are derived from licensing Emerson and HH Scott brand names to licensees for a fee. The decrease in net revenues comprised of:

     Cost of Sales — In absolute terms, cost of sales decreased $49.1 million, or a 24.2% decrease, to $153.6 million in fiscal 2004 as compared to $202.7 million in fiscal 2003. Cost of sales, as a percentage of net revenues, increased from 82.7% in fiscal 2003 to 85.4% in fiscal

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2004. The increase in cost of sales in relative terms was primarily due to lower margins on product sales of traditionally higher margin themed products, and lower margins on Emerson branded products, primarily attributable to competitive market conditions. In absolute terms, cost of sales decreased by $49.1 million due to a lower revenue base.

     Gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the price categories of the consumer electronics market in which Emerson competes, accordingly, a change in revenues does not directly correlate to a change in unit volume. Emerson’s products are generally placed in the low-to-medium priced category of the market, which has a tendency to be highly competitive.

     Other Operating Costs and Expenses — Other operating costs and expenses, include those components as described in Note 1 of Notes to Consolidated Financial Statements. As a result of increased activity in these areas, other operating costs and expenses as a percentage of net revenues, were 2.9% in fiscal 2004 as compared to 1.8% in fiscal 2003. In absolute terms, other operating costs and expenses increased $906,000, or 20.8%, to $5.3 million for fiscal 2004 as compared to $4.3 million in fiscal 2003.

     Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, were 8.8% in fiscal 2004 as compared to 7.1% in fiscal 2003. S,G&A, in absolute terms, decreased $1.5 million, or an 8.5% decrease to $15.9 million in fiscal 2004 as compared to $17.4 million for fiscal 2003. The decrease in S,G&A in absolute terms between fiscal 2004 and 2003 was primarily due to a reduction in bad debt expense of approximately $1.5 million.

     Acquisition Costs — Acquisition costs were $1.6 million (0.9% of consumer electronics segment net revenues) for fiscal 2004, due to two unsuccessful acquisition attempts during the year. There were no acquisition costs in fiscal 2003.

     Stock Based Costs — Stock based costs, are the value of warrants issued in exchange for consulting services. Stock based costs increased from $49,000 (less than 0.1% of consumer electronics net revenues) in fiscal 2003 to $511,000 (0.3% of consumer electronics net revenues) in fiscal 2004.

     Interest Expense, net — Interest expense decreased $1.0 million, or 53.4%, from $1.9 million (0.8% of consumer electronics net revenues) in fiscal 2003 to $0.9 million (0.5% of net revenues) in fiscal 2004. The decrease was attributable primarily to decreased borrowing amounts and lower interest rates.

     Provision (benefit) for Income Taxes — Emerson’s provision for income taxes was $2.2 million for fiscal 2004 as compared to a benefit of $9.3 million for fiscal 2003. The provision of $2.2 million in fiscal 2004 represents deferred tax charges associated with Emerson's profits in the United States. The benefit for fiscal 2003 consisted primarily of the reduction in the valuation reserve previously established against the deferred tax assets relating to the accounts receivable and inventory temporary differences, as well as the recognition of management’s estimation of net operating loss carryforward’s subject to limitations under IRC Section 382, which management believes it was likely to realize the benefit of such net deferred tax assets. See Item 8 – “Financial Statements and Supplementary Data – Note 7 of Notes to Consolidated Financial Statements.”

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     Net Income - As a result of the foregoing factors, the consumer electronics segment generated net income of $60,000 (less than 0.1% of net revenues) in fiscal 2004 as compared to $28.1 million (11.5% of net revenues) in fiscal 2003.

Results of Consumer Electronics Operations – Fiscal 2003 compared with Fiscal 2002

     Net Revenues - Net revenues for fiscal 2003 increased $32.7 million, or 15.4%, to $245.2 million as compared to $212.5 million for fiscal 2002. Consumer electronics net revenues are comprised of Emerson branded product sales, themed product sales and licensing revenues. Emerson branded product sales are earned from the sale of products bearing the Emerson or HH Scott brand name; themed product sales represent products sold bearing a certain theme or character; and licensing revenues are derived from licensing Emerson and HH Scott brand names to licensees for a fee. The increase in net revenues was primarily comprised of the following segments, partially offset by corresponding increases in sales allowances:

     Cost of Sales - Cost of sales, as a percentage of consumer electronics net revenues, decreased from 84.6% in fiscal 2002 to 82.7% in fiscal 2003. The decrease in cost of sales was primarily due to higher margins on product sales and an increase in licensing revenue. In absolute terms, cost of sales increased $22.9 million, or 12.7%, in fiscal 2003 as compared to fiscal 2002.

