EMERSON RADIO CORP - Quarter Report: 2004 June (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

or

For the transition period from                                                          to                                                         

Commission file number 0-25226

EMERSON RADIO CORP.

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

     Indicate by check mark whether the registrant is an accelerated Filer (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

     Indicate the number of shares outstanding of common stock as of July 23, 2004: 27,037,608.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)

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

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EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

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

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EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

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

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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Emerson Radio Corp. (“Emerson”, consolidated — the “Company”) and its majority-owned subsidiaries, including Sport Supply Group, Inc. (“SSG”), which has been 53.2% owned since February 2002.

     The Company operates in two business segments: consumer electronics and sporting goods. The consumer electronics segment designs, sources, imports and markets a variety of consumer electronic products and licenses the “” trademark for a variety of products domestically and internationally to certain licensees. The sporting goods segment, which is operated through SSG, manufactures and markets sports related equipment and leisure products to institutional customers 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 its wholly-owned subsidiary, Athletic Training Equipment Company, Inc. (“ATEC”). Collectively, SSG refers to these operations as “Discontinued Operations” and accordingly, the accompanying financial statements reflect these as discontinued operations. (See Note 12)

     The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of our consolidated financial position as of June 30, 2004 and the results of operations for the quarters ended June 30, 2004 and 2003. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in our annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2004 (“fiscal 2004”), included in our annual report on Form 10-K for fiscal 2004.

     Certain reclassifications were made to conform the prior year’s financial statements to the current presentation.

     The consolidated financial statements include our accounts and all of our majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes; actual results could materially differ from those estimates.

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     Due to the seasonal nature of both segments, the results of operations for the quarter ended June 30, 2004 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the full year ending March 31, 2005 (“fiscal 2005”).

     Emerson and SSG have elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees: (“APB 25”) and related Interpretations in accounting for its employee stock options. Under APB 25, if the exercise price of employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Emerson and SSG have adopted the disclosure-only provisions under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). For the purposes of SFAS 123 pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting periods. Our pro forma information for the quarter ended June 30, 2004 and 2003 is as follows:

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NOTE 2 — COMPREHENSIVE INCOME

     Our comprehensive income (loss) for the three months ended June 30, 2004 and 2003 is as follows (in thousands):

NOTE 3 — NET EARNINGS (LOSS) PER SHARE

     The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):

NOTE 4 - CAPITAL STRUCTURE

     Our outstanding capital stock at June 30, 2004 consisted of common stock and Series A convertible preferred stock in which the conversion feature expired effective March 31, 2002.

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     At June 30, 2004, Emerson had outstanding approximately 907,000 options with exercise prices ranging from $1.00 to $1.50 and SSG had outstanding approximately 208,000 options with exercise prices ranging from $0.95 to $9.44. Subsequent to June 30, 2004, 675,000 of the Emerson options were exercised in cashless exchanges resulting in 438,910 shares being issued.

     On August 1, 2002, in connection with a consulting agreement, Emerson granted 200,000 warrants with an exercise price of $2.20, of which 100,000 warrants vested after six months and 100,000 warrants vested one year from date of grant. The warrants were valued using the Black-Scholes option valuation model and were charged to earnings over the related service period of the consulting agreement with approximately $18,000 being charged to operations for the three months ended June 30, 2003. In February 2003, 100,000 of these warrants were exercised. In November 2003, the remaining 100,000 of these warrants were exercised under a cashless exercise and 45,544 shares of common stock were issued.

     On October 7, 2003, in conjunction with a consulting agreement, Emerson granted 50,000 warrants with immediate vesting and an exercise price of $5.00 per share. These warrants were valued using the Black-Scholes option valuation model, which resulted in $90,500 being charged to earnings during fiscal 2004. For the three months ending June 30, 2004, no expense was charged to operations for these warrants. As of June 30, 2004, these warrants had not been exercised.

