SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
(cid:59)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended March 31, 2010
OR
(cid:134)
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 001-07731
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
85 Oxford Drive, Moonachie, NJ
(Address of principal executive offices)
22-3285224
(I.R.S. Employer
Identification Number)
07074
(Zip Code)
Registrant’s telephone number, including area code:
(973) 428-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange on Which Registered
NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. (cid:134) YES (cid:59) NO.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act). (cid:134) YES (cid:59) NO.
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. (cid:59) YES (cid:134) NO.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (cid:134) YES (cid:134) NO.
Bowne Conversion
y86439_1.doc
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. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer (cid:134) Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
(Do not check if a smaller reporting company)
Smaller reporting company (cid:59)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:134) YES (cid:59) 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, 2009 (computed by reference to the last reported sale price of the Common Stock on the NYSE Amex on such date):
$14,682,048.
Number of Common Shares outstanding at July 14, 2010: 27,129,832
DOCUMENTS INCORPORATED BY REFERENCE:
Document
Proxy Statement for 2010 Annual Meeting of Stockholders, or an amendment to this Annual Report on Form 10-K
Part of the
Form 10-K
Part III
Bowne Conversion
2
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.”
PART I
Item 1. BUSINESS
The Company — Overview
Unless the context otherwise requires, the term “the Company” and “Emerson,” refers to Emerson Radio Corp. and its subsidiaries.
The Company designs, sources, imports and markets a variety of houseware and consumer electronic products, and licenses its
trademarks to others on a worldwide basis for a variety of products.
At March 31, 2010, approximately 56.2% of the Company’s outstanding common stock was owned by direct or indirect
subsidiaries of the Grande Holdings Limited, a Bermuda corporation.
For additional disclosures of the Company’s major customers, as well as financial information about geographical areas of our
operations, see Item 8 — “Financial Statements and Supplementary Data” and Note 15 “Geographic Information”.
Supervision and Regulation
The Company files reports and other information with the Securities and Exchange Commission (the “SEC”) pursuant to the
information requirements of the Securities Exchange Act of 1934. Readers may read and copy any document the Company files at the
SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operations of the public reference room. The Company’s filings with the SEC are also available to the public from
commercial document retrieval services and at the SEC’s website at www.sec.gov.
The Company makes available through its internet website free of charge its 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 the Company with the SEC, as soon
as practicable after the Company electronically files such reports and filings with the SEC. The Company’s website address is
www.emersonradio.com. The information contained in the Company’s website is not incorporated by reference in this report.
General
The Company, directly and through several subsidiaries, designs, sources, imports, markets, sells and licenses to certain licensees a
variety of houseware and consumer electronic products, both domestically and internationally, under the Emerson® and HH Scott®
brand names. These products include:
• microwave ovens and other houseware products;
• audio products and clock radios;
• video products — televisions, digital video disc players (DVD) and video accessories; and
• telephones, certain computer accessories, other consumer electronic products and mobile electronics.
The Company also licenses certain logos and trademarks from third parties for use on various products that the Company designs
and distributes. These license agreements referred to as “inward licenses.”
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 “Licensing and Related Activities.”
Bowne Conversion
3
The Company believes it possesses an advantage over its competitors due to the combination of:
• recognition of the “(EMERSON LOGO)” brand;
• the Company’s distribution base and established customer relations;
• the Company’s sourcing expertise and established vendor relations;
• an infrastructure with personnel experienced in servicing and providing logistical support to the domestic mass merchant
distribution channel; and
• the Company’s extensive experience in establishing license and distribution agreements on a global basis for a variety of
products.
The Company intends to continue leveraging its core competencies to offer a broad variety of current and new consumer electronic
and houseware products to customers. In addition, the Company intends to enter into licenses for the use of its trade names and
trademarks by third parties, which the Company refers to as “outward licenses”. The Company continues to enter into distribution
agreements that leverage its trademarks and utilize the logistical and sourcing advantages of unrelated third-parties for products that
are more efficiently marketed through these agreements. The Company continuously evaluates potential licenses and distribution
agreements. See “Licensing and Related Activities.”
The Company’s core business consists of selling, distributing, and licensing various low and moderately priced consumer electronic
and houseware products in various categories. A substantial portion of the Company’s marketing and sales efforts are concentrated in
the United States, although The Company also sells its products in certain other international regions.
Products
The Company’s current product and branded categories consist of the following:
Houseware Products
Microwave ovens
Compact refrigerators
Toaster ovens
Wine Coolers
Coffee makers
Other
Televisions
Audio Products
Digital clock radios
Portable stereo systems DVD players
iPod compatible devices Telephones
Nostalgia/retro products Mobile electronics
Shelf stereo systems
Sales and Distribution
The Company’s Direct Import Program allows its customers to import and receive product directly from its contracted
manufacturers located outside the United States. Under the Direct Import Program, title for the Company’s product passes to the
customer in the country of origin when the product is shipped by the manufacturer. The Company also sells product to customers from
its United States based finished goods inventory, which is referred to as the Domestic Program. Under the Domestic Program, title for
product primarily passes at the time of shipment. Under both programs, the Company recognizes revenues at the time title passes to
the customer. See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The Company has an integrated system to coordinate the purchasing, sales and distribution aspects of its operations. The Company
receives orders from its major accounts via electronic data interface, facsimile, telephone or mail. The Company does not have long-
term contracts with any of its customers, but rather receives orders on an ongoing basis. Products imported by the Company, generally
from factories in Asia, are shipped by ocean and/or inland freight and then stored in the Company’s warehouse facilities for shipment
to customers. The Company monitors its inventory levels and goods in transit through the use of an electronic inventory system. When
a purchase order under the Domestic Program is received, it is filled from the Company’s inventory and the warehoused product is
labeled and prepared for outbound shipment to the customer by common, contract or small package carrier.
Bowne Conversion
4
Domestic Marketing
In the United States, the Company markets its products primarily through mass merchandisers.
In fiscal 2010 and 2009, Wal-Mart accounted for approximately 53% and 46% of the Company’s net revenues, respectively, and
Target accounted for approximately 25% and 27% of the Company’s net revenues, respectively. No other customer accounted for
more than 10% of net revenues in either period. The trade accounts receivable balances for Wal-Mart and Target, net of specific
reserves, were 68% and 46% as of March 31, 2010, respectively, and 15% and 45% as of March 31, 2009, respectively. Management
believes that a loss, or a significant reduction, of sales to Wal-Mart or Target would have a materially adverse effect on the
Company’s business and results of operations.
Approximately 38% and 45% of the Company’s net revenues in fiscal 2010 and 2009, respectively, were made through third-party
sales representative organizations that receive sales commissions and work in conjunction with the Company’s own sales personnel.
With the Company’s permission, third-party sales representative organizations may sell competitive products in addition to the
Company’s products. In most instances, either party may terminate a sales representative relationship on 30 days prior notice by the
Company and 90 days prior notice by the sales representative organization in accordance with customary industry practice. In fiscal
2010, the Company utilized approximately 20 sales representative organizations, including one through which approximately 25% of
its net revenues, including revenues from one of the Company’s two major customers described above, were made in fiscal 2010. In
fiscal 2009, the Company utilized approximately 19 sales representative organizations, including one through which approximately
27% of its net revenues, including revenues from one of the Company’s two major customers described above, were made in fiscal
2009. No other sales representatives organization accounted for more than 10% of net revenues in either year The remainder of the
Company’s sales is to customers that are serviced by its sales personnel. Although sales and operating results could be negatively
impacted, management does not believe that the loss of one or more sales representative organizations would have a material adverse
effect on its business and results of operations, as the Company believes that new sales representative organizations could be identified
if needed, although that could be a time consuming process.
Foreign Marketing
The Company 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.
Licensing and Related Activities
Throughout various parts of the world, the Company is party to numerous distribution and outward license agreements with third
party licensees that allow the licensees to manufacture and/or sell various products bearing the Company’s trademarks into defined
geographic areas. The Company believes that such activities have had and will continue to have a positive impact on operating results
by generating income with minimal, if any, incremental costs and without any working capital requirements, and intends to pursue
additional licensing and distribution opportunities. The Company continues to protect its brand through rigid license and product
selection and control processes. See Item 1A — “Risk Factors — Forward-Looking Information”, Item 7 — “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Note 13 “License Agreements”.
Design and Manufacturing
The Company’s products are manufactured by several original equipment manufacturers in accordance with the Company’s
specifications. During fiscal 2010 and 2009, 100% of the Company’s purchases consisted of finished goods from foreign
manufacturers, primarily located in People’s Republic of China, substantially all of which were imported into the United States.
The Company’s design team is responsible for product development and works closely with suppliers. The Company’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 the Company’s designs. Accordingly, the exterior designs and operating features of the
products reflect the Company’s judgment of current styles and consumer preferences.
Bowne Conversion
5
The following summarizes the Company’s purchases from its major suppliers that provided more than 10% of the Company’s total
purchases in fiscal 2010 and 2009:
Supplier
Midea
Galanz
Fiscal Year
2010
2009
73% 38%
0% 28%
Midea manufactures housewares and other products and, during fiscal 2009, the Company transitioned from Galanz to Midea as its
largest supplier. No other supplier accounted for more than 10% of the Company’s total purchases in fiscal 2010 or 2009. The
Company 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, the Company could develop alternative suppliers. No assurance can be given
that ample supply of product would be available at current prices if the Company 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 1A — “Risk Factors — Forward — Looking Information”, Item 7 — “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Item 7A — “Quantitative and Qualitative Disclosures about Market Risk.”
Warranties
The Company offers limited warranties for its consumer electronics, comparable to those offered to consumers by the Company’s
competitors in the United States. Such warranties typically consist of a one year period for microwaves and a 90 day period for audio
products, under which the Company pays for labor and parts, or offers a new or similar unit in exchange for a non-performing unit.
Returned Products
The Company’s customers return product to for a variety of reasons, including:
• retailer return policies with their customers;
• damage to goods in transit and cosmetic imperfections; and
• mechanical failures.
The Company has entered into agreements with certain of its suppliers that require the supplier to accept returned defective product.
The Company pays a fee to the supplier and in exchange receives a new unit.
Backlog
The Company does not believe that backlog is a significant factor. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the Company’s business.
Trademarks
The Company owns the following principal trademarks
• “(EMERSON LOGO)”
• “Emerson Research®”
• “H.H. Scott®”
• “iDEA®”
• “IDIVA®”
Bowne Conversion
6
• “Ölevia®”
• “Scott®”
• “SmartSet®”
for certain consumer electronic products in the United States, Canada, Mexico and various other countries. Of the trademarks owned
by the Company, those registered in the United States and Canada must be renewed at various times through 2020 and 2025,
respectively. The Company’s trademarks are also registered in various other countries, for which registrations must be renewed at
various times. The Company intends to renew all trademarks necessary for the conduct of its business. The Company considers the
“(EMERSON LOGO)” trademark to be of material importance to its business and, to a lesser degree, the remaining trademarks. The
Company licenses “(EMERSON LOGO)” and certain of its other trademarks to third parties, the scope of which is on a limited
product and geographic basis and for a period of time. See “Licensing and Related Activities.”
Competition
The Company primarily competes in the low-to-medium-priced sector of the consumer electronics and houseware market.
Management estimates that the Company has several dozen competitors that are manufacturers and/or distributors, many of which are
much larger and have greater financial resources than the Company. The Company competes primarily on the basis of:
• brand recognition;
• reliability;
• quality;
• price;
• design;
• consumer acceptance of the Company’s products; and
• quality service and support to retailers and their customers.
The Company also competes at the retail level for shelf space and promotional displays, all of which have an impact on our success
in established and proposed distribution channels.
Working Capital
The Company’s credit facility maintained with Wachovia Bank ends by its terms on December 23, 2010 and the Company is
evaluating its options with regard to its credit and banking needs. The Company anticipates that cash flow from operations and its
access to financing will provide sufficient liquidity to meet the Company’s operating requirements in the year ahead.
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
continuous change and revision by government agencies and by action of the United States Trade Representative and may have the
effect of increasing the cost of goods purchased by the Company or limiting quantities of goods available to the Company from 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 the Company. Additional Federal
legislation and regulations regarding the importation of consumer electronics products, including the products marketed by the
Bowne Conversion
7
Company, have been proposed from time to time and, if enacted into law, could adversely affect the Company’s financial condition
and results of operations.
Product Liability and Insurance
Because of the nature of the products it sells, the Company is periodically subject to product liability claims resulting from personal
injuries. The Company may also become involved in various lawsuits incidental to its business.
Although the Company maintains product liability insurance coverage, there can be no absolute assurance that the Company’s
coverage limits will be sufficient to cover any successful product liability claims made against it in the future. In management’s
opinion, any ultimate liability arising out of currently pending product liability claims will not have a material adverse effect on the
Company’s financial condition or results of operations. However, any claims substantially in excess of the Company’s insurance
coverage, or any substantial claim not covered by insurance, could have a material adverse effect on the Company’s financial
condition and results of operations.
Employees
As of July 14, 2010, the Company had approximately 98 employees, comprised of 42 in the United States and 56 in Asia. None of
the Company’s employees are represented by unions, and we believe our labor relations are good.
Item 1A. Risk Factors
The reader should carefully consider these risk factors in addition to those set forth in the Company’s financial statements or the
notes thereto. Additional risks about which the Company is not yet aware or that the Company currently believes to be immaterial also
may adversely affect the Company’s business operations. If any of the following occur, the Company’s business, financial condition
or operating results may be adversely affected. In that case, the price of the Company’s common stock may decline.
Business Related Risks
The loss or significant reduction in business of any of the Company’s key customers, including Wal-Mart and Target, could
materially and adversely affect the Company’s revenues and earnings.
The Company is highly dependent upon sales of its products to Wal-Mart and Target. For the fiscal years ended March 31, 2010
and 2009, Wal-Mart accounted for approximately 53% and 46% of our net revenues, respectively, and Target accounted for
approximately 25% and 27%, respectively, of the Company’s net revenues. No other customer accounted for greater than 10% of the
Company’s net revenues during these periods. All customer purchases are made through purchase orders and the Company does not
have any long-term contracts with its customers. The complete loss of, or significant reduction in business from, or a material adverse
change in the financial condition of, Wal-Mart or Target will cause a material and adverse change in the Company’s revenues and
operating results.
The Company depends on a limited number of suppliers for its products. The inability to secure products could reduce the
Company’s revenues and adversely affect its relationship with its customers.
Although there are multiple suppliers for each of the Company’s products, The Company relies and is dependent on a limited
number of suppliers for its main products, all of whom are located outside of the United States. This reliance involves a number of
significant potential risks, including:
• lack of availability of materials and interruptions in delivery of components and raw materials from suppliers;
• manufacturing delays caused by such lack of availability or interruptions in delivery;
Bowne Conversion
8
• fluctuations in the quality and the price of components and raw materials, in particular due to the petroleum price impact on such
materials; and
• risk related to foreign operations.
The Company does not have any long-term or exclusive purchase commitments with any of its suppliers. Midea was the
Company’s largest supplier during fiscal 2010 and accounted for 73% of the Company’s purchases of products during fiscal 2010. The
Company’s failure to maintain existing relationships with its suppliers or to establish new relationships in the future could negatively
affect the Company’s ability to obtain products in a timely manner. If the Company is unable to obtain an ample supply of product
from its existing suppliers or alternative sources of supply, it may be unable to satisfy its customers’ orders, which could materially
and adversely affect the Company’s revenues and relationships with its customers. Finding replacement suppliers could be a time
consuming process during which the Company’s revenues could be negatively impacted.
If the Company’s contract manufacturers are unable to deliver products in the required amounts and in a timely fashion, the
Company could experience delays or reductions in shipments to its customers, which could materially and adversely affect the
Company’s revenues and relationships with its customers. Unanticipated disruptions in the Company’s operations, slowdowns or
shutdowns by its suppliers, manufacturers and shipping companies could adversely affect the Company’s ability to deliver its
products and services to its customers which could materially and adversely affect the Company’s revenues and relationships
with its customers.
The Company’s ability to provide high quality customer service, process and fulfill orders, and manage inventory depends on the
efficient and uninterrupted operation of its distribution centers and the timely and uninterrupted performance of third party
manufacturers and suppliers, shipping companies and dock workers. Any material disruption, slowdown or shutdown of the
Company’s operation of its call center, distribution centers, or management information systems, or comparable disruptions,
slowdowns or shutdowns suffered by the Company’s principal manufacturers, suppliers and shippers could cause delays in the
Company’s 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. As a result, the Company’s revenues and operating results could be materially and
adversely affected.
All of the Company’s products are manufactured in accordance with its specifications by factories principally located in China. If
the Company is unable to obtain products from these factories in the required quantities and quality and in a timely fashion, the
Company could experience delays or reductions in product shipments to its customers, which could negatively affect the Company’s
ability to meet the requirements of its customers, as well as its relationships with its customers, which in turn could materially and
adversely affect the Company’s revenues and operating results.
Substantially all of the Company’s suppliers are located in China. Inadequate development and maintenance of infrastructure in
China, including inadequate power and water supplies, transportation and raw materials availability, and the deterioration in the
general political, economic and social environments in China may make it difficult, more expensive and possibly prohibitive for these
suppliers to continue to operate in China. If the Company cannot find suitable replacements for any manufacturers that have or may in
the future close their facilities, the Company’s revenues and operating results could be materially and adversely affected.
The failure by the Company to maintain its relationships with its licensees, licensors and distributors or the failure to obtain new
licensees, licensors or distribution relationships could materially and adversely affect the Company’s revenues and earnings.
The Company maintains agreements that allow licensees to use the Company’s trademarks for the manufacture and sale of specific
consumer electronics and other products. In addition, the Company maintains agreements for the distribution of products bearing its
brands into defined geographic areas. Although the Company has entered into agreements with certain of its licensees and distributors
of its products, most have terms of three years or less, including the Company’s agreement with Funai, which expires in December
2010 unless renewed. The Company cannot assure that such agreements will be renewed or that the Company’s relationships with its
licensees or distributors will be maintained on satisfactory terms or at all. The failure to maintain its relationships with Funai and other
licensees and distributors on terms satisfactory to the Company, the failure to obtain new licensees or distribution relationships or the
failure by the Company’s licensees to protect the integrity and reputation of the Company’s trademarks could materially and adversely
affect the Company’s licensing revenues and earnings.