     Other Operating Costs and Expenses - Other operating costs and expenses, as a percentage of net revenues, were 1.8% in fiscal 2003 as compared to 2.3% in fiscal 2002. In absolute terms, other operating costs and expenses decreased approximately $601,000, or 12.1%, to $4.3 million for fiscal 2003 as compared to $4.9 million for fiscal 2002, primarily due to a decrease in inventory servicing costs.

     Selling, General and Administrative Expenses (“S,G&A”) - S,G&A increased $3.2 million, or 22.5%, to $17.4 million in fiscal 2003 (7.1% of consumer electronics net revenues) compared to $14.2 million (6.7% of consumer electronics net revenues) in the prior fiscal year. The increase in S,G&A, in absolute terms, between fiscal 2003 and 2002 was primarily due to increased payroll related expenses of approximately $1.0 million, additional bad debt expenses and increased bad debt reserves totaling approximately $1.5 million, and additional freight out

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and sales commissions totaling approximately $1.1 million, partially offset by various decreases in lesser accounts.

     Stock Based Costs – Stock based costs, relate to the cost of warrants issued in exchange for consulting services. Stock based costs for fiscal 2003 were approximately $49,000, or less than 0.1% of consumer electronics net revenues. There were no stock based costs recorded in fiscal 2002.

     Litigation Settlement, net - The gain from litigation settlement was the result of a settled litigation in fiscal 2002, which was a one time event.

     Interest Expense, net - Interest expense decreased $527,000, or 21.8%, from $2.4 million (1.1% of net revenues) in fiscal 2002 to $1.9 million (0.8% of net revenues) in fiscal 2003. The decrease was attributable primarily to decreased borrowing amounts and lower interest costs.

     Provision (benefit) for Income Taxes - Emerson’s benefit for income taxes was $9.3 million (-3.8% of net revenues) for fiscal 2003 as compared to a benefit of $7.7 million (-3.6% of net revenues) for fiscal 2002. The benefit of $9.3 million consisted primarily of the reduction in the valuation reserve previously established against the deferred tax assets relating to the accounts receivable and inventory temporary differences, as well as the recognition of management’s estimation of net operating loss carryforward’s subject to limitations under IRC Section 382, which management believes it was likely to realize the benefit of such net deferred tax assets. This is partially offset by foreign and state taxes. See Item 8 – “Financial Statements and Supplementary Data – Note 7 of Notes to Consolidated Financial Statements.”

     Net Income - As a result of the foregoing factors, the consumer electronics segment generated net income of $28.1 million (11.5% of net revenues) in fiscal 2003 as compared to $21.6 million (10.2% of net revenues) in fiscal 2002.

Sporting Goods Segment:

     During fiscal 2004, SSG discontinued operations of certain team dealer operations, and sold all of the capital stock of ATEC. These businesses have been classified as discontinued operations, and, accordingly, their operating results have been reported separate from continuing operations. The financial statements for fiscal 2002 through 2004 have been reclassified to reflect such discontinued results. The following table summarizes certain financial information relating to the sporting goods segment for the fiscal years 2004, 2003, and 2002 (in thousands):

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Results of Sporting Goods Operations - Fiscal 2004 compared with Fiscal 2003

     Net Revenues - Net revenues for fiscal 2004 decreased approximately $1.3 million (1.5%) as compared to fiscal 2003. The decrease in net revenues was primarily a result of increased competition, a decreased sales force, continued restrictions in state, federal and school budgets and declining participation and funding of youth sports organizations.

     Cost of Sales - Cost of sales, as a percentage of net revenues, increased for fiscal 2004 to 73.7% as compared to 72.1% for 2003, or by $474,000. This was due to a $542,000 write-down for obsolete and slow moving inventory, and to a lesser extent, more aggressive pricing, increased freight and increased importing costs.