NOTE 5 — INVENTORY

     Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for the consumer electronics segment and the average cost method is used for the sporting goods segment. As of June 30, 2004 and March 31, 2004, inventories consisted of the following (in thousands):

NOTE 6 — INCOME TAXES

     We have tax net operating loss carry forwards included in net deferred tax assets that are available to offset future taxable income and can be carried forward for 15 to 20 years. Although realization is not assured, we believe it is more likely than not that all of the net deferred tax assets will be realized through tax planning strategies

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available in future periods and through future profitable operating results. The amount of the deferred tax asset considered realizable, however, could be reduced or eliminated if certain tax planning strategies are not successfully executed or estimates of future taxable income during the carryforward period are reduced. If we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

     At June 30, 2004, approximately $20.4 million of deferred tax assets were reported on our balance sheet.

NOTE 7 — RELATED PARTY TRANSACTIONS

     Effective March 1997, Emerson entered into a Management Services Agreement with SSG, under which each company provides various managerial and administrative services to the other company for fees at terms which reflect arms length transactions. These charges have been eliminated in consolidation, but are reflected in the segment information presented in Note 10.

NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, the Financial Accounting Standards Board issued 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. As a result of adopting SFAS 142, we ceased recording amortization of goodwill on April 1, 2002.

     As of June 30, 2004, estimated amortization expense of other intangible assets for each of the next five years is as follows (in thousands):

NOTE 9 — BORROWINGS

     As of June 30, 2004 and March 31, 2004, short-term borrowings consisted of the following (in thousands):

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     As of June 30, 2004 and March 31, 2004, long-term borrowings consisted of the following (in thousands):

     Revolver A - The Borrowing Base amount on Revolver A loan is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime plus 0.50% to 1.25% or, at Emerson’s election, LIBOR plus 2.00% to 2.75% depending on certain financial covenants. This agreement provides for revolving loans which cannot exceed the lesser of $25 million or a “Borrowing Base” amount based upon specified percentages of eligible accounts receivables and inventories. Pursuant to the Loan Agreement as amended, Emerson is restricted from, among other things, paying certain cash dividends, repurchasing its common stock and entering into certain transactions without the lender’s prior consent and are subject to certain net worth and leverage financial covenants. Amounts outstanding under the Loan Agreement are secured by substantially all of Emerson’s tangible assets. As of June 30, 2004 Emerson was in compliance with the covenants contained in the Loan Agreement.

     Revolver B - During the quarter ending December 31, 2003, SSG amended its Loan and Security Agreement to finance its working capital requirements through October 31, 2007. Under this amendment, SSG’s line of credit was reduced from $25 million to $20 million; its LIBOR borrowing rates were reduced from 2.5% to 2.25%; and its inventory and accounts receivable borrowing advance rates were increased. This agreement provides for revolving loans and letters of credit which, in the aggregate, cannot exceed the lesser of $20 million or a “Borrowing Base” amount based upon specified percentages of eligible accounts receivables and inventories. Amounts outstanding under the senior credit facility are secured by substantially all the assets of SSG and its subsidiaries. Pursuant to the loan documents governing this line of credit, SSG is restricted from, among other things, paying cash dividends

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and entering into certain transactions without the lender’s prior consent and is required to maintain certain net worth levels. As of June 30, 2004, SSG was in compliance with the covenants.

     As of June 30, 2004, the carrying value of these credit facilities approximated fair value.

NOTE 10 — SEGMENT INFORMATION

     The following table presents certain operating segment information for each of the three months ended June 30, 2004 and 2003 (in thousands):

NOTE 11 — LEGAL PROCEEDINGS

Putative Class Actions

     Between September 4, 2003 and October 30, 2003, several putative class action lawsuits were filed in the United States District Court for the District of New Jersey against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby and John Raab (the “Individual Defendants”) on behalf of purchasers of 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 Emerson’s directors, as a defendant in the litigation.

     Generally, the Amended Complaint alleges that Emerson and the Individual Defendants violated Sections 10(b) and 20(a) of the Securities

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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 Emerson suffered allegedly soured relationships with its largest retail customers. The Amended Complaint further alleges that these statements were materially false and misleading when made because Emerson allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading. Emerson, and the Individual Defendants intend to defend the lawsuit vigorously.