Bowne Conversion
9
The majority ownership of the Company’s common stock by subsidiaries of The Grande Holdings Limited, a Bermuda
Corporation, which is listed and is based in Hong Kong, substantially reduces the influence of other stockholders, and the
interests of The Grande Holdings Limited may conflict with the interests of the Company’s other stockholders.
The Grande Holdings Limited and its subsidiaries (collectively, “Grande”) own approximately 56.2% of the Company’s
outstanding common stock as of July 14, 2010. As a result, Grande currently controls significantly the approval process for actions
that require stockholder approval, including: the election of the Company’s directors and the approval of mergers, sales of assets or
other significant corporate transactions or matters submitted for stockholder approval. Because of Grande’s ownership position, other
stockholders have little or no influence over matters submitted for stockholder approval. Grande has pledged approximately
3.4 million of the shares it owns in Emerson to a third party and has pledged a further 2.0 million of the shares it owns in Emerson to
the Company (see Note 17 “Subsequent Events”).
A number of the Company’s directors and senior executive officers also are managing directors or senior officers of Grande and
have loyalties and fiduciary obligations to both Grande and the Company.
Christopher Ho, the Company’s Chairman of the Board, and Adrian Ma, the Chief Executive Officer and a director of the
Company, are both directors of Grande. In addition, Mr. Ho serves as The Chairman of the Board of Grande and Mr. Ma serves as
Group Managing Director and Chief Executive Officer of Grande. Also, Duncan Hon, the Company’s Deputy Chief Executive
Officer, and a director of the Company, is an executive of Grande. As described in Note 3 to the Company’s financial statements and
in the Company’s previous filings with the SEC, there have been a number of related party transactions between the Company and
Grande which have been viewed as raising concerns about possible conflicts. Grande does not owe the Company any amounts under
any existing related party transactions as at March 31, 2010.
The Company has established adequate procedures designed to ensure that future material related party transactions are fair to the
Company.
The Company’s business could be materially and adversely affected if it cannot protect its intellectual property rights or if it
infringes on the intellectual property rights of others.
The Company’s ability to compete effectively depends on its ability to maintain and protect its proprietary rights. The Company
owns the Emerson® and other trademarks, which are materially important to its business, as well as other trademarks, patents, licenses
and proprietary rights that are used for certain of the products that it markets and sells. The Company’s trademarks are registered
throughout the world, including the United States, Canada, Mexico, France, Spain, Germany, China, Japan, India and the United
Kingdom. The Company also has two patents in the United States on its SmartSet® technology, both of which expire in September
2018. The laws of some foreign countries in which the Company operates may not protect the Company’s 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 the
Company’s intellectual property rights.
Third parties may seek to challenge, invalidate, circumvent or render unenforceable any trademarks, patents or proprietary rights
owned by or licensed to the Company. In addition, in the event third party licensees fail to protect the integrity of the Company’s
trademarks, the value of these marks could be materially and adversely affected. The Company’s inability to protect its proprietary
rights could materially and adversely affect the license of its trade names, trademarks and patents to third parties as well as its ability
to sell its products. Litigation may be necessary to enforce the Company’s intellectual property rights, protect the Company’s trade
secrets; and determine the scope and validity of such intellectual property rights. Any such litigation, whether or not successful, could
result in substantial costs and diversion of resources and management’s attention from the operation of the Company’s business.
The Company may receive notices of claims of infringement of other parties’ proprietary rights. Such actions could result in
litigation and the Company 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 the Company’s ability to make, use, sell, distribute or market its products and services in such jurisdiction. The
Company may also be required to seek licenses to such intellectual property. The Company 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 the Company. The failure to obtain the necessary licenses or other rights could delay or preclude the sale, manufacture
or distribution of its products and could result in increased costs to the Company.
Bowne Conversion
10
The Company’s revenues and earnings could be materially and adversely affected if it cannot anticipate market trends or
enhance existing products or achieve market acceptance of new products.
The Company’s success is dependent on its ability to anticipate and respond to changing consumer demands and trends in a timely
manner, as well as expanding into new markets and developing new products. In addition, to increase the Company’s penetration of
current markets and gain footholds in new markets for its products, the Company must maintain its existing products and integrate
them with new products. The Company may not be successful in developing, marketing and releasing new products that respond to
technological developments or changing customer needs and preferences. The Company may also experience difficulties that could
delay or prevent the successful development, introduction and sale of these new products. 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 the Company’s products are delayed, or if these products or enhancements fail to achieve market
acceptance when released, the Company’s sales volume may decline and earnings could be materially and adversely affected. In
addition, new products or enhancements by the Company’s competitors may cause customers to defer or forgo purchases of the
Company’s products, which could also materially and adversely affect the Company’s revenues and earnings.
The continuing global economic situation may adversely affect the Company’s access to financing or may increase the cost of
financing the Company’s operations.
The global economic environment continues to present challenges within the financial markets, which have led to curtailment of
credit and increases in the frequency of bankruptcies. Financial institution failures and responses to this situation may impede the
Company’s ability to obtain financing for its operations. The Company’s customers are primarily retailers, which are subject to
fluctuations in consumer demand, which may be affected by these factors. Some customers may have difficulty paying, be slower to
pay, or file for bankruptcy as a result of negative economic conditions.
The Company’s investments in auction rate securities potentially may not be redeemable until maturity if the market for them does
not recover. The Company may be required to sell these investments at a substantial discount from par if immediate operating
requirements demand it. The Company’s revolving loan agreement with Citigroup Global Markets Inc., secured by these investments,
is due on demand, and if the loan were called, the Company’s cash flows and liquidity could be affected. See “A decline in the value
of the auction rate securities included in the Company’s investments could materially adversely affect its earnings and continue to
adversely affect its liquidity.”
The Company has not hedged its interest rate exposure, and the Company’s indebtedness bears interest at variable rates, most
notably Prime, the London interbank offered rate, and the Federal Open Market Rate. As a result, interest rate variations may result in
increased interest expense, which could negatively affect funding available for the Company’s other requirements.
The Company’s existing credit facility, which represents its sole source of external funding, will expire in December 2010. If the
Company is unable to maintain access to external funding, it may be unable fund future growth.
In addition to cash on hand and cash generated by on-going operations, the Company relies on access to external sources of funding
and our ability to timely collect cash from our customers to manage its business. The Company’s existing credit facility, which
represents our sole source of external funding, expires in December 2010. The Company is evaluating our options with regards to
financing alternatives available to it. The Company may seek to extend its existing credit facility or pursue alternative sources of
financing. However, such credit facility or alternate financing may not be available or if available may not be on terms favorable to the
Company. The Company’s ability to fund future growth may be negatively impacted if it is unable to secure a new credit facility and
to maintain compliance with the financial and other covenants in such credit facility or to secure alternate sources of financing.
Foreign regulations and changes in the political, social and economic conditions in the foreign countries in which the Company
operates its business could affect the Company’s revenues and earnings materially and adversely.
The Company derives a significant portion of its revenue from sales of products manufactured by third parties located primarily in
China. In addition, third parties located in China and other countries located in the same region produce and supply many of the
components and raw materials used in the Company’s products. Conducting an international business inherently involves a number of
Bowne Conversion
11
difficulties and risks that could materially and adversely affect the Company’s ability to generate revenues and could subject the
Company to increased costs. Among the factors that may adversely affect the Company’s revenues and increase its costs are:
• currency fluctuations which could cause an increase in the price of the components and raw materials used in the Company’s
products and a decrease in its profits;
• Chinese labor laws;
• labor shortages in manufacturing facilities located in China;
• the elimination or reduction of value-added tax refunds to Chinese factories that manufacture products for export;
• the rise of inflation and substantial economic growth in China;
• more stringent export restrictions in the countries in which the Company operates which could adversely affect its ability to
deliver its products to its customers;
• tariffs and other trade barriers which could make it more expensive for the Company to obtain and deliver its products to its
customers;
• political instability and economic downturns in these countries which could adversely affect the Company’s ability to obtain its
products from its manufacturers or deliver its products to its customers in a timely fashion;
• new restrictions on the sale of electronic products containing certain hazardous substances.
Any of the factors described above may materially and adversely affect the Company’s revenues and/or increase its operating
expenses.
Furthermore, China is a developing country governed by a one-party government. China is also a country with an extremely large
population, widening income gaps between rich and poor and between urban and rural residents, minority ethnic and religious
populations, and growing access to information about the different social, economic, and political systems found in other countries.
China has also experienced extremely rapid economic growth over the last decade, and its legal and regulatory systems have changed
rapidly to accommodate this growth. These conditions make China unique and may make it susceptible to major structural changes.
Such changes could include a reversal of China’s movement to encourage private economic activity, labor disruptions or other
organized protests, nationalization of private businesses, civil strife, strikes, acts of war and insurrections. If any of these events were
to occur, it may disrupt the Company’s access to its suppliers and/or disrupt the operations of the Company’s suppliers, which may
significantly affect the Company’s results of operations and financial performance.
The legal and judicial systems in the China are still rudimentary, and enforcement of existing laws is inconsistent. Many judges in
China lack the depth of legal training and experience that would be expected of a judge in a more developed country. Because the
China judiciary is relatively inexperienced in enforcing the laws that do exist, anticipation of judicial decision-making is more
uncertain than would be expected in a more developed country. It may be impossible to obtain swift and equitable enforcement of
laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. China’s legal system is
based on civil law, or written statutes; a decision by one judge does not set a legal precedent that must be followed by judges in other
cases. In addition, the interpretation of Chinese laws may vary to reflect domestic political changes.
The laws of China are likely to govern many of the Company’s supplier agreements. The Company cannot assure you that it will be
able to enforce its rights in its supplier agreements. The system of laws and the enforcement of existing laws in China may not be as
certain in implementation and interpretation as in the United States. The Chinese judiciary is relatively inexperienced in enforcing
corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. The inability to
enforce or obtain a remedy under any of the Company’s supplier agreements may have a material adverse impact on the Company’s
operations.
Bowne Conversion
12
The inability to use its tax net operating losses could result in a charge to earnings and could require the Company to pay higher
taxes.
The Company has 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 the Company’s
financial statements and could be used to reduce its tax liability in future profitable periods. The Company believes 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, the Company believes it is more likely than not that most of the remaining net deferred tax assets will be
realized prior to expiration. 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 carry-
forward period is reduced.
The Company is subject to intense competition in the industry in which it operates, which could cause material reductions in the
selling price of its products or losses of its market share.
The consumer electronics and houseware industry is highly competitive, especially with respect to pricing and the introduction of
new products and features. The Company’s products compete in the low to medium-priced sector of the consumer electronics and
houseware market and compete primarily on the basis of reliability, brand recognition, quality, price, design, consumer acceptance of
the Emerson® trademark and quality service and support to retailers and its customers. In recent years, the Company and many of its
competitors, have regularly lowered prices, and the Company expects these pricing pressures to continue. If these pricing pressures are
not mitigated by increases in volume, cost reductions from the Company’s suppliers or changes in product mix, the Company’s
revenues and profits could be substantially reduced. As compared to the Company, many of its competitors have significantly greater
managerial, financial, marketing, technical and other competitive resources and greater brand recognition. As a result, the Company’s
competitors may be able to (i) adapt more quickly to new or emerging technologies and changes in customer requirements; (ii) devote
greater resources to the promotion and sale of their products and services; and (iii) respond more effectively to pricing pressures.
In addition, competition could increase if new companies enter the market, existing competitors expand their product mix or the
Company expands into new markets. An increase in competition could result in material price reductions or loss of the Company’s
market share.
Changes in consumer spending and economic conditions may cause its quarterly operating results to fluctuate and cause its
stock price to decline.
The Company’s net revenue and operating results may vary significantly from year to year, which may adversely affect its results
of operations and the market price for its common stock. Factors that may cause these fluctuations include:
• changes in market and economic conditions;
• the discretionary nature of consumers’ demands and spending patterns;
• variations in the sales of the Company’s products to its significant customers;
• variations in manufacturing and supplier relationships;
• if the Company is unable to correctly anticipate and provide for inventory requirements, it may not have sufficient inventory to
deliver its products to its customers in a timely fashion or the Company may have excess inventory that it is unable to sell;
• new product developments or introductions;
• product reviews and other media coverage;
• competition, including competitive price pressures; and
• political instability, war, acts of terrorism or other disasters.
Bowne Conversion
13
If the Company’s third party sales representatives fail to adequately promote, market and sell the Company’s products, the
Company’s revenues could significantly decrease.
A significant portion of the Company’s product sales are made through third party sales representative organizations, whose
members are not employees of the Company. The Company’s level of sales depends on the effectiveness of these organizations, as
well as the effectiveness of its own employees. Some of these third party representatives may sell (and do sell), with the Company’s
permission, competitive products of third parties as well as the Company’s products. During the Company’s fiscal years ended
March 31, 2010 and 2009, these organizations were responsible for approximately 38% and 45%, respectively, of its net revenues
during such periods. In addition, one of these representative organizations was responsible for a significant portion of these revenues.
If any of the Company’s third party sales representative organizations engaged by the Company, especially the Company’s largest,
fails to adequately promote, market and sell its products, the Company’s revenues could be significantly decreased until a replacement
organization or distributor could be retained by the Company. Finding replacement organizations and distributors could be a time
consuming process during which the Company’s revenues could be negatively impacted.
The Company could be exposed to product liability or other claims for which its product liability or other insurance may be
inadequate.
A failure of any of the products marketed by the Company may subject it to the risk of product liability claims and litigation arising
from injuries allegedly caused by the improper functioning or design of its products. Although the Company currently maintains
product liability insurance in amounts which the Company considers adequate, the Company cannot assure that:
• its insurance will provide adequate coverage against potential liabilities;
• adequate product liability insurance will continue to be available in the future; or
• its insurance can be maintained on acceptable terms.
Although the Company maintains liability insurance in amounts that it considers adequate, the Company 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 the Company’s insurance coverage, the Company’s expenses could materially increase.
A decline in the value of the auction rate securities included in the Company’s investments could materially adversely affect its
earnings and continue to materially adverse its liquidity.
The Company’s investments include auction rate securities, with estimated fair value of $6.0 million at March 31, 2010. Auction
rate securities are securities with short-term interest rate reset dates of generally less than ninety days but with contractual maturities
that can be well in excess of ten years. At the end of each reset period, investors typically can sell at auction or continue to hold the
securities. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. The
Company’s auction rate securities consist of interests in pools of student loan receivables issued by agencies established by counties,
cities, states and other municipal entities. Liquidity for the Company’s auction rate securities typically is provided by an auction
process that resets the applicable interest rate every 7 to 35 days.
In early February 2008, the Company’s $15.0 million face value auction rate securities failed to sell at auction due to sell orders
exceeding buy orders. Later in February and again in March 2008, the Company received approximately $1.1 million in partial
redemptions of its auction rate securities. During fiscal 2009, the Company received a further $5.8 million in partial calls and
borrowed approximately $5.6 million under a credit facility maintained with Smith Barney, which is backed exclusively by the
Company’s remaining balance of $8.1 million face value auction rate securities. Accordingly, the amount of the Company’s
unrealized, through either cash redemptions or cash borrowings, face value auction rate securities at March 31, 2010 was
approximately $2.5 million, which represents the net adverse impact on the Company’s liquidity at March 31, 2010.
Currently, the funds associated with the Company’s remaining auction rate securities that have failed auction, may not be accessible
until a successful auction occurs, a buyer is found outside of the auction process, the security is called or the underlying securities
have matured. As a result of the recent instability in the market for auction rate securities, there may be a future decline in the value of
Bowne Conversion
14
the Company’s auction rate securities, which could materially adversely affect the Company’s earnings. Furthermore, the inability of
the Company to either redeem the remaining auction rate securities at face value, for cash or through further cash borrowings, could
prolong the aforementioned net adverse impact on the Company’s liquidity.
Any substantial indebtedness the Company incurs from time to time may adversely affect its ability to obtain additional funds and
may increase its vulnerability to economic or business downturns.
From time to time the Company may incur debt in connection with its operations. As a result, the Company may be subject to the
risks associated with indebtedness, including:
• because the Company would need to dedicate a portion of its cash flows from operations to pay debt service costs, the Company
would have fewer funds available for operations and other purposes;
• it may be more difficult and expensive to obtain additional funds through financings, if such funds are available at all;
• the Company would be more vulnerable to economic downturns and fluctuations in interest rates, less able to withstand
competitive pressures and less flexible in reacting to changes in its industry and general economic conditions; and
• if the Company were to default under any of its existing credit facilities or if its creditors were to demand payment of a portion
or all of its indebtedness, it may not have sufficient funds to make such payments.
The Company has pledged substantially all of its assets to secure its borrowings under its credit facilities and is subject to
covenants that may restrict its ability to operate its business.
The Company’s indebtedness under its credit facilities is secured by substantially all of its assets. If the Company defaults under the
indebtedness secured by its assets, those assets would be available to the secured creditor to satisfy its obligations to the secured
creditor. In addition, its 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:
• acceleration of the payment of its outstanding indebtedness;
• its inability to borrow additional amounts under its existing financing arrangements; and
• its inability to secure financing on favorable terms or at all from alternative sources.
Any of these consequences could significantly reduce the amount of cash and financing available to it which in turn would adversely
affect its ability to operate its business, including acquiring its products from its manufacturers and distributing its products to its
customers.
Market Related Risks
Grande’s controlling interest in the Company’s common stock as well as its organizational documents and Delaware law make it
difficult for the Company to be acquired without the consent and cooperation of Grande, the Company’s board of directors and
management.
Grande’s controlling interest in the Company’s shares as well as several provisions of its 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 its common stock. Under the terms of the Company’s certificate of incorporation, its
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 its current board of directors.