     Selling, General and Administrative Expenses (“S,G&A”) - S,G&A expenses for fiscal 2004 increased by $319,000 (1.2%) as compared to fiscal 2003. As a percentage of net revenues, S,G&A increased to 31.2% in fiscal 2004 from 30.3% in fiscal 2003. The increase in S,G& A in absolute and relative terms was primarily due to an increase in professional service fees of approximately $617,000, bankrupt freight carrier expenses of $296,000 and $181,000 in uncollectable trade account receivable allowances partially offset by decreases in payroll related expenses of $460,000, employee travel and entertainment expense of $215,000 and $145,000 in facility expenses.

     Interest Expense, net - Interest expense, net decreased approximately $140,000 (23.4%) in fiscal 2004 as compared to fiscal 2003. The decrease was attributable primarily to decreased overall levels of borrowing.

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     Benefit for Income Taxes - The sporting goods segment has a net operating loss carryforward included in net deferred tax assets that can be used to offset future taxable income and can be carried forward for 15 to 20 years. Realization of the deferred tax asset is dependent on generating sufficient taxable income, either through operations or tax planning strategies, prior to the expiration of loss carryforwards. The deferred tax asset associated with the current year losses was offset with a full valuation allowance and accordingly no benefit for income taxes was recorded in fiscal 2004.

     Discontinued Operations – Discontinued operations reflect net operating losses related to our discontinued and sold team dealer operations and the net income from and net gain on sale of our ATEC subsidiary, which occurred in fiscal 2004.

     Net loss - As a result of the foregoing factors, a net loss of $1.9 million was reported for fiscal 2004 as compared to a net loss of $9.3 million for fiscal 2003.

Results of Sporting Goods Operations - Fiscal 2003 compared with Fiscal 2002

     Net Revenues - Net revenues for fiscal 2003 increased approximately $427,000, or 0.5% as compared to fiscal 2002.

     Cost of Sales - Cost of sales, as a percentage of net revenues, decreased for fiscal 2003 to 72.1% as compared to 72.9% for 2002. In absolute terms, cost of sales decreased in fiscal 2003 by $354,000 as compared to fiscal 2002 due to the consolidation of several of our plants, exiting certain unprofitable product lines and improved product sourcing.

     Selling, General and Administrative Expenses (“S,G&A”) - S,G&A expenses for fiscal 2003 decreased by $1.2 million (4.3%) as compared to fiscal 2002. As a percentage of net revenues, S,G&A decreased to 30.3% in fiscal 2003 from 31.9% in fiscal 2002. The decrease in S,G& A in absolute and relative terms was primarily due to: (i) a $487,000 decrease in payroll related costs; (ii) a $476,000 decrease in amortization and depreciation; and (iii) a $168,000 decrease in professional fees.

     Interest Expense, net - Interest expense, net decreased approximately $103,000 (14.7%) in fiscal 2003 as compared to fiscal 2002. The decrease was attributable primarily to decreased overall levels of borrowing and lower interest rates.

     Benefit for Income Taxes - The sporting goods segment has a net operating loss carryforward included in net deferred tax assets that can be used to offset future taxable income and can be carried forward for 15 to 20 years. As such, realization of the deferred tax asset is dependent on generating sufficient taxable income, either through operations or tax planning strategies, prior to the expiration of loss carryforwards. See Item 8 – “Financial Statements and Supplementary Data – Note 7 of Notes to Consolidated Financial Statements.”

     Discontinued Operations – Discontinued operations reflect net operating losses related to our discontinued and sold team dealer operations and the net income from our sold ATEC subsidiary.

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     Cumulative Effect of Change in Accounting Principle - On April 1, 2002, we adopted Financial Accounting Standards Board’s Statement No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires that goodwill not be amortized, but instead be tested for impairment at least annually by reporting unit. Goodwill is required to be tested for impairment in a transitional test upon adoption and then at least annually by reporting unit. As a result of our testing, a non-cash “cumulative effect of accounting change” write down of approximately $7.4 million was recorded. As a result of the write down of $7.4 million, SSG has no remaining goodwill on their financial statements.

     Net loss - As a result of the foregoing factors, a net loss of $9.3 million was reported for fiscal 2003 as compared to a net loss of $3.9 million for fiscal 2002.

Liquidity and Capital Resources

     As of March 31, 2004, we had cash and cash equivalents of approximately $6.4 million compared to approximately $11.4 million at March 31, 2003. Working capital decreased to $46.8 million at March 31, 2004 as compared to $49.1 at March 31, 2003. The decrease in cash and cash equivalents of approximately $5.0 million was primarily due to financing activities, partially offset by investing activities.