Other Matters

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

NOTE 12 — DISCONTINUED OPERATIONS

     From July 2003 through October 2003, certain of SSG’s team dealer locations were closed. In November 2003, SSG sold all of the issued and outstanding capital stock of its wholly owned subsidiary, ATEC. These closures and sale of stock, and related discontinued operations resulted in a loss of approximately $5,000 for the three months ended June 30, 2003. The results of these transactions are included in discontinued operations in the accompanying Consolidated Statement of Operations for the three months ended June 30, 2004 and 2003. (See Note 1)

     The following table summarizes the results of these discontinued operations, net of related income taxes, as applicable (in thousands). (See Note 6)

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

     Management’s Discussion and Analysis of Results of Operation is presented in three parts: consolidated operations, the consumer electronics segment and the sporting goods segment.

     The following discussion of our operations and financial condition should be read in conjunction the Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

     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, accordingly, all amounts are approximations.

Consolidated Operations:

     The following table sets forth, for the periods indicated, certain items related to our consolidated statements of operations as a percentage of net revenues for the three months ended June 30, 2004 and 2003. A detailed discussion of the material changes in operating results is set forth under the discussion of our two operating segments: consumer electronics and sporting goods.

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Net Revenues — Consolidated net revenues for the three months ended June 30, 2004 increased $18.8 million, or 34.6%, to $72.9 million from $54.1 million as compared to the same period ended June 30, 2003. The increase is attributable to a $16.2 million increase in net revenues for the consumer electronics segment, and a $2.6 million increase in net revenues for the sporting goods segment, due primarily to increases in units sold in both segments.

Cost of Sales — Cost of sales, as a percentage of consolidated net revenues, decreased to 78.2% for the three months ending June 30, 2004 from 79.3% for the same period ending June 30, 2003. The decrease in cost of sales as a percentage of net revenues for the three month period was primarily the result of higher margins in both the consumer electronics and sporting goods segments. In absolute terms, cost of sales increased to $57.0 million from $43.0 million ($14.0 million or 32.7%) for the three months of fiscal 2005 as compared to the same period in fiscal 2004. The increase is due to a $12.8 million increase in the consumer electronics segment and a $1.2 million increase in the sporting goods segment, due to higher revenues in both segments.

Other Operating Costs and Expenses — Other operating costs and expenses are associated with the consumer electronics segment. As a percentage of consolidated net revenues, other operating costs and expenses decreased to 2.1% from 2.3% for the three months ended June 30, 2004 compared to the same period in fiscal 2004. In absolute terms, other operating costs and expenses increased to $1.6 million from $1.3 million ($297,000 or 23.7%) for the three months of fiscal 2005 as compared to the same period in fiscal 2004.

Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, as a percentage of consolidated net revenues, were 14.8% for the three months ended June 30, 2004 as compared to 17.2% for the three months ended June 30, 2003, since certain of these expenses are fixed and do not vary directly with sales volume. In absolute terms, S,G&A increased to $10.8 million from $9.3 million ($1.5 million or 15.5%) for the three month period ended June 30, 2004 as compared to the same period in fiscal 2004. The increase for the first quarter of fiscal 2005 is due to a $1.2 million increase in the consumer electronics segment, and a $.3 million increase in the sporting goods segment.

Acquisition Costs — Acquisition costs are associated with the consumer electronics segment. Adjustments to acquisitions costs incurred in the fourth quarter of fiscal 2004 were made in the first quarter of fiscal 2005, resulting in a reduction in such costs of $71,000, as compared to $643,000 of costs for (1.2% of consolidated net revenues) the three months ended June 30, 2003, a decrease of approximately $714,000.

Stock Based Costs — Stock based costs are associated with the consumer electronics segment and relate to the cost of warrants previously issued

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in exchange for consulting services incurred during the three months ended June 30, 2004.

Interest Expense, Net — Interest expense decreased $128,000 (30.3%) to $294,000 (0.4% of consolidated net revenues) for the three months ended June 30, 2004 from $422,000 (0.7% of consolidated net revenues) for the three months ended June 30, 2003. The decrease in interest expense was a result of lower average borrowings and lower borrowing costs in both segments.