Bowne Conversion
15
If the Company’s common stock is de-listed from the NYSE Amex, shareholders liquidity in their shares may be adversely
affected and shareholders may have difficulty selling their shares or attaining a satisfactory price.
In order for the Company’s common stock to be eligible to continue to be listed on the NYSE Amex, the Company must meet the
current NYSE Amex continued listing requirements, including satisfying the Audit Committee composition requirements and the
timely filing of periodic reports with the Securities and Exchange Commission. In addition, because the Company is a “controlled
company” under the rules of the NYSE Amex, the Company is not required to comply with the rules relating to independent directors,
board nominations and executive compensation. If the Company is unable to continue to meet these requirements, its common stock
could be de-listed from the NYSE Amex. If the Company’s common stock were to be de-listed from the NYSE Amex, its common
stock could continue to trade on the National Association of Securities Dealers’ over-the-counter bulletin board or on the Pink Sheets,
as the case may be. Any such de-listing of the Company’s common stock could have an adverse effect on the market price of, and the
efficiency of the trading market for its common stock, in terms of the number of shares that can be bought and sold at a given price
and through delays in the timing of transactions and less coverage of the Company by securities analysts, if any. It also could have an
adverse effect on the Company’s ability to raise capital in the public or private equity markets if the Company were to determine that
it needs to seek additional equity capital in the future.
Forward-Looking Information
This report contains forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals,
expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks,
uncertainties and other factors, which may be beyond the Company’s control, and which may cause its actual results, performance or
achievements to be materially different from future results, performance or achievements expressed or implied by such forward-
looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements.
You can identify these forward-looking statements through the use of words such as “may,” “will,” “can,” “anticipate,” “assume,”
“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “project,” “predict,”
“could,” “intend,” “target,” “potential,” and other similar words and expressions of the future. These forward-looking statements may
not be realized due to a variety of factors, including, without limitation:
• limited access to financing or increased cost of financing resulting from the global economic downturn;
• the decline in, and any further deterioration of, consumer spending for retail products, such as the Company’s products;
• the Company’s ability to resist price increases from its suppliers or pass through such increases to its customers;
• the loss of any of the Company’s key customers or reduction in the purchase of the Company’s products by any such customers;
• conflicts of interest that exist based on the Company’s relationship with Grande;
• the Company’s inability to improve and maintain effective internal controls or the failure by its personnel to comply with such
internal controls;
• the Company’s inability to maintain its relationships with its licensees and distributors or the failure to obtain new licensees or
distribution relationships on favorable terms;
• the Company’s inability to anticipate market trends, enhance existing products or achieve market acceptance of new products;
• the Company’s dependence on a limited number of suppliers for its components and raw materials;
• the Company’s dependence on third party manufacturers to manufacture and deliver its products;
• Changes in consumer spending and economic conditions;
Bowne Conversion
16
• the failure of third party sales representatives to adequately promote, market and sell the Company’s products;
• the Company’s inability to protect its intellectual property;
• the effects of competition;
• changes in foreign laws and regulations and changes in the political and economic conditions in the foreign countries in which
the Company operates;
• changes in accounting policies, rules and practices; and
• the other factors listed under “Risk Factors” in this Annual Report on Form 10-K and other filings with the SEC.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place
undue reliance on any forward-looking statements, which speak only as of the date of this annual report or the date of the document
incorporated by reference into this annual report. The Company has no obligation, and expressly disclaim any obligation, to update,
revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. The
Company has expressed its expectations, beliefs and projections in good faith and the Company believes they have a reasonable basis.
However, the Company cannot assure you that its expectations, beliefs or projections will result or be achieved or accomplished.
Item 2. PROPERTIES
The following table sets forth the material properties owned or leased by the Company:
Facility Purpose
Corporate headquarters
New York office*
China office
Hong Kong office
Macao office
Warehouse
Approximate
Square
Footage
23,000
3,032
6,351
36,540
4,333
180,650
Location
Lease Expires (If
Leased Property)
Owned
July 2012
June 2009**
Moonachie, NJ
New York, NY
Zhongshan, China
Hong Kong, China December 2010
Macao, China
Mira Loma, CA
March 2011
June 2011
* The Company’s leased office space in New York City is currently not occupied by the Company and has been subleased to a third
party.
** The lease automatically renews on a month-by-month basis, unless a one month cancellation notice is given by either party.
Periodically, depending on need and circumstances, the Company may also utilize public warehouse space with terms typically of
one year or less. Public warehouse expenses vary based upon the volume and value of products shipped from each leased location.
The Company believes that the properties used for its operations are in satisfactory condition and adequate for its present and
anticipated future operations.
Item 3. LEGAL PROCEEDINGS
In re: Emerson Radio Shareholder Derivative Litigation. In late 2008, the plaintiffs in two previously filed derivative actions (the
Berkowitz and Pinchuk actions) filed a consolidated amended complaint naming as defendants two current and one former director of
the Company and alleging that the named defendants violated their fiduciary duties to the Company in connection with a number of
related party transactions with affiliates of The Grande Holdings, Ltd., the Company’s controlling shareholder. In January 2009, the
individual defendants filed an answer denying the material allegations of the complaint. In May 2010, the plaintiffs and the defendants
agreed in principle to settle the matter with a payment to the Company by or on behalf of the defendants of $3.0 million. Finalization
of the settlement is subject, among other things, to (i) execution by the parties of a definitive settlement agreement; (ii) written
notification of the proposed settlement to shareholders in a form approved by the Delaware Court of Chancery and (iii) approval by
Bowne Conversion
17
the Delaware Court of Chancery of the settlement, including the award of legal fees payable to plaintiffs’ counsel from the
$3.0 million to be paid in settlement by or on behalf of the defendants.
Except for the litigation matters described above, the Company is not currently a party to any legal proceedings other than litigation
matters, in most cases involving ordinary and routine claims incidental to our business. Management cannot estimate with certainty
the Company’s ultimate legal and financial liability with respect to such pending litigation matters. However, management believes,
based on our examination of such matters, that the Company’s ultimate liability will not have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
Item 4. Removed and reserved
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
REPURCHASES OF EQUITY SECURITIES
(a) Market Information
The Company’s common stock began trading on the American Stock Exchange under the symbol MSN on December 22, 1994, and
currently trades on the NYSE Amex under the same symbol, as a result of NYSE Euronext’s acquisition of the American Stock
Exchange in 2008. The following table sets forth the range of high and low sales prices for the Company’s common stock as reported
by the NYSE Amex and American Stock Exchanges during the last two fiscal years.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2010
High
Low
Fiscal 2009
High
Low
$
.75 $
1.64
2.75
4.78
.46 $ 1.39 $ 1.02
.30
1.30
.51
.43
.90
1.24
.41
.75
2.06
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 June 22, 2010, there were approximately 269 stockholders of record of our common stock. The Company believes 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
After receiving the approval its lender, Wachovia Bank, as required by the credit facility between Wachovia and the Company, the
Company’s Board of Directors declared an extraordinary dividend of $1.10 per common shares on March 2, 2010, which was paid on
March 24, 2010. Other than the one-time extraordinary dividend discussed herein, the Company has not paid cash dividends on its
common stock. In addition, the Company’s credit facility restricts its ability to pay cash dividends on its common stock. The Company
does not currently intend to pay cash dividends on its common stock in the future.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
Not applicable.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company’s 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.
Bowne Conversion
18
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 1A — “Risk Factors — Forward-Looking Information.”
In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are
approximations.
Results of Operations:
As a result of the Company’s sale of its membership in the ASI joint venture in April 2009, the results of operations of the
Company’s membership interest in the ASI joint venture have been presented as discontinued operations for all periods presented.
The following table summarizes certain financial information for the fiscal years ended March 31 (in thousands):
2010
2009
Net revenues
Cost of sales
Other operating costs and expenses
Selling, general and administrative
Operating income (loss)
Interest (expense) income, net
Loss on impairment of securities
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Net income (loss) from continuing operations
175,463
3,134
14,598
13,765
$ 206,960 $ 200,596
182,346
5,762
16,889
(4,401)
245
(117)
(4,273)
(90)
(4,183)
(24)
—
13,741
2,371
11,370 $
$
Results of Continuing Operations — Fiscal 2010 compared with Fiscal 2009
Net Revenues — Net revenues for fiscal 2010 were $207.0 million as compared to $200.6 million for fiscal 2009, an increase of
$6.4 million or 3.2%. Net revenues may be periodically impacted by adjustments made to the Company’s sales allowance and
marketing support accrual to record unanticipated customer deductions from accounts receivable or to reduce the accrual by any
amounts which were accrued in the past but not taken by customers through deductions from accounts receivable within a certain time
period. In the aggregate, these adjustments had the effect of increasing net revenues and operating income by $1.2 million and
$2.3 million for fiscal 2010 and fiscal 2009, respectively.
Net revenues are primarily comprised of Emerson® houseware products sales, branded product sales, licensing revenues and
themed product sales. Emerson® branded product sales are earned from the sale of products bearing the Emerson® or HH Scott® brand
name; licensing revenues are derived from licensing the Emerson® and HH Scott® brand names to licensees for a fee; and themed
product sales represent products sold bearing a certain theme or character. The major elements which contributed to the overall
increase in net revenues were as follows:
i) Houseware products net sales increased $20.3 million, or 14.5%, to $160.7 million in fiscal 2010 as compared to
$140.4 million in fiscal 2009, on increased net sales of microwave ovens, compact refrigerators and toaster ovens, partly offset by
decreased net sales of wine coolers and coffee makers;
ii) Emerson® branded products net sales, excluding houseware products, were $33.1 million in fiscal 2010 compared to
$44.9 million in fiscal 2009, a decrease of $11.8 million, or 26.4%, primarily resulting from decreased net sales volumes across the
entire audio product category, with the exception of clock radios, which were up over the prior year;
iii) Licensing revenues in fiscal 2010 of $6.9 million were unchanged from fiscal 2009 licensing revenues of $6.9 million. The
Company’s largest license agreement is with Funai Corporation, Inc. (“Funai”), which expires December 31, 2010. The agreement
provides that Funai will manufacture, market, sell and distribute specified products bearing the “(EMERSON LOGO)” trademark to
customers in the U.S. and Canadian markets. Under the terms of the agreement, the Company will receive non-refundable
minimum annual royalty payments of $4.3 million each calendar year and a license fee on sales of product subject to the agreement
Bowne Conversion
19
in excess of the minimum annual royalties. During fiscal 2010 and 2009, revenues of $4,855,000 and $4,940,000, respectively,
were recorded under this agreement.
iv) Themed product net sales were $3.2 million in fiscal 2010 as compared to $8.4 million in fiscal 2009, a decrease of
$5.2 million, or 61.6%, due to lower net sales of Mattel® products. The Company’s license agreement with Mattel expired in
December 2009 and was not renewed.
v) Other products net sales were $3.0 million in fiscal 2010 as compared to $0 in fiscal 2009. Other products net sales in fiscal
2010 were comprised of a sale of semiconductors in March 2010.
Cost of Sales — Cost of Sales includes those components as described in Note 1 of the Notes to the Consolidated Financial
Statements. In absolute terms, cost of sales decreased $6.8 million, or 3.7%, to $175.5 million in fiscal 2010 as compared to
$182.3 million in fiscal 2009. Cost of sales, as a percentage of net revenues, was 84.8% in fiscal 2010 as compared to 90.9% in fiscal
2009. Cost of sales as a percentage of net revenues less license revenues was 87.7% in fiscal 2010 as compared to 94.1% in fiscal
2009. The decrease in absolute terms for fiscal 2010 as compared to fiscal 2009 was primarily related to decreased shipping costs on
imported products from the Company’s Asian suppliers and lower inventory valuation adjustments.
Gross profit margins in fiscal 2010 were higher than in fiscal 2009 across the entire houseware product category, with the exception
of wine coolers, which were lower. Gross profit margins in fiscal 2010 were also lower than in fiscal 2009 for the audio and themed
product categories. The margin improvement within the houseware products category was due primarily to lower shipping costs on
imported products from the Company’s Asian suppliers. The Company’s products are generally placed in the low-to-medium priced
category of the market, which has a tendency to be highly competitive and subject to intense margin pressure.
Other Operating Costs and Expenses — Other operating costs and expenses include those components as described in Note 1 of the
Notes to the Consolidated Financial Statements. Other operating costs and expenses as a percentage of net revenues were 1.5% in
fiscal 2010 and 2.9% in fiscal 2009. In absolute terms, other operating costs and expenses decreased $2.6 million, or 45.6%, to
$3.1 million for fiscal 2010 as compared to $5.8 million in fiscal 2009, on lower costs associated with returned products, warranty
claims, and warehouse supplies.
Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, was 7.1% in fiscal 2010 as
compared to 8.4% in fiscal 2009. S,G&A, in absolute terms, decreased $2.3 million, or 13.6%, to $14.6 million in fiscal 2010 as
compared to $16.9 million in fiscal 2009. The decrease in S,G&A in absolute terms between fiscal 2010 and 2009 was primarily due
to a decrease in personnel costs of approximately $2.1 million, a decrease in advertising expense of $1.0 million, a decrease in
information technology costs of approximately $0.6 million and a decrease in travel and entertainment costs of approximately
$0.5 million, partly offset by an increase in legal fees of approximately $1.3 million and a loss on disposal of property, plant and
equipment of approximately $0.4 million made in fiscal 2010.
Interest (Expense) income, net — Interest expense, net, was $24,000 in fiscal 2010 as compared to interest income, net, of $245,000
in fiscal 2009, due to the interest expense incurred by the Company during part of fiscal 2009 and all of fiscal 2010 on borrowings
taken by the Company in August 2008 against its credit facility with Smith Barney, which are backed by the Company’s auction rate
securities, and the reduction during fiscal 2010 in year-over-year interest income earned by the Company on these securities due to the
$5.8 million in cash redemptions made by the issuers to the Company during fiscal 2009.
Loss on impairment of securities — During fiscal 2010, the Company did not record any impairment charges or recoveries on its
auction rate securities. This compares to fiscal 2009, when the Company recorded a net impairment charge of $117,000 on these
securities. The Company’s valuation is estimated by comparing current value based on projected cash flows discounted to the present
and taking into account yields of similar illiquid instruments and assumptions about the extent of the failure of the auction process and
the amount of discounts demanded in sales of comparable securities. The Company will continue to review any investments with a fair
value less than the carrying value at each reporting period. See Item 1A. Risk Factors and Note 11 “Marketable Securities”.
Provision (benefit) for Income Taxes — In fiscal 2010, the Company recorded an income tax expense of $2.4 million attributable to
the income from continuing operations of $13.7 million, which largely represented deferred tax charges associated with the
Company’s profits in the United States. This compares to fiscal 2009, when the Company recorded an income tax benefit of $90,000
Bowne Conversion
20
attributable to the loss from continuing operations of $4.3 million. See Item 8 — “Financial Statements and Supplementary Data and
Note 7 “Income Taxes”.
Net income (loss) from continuing operations — As a result of the foregoing factors, the Company’s net income from continuing
operations was $11.4 million for fiscal 2010 as compared to a net loss from continuing operations of $4.2 million for fiscal 2009.
Liquidity and Capital Resources
General
As of March 31, 2010, the Company had cash and cash equivalents of approximately $15.1 million, compared to approximately
$22.5 million at March 31, 2009. Working capital decreased to $23.9 million at March 31, 2010 as compared to $44.8 at March 31,
2009. The decrease in cash and cash equivalents of approximately $7.5 million was due to cash used in financing and investing
activities of $29.9 million and $4.1 million, respectively, partly offset by cash generated from operating activities of $26.4 million.
Cash provided by operating activities was approximately $26.4 million for fiscal 2010, primarily resulting from the net income
from continuing operations of $11.4 million, lower inventories of $11.5 million and the classification back to unrestricted cash of
$3.0 million.
Net cash used in investing activities was $4.1 million for fiscal 2010, which was attributable to the purchase of the Company’s new
headquarter building and land for $2.6 million and the Olevia trademark for $1.5 million.
Net cash used in financing activities was $29.9 million for fiscal 2010, resulting from the payment of an extraordinary dividend in
March 2010 of $29.8 million.
Wachovia
On March 2, 2010, the Company entered into an amendment to its Revolving Credit Agreement with Wachovia Bank, whereby the
facility was changed to allow only the issuance of 105% cash-collateralized Letters of Credit up to a maximum $15.0 million or a
“Borrowing Base” as defined in the agreement. The Borrowing Base amount is established by specified percentages of eligible
accounts receivables and inventories. The interest rate charged to the Company on Letters of Credit ranges from Prime or, at the
Company’s election, the London Interbank Offered Rate (“LIBOR”), plus an interest rate margin ranging between 1.25% to 2.25%,
depending on excess availability and the type of Letter of Credit. Pursuant to the loan agreement, the Company is restricted from,
among other things, paying certain cash dividends, and entering into certain transactions without the lender’s prior consent and is
subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of the
Company’s assets. The loan agreement expires by its terms on December 23, 2010 and the Company is currently evaluating its options
with regard to its credit and banking needs.
At March 31, 2010 and March 31, 2009, there were approximately $1.8 million and $13.0 million of letters of credit outstanding
under this facility.
Short-term Liquidity. In fiscal 2010, products representing approximately 29% of net sales were imported directly to the
Company’s customers. The direct importation of product by the Company to its customers significantly benefits the Company’s
liquidity because this inventory does not need to be financed by the Company.
The Company’s principal existing sources of cash are generated from operations. The Company believes that its existing sources of
cash will be sufficient to support its existing operations over the next 12 months; however, the Company may raise additional
financing, which may include the issuance of equity securities, or the incurrence of additional debt, in connection with its operations
or if the Company elects to pursue acquisitions.
As of March 31, 2010, there were no material capital expenditure commitments and no substantial commitments for purchase
orders outside the normal purchase orders used to secure product.