     Operating cash flow used in continuing operating activities was approximately $2.1 million for fiscal 2004. Cash was primarily used for operations by the increase in inventories to meet consumer demand, offset by a reduction of prepaid and other current assets, and an increase in accounts payables and other current liabilities.

     Operating cash flow provided by discontinued operations for the fiscal year 2004 was approximately $2.4 million due to the results and disposals of SSG’s ATEC subsidiary and Team Dealer locations.

     Net cash provided by investing activities was $10.3 million for fiscal 2004, due to the sale of ATEC shares for $10.5 million, offset by the purchase of fixed assets, which consisted mainly of computer and office equipment.

     Net cash utilized by financing activities was $15.6 million for fiscal 2004. Cash was primarily utilized for the reduction of borrowings and the repurchase of Emerson’s common stock.

     Emerson and SSG maintain credit facilities as described in Note 6 – Borrowings. At March 31, 2004, there were approximately $15 million of borrowings outstanding under these facilities, of which no letters of credit were outstanding. Emerson amended its loan agreement and obtained a waiver of non-compliance with a financial covenant for the period ended March 31, 2004. At March 31, 2004, SSG was in compliance with the covenants on its credit facilities.

     Our foreign subsidiaries maintain various credit facilities, aggregating $82.5 million, with Hong Kong banks consisting of the following:

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     At March 31, 2004, our Hong Kong subsidiary pledged approximately $3.0 million in certificates of deposit to this bank to assure the availability of the $12.5 million credit facilities. At March 31, 2004, there were approximately $14.3 million of letters of credit outstanding under these credit facilities. These letter of credit facilities require a net worth covenant of the foreign subsidiaries with which this subsidiary was in compliance at March 31, 2004.

     Short-Term Liquidity.

     Liquidity for the consumer electronics segment is impacted by its seasonality in that we generally record the majority of our annual sales in the quarters ending September and December. This requires the consumer electronics segment to maintain higher inventory levels during the quarters ending June and September, therefore increasing the working capital needs during these periods. Additionally, the consumer electronics segment receives the largest percentage of product returns in the quarter ending March. The higher level of returns during this period adversely impacts Emerson’s collection activity, and therefore its liquidity. Management believes that the license agreements as discussed above, continued sales margin improvement and the policies in place for returned products, should continue to favorably impact its cash flow. In fiscal 2004, products representing approximately 51% of net revenues of the consumer electronics segment were imported directly to our customers that contribute significantly to Emerson’s liquidity.

     Liquidity for the sporting goods segment is also impacted by its seasonality in that it generally records the majority of revenues in the March quarter, which is its highest sales period. The quarter ending December is its lowest sales period. This requires the sporting goods segment to maintain higher amounts of inventory during the quarters ending March and June, therefore increasing the working capital needs during these periods.

     Our principal existing sources of cash are generated from operations and borrowings available under our revolving credit facility. As of March 31, 2004, we had $35.7 million of borrowing capacity available under our $45.0 million revolving credit facilities (reflecting outstanding loans of approximately $15.0 million). In addition, at March 31, 2004 we had $70.0 million of letter of credit facilities, of which approximately $65.0 million was available. We believe that our existing sources of cash for the consumer electronics segment and sporting goods segment will be sufficient to support our existing operations over the next 12 months; provided, however, we may raise additional financing, which may include the issuance of equity securities, or the incurrence of additional debt, in connection with our operations or if we elect to grow our business through acquisitions.

     Long-Term Liquidity. We continue to be subject to competitive pressures arising from pricing strategies. SSG has discontinued certain lower margin products in favor of higher margin

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replacement products. Management believes that this, together with our various license agreements and the continued introduction of higher margin products in both segments, the sourcing of less costly product from foreign manufacturers by SSG combined with reduced selling, general and administrative expenses will result in a return to profitability by SSG. Both senior secured credit facilities for Emerson and SSG impose financial covenants. Non-compliance with the covenants could materially affect our future liquidity. Management believes that anticipated cash flow from operations and the financing noted above will provide sufficient liquidity to meet our operating and debt service cash requirements on a long-term basis.