Minority Interest in Net Income of Consolidated Subsidiary — Minority interest in net income of consolidated subsidiary represents that portion of the sporting goods segment net income for the three months ended June 30, 2004 and 2003 that was not included in the consolidated statements of operations. (See Note 1)

Provision for Income Taxes — The provision for income taxes increased $1.0 million to $946,000 (1.3% of consolidated net revenues) for the three months ended June 30, 2004 from a benefit of $67,000 (less than 0.1% of consolidated net revenues) for the three months ended June 30, 2003. The increase in the provision for income taxes was primarily due to an increase in pre-tax profit in the consumer electronics segment.

Loss from Discontinued Operations — From July through October, SSG ceased operations of several of its Team Dealer locations. In November 2003, SSG sold all of the issued and outstanding shares of capital stock of its wholly owned subsidiary — ATEC. There were no amounts recorded for these operations (the “discontinued operations”) for the three months ended June 30, 2004 as compared to a loss of approximately $5,000 for the same period of fiscal 2004.

Net Income (Loss) — As a result of the foregoing factors, we earned net income of approximately $1.8 million (2.5% of consolidated net revenues) for the three months ended June 30, 2004 as compared a net loss of approximately $445,000 (0.8% of consolidated net revenues) for the three months ended June 30, 2003.

Consumer Electronics Segment:

The following table summarizes certain financial information relating to the consumer electronics segment for the three months ended June 30, 2004 and 2003 (in thousands):

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Net Revenues — Net revenues for the three months ended June 30, 2004 increased $16.2 million, or 51.1%, to $47.8 million from $31.6 million for the three months ended June 30, 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 the Emerson and HH Scott brand names to licensees for a fee. The increase in net revenues for the three months ended June 30, 2004 was comprised of:

Cost of Sales — Cost of sales for the three months ended June 30, 2004 increased $12.8 million (48.1%) to $39.4 million from $26.6 million for

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the three months ended June 30, 2003. In relative terms, cost of sales for the three months ended June 30, 2004 decreased to 82.4% of consumer electronics net revenue as compared to 84.1% for the same period in fiscal 2004. The decrease in cost of sales in relative terms is primarily due to increased license revenue.

Gross profit margins continue to be subject to competitive pressures arising from lower pricing of the product categories in the consumer electronics market in which Emerson competes. Emerson’s branded products are generally placed in the low-to-medium priced category of the market.

Other Operating Costs and Expenses- Other operating costs and expenses, as a percentage of consumer electronics net revenues, decreased to 3.3% in the June quarter of fiscal 2005 as compared to 4.0% for the same period in fiscal 2004. In absolute terms, other operating costs and expenses increased to $1.6 million from $1.3 million ($297,000 or 23.7%) for the three months ended June 30, 2004 as compared to the same period in fiscal 2004. This increase in absolute terms was primarily due to increased net revenues.

Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, increased approximately $1.2 million, or 33.8%, to $4.6 million (9.6% of the consumer electronics net revenues) from $3.4 million (10.8% of the consumer electronics net revenues) for the three months ended June 30, 2004 as compared to the same period ended June 30, 2003. The increase in absolute terms for the three months ended June 30, 2004, resulted from increases in advertising expenses of approximately $250,000; professional fees of approximately $400,000, freight expenses of $142,000, travel related costs of $106,000 and increases in various other S,G&A accounts.

Acquisition Costs — Acquisition costs incurred in the fourth quarter of fiscal 2004 were adjusted in the first quarter of fiscal 2005, resulting in a reduction of such costs of $71,000, as compared to $643,000 of costs incurred for the three months ended June 30, 2003. These costs were associated with acquisition transactions not completed in fiscal 2004.

Stock Based Costs — Stock Based Costs, which relate to the cost of warrants issued in exchange for consulting services, decreased by approximately $18,000 for the three months of fiscal 2005 as compared to the same period in fiscal 2004.

Interest Expense, net — Interest expense decreased by approximately $43,000, or 15.5%, to $235,000 (0.5% of the consumer electronics net revenues) for the three months ended June 30, 2004, from $278,000 (0.9% of the consumer electronics net revenues) for the three months ended June 30, 2003. The decrease in interest expense was the result of lower average borrowings.

Provision for Income Taxes — The provision for income taxes was approximately $946,000 (2.0% of the consumer electronics net revenue) compared to a benefit of approximately $136,000 for the three months ended

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June 30, 2003. The increase in the provision for income taxes for the three months ended June 30, 2004 was the result of the pre-tax profit as compared to a pre-tax loss during the same period in the prior fiscal year.