Bowne Conversion
21
Off-Balance Sheet Arrangements. On April 7, 2010, upon a request made to the Company by its foreign controlling shareholder,
the Company entered into an agreement with its controlling shareholder whereby the Company returned to this shareholder on April 7,
2010 that portion of the taxes that the Company had withheld from the dividend paid on March 24, 2010 to this shareholder, which the
Company believes is not subject to U.S. tax based on the Company’s good-faith estimate of its accumulated earnings and profits. The
Company believes this transaction results in an off-balance sheet arrangement, which is comprised of a possible contingent tax
liability of the Company, which, if recognized, would be offset by the calling by the Company of the collateral pledged in the April 7,
2010 agreement between the Company and this (see Note 17 “Subsequent Event”).
Other Events and Circumstances Pertaining to Liquidity.
As of both March 31, 2010 and March 31, 2009, respectively, the Company had a $6.0 million net book value investment in trading
securities, consisting entirely of student loan auction rate securities (“SLARS”). These securities have long-term nominal maturities
for which interest rates are reset through a Dutch auction process at pre-determined calendar intervals; a process which, prior to
February 2008, had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced
in the U.S. credit and capital markets, these SLARS have had multiple failed auctions. Based on the fact that there were no cash
redemptions made by the issuers to the Company, an independent valuation and its internal analysis, the Company concluded at
March 31, 2010 that these securities had not changed in value since March 31, 2009. During fiscal 2009, the issuers of these SLARS
redeemed $5.8 million for cash, and based on this fact, an independent valuation and its internal analysis, the Company recorded an
impairment charge of $117,000 during fiscal 2009. These SLARS have AAA/Aaa and AAA/Baa3 credit ratings as of March 31, 2010,
and have been classified as long-term investments in the Company’s Consolidated Balance Sheet as a consequence of their uncertain
short-term liquidity. See Item 1A. Risk Factors, “A decline in the value of the auction rate securities included in the Company’s
investments could materially adversely affect its earnings and continue to materially adversely affect its liquidity.”
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial
statements, which have been prepared in accordance with accounting principles that are generally accepted within the United States.
The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Management considers certain accounting policies related to inventories, trade
accounts receivables, impairment of long-lived assets, valuation of deferred tax assets, sales return reserves and sales allowance
accruals to be critical policies due to the estimation processes involved in each.
Revenue Recognition. Revenues from product distribution are recognized at the time title passes to the customer. Under the Direct
Import Program, title passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment.
Estimates for possible returns are based upon historical return rates and netted against revenues. Except in connection with infrequent
sales with specific arrangements to the contrary, returns are not permitted unless the goods are defective.
In addition to the distribution of products, the Company grants licenses the right to use the Company’s trademarks for a stated term
for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either i) a
non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation, normally
comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum guaranteed
royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the license
agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not
recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum.
In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed
royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability
and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. The Company
records 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 management, additional inventory reserves may be
required. Conversely, if market conditions improve, such reserves are reduced.
Bowne Conversion
22
Trade Accounts Receivable. The Company extends credit based upon evaluations of a customer’s financial condition and provides
for any anticipated credit losses in the Company’s financial statements based upon management’s estimates and ongoing reviews of
recorded allowances. If the financial condition of a customer deteriorates, resulting in an impairment of that customer’s ability to
make payments, additional reserves may be required. Conversely, reserves are reduced to reflect credit and collection improvements.
Income Taxes. The Company records a valuation allowance to reduce the amount of its deferred tax assets to the amount that
management estimates is more likely than not to be realized. While management considers future taxable income and ongoing tax
planning strategies in assessing the need for the valuation allowance, in the event that management determines that a deferred tax asset
will likely be realized 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 is determined that all or part of a net deferred tax asset will likely
not be realized 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. 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. Additional reserves may be required if actual sales returns
increase above the historical return rates. 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 the reserve.
Sales Allowance and Marketing Support Accruals. Sales allowances, marketing support programs, promotions and other volume-
based incentives which are provided to retailers and distributors are accounted for on an accrual basis as a reduction to net revenues in
the period in which the related sales are recognized in accordance with ASC topic 605, “Revenue Recognition”, subtopic 50
“Customer Payments and Incentives” and Securities and Exchange Commission Staff Accounting Bulletins 101 “Revenue
Recognition in Financial Statements,” and 104 “Revenue Recognition, corrected copy” (“SAB’s 101 and 104”).
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as
required by ASC topic 605, “Revenue Recognition.”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the
criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional
non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover.
Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that
percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all
of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s
products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
Recently-Issued Financial Accounting Pronouncements
In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-than-temporary
impairments,” which was subsequently incorporated into ASC topic 320, “Investments — Debt and Equity Securities.” The purpose of
this ASC topic was to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary
impairment event and to communicate more effectively when an other-than-temporary impairment event has occurred. This ASC topic
amends the other-than-temporary impairment guidance in GAAP for debt securities and improves the presentation and disclosure of
other-than-temporary impairment on investment securities and changes the calculation of the other-than-temporary impairment
recognized in earnings in the financial statements. This ASC does not amend existing recognition and measurement guidance related
to other-than-temporary impairment of equity securities.
For debt securities, ASC topic 320 requires an entity to assess whether (a) it has the intent to sell the debt security, or (b) it is more
likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an
other-than-temporary impairment on the security must be recognized.
In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash
flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not
Bowne Conversion
23
more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized
cost basis (i.e., the amortized cost basis less any current-period credit loss), ASC topic 320 changes the presentation and amount of the
other-than-temporary impairment recognized in the income statement.
In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the
amount of the total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the
credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other
comprehensive loss and will be amortized over the remaining life of the debt security as an increase in the carrying value of the
security (with no effect on earnings unless the security is subsequently sold or there is additional other-than-temporary impairment
losses recognized). The total other-than-temporary impairment is presented in the income statement with an offset for the amount of
the total other-than-temporary impairment that is recognized in other comprehensive loss. Previously, in all cases, if an impairment
was determined to be other-than-temporary, an impairment loss was recognized in earnings in an amount equal to the entire difference
between the security’s amortized cost basis and its fair value at the balance sheet date of the reporting period for which the assessment
was made. The new presentation provides additional information about the amounts that the entity does not expect to collect related to
a debt security.
ASC topic 320 is effective and is to be applied prospectively for financial statements issued for interim and annual reporting
periods ending after June 15, 2009. When adopting ASC topic 320, an entity is required to record a cumulative-effect adjustment as of
the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary
impairment from retained earnings to accumulated other comprehensive loss if the entity does not intend to sell the security and it is
not more likely than not that the entity will be required to sell the security before the anticipated recovery of its amortized cost basis.
The Company adopted FASB Staff Position 115-2 (FSP 115-2) — Recognition and Presentation of Other-than-Temporary
Impairments — on April 1, 2009. The adoption of FSP 115-2, which was subsequently incorporated into ASC topic 320,
“Investments — Debt and Equity Securities,” did not have a material impact on the Company’s results of operation or financial
condition for fiscal 2010.
In May 2009, the FASB issued SFAS No. 165 Subsequent Events (SFAS 165), which is effective for interim or annual financial
periods ending after June 15, 2009, and which was subsequently incorporated into ASC topic 855, “Subsequent Events.” ASC 855
establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 sets forth (1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) The circumstances under which an entity should recognize events or transactions occurring after the balance
sheet date in its financial statements and (3) The disclosures that an entity should make about events or transactions that occurred after
the balance sheet date. The Company adopted SFAS 165 in the quarter ended June 30, 2009 and has evaluated subsequent events
through July 9, 2010, the date the financial statements were issued.
In June 2009, the FASB issued FAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB Statement No. 162. This codification is the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company adopted the provisions of
FAS No. 168 effective June 28, 2009. The adoption of this statement did not have an effect on our financial position or results of
operations.
In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue
Arrangements, and ASU 2009-14, “Certain Revenue Arrangements That Include Software Elements” — a consensus of the FASB
Emerging Issues Task Force, to amend the existing revenue recognition guidance. ASU 2009-13 amends ASC topic 605, “Revenue
Recognition”, subtopic 25, “Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue Arrangements with Multiple
Deliverables”), as follows: modifies criteria used to separate elements in a multiple-element arrangement, introduces the concept of
“best estimate of selling price” for determining the selling price of a deliverable, establishes a hierarchy of evidence for determining
the selling price of a deliverable, requires use of the relative selling price method and prohibits use of the residual method to allocate
arrangement consideration among units of accounting, and expands the disclosure requirements for all multiple-element arrangements
within the scope of ASC 605-25. The Company does not believe the adoption of this guidance will have a material impact on its
consolidated financial statements.
Bowne Conversion
24
In October 2009, the FASB issued Accounting Standard Update (“ASU”) 2009-14, which amends the scope of ASC topic 985,
“Software”, and ASC topic 605, “Revenue Recognition” (formerly AICPA Statement of Position 97-2, Software Revenue
Recognition), to exclude certain tangible products and related deliverables that contain embedded software from the scope of this
guidance. Instead, the excluded products and related deliverables must be evaluated for separation, measurement, and allocation under
the guidance of ASC topic 605-25, “Multiple Element Arrangements”, as amended by ASU 2009-13. The amended guidance is
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. An entity may elect retrospective application to all revenue arrangements for all periods presented
using the guidance in ASC topic 250, “Accounting Changes and Error Corrections”. Entities must adopt the amendments resulting
from both of these ASUs in the same period using the same transition method, where applicable. The Company does not believe the
adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements”. The standard amends
ASC Topic 820, “Fair Value Measurements and Disclosures” to require additional disclosures related to transfers between levels in
the hierarchy of fair value measurement. The standard is effective for interim and annual reporting periods beginning after
December 15, 2009. The standard does not change how fair values are measured. Accordingly, the standard will not have an impact on
the Company.
In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends
and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts
transferred into and out of Level 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and
settlements related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure
requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after
December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as
Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The Company does not
believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In February 2010, the FASB issued an additional accounting pronouncement that amended certain requirements for subsequent
events (FASB ASC Topic 855, “Subsequent Events”), which requires an SEC filer or a conduit bond obligor to evaluate subsequent
events through the date the financial statements are available to be issued and removes the previous requirement to disclose the date
through which subsequent events have been evaluated. The amended amendments were effective on issuance of the final
pronouncement. The adoption of this pronouncement had no effect on our consolidated financial statements.
In April 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-17, “Revenue Recognition — Milestone Method”,
which amended guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is
appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the
period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive.
The consideration earned by achieving the milestone should:
1. Be commensurate with either of the following:
a. The vendor’s performance to achieve the milestone
b. The enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s
performance to achieve the milestone
2. Relate solely to past performance
3. Be reasonable relative to all deliverables and payment terms in the arrangement.
Bowne Conversion
25
A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. An arrangement may
include more than one milestone, and each milestone should be evaluated separately to determine whether the milestone is substantive.
Accordingly, an arrangement may contain both substantive and non-substantive milestones.
The amendments in this ASU are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within
those years, beginning on or after June 15, 2010. Early adoption is permitted. ASU 2010-17 will not have an impact on the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Bowne Conversion
26
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
• Report of Independent Registered Public Accounting Firm
• Consolidated Statements of Operations for the years ended March 31, 2010 and 2009
• Consolidated Balance Sheets as of March 31, 2010 and 2009
• Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2010 and 2009
• Consolidated Statements of Cash Flows for the years ended March 31, 2010 and 2009
• Notes to Consolidated Financial Statements
Page No.
Bowne Conversion
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Emerson Radio Corp and Subsidiaries
We have audited the accompanying consolidated balance sheets of Emerson Radio Corp. and Subsidiaries (the “Company”), as of
March 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for
the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements 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 audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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 the Company as of March 31, 2010 and 2009, and the consolidated results of their operations, and their cash
flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ MSPC
Certified Public Accountants and Advisors,
A Professional Corporation
Cranford, New Jersey
July 14, 2010
Bowne Conversion
28
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2010 and 2009
Net revenues:
Net revenues
Net revenues-related party
Costs and expenses:
Cost of sales
Other operating costs and expenses
Selling, general and administrative expenses
Operating income (loss)
Other income (expense):
Interest (expense) income, net
Loss on impairment of securities
Income (loss) from continuing operations before income taxes
Provision (benefit)for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of tax benefit
Net income (loss)
Basic net income (loss) per share Continuing operations
Discontinued operations
Diluted net income (loss) per share Continuing operations
Discontinued operations
Weighted average shares outstanding Basic
Diluted
2010
2009
(In thousands, except per share data)
$ 206,960
—
206,960
$ 200,581
15
200,596
175,463
3,134
14,598
193,195
13,765
182,346
5,762
16,889
204,997
(4,401)
(24)
—
(24)
13,741
2,371
11,370
(55)
11,315
.42
—
.42
.42
—
.42
27,130
27,131
$
$
$
$
245
(117)
128
(4,273)
(90)
(4,183)
(634)
(4,817)
(.16)
(.02)
(.18)
(.16)
(.02)
(.18)
27,130
27,130
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
Bowne Conversion
29
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2010 and 2009
ASSETS
2010
2009
(In thousands, except per share data)
Current Assets:
Cash and cash equivalents
Restricted cash
Net accounts receivable
Other receivables
Due from affiliates
Net inventory
Prepaid expenses and other current assets
Deferred tax assets
Total current assets
Property, plant, and equipment, net
Trademarks and other intangible assets, net
Due from affiliates
Investments in marketable securities
Deferred tax assets
Other assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term borrowings
Current maturities of long-term borrowings
Accounts payable and other current liabilities
Due to affiliates
Accrued sales returns
Income taxes payable
Total current liabilities
Long-term borrowings
Deferred tax liabilities
Shareholders’ Equity:
Preferred shares — 10,000,000 shares authorized; 3,677 shares issued and outstanding;
liquidation preference of $3,677
Common shares — $.01 par value, 75,000,000 shares authorized; 52,965,797 shares issued at
March 31, 20109 and March 31, 2009, respectively; 27,129,832 shares outstanding at
March 31, 2010 and March 31, 2009, respectively
Capital in excess of par value
Accumulated other comprehensive losses
Accumulated deficit
Treasury stock, at cost, 25,835,965 shares
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
$ 15,051
1
20,350
1,037
—
10,952
736
3,383
51,510
3,131
1,606
185
6,031
6,588
205
$ 69,256
$
5,629
30
20,776
28
957
174
27,594
201
119
$
$
$
22,518
3,025
15,970
1,587
78
20,691
2,190
4,872
70,931
1,139
255
114
6,031
7,102
472
86,044
5,733
85
18,929
66
1,130
155
26,098
59
87
3,310
3,310
529
98,785
(82)
(36,976)
(24,224)
41,342
$ 69,256
529
117,243
(82)
(36,976)
(24,224)
59,800
86,044
$
The accompanying notes are an integral part of the consolidated financial statements.
Bowne Conversion
30
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For The Years Ended March 31, 2010 and 2009
Common Shares Issued
Capital
Accumulated
Other
Total
Preferred Number
Stock
of Shares
Par
Value
Treasury
in Excess of Comprehensive Accumulated
Stock
Losses
Par Value
(In thousands, except share data)
Deficit
Shareholders’
Equity
$ 3,310 52,965,797
$ 529 $ (24,224) $ 117,245
(2)
$ (82)
$ (32,159) $
$ 3,310 52,965,797
$ 529 $ (24,224) $ 117,243
12
(18,470)
(4,817)
$ (82)
$ (36,976) $
(11,372)
11,372
$ 3,310 52,965,797
$ 529 $ (24,224) $
98,785
$ (82)
$ (36,976) $
64,619
(2)
(4,817)
(4,817)
59,800
12
(29,842)
11,372
11,372
41,342
Balance — March 31, 2008
Stock based compensation
Comprehensive income:
Net loss
Comprehensive income
Balance — March 31, 2009
Stock based compensation
Dividend paid
Comprehensive income:
Net income
Comprehensive income
Balance — March 31, 2010
The accompanying notes are an integral part of the consolidated financial statement
Bowne Conversion
31
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended March 31, 2010 and 2009
Cash Flows from Operating Activities:
Income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization
Non cash compensation
Deferred tax benefit
Asset allowances, reserves, and other
Gain on insurance reimbursements
Gains on sales of investments
Impairment charges and asset write-offs
Changes in assets and liabilities:
Restricted cash
Foreign exchange forward contracts
Accounts receivable
Other receivables
Due from affiliates
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable and other current liabilities
Due to affiliates
Income taxes payable
Operating activities of continuing operations
Operating activities of discontinued operations
Net cash provided (used) by operating activities
Cash Flow From Investing Activities:
Proceeds from partial calls on securities
Purchase of trademark
Additions to property and equipment (continuing operations)
Investing activities of discontinued operations, including Proceeds from sale of ASI (net of cash at date
of sale)
Net cash (used) provided by investing activities
Cash Flows from Financing Activities:
Short-term borrowings
Repayments of short-term borrowings
Dividends paid
Borrowings under long-term credit facility
Repayments of borrowings under long-term credit facility
Financing activities of continuing operations
Financing activities of discontinued operations
Net cash (used) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of
Supplemental disclosures of non-cash investing and financing activities:
Interest
Income taxes
Bowne Conversion
32
2010
2009
(In thousands)
$
11,370 $
(4,183)
846
12
2,035
(3,554)
—
—
—
3,024
—
(2,752)
550
7
11,495
1,454
128
1,847
(38)
19
26,443
—
26,443
—
(1,469)
(2,581)
—
(4,050)
775
(2)
(605)
(1,739)
(54)
(670)
877
(3,025)
134
2,919
544
573
4,392
110
34
(2,766)
(36)
40
(2,682)
(347)
(3,029)
5,800
—
(416)
430
5,814
—
(159)
(29,843)
124,479
(124,337)
(29,860)
—
(29,860)
(7,467)
22,518
15,051 $
9,279
(3,613)
—
141,608
(141,691)
5,583
(133)
5,450
8,235
14,283
22,518
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
114 $
22 $
144
67
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES:
Background and Basis of Presentation
The consolidated financial statements include the accounts of Emerson Radio Corp. (“Emerson”, consolidated — the “Company”),
and its subsidiaries. The Company designs, sources, imports and markets a variety of houseware and consumer electronic, and licenses
the Emerson trademark for a variety of products domestically and internationally.