     The following summarizes our obligations at March 31, 2004 for the periods shown (in thousands):

     As of March 31, 2004, there were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product.

     Off-Balance Sheet Arrangements. We do not have any off-balance sheet arrangements.

Critical Accounting Policies

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States accounting principles. The preparation of these financial statements require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We consider certain accounting policies related to inventories, trade accounts receivables, impairment of long lived assets, valuation of deferred tax assets, sales return reserves and cooperative advertising accruals to be critical policies due to the estimation processes involved in each.

     Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis for our consumer electronics segment, and average cost for our sporting goods segment. We record inventory reserves to reduce the carrying value of inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by

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management, additional inventory reserves may be required. Conversely, if market conditions improve, such reserves are reduced.

     Trade Accounts Receivable. We extend credit based upon evaluations of a customer’s financial condition and provide for any anticipated credit losses in our financial statements based upon management’s estimates and ongoing reviews of recorded allowances. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional reserves may be required. Conversely, reserves are deducted to reflect credit and collection improvements.

     Intangible Assets. SSG has intangible assets related to other acquired intangibles. The determination of related estimated useful lives and whether or not these assets are impaired involves management judgments. Changes in strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded asset balances. On April 1, 2002, we adopted SFAS 142, which requires us to cease amortization of goodwill, to perform a transitional test for potential goodwill impairment upon adoption, and then test goodwill for impairment at least annually by reporting unit. See Note 5 – “Goodwill and Other Intangible Assets.”

     Income Taxes. We record a valuation allowance to reduce the amount of our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event that we determined that we would not be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, if it was determined that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

     Sales Return Reserves. Our management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends and changes in customer demand for our products when evaluating the adequacy of the reserve for sales returns. Management judgments and estimates must be made and used in connection with establishing the sales return reserves in any accounting period. If actual sales returns increase above the historical return rates, then additional reserves may be required. Conversely, the sales return reserve could be decreased if the actual return rates are less than the historical return rates, which were used to establish such sales return reserve.

     Cooperative Advertising Accruals. Cooperative advertising programs promotions and other volume-based incentives, which are provided to retailers and distributors for advertising and sales promotions, are accounted for on an accrual basis as a reduction in net revenues in the period, which the related sales are recognized as per EITF 01-09 “Accounting for Consideration Given by a Vendor to a Customer.” If additional cooperative advertising programs promotions and other volume-based incentives are required to promote the Company’s products, then additional reserves may be required. Conversely, reserves are decreased to reflect the lesser need for cooperative advertising programs.

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Recently-Issued Financial Accounting Pronouncements

     In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which addresses how an issuer classifies and measures financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuers. This statement is effective for financial instruments entered into or modified after May 31, 2003. For financial instruments created before the issuance date of this statement and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by this statement. We adopted this statement as of July 1, 2003 and it did not have any material impact on our financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Inflation, Foreign Currency, and Interest Rates

     Neither inflation nor currency fluctuations had a significant effect on our results of operations during fiscal 2004. 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 rate. While a significant increase in interest rates could have an adverse effect on our financial condition and results of operations, management believes that given the present economic climate, interest rates are not expected to increase significantly during the coming year.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Index to Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
of Emerson Radio Corp.

     We have audited the accompanying consolidated balance sheet of Emerson Radio Corp. and Subsidiaries as of March 31, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the management of Emerson Radio Corp. and Subsidiaries. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement and schedule. We believe that our audit provides 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, 2004, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule presents fairly in all material respects the information set forth therein.

BDO SEIDMAN, LLP

New York, New York
June 28, 2004

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the management of Emerson Radio Corp. and Subsidiaries. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about 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, 2003, and the consolidated results of its operations and cash flows for each of the two years in the period ended March 31, 2003, in conformity with U.S. generally accepted accounting principles. 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.

     As discussed in Note 5 to the consolidated financial statements, the Company adopted Statement of Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” effective April 1, 2002.

ERNST & YOUNG, LLP

New York, New York
May 19, 2003

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EMERSON RADIO CORP. AND SUBSIDIARIES

The accompanying notes are an integral part of the consolidated financial statements.

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EMERSON RADIO CORP. AND SUBSIDIARIES

[Continued from above table, first column(s) repeated]

The accompanying notes are an integral part of the consolidated financial statements.

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EMERSON RADIO CORP. AND SUBSIDIARIES