Net Income (Loss) — As a result of the foregoing factors, the consumer electronics segment earned net income of $1.2 million (2.5% of net consumer revenues) for the three months ended June 30, 2004 as compared to a net loss of $447,000 (1.4% of net consumer revenues) for the three months ended June 30, 2003.

Sporting Goods Segment:

     The following table summarizes certain financial information relating to the sporting goods segment as reported by SSG for the three months ended June 30, 2004 and 2003 (in thousands):

Net Revenues — Net revenues for the three month period ended June 30, 2004 increased $2.6 million, or 11.5%, to $25.1 million from $22.5 million for the three month period ended June 30, 2003. The increase in net revenues was primarily the result of previously implemented sales and marketing programs, which increased unit volume, as well as having three additional shipping days in the current quarter as compared to the same quarter in the previous year due to a change in the fiscal year for the sporting goods segment.

Cost of Sales — Cost of sales for the three month period ended June 30, 2004 increased $1.3 million, or 7.8%, to $17.6 million from $16.3 million for the three month period ended June 30, 2003. As a percentage of net revenues, cost of sales decreased to 70.2% for the three month period ended June 30, 2004, as compared to 72.6% for the same period in fiscal 2004. The decrease in cost of sales as a percentage of net revenues for

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the three month period was primarily the result of efficiencies gained through improved product procurement and product mix.

Selling, General and Administrative Expenses (“S,G&A”) — S,G&A expenses for the three month period ended June 30, 2004 increased approximately $288,000, or 4.9%, to $6.2 million from $5.9 million for the three month period ended June 30, 2003. As a percentage of net revenues, SG&A decreased to 24.6% for the three month period ended June 30, 2004 from 26.2% for the same period in fiscal 2004. The increase in SG&A for the three month period was primarily a result of an increase in payroll related expenses of approximately $174,000 and an increase in selling and promotional expenses of approximately $130,000.

Interest Expense, net — Interest expense decreased by approximately $85,000, or 59.0%, to $59,000 for the three month period ended June 30, 2004, as compared to $144,000 for the same period in the prior year.

Provision for Income Taxes — For the three month period ended June 30, 2004, SSG recorded no income tax provision due to the existence of prior net operating losses to offset current income, and no change in managements’ estimate of the extent to which deferred tax assets are realizable. (See Note 6)

Loss from 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 the sale of SSG’s ATEC subsidiary for the three month period ended June 30, 2003. (See Note 12)

Net Income — As a result of the foregoing factors, the sporting goods segment earned net income of approximately $1,237,000 for the three months ended June 30, 2004 as compared to approximately $56,000 for the three months ended June 30, 2003.

Liquidity and Capital Resources

     As of June 30, 2004, we had cash and cash equivalents of approximately $4.1 million compared to approximately $6.4 million at March 31, 2004. Working capital increased to $57.5 million at June 30, 2004 as compared to $46.8 million at March 31, 2004. The decrease in cash and cash equivalents of approximately $2.3 million was primarily due to operating activities, partially offset by financing activities.

     Operating cash flow used in continuing operating activities was approximately $7.5 million for the three months ended June 30, 2004. Cash was primarily used for increases in inventory and accounts receivable.

     Net cash used by investing activities was approximately $167,000 for the three months ended June 30, 2004, which consisted primarily of computer and office equipment fixed asset acquisitions.

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     Net cash provided from financing activities was approximately $5.3 million for the three months ended June 30, 2004, due primarily to the net increase in long-term borrowings.

     Emerson and SSG maintain credit facilities as described in Note 9 to our consolidated financial statements — Borrowings. At June 30, 2004, there were approximately $21.7 million of borrowings outstanding under these facilities and no letters of credit outstanding. Approximately $17.5 million of borrowings were outstanding under the Emerson Loan Agreement and $4.2 million of borrowings were outstanding under the SSG Loan Agreement. At June 30, 2004, Emerson and SSG were in compliance with the covenants in each of the loan agreements.