On April 16, 2009, the Company entered into an agreement with certain parties which ended the Company’s joint venture
investment in Advanced Sound and Image, LLC, a Delaware limited liability company (“ASI”). Accordingly, the financial position
and results of operations of the Company’s interest in the ASI joint venture for the fiscal years ended March 31, 2010 and 2009 have
been presented as discontinued operations. Discontinued operations, net of tax for the fiscal years ending March 31, 2010 and 2009,
relating to this transaction were $55,000 and $634,000, respectively. See Note 16 “Discontinued Operations”.
Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, the Company is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
Highly liquid short-term investments with original maturities of three months or less at the time of purchase are considered to be
cash equivalents.
Fair Values of Financial Instruments
The carrying amounts for cash and cash equivalents, cash securing bank loans, trade accounts receivable, accounts payable and
accrued liabilities approximate fair value due to the short-term maturity of these financial instruments. The carrying amounts of bank
debt approximate their fair values due to their variable rate interest features.
Investments
The Company determines the appropriate classifications of securities at the time of purchase and evaluates the continuing
appropriateness of that classification thereafter. The Company’s investments in auction rate securities are classified as trading
securities in fiscal 2010 and 2009. Realized gains and losses are determined on a specific identification basis and are reported
separately as a component of income. Decreases and increases in the fair value of securities deemed to be other than temporary are
included in earnings.
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. Accounts receivable represent sales
to retailers and distributors of consumer electronics throughout the United States and Canada. The Company periodically performs
credit evaluations of its customers but generally does not require collateral. The Company provides for any anticipated credit losses in
the financial statements based upon management’s estimates and ongoing reviews of recorded allowances. The accounts receivable
allowance for doubtful accounts was $557,000 at March 31, 2010 and $691,000 at March 31, 2009
Bowne Conversion
33
The Company maintains its cash accounts primarily with the bank providing its credit facility and also with major foreign financial
institutions. See Note 6 — “Borrowings”. The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000 per bank as of March 31, 2010 and $250,000 per bank as of March 31, 2009. The Company’s cash balances in excess
of FDIC-insured limits were $14.8 million and $25.3 million at March 31, 2010 and March 31, 2009, respectively.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets being depreciated. Leasehold improvements are amortized on a
straight-line basis over the shorter of the useful life of the improvement or the term of the lease. The cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and betterments are capitalized and depreciated over the remaining estimated
useful lives of the related assets. At time of disposal, the cost and related accumulated depreciation are removed from the Company’s
records and the difference between net carrying value of the asset and the sale proceeds is recorded as a gain or loss.
Depreciation of property, plant and equipment is provided by the straight-line method as follows:
• Machinery and Equipment
• Computer Equipment and Software
• Furniture & Fixtures and Office Equipment
• Building
Five years to ten years
Three years to ten years
Five years to seven years
Fifteen years
Long-Lived Assets
The Company’s long-lived assets include property and equipment, trademark and other amortizable intangibles. At March 31, 2010,
the Company had approximately $3,131,000 of property and equipment, net of accumulated depreciation, and approximately
$1,606,000 of trademark and other amortizable intangible assets, net of amortization, accounting for approximately 7% of the
Company’s total assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Topics 350 “Intangibles” and 360
“Property, Plant and Equipment”. Recoverability of assets held and used are measured by a comparison of the carrying amount of the
asset to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Future events
could cause the Company to conclude that impairment indicators exist and that long-lived assets may be impaired. Any resulting
impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.
Revenue Recognition
Distribution of products
Revenues from product distribution are recognized at the time title passes to the customer. Under the Direct Import Program, title
passes in the country of origin. Under the Domestic Program, title passes primarily at the time of shipment. Estimates for possible
returns are based upon historical return rates and netted against revenues. Except in connection with infrequent sales with specific
arrangements to the contrary, returns are not permitted unless the goods are defective.
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. Additional reserves may be required if actual sales returns increase above the historical
return rates. 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 the reserve.
Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and
distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized
in accordance with ASC topic 605, “Revenue Recognition.”, subtopic 50 “Customer Payments and Incentives” and Securities and
Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue
Recognition, corrected copy” (“SAB’s 101 and 104”).
Bowne Conversion
34
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as
required by ASC topic 605, “Revenue Recognition”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the
criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional
non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover.
Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that
percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all
of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s
products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
Licensing
In addition to the distribution of products, the Company grants licenses for the right to use the Company’s trademarks for a stated
term for the manufacture and/or sale of consumer electronics and other products under agreements which require payment of either
i) a non-refundable minimum guaranteed royalty or, ii) the greater of the actual royalties due (based on a contractual calculation,
normally comprised of actual product sales by the licensee multiplied by a stated royalty rate, or “Sales Royalties”) or a minimum
guaranteed royalty amount. In the case of (i), such amounts are recognized as revenue on a straight-line basis over the term of the
license agreement. In the case of (ii), Sales Royalties in excess of guaranteed minimums are accounted for as variable fees and are not
recognized as revenue until the Company has ascertained that the licensee’s sales of products have exceeded the guaranteed minimum.
In effect, the Company recognizes the greater of Sales Royalties earned to date or the straight-line amount of minimum guaranteed
royalties to date. In the case where a royalty is paid to the Company in advance, the royalty payment is initially recorded as a liability
and recognized as revenue as the royalties are deemed to be earned according to the principles outlined above.
Cost of Sales
Cost of sales includes actual product cost, change in inventory reserves, duty, buying costs, the cost of transportation to the
Company’s warehouses from its manufacturers, warehousing costs, and an allocation of those selling, general and administrative
expenses that are directly related to these activities.
Other Operating Costs and Expenses
Other operating costs and expenses include costs associated with returned product received from retailers, warranty costs,
warehouse supply expenses, and an allocation of those selling, general and administrative expenses that are directly related to these
activities. Because other operating costs and expenses is not included in cost of sales, the reported gross margin may not be
comparable to those of other distributors that may include all costs related to the cost of product to their cost of sales and in the
calculation of gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs of the Company that are not directly related to the cost of
procuring product or costs not included in other operating costs and expenses.
Acquisition Costs Incurred
Acquisition costs include all costs incurred by the Company in acquisition attempts. These costs are charged to operations when the
potential acquisition is terminated.
Foreign Currency
The assets and liabilities of foreign subsidiaries have been translated at current exchange rates, and related revenues and expenses
have been translated at average rates of exchange in effect during the year. Related translation adjustments are reported as a separate
Bowne Conversion
35
component of shareholders’ equity. Losses and gains resulting from foreign currency transactions are included in the results of
operations.
The Company generally does not enter into foreign currency exchange contracts to hedge its exposures related to foreign currency
fluctuations and there were no foreign exchange forward contracts held by the Company at March 31, 2010 or March 31, 2009.
Advertising Expenses
Advertising expenses are charged to operations as incurred and are included in selling, general and administrative expenses. Total
advertising expenses were approximately $155,000 and $1,143,000 for fiscal 2010 and 2009, respectively.
Sales Allowance and Marketing Support Expenses
Sales allowances, marketing support programs, promotions and other volume-based incentives which are provided to retailers and
distributors are accounted for on an accrual basis as a reduction to net revenues in the period in which the related sales are recognized
in accordance with ASC topic 605, “Revenue Recognition.”, subtopic 50 “Customer Payments and Incentives” and Securities and
Exchange Commission Staff Accounting Bulletins 101 “Revenue Recognition in Financial Statements,” and 104 “Revenue
Recognition, corrected copy” (“SAB’s 101 and 104”).
At the time of sale, the Company reduces recognized gross revenue by allowances to cover, in addition to estimated sales returns as
required by ASC topic 605, “Revenue Recognition”, subtopic 15 “Products”, (i) sales incentives offered to customers that meet the
criteria for accrual under ASC topic 605, subtopic 50 and (ii) under SAB’s 101 and 104, an estimated amount to recognize additional
non-offered deductions it anticipates and can reasonably estimate will be taken by customers which it does not expect to recover.
Accruals for the estimated amount of future non-offered deductions are required to be made as contra-revenue items because that
percentage of shipped revenue fails to meet the collectability criteria within SAB 104’s and 101’s four revenue recognition criteria, all
of which are required to be met in order to recognize revenue.
If additional marketing support programs, promotions and other volume-based incentives are required to promote the Company’s
products subsequent to the initial sale, then additional reserves may be required and are accrued for when such support is offered.
The sales and marketing support accrual activity for fiscal 2010 and fiscal 2009 was as follows (in thousands):
Balance at March 31, 2008
Fiscal 2009 additions
Fiscal 2009 usages
Fiscal 2009 adjustments
Balance at March 31, 2009
Fiscal 2010 additions
Fiscal 2010 usages
Fiscal 2010 adjustments
Balance at March 31, 2010
$ 6,323
7,144
(7,221)
(2,282)
$ 3,964
3,973
(3,766)
(1,226)
$ 2,945
Internet Expenses
The Company expenses when incurred the operating and development costs of its Internet website.
Bowne Conversion
36
Interest (expense) income, net
The Company expenses interest when incurred. The interest expenses for fiscal 2010 and 2009 consist of:
Interest (expense)
Amortization of deferred financing costs
Interest income
Interest (expense) income, net
Income Taxes
2009
2010
(In thousands)
$ (174) $ (174)
(83)
(139)
289
502
(24) $ 245
$
Deferred income taxes are provided for the tax effects of differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets have been recorded net of an
appropriate valuation allowance, to the extent management believes it is more likely than not that such assets will be realized. (See
Note 7 “Income Taxes”).
Comprehensive Income
Comprehensive income or loss, as disclosed in the Consolidated Statements of Changes in Shareholders’ Equity, is net income or
loss adjusted for changes in the fair value of hedge instruments, unrealized gains or losses on securities, and foreign currency
translation adjustments.
Net Earnings (Loss) Per Common Share
Net earnings (loss) per share are based upon the weighted average number of common and common equivalent shares outstanding.
Outstanding stock options and warrants are treated as common stock equivalents when dilution results from their assumed exercise.
Stock-Based Compensation
The Company accounts for all share based payments in accordance with ASC Topic 71X, “Compensation”, subtopic 718
“Compensation — Stock Compensation”. Accordingly, the computed fair value is expensed ratably over the requisite vesting period
The Company recorded compensation costs of $12,000 during fiscal 2010 and a recovery of compensation costs of $2,000 during
fiscal 2009.
There were no stock options granted by the Company in fiscal 2010 or fiscal 2009.
Recent Pronouncements
In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-than-temporary
impairments,” which was subsequently incorporated into ASC topic 320, “Investments — Debt and Equity Securities.” The purpose of
this ASC topic was to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary
impairment event and to communicate more effectively when an other-than-temporary impairment event has occurred. This ASC topic
amends the other-than-temporary impairment guidance in GAAP for debt securities and improves the presentation and disclosure of
other-than-temporary impairment on investment securities and changes the calculation of the other-than-temporary impairment
recognized in earnings in the financial statements. This ASC does not amend existing recognition and measurement guidance related
to other-than-temporary impairment of equity securities.
For debt securities, ASC topic 320 requires an entity to assess whether (a) it has the intent to sell the debt security, or (b) it is more
likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an
other-than-temporary impairment on the security must be recognized.
In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash
flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not
Bowne Conversion
37
more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized
cost basis (i.e., the amortized cost basis less any current-period credit loss), ASC topic 320 changes the presentation and amount of the
other-than-temporary impairment recognized in the income statement.
In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the
amount of the total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the
credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other
comprehensive loss and will be amortized over the remaining life of the debt security as an increase in the carrying value of the
security (with no effect on earnings unless the security is subsequently sold or there is additional other-than-temporary impairment
losses recognized). The total other-than-temporary impairment is presented in the income statement with an offset for the amount of
the total other-than-temporary impairment that is recognized in other comprehensive loss. Previously, in all cases, if an impairment
was determined to be other-than-temporary, an impairment loss was recognized in earnings in an amount equal to the entire difference
between the security’s amortized cost basis and its fair value at the balance sheet date of the reporting period for which the assessment
was made. The new presentation provides additional information about the amounts that the entity does not expect to collect related to
a debt security.
ASC topic 320 is effective and is to be applied prospectively for financial statements issued for interim and annual reporting
periods ending after June 15, 2009. When adopting ASC topic 320, an entity is required to record a cumulative-effect adjustment as of
the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary
impairment from retained earnings to accumulated other comprehensive loss if the entity does not intend to sell the security and it is
not more likely than not that the entity will be required to sell the security before the anticipated recovery of its amortized cost basis.
The Company adopted FASB Staff Position 115-2 (FSP 115-2) — Recognition and Presentation of Other-than-Temporary
Impairments — on April 1, 2009. The adoption of FSP 115-2, which was subsequently incorporated into ASC topic 320,
“Investments — Debt and Equity Securities,” did not have a material impact on the Company’s results of operation or financial
condition for fiscal 2010.
In May 2009, the FASB issued SFAS No. 165 Subsequent Events (SFAS 165), which is effective for interim or annual financial
periods ending after June 15, 2009, and which was subsequently incorporated into ASC topic 855, “Subsequent Events.” ASC 855
establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855 sets forth (1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) The circumstances under which an entity should recognize events or transactions occurring after the balance
sheet date in its financial statements and (3) The disclosures that an entity should make about events or transactions that occurred after
the balance sheet date. The Company adopted SFAS 165 in the quarter ended June 30, 2009 and has evaluated subsequent events
through July 9, 2010, the date the financial statements were issued.
In June 2009, the FASB issued FAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB Statement No. 162. This codification is the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company adopted the provisions of
FAS No. 168 effective June 28, 2009. The adoption of this statement did not have an effect on our financial position or results of
operations.
In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue
Arrangements, and ASU 2009-14, “Certain Revenue Arrangements That Include Software Elements” — a consensus of the FASB
Emerging Issues Task Force, to amend the existing revenue recognition guidance. ASU 2009-13 amends ASC topic 605, “Revenue
Recognition”, subtopic 25, “Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue Arrangements with Multiple
Deliverables”), as follows: modifies criteria used to separate elements in a multiple-element arrangement, introduces the concept of
“best estimate of selling price” for determining the selling price of a deliverable, establishes a hierarchy of evidence for determining
the selling price of a deliverable, requires use of the relative selling price method and prohibits use of the residual method to allocate
arrangement consideration among units of accounting, and expands the disclosure requirements for all multiple-element arrangements
within the scope of ASC 605-25. The Company does not believe the adoption of this guidance will have a material impact on its
consolidated financial statements.
Bowne Conversion
38
In October 2009, the FASB issued Accounting Standard Update (“ASU”) 2009-14, which amends the scope of ASC topic 985,
“Software”, and ASC topic 605, “Revenue Recognition” (formerly AICPA Statement of Position 97-2, Software Revenue
Recognition), to exclude certain tangible products and related deliverables that contain embedded software from the scope of this
guidance. Instead, the excluded products and related deliverables must be evaluated for separation, measurement, and allocation under
the guidance of ASC topic 605-25, “Multiple Element Arrangements”, as amended by ASU 2009-13. The amended guidance is
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. An entity may elect retrospective application to all revenue arrangements for all periods presented
using the guidance in ASC topic 250, “Accounting Changes and Error Corrections”. Entities must adopt the amendments resulting
from both of these ASUs in the same period using the same transition method, where applicable. The Company does not believe the
adoption of this guidance will have a material impact on its consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements”. The standard amends
ASC Topic 820, “Fair Value Measurements and Disclosures” to require additional disclosures related to transfers between levels in
the hierarchy of fair value measurement. The standard is effective for interim and annual reporting periods beginning after
December 15, 2009. The standard does not change how fair values are measured. Accordingly, the standard will not have an impact on
the Company.
In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends
and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts
transferred into and out of Level 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and
settlements related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure
requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after
December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as
Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The Company does not
believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In February 2010, the FASB issued an additional accounting pronouncement that amended certain requirements for subsequent
events (FASB ASC Topic 855, “Subsequent Events”), which requires an SEC filer or a conduit bond obligor to evaluate subsequent
events through the date the financial statements are available to be issued and removes the previous requirement to disclose the date
through which subsequent events have been evaluated. The amended amendments were effective on issuance of the final
pronouncement. The adoption of this pronouncement had no effect on our consolidated financial statements.
In April 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-17, “Revenue Recognition — Milestone Method”,
which amended guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is
appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the
period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive.
The consideration earned by achieving the milestone should:
1. Be commensurate with either of the following:
a. The vendor’s performance to achieve the milestone
b. The enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s
performance to achieve the milestone
2. Relate solely to past performance
3. Be reasonable relative to all deliverables and payment terms in the arrangement.
Bowne Conversion
39
A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. An arrangement may
include more than one milestone, and each milestone should be evaluated separately to determine whether the milestone is substantive.
Accordingly, an arrangement may contain both substantive and non-substantive milestones.
The amendments in this ASU are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within
those years, beginning on or after June 15, 2010. Early adoption is permitted.
ASU 2010-17 will not have an impact on the Company.
NOTE 2 — INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. As of March 31, 2010
and 2009, inventories of continuing operations consisted of the following:
Finished goods
Less inventory allowances
March 31, 2010
March 31, 2009
(In thousands)
$ 12,710
(1,758)
$ 10,952
$ 24,205
(3,514)
$ 20,691
NOTE 3 — RELATED PARTY TRANSACTIONS
From time to time, Emerson engages in business transactions with its controlling shareholder, The Grande Holdings Limited and its
subsidiaries (“Grande”). Set forth below is a summary of such transactions.
Majority Shareholder
Grande’s Ownership Interest in Emerson. At March 31, 2010, approximately 56.2% of the Company’s outstanding common stock
was owned by direct or indirect subsidiaries of The Grande Holdings Limited, a Bermuda corporation.
