SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

or

For the transition period from                                                          to                                                         

Commission file number 0-25226

EMERSON RADIO CORP.

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

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

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

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

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

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

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

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

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

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

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

NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION

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

     The Company operates in two business segments: consumer electronics and sporting goods. The consumer electronics segment designs, sources, imports and markets a variety of consumer electronic products and licenses the “” trademark for a variety of products domestically and internationally to certain licensees. The sporting goods segment, which is operated through SSG, manufactures and markets sports related equipment and leisure products to institutional customers in the United States.

     From July 2003 through October 2003, certain of SSG’s team dealer locations were discontinued. In November 2003, SSG sold all of the issued and outstanding capital stock of its wholly-owned subsidiary, Athletic Training Equipment Company, Inc. (“ATEC”). Collectively, SSG refers to these operations as “Discontinued Operations” and accordingly, the accompanying financial statements reflect these as discontinued operations. (See Note 12)

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

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

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

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

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

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NOTE 2 — COMPREHENSIVE INCOME

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

NOTE 3 — NET EARNINGS (LOSS) PER SHARE

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

NOTE 4 - CAPITAL STRUCTURE

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

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

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

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

NOTE 5 — INVENTORY

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

NOTE 6 — INCOME TAXES

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

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

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

NOTE 7 — RELATED PARTY TRANSACTIONS

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

NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, the Financial Accounting Standards Board issued Statement No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 142 requires that goodwill not be amortized but instead be tested for impairment at least annually by reporting unit. As a result of adopting SFAS 142, we ceased recording amortization of goodwill on April 1, 2002.

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

NOTE 9 — BORROWINGS

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

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

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

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

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

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

NOTE 10 — SEGMENT INFORMATION

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

NOTE 11 — LEGAL PROCEEDINGS

Putative Class Actions

     Between September 4, 2003 and October 30, 2003, several putative class action lawsuits were filed in the United States District Court for the District of New Jersey against Emerson and Messrs. Geoffrey Jurick, Kenneth Corby and John Raab (the “Individual Defendants”) on behalf of purchasers of our publicly traded securities who bought shares between January 29, 2003 and August 12, 2003 (the “Class Period.”) On December 17, 2003, the Court entered a Joint Stipulation and Order consolidating these putative class actions under the caption In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the “Consolidated Action.”) Further to that Stipulation and Order, lead plaintiff was appointed and co-lead counsel and co-liaison counsel were approved by the Court in the Consolidated Action. Consistent with the Stipulation and Order, the plaintiffs filed an Amended Consolidated Complaint (the “Amended Complaint”) that, among other things, added Jerome Farnum, one of Emerson’s directors, as a defendant in the litigation.

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

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

Other Matters

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

NOTE 12 — DISCONTINUED OPERATIONS

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

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

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

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

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

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

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

Consolidated Operations:

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