     Our foreign subsidiaries maintain various credit facilities, aggregating $75.0 million, consisting of the following:

     At June 30, 2004, our Hong Kong subsidiary pledged approximately $3.6 million in certificates of deposit to this bank to assure the availability of the $15.0 million credit facilities. At June 30, 2004, there were approximately $12.6 million of letters of credit outstanding under these credit facilities. These letter of credit facilities require the foreign subsidiary to meet a net worth covenant which was complied with at June 30, 2004.

     At present, we believe that future cash flow from operations and our existing institutional financing noted above will be sufficient to fund all of our cash requirements for the next twelve months.

     The following summarizes our obligations at June 30, 2004 for the periods shown (in thousands):

     There were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product as of June 30, 2004.

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Critical Accounting Policies

     For the three month period ended June 30, 2004, there were no significant changes to our accounting policies from those reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

Inflation, Foreign Currency, and Interest Rates

     Neither inflation nor currency fluctuations had a significant effect on our results of operations during the first quarter of fiscal 2005. Our exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders, and by sourcing production in more than one country. The consumer electronics segment purchases virtually all of its products from manufacturers located in various Asian countries.

     The interest on borrowings under our credit facilities is based on the prime and LIBOR rate. We believe that given the present economic climate, interest rates, while expected to rise, are not expected to increase significantly during the coming year.

Forward-Looking Information

     This report contains various forward-looking statements made pursuant to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and information that is based on management’s beliefs as well as assumptions made by and information currently available to management. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect”, “predict”, “project”, and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date hereof, and should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the statements under “Risk Factors” set forth in our Form 10-K for the fiscal year ended March 31, 2004 and other filings with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to publicly release the results on any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

     We make available through our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by us with the SEC, as soon as practicable after we electronically file such reports and filings with the SEC. Our website address is

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www.emersonradio.com. The information contained in this website is not incorporated by reference in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There have been no significant changes from items disclosed in Form 10-K for the fiscal year ended March 31, 2004.

Item 4. Controls and Procedures

(a) Disclosure controls and procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(b) Changes in internal controls over financial reporting.

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings.

Putative Class Actions

     Between September 4, 2003 and October 30, 2003, several putative class action lawsuits were filed in the United States District Court for the District of New Jersey against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby and John Raab (the “Individual Defendants”) on behalf of purchasers of 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

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appointed and co-lead counsel and co-liaison counsel were approved by the Court in the Consolidated Action. Consistent with the Stipulation and Order, the plaintiffs filed an Amended Consolidated Complaint (the “Amended Complaint”) that, among other things, added Jerome Farnum, one of Emerson’s directors, as a defendant in the litigation.

     Generally, the Amended Complaint alleges that Emerson and the Individual Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated there under, by (i) issuing certain positive statements during the Class Period regarding our ability to replace lost revenues attributable to our Hello Kitty^® license and (ii) omitting to disclose that Emerson suffered allegedly soured relationships with its largest retail customers. The Amended Complaint further alleges that these statements were materially false and misleading when made because Emerson allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading. Emerson, and the Individual Defendants intend to defend the lawsuit vigorously.

     For other information on litigation to which the Company is a party, reference is made to Part 1 Item-3-Legal Proceedings in our most recent annual report on Form 10-K.

ITEM 2. Changes in Securities and Use of Proceeds.

     None.

Share Repurchases:

     For the quarter ending June 30, 2004, we did not repurchase any shares under the Emerson Radio Corp.’s common stock share repurchase program. The share repurchase program was publicly announced in September 2003 to repurchase up to 2,000,000 shares of Emerson’s outstanding common stock. Share repurchases are made from time to time in open market transactions in such amounts as determined in the discretion of Emerson’s management within the guidelines set forth by Rule 10b — 18 under the Securities Exchange Act. Prior to the June 30, 2004 quarter, we repurchased 1,111,625 shares under this program. As of June 30, 2004, the maximum number of shares that are available to be repurchased under Emerson Radio Corp’s common share repurchase program was 888,375.

ITEM 3. Default Upon Senior Securities.

ITEM 4. Submission of Matters to a Vote of Security Holders.

         None

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ITEM 5. Other Information.

        None

ITEM 6. Exhibits and Reports on Form 8-K.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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