Related Party Transactions
Product Sourcing Transactions. Between August 2006 and September 2008, Emerson provided assistance with acquiring certain
products for sale to Sansui Sales PTE Ltd (“Sansui Sales”) and Akai Sales PTE Ltd (“Akai Sales”), both of which are subsidiaries of
Grande. Emerson issued purchase orders to third-party suppliers who manufactured these products, and Emerson issued sales invoices
to Sansui Sales’ and Akai Sales’ at gross amounts for these products. Financing was provided by Sansui Sales’ and Akai Sales’
customers in the form of transfer letters of credit to the suppliers, and goods were shipped directly from the suppliers to Sansui Sales’
and Akai Sales’ customers. Emerson recorded income totaling $0 and $10,000 for providing this service in fiscal 2010 and 2009,
respectively. As of March 31, 2010 and March 31, 2009, Sansui Sales and Akai Sales collectively owed Emerson $0 and $7,600,
respectively, relating to this activity.
Sales of goods. In addition to the product sourcing transactions described in the preceding paragraph, Emerson also purchased
products on behalf of Sansui Sales and Akai Sales from third-party suppliers and sold these goods to Sansui Sales and Akai Sales.
These transactions, the latest of which occurred in February 2008, were similar to the transactions described in the preceding
paragraph; however, instead of utilizing transfer letters of credit provided by Sansui Sales’ and Akai Sales’ customers, Emerson
utilized its own cash to pay Sansui Sales’ and Akai Sales’ suppliers. Emerson invoiced Sansui Sales and Akai Sales an amount that
was marked up between two and three percent from the cost of the product. In September 2009, Emerson and Akai Sales reached an
agreement related to certain defective products that Emerson had procured and sold to Akai Sales under this arrangement during the
third quarter of fiscal 2007 under which Emerson agreed to accept a net charge of approximately $59,000 — approximately $101,000
from Akai Sales, upon which Emerson originally recognized approximately $4,000 of gross profit in the third quarter of fiscal 2007,
offset by a credit from the factory from which Emerson procured the product of approximately $42,000. In September 2009, Emerson
netted amounts owed to it from Akai Sales against this liability and settled this liability in full with Akai Sales during September 2009.
As a result of these arrangements, Emerson recorded sales to Sansui Sales and Akai Sales, collectively, of $0 fiscal 2010 and 2009,
respectively. At March 31, 2010 and March 31, 2009, Sansui Sales and Akai Sales collectively owed Emerson $0 and $9,600 relating
Bowne Conversion
40
to these activities, respectively and at both March 31, 2010 and March 31, 2009, Emerson had outstanding liabilities to suppliers of
product invoiced to Sansui Sales and Akai Sales of $0.
Leases and Other Real Estate Transactions.
Rented Space in Hong Kong
Effective May 15, 2009, Emerson entered into an amended lease agreement with The Grande Properties Ltd., which shares the
same ultimate major shareholder as Grande (“Grande Properties”), pursuant to which the space rented from Grande Properties was
increased from 18,476 square feet to 19,484 square feet. This amended agreement by its terms expired on December 31, 2009.
Effective June 1, 2009, Emerson entered into another lease agreement with Grande Properties, pursuant to which additional space
was rented from Grande Properties totaling 17,056 square feet for Emerson’s use to refurbish certain returned products. In connection
with this new space rental, during June 2009, Emerson paid a security deposit of approximately $71,400 to Grande Properties. This
lease agreement expired on December 31, 2009
Effective January 1, 2010, Emerson entered into a lease agreement with Lafe Properties (Hong Kong) Limited, formerly known as
The Grande Properties Ltd., (“Lafe”), pursuant to which Emerson rented 36,540 square feet from Lafe for the purpose of housing its
Hong Kong based office personnel and for its use to refurbish certain returned products.
Rent expense and related service charges associated with these lease agreements with Grande totaled $703,000 and $414,000 for
fiscal 2010 and fiscal 2009, respectively. The rent expense and related service charges associated with these lease agreements are
included in the Consolidated Statements of Operations as a component of selling, general, and administrative expenses.
Emerson owed Lafe and Grande Properties $1,703 and $41,600 related to this activity at March 31, 2010 and March 31, 2009,
respectively, and a security deposit paid by Emerson of $153,000 and $81,900 on the leased property described in this paragraph was
held by Lafe and Grande Properties as of March 31, 2010 and March 31, 2009, respectively.
Rented Space in the People’s Republic of China
In December 2008, Emerson signed a lease agreement with Akai Electric (China) Ltd., a subsidiary of Grande, concerning the
rental of office space, office equipment, and lab equipment for Emerson’s quality assurance personnel in Zhongshan, People’s
Republic of China. The lease term began in July 2007 and ended by its terms in June 2009, at which time the agreement renews
automatically on a month-by-month basis unless canceled by either party. The agreement has not been canceled by either party, and
therefore remains in full force and effect as of March 31, 2010.
Rent charges with Akai Electric (China) Ltd. totaled approximately $109,000 and $264,000 for fiscal 2010 and fiscal 2009,
respectively.
Emerson owed Akai Electric (China) Ltd. $0 related to the agreement at March 31, 2010 and approximately $9,500 at March 31,
2009. A security deposit paid by Emerson to Akai Electric (China) Ltd. of $31,600 on the leased property was held by Akai Electric
(China) Ltd. as of both March 31, 2010 and March 31, 2009, respectively.
Toy Musical Instruments. In May 2007, Emerson entered into an agreement with Goldmen Electronic Co. Ltd. (“Goldmen”),
pursuant to which the Company agreed to pay $1,682,220 in exchange for Goldmen’s manufacture and delivery to Emerson of
musical instruments in order for it to meet its delivery requirements of these instruments in the first week of September 2007.
In July 2007, the Company learned that Goldmen had filed for bankruptcy and was unable to manufacture the ordered musical
instruments. Promptly thereafter, Capetronic Displays Limited (“Capetronic”), a subsidiary of Grande, agreed to manufacture the
musical instruments at the same price and on substantially the same terms and conditions. Accordingly, on July 12, 2007, Emerson
paid Tomei Shoji Limited, an affiliate of Grande, $125,000 to acquire from Goldmen and deliver to Capetronic the molds and
equipment necessary for Capetronic to manufacture the musical instruments. In July 2007, Emerson made two upfront payments to
Capetronic totaling $546,000. On July 20, 2007, Capetronic advised Emerson that it was unable to manufacture the musical
instruments because it did not have the requisite governmental licenses to do so.
Bowne Conversion
41
In June 2008, Capetronic repaid the $546,000 advance it received from Emerson in July 2007.
In August 2008, Capetronic requested that Emerson reimburse it for the costs it had incurred to purchase the production materials
required to produce the musical instruments. After a review of the facts, the material purchase orders, the physical material at the
Capetronic premises, and deducting an agreed upon scrap value of the material, Emerson decided to honor the request and paid
$313,000 to Capetronic on September 30, 2008. These materials are the property of Capetronic.
Capetronic is currently in physical possession of Emerson’s molds originally required to produce the musical instruments, which
Emerson wrote off in fiscal 2008.
Hong Kong Electronics Fairs (“HKEF”). Emerson incurred costs totaling $152,633 for its participation in the 2008 HKEF. The
total included $5,138 billed by Grande to Emerson for services rendered in connection with the event, and, as of March 31, 2010 and
March 31, 2009, respectively, Emerson owed Lafe Technology (Hong Kong) Ltd $0 and $4,396 for related storage and delivery
charges. In addition, Emerson billed Nakamichi Corporation Ltd, Akai Sales PTE Ltd. and Sansui Sales PTE Ltd. $33,823 for
expenses that Emerson incurred on their behalf for the 2008 HKEF; and as of March 31, 2010 and March 31, 2009, respectively, $0
and $19,657 from Nakamichi Corporation Ltd, $0 and $8,222 from Akai Sales PTE Ltd, and $0 and $5,944 from Sansui Sales PTE
Ltd was due to Emerson.
Between August and December 2007, Emerson paid invoices and incurred charges for goods and services relating to the 2007
HKEF of $153,069. Portions of these charges, totaling $87,353, were allocated and invoiced to affiliates of Grande in proportion to
their respective share of space occupied and services rendered during the 2007 HKEF as follows: Nakamichi Corporation Ltd.
$17,143, Akai Sales PTE Ltd $44,495 and Sansui Sales PTE Ltd $25,715. Akai Sales and Sansui Sales collectively owed Emerson $0
at March 31, 2010 and $6,437 at March 31, 2009 in connection with the 2007 HKEF.
Also, related to the 2006 and 2007 annual HKEF’s, Capetronic incurred charges and paid invoices on behalf of Emerson in the
amount of $76,000 for which Emerson reimbursed Capetronic $48,000 for the 2007 HKEF in March 2008. Emerson paid Capetronic
the remaining balance due of $28,000 for the 2006 HKEF on September 30, 2008. Emerson owed Capetronic $0 and $0 related to the
2006 and 2007 HKEF’s as of March 31, 2010 and March 31, 2009, respectively.
Other.
In January and February 2008, Emerson invoiced The GEL Engineering Corp. Ltd (“GEL”), an affiliate of Grande, for a portion of
$7,900 travel expenses paid by Emerson, of which 70% pertained to travel for the benefit of GEL and 30% pertained to travel for
Emerson. As of March 31, 2010 and March 31, 2009, respectively, GEL owed Emerson $0 and $5,500 as a result of this activity.
In June 2008, Emerson paid Capetronic $160,000 for reimbursement of payroll and travel expenses that Capetronic paid on behalf
of Emerson from October 2007 through May 2008 for expenses related to Emerson employees located in mainland China.
In September 2008, Akai Sales invoiced Emerson for travel expenses and courier fees which Akai Sales paid on Emerson’s behalf.
As of March 31, 2010 and March 31, 2009, respectively, Emerson owed Akai Sales $0 and $2,700 as a result of this activity.
In September 2008, the Emerson Board of Directors resolved that, effective as of April 1, 2008, the annual base salary of the Chief
Executive Officer of the Company shall be $350,000, and, that because all members of the Board are to receive board fees according
to a schedule approved by the Board, and because no such fees had been paid to the Chairman of the Board from July 2006 through
March 31, 2008, the Chairman of the Board shall be paid compensation in full for his services for that period of time, to be calculated
using the standard annual fee structure in place for board members then currently in effect. As a result of these resolutions, in
September 2008 the Company began paying the Chief Executive Officer the stated annual salary, made a one time retroactive salary
payment to the Chief Executive Officer of $145,833 covering the period April 1, 2008 through August 31, 2008, and made a one time
cash payment of $75,625 to the Chairman of the Board covering the period July 2006 through March 31, 2008.
In October 2008, the Emerson Board of Directors resolved that those remaining directors currently serving on the Board who, from
the date of joining the Board, had received no compensation as either a Board member or as an employee of the Company, receive a
cash payment covering such periods of time, to be calculated using the standard annual fee structure in place for board members then
Bowne Conversion
42
currently in effect. As a result of this resolution, in October 2008 the Company made onetime cash payments of $90,000 and $37,500
to two members of the Board of Directors.
In November 2008, Emerson determined that it needed to temporarily maintain access to a material amount of Renminbi to ensure
an uninterrupted supply of factory product in the People’s Republic of China, due to the tightening of the local credit and exchange
markets. Emerson did not have independent access to Renminbi because it does not own a legal entity in the People’s Republic of
China. Emerson therefore advanced to Zhongshan Tomei Audio & Video Products Company Ltd. (Zhongshan Tomei) an amount of
HK$20,705,300 — approximately US$2,655,000 — for which Zhongshan Tomei was prepared to disburse, as may be needed, an
equivalent amount of Renminbi to Emerson’s factory suppliers upon Emerson’s direction. Once the need to transact in Renminbi
passed, US$2,670,922 was repaid to Emerson by Soshin Onkyo International Ltd in December 2008, resulting in a foreign exchange
gain to Emerson of $16,000 in December 2008.
In February 2009, Akai Sales invoiced Emerson for travel expenses which Akai Sales paid on Emerson’s behalf. As of March 31,
2010 and March 31, 2009, respectively, Emerson owed Akai Sales $0 and $3,100 as a result of this invoice.
In June 2009, Emerson paid a consulting fee of approximately $6,000 to a director of Grande related to its licensing business,
certain potential business opportunity and the investigation of various international sales opportunities.
During September 2009, Nakamichi Corporation Ltd. invoiced Emerson approximately $1,000 for audio samples. As of March 31,
2010, Emerson owed Nakamichi Corporation Ltd. $0 as a result of this invoice.
In December 2009, Emerson paid a consulting fee and related expenses of approximately $8,000 to a director of Emerson for
investigating a potential acquisition in 2008 and 2009.
In February 2010, Emerson paid a consulting retainer fee of approximately $16,000 to a director of Emerson for work to be
performed by this director relating to the Emerson Radio Shareholder Derivative Litigation (“The Berkowitz Litigation”) described in
Footnote 14 “Legal Proceedings”. Subsequent to the end of fiscal 2010, further amounts totaling $31,382 were paid to this director in
April and June 2010 for this work upon presentation to Emerson by this director of an invoice covering the period December 2009
through June 2010. In May 2010, Emerson signed an agreement with this director, which formalized the arrangement and commits
Emerson to paying a consulting fee of a minimum of $12,500 per quarter to this director relating to The Berkowitz Litigation.
During fiscal 2009, Grande paid Emerson’s quality assurance personnel in Renminbi in the People’s Republic of China on
Emerson’s behalf for which Emerson subsequently paid a reimbursement to Grande. Under this arrangement, payroll and travel
expenses, including the utilization of Grande employees paid on Emerson’s behalf by Grande and reimbursed by Emerson to Grande,
were $0 for fiscal 2010 and $85,000 for fiscal 2009, respectively. Emerson owed Grande $0 for these activities at both March 31, 2010
and March 31, 2009, respectively.
During fiscal 2010, Emerson paid Innovative Capital Limited, a subsidiary of Grande, consulting fees of $125,000 for services
rendered to Emerson during the first six months of fiscal 2010 by personnel of Grande. This consulting arrangement ended on
September 30, 2009. Emerson owed $0 to Innovative Capital Limited at March 31, 2010 related to this arrangement.
During fiscal 2010, Akai Sales invoiced Emerson approximately $26,000 for travel expenses which Akai Sales paid on Emerson’s
behalf. As of March 31, 2010, Emerson owed Akai Sales approximately $26,000 as a result of these invoices.
On April 7, 2010, upon a request made to the Company by its foreign controlling shareholder, S&T International Distribution
Limited (“S&T”), a subsidiary of Grande, the Company entered into an agreement with S&T whereby the Company returned to S&T
on April 7, 2010 that portion of the taxes that the Company had withheld from the dividend paid on March 24, 2010 to S&T, which
the Company believes is not subject to U.S. tax based on the Company’s good-faith estimate of its accumulated earnings and profits.
(see Note 17 “Subsequent Event”).
Bowne Conversion
43
NOTE 4 — PROPERTY, PLANT, AND EQUIPMENT:
As of March 31, 2010 and 2009, property, plant, and equipment from continuing operations is comprised of the following:
Computer equipment & software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Building
Land
Less accumulated depreciation and amortization
2010
2009
(In thousands)
357
328
802
—
2,008
641
4,136
(1,005)
2,930
1,783
737
672
—
—
6,122
(4,983)
$ 3,131 $ 1,139
Depreciation of property, plant, and equipment from continuing operations amounted to approximately $589,000 and $668,000 for
the years ended March 31, 2010 and 2009, respectively. During fiscal 2010, the Company recorded dispositions of property, plant and
equipment with gross book value totaling approximately $4.9 million and a corresponding loss on disposal of approximately
$400,000.
NOTE 5 — OTHER INTANGIBLE ASSETS
Other intangible assets as of March 31, 2010 and related amortization expense for the year then ended, consist of the amounts
shown below (in thousands). Trademarks relate to costs incurred in connection with the licensing agreements for the use of certain
trademarks and service marks in conjunction with the sale of our products. The cost of intangible assets and related accumulated
amortization are removed from the Company’s accounts during the year in which they become fully amortized or otherwise impaired.
Fiscal Year Ended
March 31, 2010
Gross Carrying
Amount
Amortization
Expense
Accumulated
Amortization
Amortization
Period
(In thousands)
Amortizable Intangible Assets
Weighted Average
Amortization
Period
Trademarks
$ 1,830
$ 118
$ 224
15 years
15 years
Fiscal Year Ended
March 31, 2009
Gross Carrying
Amount
Amortization
Expense
Accumulated
Amortization
Amortization
Period
(In thousands)
Weighted Average
Amortization
Period
Amortizable Intangible Assets
Trademarks
$ 361
$ 24
$ 106
15 years
15 years
As of March 31, 2010, estimated amortization expense of other intangible assets for each of the next five years, and thereafter, is as
follows (in thousands):
2011
2012
2013
2014
2015
Thereafter
$
122
122
122
122
122
996
$ 1,606
Bowne Conversion
44
NOTE 6 — BORROWINGS:
Short-term Borrowings
At March 31, 2010 and March 31, 2009, there were $5.6 million and $5.7 million of short-term borrowings outstanding,
respectively, under a credit line maintained with Smith Barney. This facility is backed exclusively by the Company’s auction rate
securities, bears interest at the Fed Open Market Rate plus 0.25%, and these borrowings have no net carrying cost.
Long-term Borrowings
As of March 31, 2010 and 2009, long-term borrowings consisted of the following:
Capitalized lease obligations and other
Less current maturities of capitalized lease obligations
Long-term debt and notes payable
2010 2009
(In thousands)
$ 231 $ 144
30
85
$ 201 $ 59
Emerson Credit Facility:
On March 2, 2010, the Company entered into an amendment to its Revolving Credit Agreement with Wachovia Bank, whereby
the facility was changed to allow only the issuance of 105% cash-collateralized Letters of Credit up to a maximum $15.0 million or
a “Borrowing Base” as defined in the agreement. The Borrowing Base amount is established by specified percentages of eligible
accounts receivables and inventories. The interest rate charged to the Company on Letters of Credit ranges from Prime or, at the
Company’s election, the London Interbank Offered Rate (“LIBOR”), plus an interest rate margin ranging between 1.25% to 2.25%,
depending on excess availability and the type of Letter of Credit. Pursuant to the loan agreement, the Company is restricted from,
among other things, paying certain cash dividends, and entering into certain transactions without the lender’s prior consent and is
subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of the
Company’s assets. The loan agreement expires by its terms on December 23, 2010 and the Company is currently evaluating its
options with regard to its credit and banking needs.
At March 31, 2010 and March 31, 2009, there were approximately $1.8 million and $13.0 million of letters of credit outstanding
under this facility.
As of March 31, 2010, the carrying value of this credit facility approximated fair value.
Maturities of long-term borrowings as of March 31, 2010, by fiscal year and in the aggregate are as follows (in thousands):
2011
2012
Thereafter
Total
Less current portion
Total long term portion
$
30
201
—
231
30
$ 201
Bowne Conversion
45
NOTE 7 — INCOME TAXES:
Current:
Federal
Foreign, state and other
Prior year state and local
Deferred:
Federal
Foreign, state and other
2010
2009
(In thousands)
$
2 $ —
53
—
332
—
1,571
466
$ 2,371 $
(108)
(35)
(90)
The Company files a consolidated federal return and certain state and local income tax returns.
The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the
statutory federal rate of 34% to earnings from continuing operations before minority interest and income taxes for the years ended
March 31, 2010 and 2009 is analyzed below:
2010
2009
Statutory provision (benefit)
Foreign subsidiary
State taxes
Permanent differences
Expiration of NOL
Valuation allowance
Other, net
Total income tax (benefit)
(In thousands)
$ 4,725 $ (1,453)
1,197
18
—
768
(611)
(9)
(90)
(2,543)
322
27
(159)
—
(1)
$ 2,371 $
As of March 31, 2010 and 2009, the significant components of the Company’s deferred tax assets and liabilities were as follows:
Deferred tax assets:
Current:
Accounts receivable reserves
Inventory reserves
Accruals
Stock warrants
Non-current:
Property, plant, and equipment
Impairment of auction rate securities
Net operating loss carryforwards
Stock compensation
Gross deferred tax assets
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Current:
Accruals
Non-current:
Capital lease expense
Total Deferred Tax Liabilities
Net deferred tax assets
2010
2009
(In thousands)
$
1,556 $
1,340
357
166
2,494
2,132
542
166
528
828
5,268
84
10,127
(157)
9,970
308
828
5,584
78
12,132
(157)
11,975
—
—
119
119
87
87
9,851 $ 11,888
$
Bowne Conversion
46
The amounts of federal net operating loss carryforwards (“NOLs”) on which the related deferred tax asset (“DTA”) was calculated
are as follows as of March 31, 2010 (in millions $):
Loss Year (Fiscal)
1997
1999
2008
2009
Included in DTA Expiration Year (Fiscal)
2.8
1.3
7.8
3.2
2012
2019
2028
2029
As of August 29, 2006 the overall deduction Emerson may utilize each year against its taxable income is limited to $5.9 million by
IRC section 382.
The amounts of state NOLs available by year as of March 31, 2010 are as follows (in millions $):
Loss Year (Fiscal)
2008
2009
Included in DTA Expiration Year (Fiscal)
0.9
3.1
2015
2016
The tax benefits related to these operating loss carryforwards and future deductible temporary differences are recorded to the extent
management believes it is more likely than not that such benefits will be realized.
Income (loss) of foreign subsidiaries before taxes was $8,396,000 and $(3,521,000) for the years ended March 31, 2010 and 2009,
respectively.
No provision was made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Such earnings have
been and will be reinvested but could become subject to additional tax if they were remitted as dividends, or were loaned to the
Company or a domestic affiliate, or if the Company should sell its stock in the foreign subsidiaries. It is not practicable to determine
the amount of additional tax, if any, that might be payable on undistributed foreign earnings.
A reconciliation of the Company’s changes in uncertain tax positions from April 1, 2009 to March 31, 2010 is as follows:
Total amount of unrecognized tax benefits as of April 1, 2009
Gross increases in unrecognized tax benefits as a result of tax positions taken during a prior period
Gross decreases in unrecognized tax benefits as a result of tax positions taken during a prior period
Gross increases in unrecognized tax benefits as a result of tax positions taken during the current period
Gross decreases in unrecognized tax benefits as a result of tax positions taken during the current period
Decreases in unrecognized tax benefits relating to settlements with taxing authorities
Reductions to unrecognized tax benefits as a result of lapse of statute of limitations
Total amount of unrecognized tax benefits as of March 31, 2010
In 000’s
$ 121
—
—
—
—
—
—
$ 121
The effective tax rate on our income from continuing operations before income taxes for fiscal 2010 differs from the federal
statutory rate primarily as a result of difference in tax rate between U.S. and foreign jurisdictions, state income taxes, and change in
net operating loss carryforwards. The effective tax rate on our loss from continuing operations before income taxes for fiscal 2009
differs from the federal statutory rate primarily as a result of difference in tax rate between U.S. and foreign jurisdictions, state income
taxes, change in net operating loss carryforwards and change in valuation allowance.
The Company is subject to examination and assessment by tax authorities in numerous jurisdictions. A summary of the Company’s
open tax years is as follows as of March 31, 2010:
Jurisdiction
U.S. Federal
U.S. States
Foreign
Open Tax Years
2006-2009
2006-2009
2004-2009
Bowne Conversion
47
Based on the outcome of tax examinations or due to the expiration of statutes of limitations, it is reasonably possible that the
unrecognized tax benefits related to uncertain tax positions taken in previously filed returns may be different from the liabilities that
have been recorded for these unrecognized tax benefits. As a result, the Company may be subject to additional tax expense.
In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 Definition of a Settlement in FASB Interpretation No. 48
(FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective retroactively to April 1, 2007. The implementation of this
standard did not have a material impact on our consolidated balance sheets or statements of operations.
NOTE 8 — COMMITMENTS AND CONTINGENCIES:
Leases:
The Company leases warehouse and office space with annual commitments as follows (in thousands):
Fiscal Years
2011
2012
2013
2014
Thereafter
Total
Amount
1,558
424
93
—
—
$ 2,075
Rental Commitments
Affiliate
410
—
—
—
—
$ 410
Non-Affiliate
1,148
424
93
—
—
$ 1,665
Rent expense from continuing operations resulting from leases from non-affiliates, which includes month-to-month leases,
aggregated $2,439,000 and $2,352,000, respectively, for fiscal 2010 and 2009.
Letters of Credit:
At March 31, 2010 and March 31, 2009, there were approximately $1.8 million and $13.0 million of letters of credit outstanding
under this facility.
(see Note 6 “Borrowings”).
Capital Expenditure and Other Commitments:
As of March 31, 2010, there were no material capital expenditure commitments and no substantial commitments for purchase
orders outside the normal purchase orders used to secure product.
Employee Benefit Plan:
The Company currently sponsors a defined contribution 401(k) retirement plan which is subject to the provisions of the Employee
Retirement Income Security Act. The Company matches a percentage of the participants’ contributions up to a specified amount.
These contributions to the plan for fiscal 2010 and 2009 were $104,000 and $193,000, respectively, and were charged to operations
for the periods presented.
NOTE 9 — STOCK BASED COMPENSATION:
In July 1994, the Company adopted a Stock Compensation Program (“Program”). The Program is comprised of four parts — the
Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights Plan, and the Stock Bonus Plan. The
maximum aggregate number of shares of common stock available pursuant to the Program was 2,000,000 shares.
In 2004, the Company adopted the 2004 Employee Stock Options Plan. The provisions for exercise price, term and vesting
schedule are, for the most part, the same as the previous Incentive Stock Option Plan. The maximum aggregate number of shares of
common stock available pursuant to the Program is 2,500,000 shares.
Bowne Conversion
48
A summary of transactions during the last two years is as follows:
Outstanding — April 1, 2008
Cancelled
Outstanding — March 31, 2009
Cancelled
Outstanding — March 31, 2010
Exercisable at March 31, 2010
Number of
Options
37,334
(3,334)
34,000
(32,000)
2,000
2,000
Weighted Average
Exercise Price
$ 2.32
1.00
$ 2.45
2.54
$ 1.00
$ 1.00
The following table provides additional information as to the options outstanding under the Stock Compensation Program and the
2004 Employee Stock Option Plan as of March 31, 2010:
Options Outstanding
Weighted
Average
Remaining
Amount
Range of Exercise Prices
$1.00
Outstanding Contractual Life
2,000
0.3
Weighted
Average
Exercise
Price
$ 1.00
Options Exercisable
Amount
Weighted
Average
Exercisable Exercise Price
2,000
$ 1.00
Subject to the terms set forth in each option agreement, generally, the term of each option is ten years, except for incentive stock
options issued to any person who owns more than 10% of the voting power of all classes of capital stock, for which the term is five
years. Unless otherwise provided, options may not be exercised during the first year after the date of the grant. Thereafter, each option
becomes exercisable on a pro rata basis on each of the first through third anniversaries of the date of the grant. The exercise price of
options granted must be equal to or greater than the fair value of the shares on the date of the grant, except that the option price with
respect to an option granted to any person who owns more than 10% of the voting power of all classes of capital stock shall not be less
than 110% of the fair value of the shares on the date of the grant. As of March 31, 2010, there were a total of 2,000 options
outstanding with an exercise price of $1.00 per share. As of March 31, 2010, all of the options outstanding were fully vested. At
March 31, 2010, 2009 and 2008, the weighted average exercise price of exercisable options under the Program was $1.00, $2.45 and
$2.32, respectively.
In October 1994, the Company’s Board of Directors adopted, and the stockholders subsequently approved, the 1994 Non-Employee
Director Stock Option Plan. The maximum number of shares of Common Stock available under such plan was 300,000 shares.
In 2004, the Company’s Board of Directors, and the stockholders subsequently approved the 2004 Non-Employee Director Stock
Option Plan, the provisions for exercise price, term and vesting schedule being, for the most part, the same as the 1994 Non-Employee
Director Stock Option Plan. The maximum number of shares of Common Stock available under such plan was 250,000 shares. In
December 2006, an additional listing application was approved by the American Stock Exchange permitting the issuance of up to
500,000 shares pursuant to the 2004 plan.
A summary of transactions under the plan for the two years ended March 31, 2010 is as follows:
Outstanding — April 1, 2008
Cancelled
Outstanding — March 31, 2009
Outstanding — March 31, 2010
Exercisable at March 31, 2010
Number of
Options
175,000
(75,000)
100,000
100,000
100,000
Weighted Average
Exercise Price
$ 3.18
3.19
$ 3.17
$ 3.17
$ 3.17
Bowne Conversion
49
The following table provides additional information as to the options outstanding under the Non-Employee Director Stock Option
Plan as of March 31, 2010:
Options Outstanding
Weighted
Average
Remaining
Amount
Range of Exercise Prices
$3.07
$3.19
$3.23
Outstanding Contractual Life
25,000
50,000
25,000
100,000
5.8
6.6
5.7
6.2
Weighted
Average
Exercise
Price
$ 3.07
3.19
3.23
$ 3.17
Options Exercisable
Amount
Weighted
Average
Exercisable Exercise Price
25,000 $ 3.07
50,000
3.19
3.23
25,000
100,000 $ 3.17
There were no options granted during the fiscal years ending March 31, 2010 or 2009. As of March 31, 2010, there were a total of
100,000 options outstanding with exercise prices ranging from $3.07 per share to $3.23 per share. As of March 31, 2010, all of the
options outstanding were fully vested. At both March 31, 2010 and 2009, the weighted average exercise price of exercisable options
under the Non-Employee Director Stock Option Plan was $3.17.
NOTE 10 — SHAREHOLDERS’ EQUITY:
Common Shares:
Authorized common shares total 75,000,000 shares of common shares, par value $0.01 per share, of which, 27,129,832 were issued
and outstanding as of March 31, 2010 and 2009. Shares held in treasury at March 31, 2010 and 2009 were 25,835,965.
Common Stock Repurchase Program:
In January 2000, September 2001 and September 2003, the Company’s Board authorized share repurchase programs for
5,000,000 shares, 1,000,000 shares, and 2,000,000 shares, respectively. No shares were repurchased in fiscal 2010 or fiscal 2009. As
of March 31, 2010, 732,377 shares remain available for repurchase under the program established in September 2003.
Series A Preferred Stock:
The Company has issued and outstanding 3,677 shares of Series A Preferred Stock, (“Preferred Stock”) $.01 par value, with a face
value of $3,677,000, which had no determinable market value as of March 31, 2010. Effective March 31, 2002, the previously existing
conversion feature of the Preferred Stock expired. The Series A convertible preferred stock is non-voting, has no dividend preferences
and has not been convertible since March 31, 2002; however, it retains a liquidation preference.
NOTE 11 — MARKETABLE SECURITIES:
As of both March 31, 2010 and March 31, 2009, respectively, the Company had a $6.0 million net book value investment in trading
securities, consisting entirely of student loan auction rate securities (“SLARS”). These securities have long-term nominal maturities
for which interest rates are reset through a Dutch auction process at pre-determined calendar intervals; a process which, prior to
February 2008, had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced
in the U.S. credit and capital markets, these SLARS have had multiple failed auctions. Based on the fact that there were no cash
redemptions made by the issuers to the Company, an independent valuation and its internal analysis, the Company concluded at
March 31, 2010 that these securities had not changed in value since March 31, 2009. During fiscal 2009, the issuers of these SLARS
redeemed $5.8 million for cash, and based on this fact, an independent valuation and its internal analysis, the Company recorded an
impairment charge of $117,000 during fiscal 2009. These SLARS have AAA/Aaa and AAA/Baa3 credit ratings as of March 31, 2010,
and have been classified as long-term investments in the Company’s Consolidated Balance Sheet as a consequence of their uncertain
short-term liquidity. See Item 1A. Risk Factors, “A decline in the value of the auction rate securities included in the Company’s
investments could materially adversely affect its earnings and continue to materially adversely affect its liquidity.”
Bowne Conversion
50
NOTE 12 — NET EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per share for the years ended March 31, 2010 and
March 31, 2009:
Numerator:
Income (loss) from continuing operations for basic and diluted earnings per share
Denominator:
Denominator for basic earnings per share — weighted average shares
Effect of dilutive securities on
denominator:
Options
Denominator for diluted earnings per share — weighted average shares and assumed
conversions
Income (loss) from continuing operations
Basic and diluted loss per share
2010
2009
(In thousands, except per share data)
$ 11,370
$ (4,183)
27,130
27,130
1
—
27,131
27,130
$
.42
$
(.16)
For the year ended March 31, 2009, 134,000 shares attributable to outstanding stock options and 100,000 shares attributable to
outstanding stock warrants were excluded from the calculation of diluted earnings per share because the exercise price of the options
and warrants exceeded the average price of the common shares, and therefore their inclusion would have been antidilutive.
NOTE 13 — LICENSE AGREEMENTS:
The Company is party to numerous license agreements that allow licensees to use its trademarks for the manufacture and/or the sale
of consumer electronics and other products and are referred to as “outward licenses”. These license agreements (i) allow the licensee
to use the Company’s trademarks for a specific product category, or for sale within specific geographic areas, or for sales to a specific
customer base, or any combination of the above, or any other category that might be defined in the license agreement, (ii) may be
subject to renewal at the initial expiration of the agreements and are governed by the laws of the United States and (iii) have expiration
dates ranging through December 2015.
In addition to “outward licenses”, the Company enters into “inward licenses”, which allow the Company to use the name,
trademark, logo or technology of third parties in the sale and distribution of products.
Effective January 2007, the Company entered into an inward license agreement with Mattel, Inc. to license the Barbie and Hot
Wheels names, trademarks and logos. In March 2008, the Company entered into an amendment to this license agreement, adding the
U.B. Funkeys names, trademarks and logos. Under the license agreement, the Company was producing and selling a line of BarbieTM
Real Electronics, Hot WheelsTM and U.B. FunkeysTM products. The license agreement and amendments expired in December 2009 and
were not renewed. The Company is subject to a final payment obligation of $421,000 at March 31, 2010.
Effective July 2005, the Company entered into an inward license agreement with Apple Computer Inc. The license, which
automatically renews for successive one-year terms after June 2007 and is cancellable by either party, will remain in effect unless
terminated in accordance with the terms of the agreement. The license allows the Company to develop and market products that are
compatible with iPod® portable audio and video devices. In addition, the license further provides the right to use the “made for iPod®”
logo on all of the Company’s packaging and promotional material.
NOTE 14 — LEGAL PROCEEDINGS:
In re: Emerson Radio Shareholder Derivative Litigation. In late 2008, the plaintiffs in two previously filed derivative actions (the
Berkowitz and Pinchuk actions) filed a consolidated amended complaint naming as defendants two current and one former director of
the Company and alleging that the named defendants violated their fiduciary duties to the Company in connection with a number of
related party transactions with affiliates of The Grande Holdings, Ltd., the Company’s controlling shareholder. In January 2009, the
individual defendants filed an answer denying the material allegations of the complaint. In May 2010, the plaintiffs and the defendants
Bowne Conversion
51
agreed in principle to settle the matter with a payment to the Company by or on behalf of the defendants of $3.0 million. Finalization
of the settlement is subject, among other things, to (i) execution by the parties of a definitive settlement agreement; (ii) written
notification of the proposed settlement to shareholders in a form approved by the Delaware Court of Chancery and (iii) approval by
the Delaware Court of Chancery of the settlement, including the award of legal fees payable to plaintiffs’ counsel from the
$3.0 million to be paid in settlement by or on behalf of the defendants.
Except for the litigation matters described above, the Company is not currently a party to any legal proceedings other than litigation
matters, in most cases involving ordinary and routine claims incidental to our business. Management cannot estimate with certainty
the Company’s ultimate legal and financial liability with respect to such pending litigation matters. However, management believes,
based on our examination of such matters, that the Company’s ultimate liability will not have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
NOTE 15 — GEOGRAPHIC INFORMATION:
Net revenues and identifiable assets from continuing operations of the Company for the fiscal years ended March 31, 2010 and
March 31, 2009 are summarized below by geographic area (in thousands). Net revenues are attributed to geographic area based on
location of customer.
Net third party revenue
Identifiable assets
Net third party revenue
Identifiable assets
U.S.
Year Ended March 31, 2010
Consolidated
Foreign
$ 205,536 $ 1,424 $ 206,960
$
69,256
65,247 $ 4,009 $
U.S.
Year Ended March 31, 2009
Consolidated
Foreign
$ 198,831 $ 1,750 $ 200,581
86,044
$
83,141 $ 2,903 $
At March 31, 2010 and March 31, 2009, respectively, foreign identifiable assets included amounts due from several wholly-owned
subsidiaries of Grande in the aggregate amount of $185,000 and $192,000. See Note 3 “Related Party Transactions”. In addition to
operating assets, at March 31, 2010 and March 31, 2009, respectively, there were non-operating assets of $8,644,000 and $8,641,000
located in foreign countries.
NOTE 16 — DISCONTINUED OPERATIONS:
On April 16, 2009, the Company entered into an agreement with Advanced Sound and Image, LLC, a Delaware limited liability
company (“ASI”), ADCOM, LLC, an Arizona limited liability company (“ADCOM”), Quality Technology Electronics (Thailand)
LTD, a Thai corporation (“QTE”) and Daniel Donnelly, pursuant to which, among other things, the Company sold (a) to ASI all of its
membership interest in ASI and (b) to QTE all of its right, title and interest in and to certain loan documentation relating to a secured
line of credit made available to ASI under which approximately $1.2 million was due and payable to the Company as of April 16,
2009 As a result of this transaction, the Company has presented as discontinued operations, net of taxes, its share of the results of
operations of ASI for the fiscal years ending March 31, 2010 and 2009, along with the approximately $1.0 million write-down loss it
recorded in March 2009 on the April 2009 sale of its note receivable from ASI.
Discontinued operations, net of tax for the fiscal years ending March 31, 2010 and 2009, relating to this transaction were $55,000
and $634,000, respectively.
NOTE 17 — SUBSEQUENT EVENT:
On April 7, 2010, upon a request made to the Company by its foreign controlling shareholder, the Company entered into an
agreement with this shareholder whereby the Company returned to this shareholder on April 7, 2010 that portion of the taxes that the
Company had withheld from the dividend paid on March 24, 2010 to this shareholder, which the Company believes is not subject to
U.S. tax based on the Company’s good-faith estimate of its accumulated earnings and profits. The Company has remitted the balance
of the tax withheld from the dividend payments it made on March 24, 2010 to its foreign shareholders to the appropriate U.S. taxing
authorities.
Bowne Conversion
52
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d — 15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be
disclosed in its Exchange Act reports are recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management,
including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons; by collusion of two or more
people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance
that the above objectives have been met.
As a result of its internal assessment, the Company’s management concluded that disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on
Form 10-K, are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal
executive officer and principal financial officer, to ensure that such information is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is
accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management,
including the Company’s principal executive officer and principal financial officer, management conducted an evaluation of the
effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under this
framework, management concluded that the Company’s internal control over financial reporting was effective.
In its Annual Report on Form 10-K for the Fiscal Year ended March 31, 2009, the Company reported that the Company did not
have adequate internal controls in place to ensure the accuracy of its financial statements, and that as a result, inadequate
communication between departments and inadequate review over the financial statements caused the Company to misstate its results
of operations for the three month periods ended June 30, 2008 and September 30, 2008, which led the Company to subsequently
restate the results of those periods and issue revised financial statements accordingly. Because the amounts to be restated in such
quarters offset each other, the six months ended September 30, 2008 continued to fairly present the Company’s results of operations
and financial condition for the period and as of that date and therefore did not need to be restated.
The Company’s management has concluded that, based on a completed restructuring of its U.S. accounting and operations
departments, as well as implementation of improved accounting and financial reporting controls during fiscal 2010, the material
weakness previously disclosed in its annual report on Form 10-K for the year ended March 31, 2009, as described above, has been
fully remediated.
In its Annual Report on Form 10-K for the Fiscal Year ended March 31, 2009, the Company also reported that the Company did not
have adequate procedures in place to prevent related party transactions which give rise to potential conflicts of interest. As a result the
Bowne Conversion
53
Company entered into a transaction in which a subsidiary advanced funds to a related party without proper approval. The transaction
was noted immediately as an unapproved transaction, and all the advanced funds were repaid to the Company on a timely basis.
The Company’s management has concluded that, based on the formation during fiscal 2010 of a related party review committee
consisting of three board members and the issuance to all personnel and the Board of Directors of an accompanying related party
transaction policy update, and the fact that no unapproved or improperly approved related party transactions were entered into by the
Company since the formation of such committee, the material weakness previously disclosed in its annual report on Form 10-K for the
year ended March 31, 2009, as described above, has been fully remediated.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual
Report on Form 10-K.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended March 31, 2010, the Company’s Board of Directors formed and constituted a Related Party
Transaction Review Committee of the Board of Directors for the purpose of reviewing and approving proposed related party
transactions over a certain dollar level. Accordingly, management then issued a revised global related party transaction policy.
Management believes that this change in the Company’s internal control over the approval of related party transactions materially
improves, or is reasonably likely to materially improve, the Company’s internal control over financial reporting because the approval
required for related party transactions over a certain dollar threshold has been elevated from its former placement at a management
level only to a formalized committee of the Board of Directors.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
PART III
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this
Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 29, 2010.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this
Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 29, 2010.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this
Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 29, 2010.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this
Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 29, 2010.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required is incorporated herein by reference to Emerson’s definitive Proxy Statement, or an amendment to this
Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission on or before July 29, 2010.
Bowne Conversion
54
Item 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) List of Financial Statements, Financial Statement Schedules, and Exhibits.
PART IV
1. Financial Statements. The following financial statements of Emerson Radio Corp. are included in Item 8 of Part II of this
Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended March 31, 2010 and 2009
Consolidated Balance Sheets as of March 31, 2010 and 2009
Consolidated Statements of Changes in Shareholders’ Equity for the years ended March 31, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended March 31, 2010 and 2009
Notes to Consolidated Financial Statements
All financial statement schedules are omitted from this Annual Report on Form 10-K, as they are not required or applicable or the
required information is included in the financial statements or notes thereto.
3. Exhibits. The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference, as
indicated.
Exhibit
Number
3.1
3.4
3.5
3.6
3.7
3.8
Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson’s Registration Statement
on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994).
Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson’s
Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994).
Amendment dated February 14, 1996 to the Certificate of Incorporation of Emerson (incorporated by reference to Exhibit
(3) (a) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1995).
By-Laws of Emerson (incorporated by reference to Exhibit 3.1 of Emerson’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2007).
Amendment dated November 28, 1995 to the By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (b) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1995).
Amendment effective as of November 10, 2009 to the By-Laws of Emerson adopted March 1994 (incorporated by
reference to Exhibit 3.1 of Emerson’s Current Report on Form 8-K filed on November 16, 2009).
10.12 License Agreement effective as of January 1, 2001 by and between Funai Corporation and Emerson (incorporated by
reference to Exhibit (10) (z) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
10.12.1 First Amendment to License Agreement dated February 19, 2002 by and between Funai Corporation and Emerson
(incorporated by reference to Exhibit (10.12.1) of Emerson’s Annual Report on Form 10-K for the year ended March 31,
2002).
10.12.2 Second Amendment to License Agreement effective August 1, 2002 by and between Funai Corporation and Emerson
(incorporated by reference to Exhibit (10.12.2) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002).
10.12.3 Third Amendment to License Agreement effective February 18, 2004 by and between Funai Corporation and Emerson
(incorporated by reference to Exhibit 10.12.3 of Emerson’s Annual Report on Form 10-K for the year ending March 31,
2004).
10.12.4 Fourth Amendment to License Agreement effective December 3, 2004 by and between Funai Corporation, Inc. and
Emerson (incorporated by reference to Exhibit (10.12.4) of Emerson’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2004).
10.12.5 Fifth Amendment to License Agreement effective May 18, 2005 by and between Funai Corporation, Inc. and Emerson
(incorporated by reference to Exhibit (10.12.5) of Emerson’s Annual Report on Form 10-K for the year ending March 31,
2005).
Bowne Conversion
55
10.12.7 Seventh Amendment to License Agreement effective December 22, 2005 by and between Funai Corporation, Inc. and
Emerson (incorporated by reference to Exhibit 10.1 of Emerson’s Current Report on Form 8-K filed on December 29,
2005).
10.13 Second Lease Modification dated as of May 15, 1998 between Hartz Mountain, Parsippany and Emerson (incorporated by
reference to Exhibit (10) (v) of Emerson’s Annual Report on Form 10-K for the year ended April 3, 1998).
10.13.1 Third Lease Modification made the 26th day of October, 1998 between Hartz Mountain Parsippany and Emerson
(incorporated by reference to Exhibit (10) (b) of Emerson’s Quarterly Report on Form 10-Q for the quarter ended October
2, 1998).
10.13.2 Fourth Lease Modification made the 12th day of February, 2003 between Hartz Mountain Parsippany and Emerson
(incorporated by reference to Exhibit (10.13.2) of Emerson’s Annual Report on Form 10-K for the year ended March 31,
2003).
10.13.3 Lease Agreement dated as of October 8, 2004 between Sealy TA Texas, L.P., a Georgia limited partnership, and Emerson
Radio Corp. (incorporated by reference to Exhibit (10.13.3) of Emerson’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004).
10.13.4 Fifth Lease Modification Agreement made the 2nd day of December, 2004 between Hartz Mountain Industries, Inc. and
Emerson (incorporated by reference to Exhibit (10.13.3) of Emerson’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2004).
10.13.5 Lease Agreement (Single Tenant) between Ontario Warehouse I, Inc., a Florida corporation, as Landlord, and Emerson
Radio Corp., a Delaware corporation, as Tenant, effective as of December 6, 2005 (incorporated by reference to Exhibit
10.1 to Emerson’s Current Report on Form 8-K filed on January 4, 2006).
10.13.6 Letter agreement, dated November 28, 2005, between Emerson Radio Corp. and The Grande Group (Hong Kong) Limited
regarding lease of office space. (Incorporated by reference to Exhibit 10.13.6 to Emerson’s Annual Report on Form 10-K
for the year ended March 31, 2006).
10.13.7 Letter agreement, dated November 29, 2005, between Emerson Radio Corp. and The Grande Group (Hong Kong) Limited
regarding management services for office space. (Incorporated by reference to Exhibit 10.13.7 to Emerson’s Annual Report
on Form 10-K for the year ended March 31, 2006).
10.18.1 Emerson Radio Corp. 2004 Employee Stock Incentive Plan (incorporated by reference to Exhibit 1 of Emerson’s 2004
Proxy Statement).
10.18.2 Emerson Radio Corp. 2004 Non-Employee Outside Director Stock Option Plan (incorporated by reference to Exhibit 2 of
10.25
Emerson’s 2004 Proxy Statement).
Employment Agreement, dated as of April 3, 2007, by and between Emerson Radio Corp. and Greenfield Pitts
(incorporated by reference to Exhibit 10.1 to Emerson’s Current Report on Form 8-K filed with the SEC on April 6, 2007).
10.26 Employment Agreement, dated as of October 15, 2007, by and between Emerson Radio Corp. and John Spielberger
(incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K filed with the SEC on July 11,
2008).
10.27.5 Loan and Security Agreement dated as of December 23, 2005, among Emerson Radio Corp., Emerson Radio Macao
Commercial Offshore Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd., and Emerson Radio International
Ltd. (as Borrowers) and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.2 of Emerson’s
Form 8-K dated December 29, 2005).
10.27.6 Seventh Amendment to Loan and Security Agreement dated as of December 23, 2005 among Emerson Radio Corp.,
Emerson Radio Macao Commercial Offshore Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd. and
Emerson Radio International Ltd. (as Borrowers) and Wachovia Bank, National Association (incorporated by reference to
Exhibit 10.27.6 of Emerson’s Annual Report on Form 10-K/A for the year ended March 31, 2009).
10.27.7 Eighth Amendment to Loan and Security Agreement dated as of December 23, 2005 among Emerson Radio Corp.,
Emerson Radio Macao Commercial Offshore Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd. and
Emerson Radio International Ltd.*
10.27.8 Ninth Amendment to Loan and Security Agreement dated as of December 23, 2005 among Emerson Radio Corp., Emerson
Radio Macao Commercial Offshore Limited, Majexco Imports, Inc., Emerson Radio (Hong Kong) Ltd. and Emerson Radio
International Ltd.*
10.28.1 Form of Common Stock Warrant Agreement entered into on October 7, 2003 by and between Emerson Radio Corp. and
Ladenburg Thalmann & Co., Inc. (Incorporated by reference to Exhibit 10.28.1 of Emerson’s Quarterly Report on Form
10-Q for the quarter ended December 31, 2003).
Bowne Conversion
56
10.28.2 Common Stock Purchase Warrant Agreement entered into on August 1, 2004 by and between Emerson Radio Corp. and
EPOCH Financial Services, Inc. (incorporated by reference to Exhibit 10.28.2 of Emerson’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2004).
10.28.3 Stock Purchase Agreement among Emerson Radio Corp., Collegiate Pacific Inc. and Emerson Radio (Hong Kong)
Limited, dated July 1, 2005 (incorporated by reference to Exhibit 2.1 to Emerson’s Current Report on Form 8-K filed on
July 8, 2005).
10.29 Employment Agreement dated as of October 1, 2009 between Emerson and Duncan Hon (incorporated by reference to
14.1
Exhibit 10.1 to Emerson’s Current Report on Form 8-K filed on November 16, 2009).
Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 of Emerson’s Annual Report on
Form 10-K for the year ended March 31, 2004).
Subsidiaries of the Company as of March 31, 2010.*
21.1
23.1 Consent of Independent Registered Public Accounting Firm — MSPC, Certified Public Accountants and Advisors,
Professional Corporation.*
31.1 Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
32
302 of the Sarbanes-Oxley Act of 2002.*
Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
* Filed herewith.
(b) Exhibits. The exhibits required by Item 601 of Regulation S-K are filed herewith or incorporated by reference.
(c) Financial Statement Schedules and Other Financial Statements.
Schedule II — Valuation and Qualifying Accounts and Reserves
All other financial statement schedules are omitted from this Annual Report on Form 10-K, as they are not required or applicable or
the required information is included in the financial statements or notes thereto.
Bowne Conversion
57
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
EMERSON RADIO CORP.
By: /s/ Adrian Ma
Adrian Ma
Chief Executive Officer
Dated: July 14, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Christopher Ho
Christopher Ho
/s/ Eduard Will
Eduard Will
/s/ Adrian Ma
Adrian Ma
/s/ Duncan Hon
Duncan Hon
/s/ Greenfield Pitts
Greenfield Pitts
/s/ Mirzan Mahathir
Mirzan Mahathir
/s/ Kareem E. Sethi
Kareem E. Sethi
/s/ Terence A. Snellings
Terence A. Snellings
Chairman of the Board of
Directors
Vice Chairman of the Board of
Directors
Chief Executive Officer
(Principal Executive Officer)
and Director
Deputy Chief Executive Officer
and Director
Chief Financial Officer
(Principal Financial and
Accounting Officer),
and Director
Director
Director
Director
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
July 14, 2010
Bowne Conversion
58
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary
Emerson Global Limited
Emerson Radio (Hong Kong) Limited
Emerson Radio Macao Commercial Offshore Limited Macao
Majexco Imports, Inc.
Jurisdiction of
Incorporation
British Virgin Islands
Hong Kong
California, U.S.A.
Exhibit 21.1
Percentage of
Ownership
100.0%
100.0%*
100.0%
100.0%
* One share is owned by a resident director, pursuant to local law.
Bowne Conversion
59
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
Emerson Radio Corp. and Subsidiaries
Moonachie, New Jersey
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-63515, 333-132812
and 333-132815) of Emerson Radio Corp. of our report dated July 14, 2010, relating to the consolidated financial statements of
Emerson Radio Corp. and Subsidiaries as of March 31, 2010 and 2009 and for each of the two years in the period ended March 31,
2010, which appear in this Form 10-K.
/s/ MSPC.
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS
A PROFESSIONAL CORPORATION
Cranford, New Jersey
July 14, 2010
Bowne Conversion
60
Certifications
Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
Exhibit 31.1
I, Adrian Ma, certify that:
1. I have reviewed this report on Form 10-K of Emerson Radio Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information: and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: July 14, 2010
A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained
by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Adrian Ma
Adrian Ma
Chief Executive Officer
Bowne Conversion
61
Exhibit 31.2
Certifications
Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002
I, Greenfield Pitts, certify that:
1. I have reviewed this report on Form 10-K of Emerson Radio Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Greenfield Pitts
Greenfield Pitts
Chief Financial Officer
Date: July 14, 2010
A signed original of this written statement required by Section 302 has been provided to Emerson Radio Corp. and will be retained
by Emerson Radio Corp. and furnished to the Securities and Exchange Commission or its staff upon request.
Bowne Conversion
62
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Emerson Radio Corp., (the “Company”) on Form 10-K for the period ended March 31,
2010, filed with the Securities and Exchange Commission (the “Report”), Adrian Ma, Chief Executive Officer, and Greenfield Pitts,
Chief Financial Officer, of the Company each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the
Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.
By: /s/ Adrian Ma
Adrian Ma
Chief Executive Officer
By: /s/ Greenfield Pitts
Greenfield Pitts
Chief Financial Officer
Dated: July 14, 2010
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate
disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has
been provided to Emerson Radio Corp. and will be retained by Emerson Radio Corp. and furnished to the Securities and Exchange
Commission or its staff upon request.
Bowne Conversion
63