SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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 - “Us”, “We”, “Our”— the “Company”) and its majority-owned subsidiaries, including Sport Supply Group, Inc. (“SSG”). We operate, 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 Emerson’s 53.2% ownership of SSG, manufactures markets, and distributesmarkets 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 December 31, 2003June 30, 2004 and the results of operations for the threequarters ended June 30, 2004 and nine month periods ended December 31, 2003 and 2002.2003. 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, 20032004 (“fiscal 2003”2004”), included in our annual report on Form 10-K.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.

          From July 2003 through October 2003 certain of SSG’s team dealers located in Little Rock, Arkansas, Enid, Oklahoma and Wichita, Kansas were discontinued. In November 2003, SSG sold all of the issued and outstanding capital stock of it’s wholly-owned subsidiary, Athletic Training Equipment Company, Inc. (“ATEC”). Collectively, SSG refers to these as “Discontinued Operations” and accordingly, the accompanying financial statements reflect these as discontinued operations. See Note 12 Discontinued Operations.5

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     Due to the seasonal nature of both segments, the results of operations for the three and nine month periodsquarter ended December 31, 2003June 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, 20042005 (“fiscal 2004”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, becauseif the exercise price of our 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 threequarter ended June 30, 2004 and nine month periods ended December 31, 2003 and 2002is as follows:

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NOTE 2 -— COMPREHENSIVE INCOME

     Our comprehensive income (loss) for the three months ended June 30, 2004 and nine month periods ended December 31, 2003 and 2002 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):

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NOTE 4-4 - CAPITAL STRUCTURE

     Our outstanding capital stock at December 31, 2003June 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 December 31, 2003,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 239,000208,000 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, vesting 50% inof which 100,000 warrants vested after six months and 50%100,000 warrants vested one year from date of grant in conjunction with a consulting agreement.grant. The warrants were valued using the Black-Scholes option valuation model and arewere charged to earnings over the related service period of the consulting agreement with $396,000 and $420,664approximately $18,000 being charged to operations for the three and nine month periods ending December 31, 2003, and $18,501 and $30,835 for the three and nine month periods ending December 31, 2002.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 and nine month periodsmonths ending December 31, 2003.June 30, 2004, no expense was charged to operations for these warrants. As of December 31, 2003June 30, 2004, these warrants had not been exercised.

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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, standard cost method for items manufactured and weighted average cost for items purchased for resale.segment. As of December 31, 2003June 30, 2004 and March 31, 2003,2004, 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.

     Tax benefits resulting from operating losses and discontinued operations losses for the nine months ended December 31, 2003 have been fully reserved in our tax allowance and, accordingly, a tax benefit was not recorded in our consolidated Statement of Operations. Income taxes from the gain on the sale of ATEC are reflected as a reduction to our net deferred tax asset. The high effective tax rate reflected in the consolidated statement of operations for the three and nine months ended December 31, 2003 was the result of our multinational tax structure, which yields varying tax effective rates. See Note 1 - Background and Basis of Presentation and Note 12 - Discontinued Operations.

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At December 31, 2003,June 30, 2004, approximately $20.5$20.4 million of deferred tax assets were reported on our balance sheet.

NOTE 7 - INVESTMENT IN SPORT SUPPLY GROUP, INC.

          As of December 31, 2003 and March 31, 2003, Emerson owned 4,746,023 (approximately 53.2% of the issued and outstanding) shares of common stock of SSG. SSG’s results of operations and the minority interest related to those results have been included in our quarterly and year-to-date results of operations.— 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 a feefees at terms reflected in an arms-length transaction.which reflect arms length transactions. These charges have been eliminated in consolidation.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 and, recorded a non-cash “cumulative effect of change in accounting principle” of approximately $5.5 million ($0.19 per diluted share for the nine month period ended December 31, 2002), associated with the write-off of all of the goodwill attributed to the sporting goods segment.2002.

     As of December 31, 2003,June 30, 2004, estimated amortization expense of other intangible assets for each of the next five years is as follows (in thousands):

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NOTE 9 -— BORROWINGS

     As of December 31, 2003June 30, 2004 and March 31, 2003,2004, short-term borrowings consisted of the following (in thousands):

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     As of December 31, 2003June 30, 2004 and March 31, 2003,2004, long-term borrowings consisted of the following (in thousands):

Refinancing Transaction in Fiscal 2003- On June 28, 2002, Emerson entered into a $40 million Revolving Credit and Term Loan Agreement (“Loan Agreement”) with several U.S. financial institutions. The Loan Agreement provides for a $25 million revolving line of credit(Revolver A)and a $15 million term loan(Term Loan). The $25 million revolving line of credit replaced Emerson’s $15 million senior secured facility and provides for revolving loans, subject to individual maximums which, in the aggregate, are not to exceed the lesser of $25 million or a “Borrowing Base” as defined in the Loan Agreement.

     Revolver A and Term Loan- 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. The interest rate charged onThis agreement provides for revolving loans which cannot exceed the Term Loan ranged from Prime plus 1.00% to 1.75%lesser of $25 million or at Emerson’s election, LIBOR plus 2.50%a “Borrowing Base” amount based upon specified percentages of eligible accounts receivables and 3.25% depending on certain financial covenants and amortizes over a three-year period.inventories. Pursuant to the Loan Agreement as amended, Emerson is restricted from, among other things, paying certain cash dividends, repurchasing Emerson’sits 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.

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As of December 31, 2003,June 30, 2004 Emerson repaid in full ahead of schedule the Term Loan, and had approximately $2.5 million outstanding under Revolver A and was in compliance with the covenants contained in the Loan Agreement, as amended during the three months ended December 31, 2003.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 it is required to maintain certain net worth levels.

          SSG’s Loan and Security Agreement allows its lender to accelerate payment upon the occurrence of an event that has a material adverse effect upon the business, operations, properties, assets, goodwill, or condition (financial or otherwise) of SSG on a consolidated basis. Additionally, the Loan and Security Agreement requires SSG to maintain a depository account in favor of our lender. SSG’s lender has agreed to modify the Loan and Security Agreement to make the material adverse change clause provision an event of default only if availability levels, net of borrowings, fall below certain levels. As of December 31, 2003,June 30, 2004, SSG was in compliance with the covenants in the Loan Agreement, as amended.covenants.

     As of December 31, 2003,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 nine month periods ended December 31, 2003 and 2002 (in thousands):

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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 usEmerson and Mssrs.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 original complaints allegeAmended Complaint alleges that weEmerson 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 thereunder,there under, by (i) issuing certain positive statements during the Class Period regarding our growthability to replace lost revenues attributable to our Hello Kitty^® license and demand for our products.(ii) omitting to disclose that Emerson suffered allegedly soured relationships with its largest retail customers. The complaintsAmended Complaint further allegealleges that these statements were each materially false and misleading when made because weEmerson allegedly misrepresented and omitted certain adverse facts which then existed and disclosure of which was necessary to make the statements not false and misleading.

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          The lead plaintiff in the Consolidated Action is currently scheduled to file an Amended and Consolidated Complaint on or about March 15, 2004, which may contain additional allegations. We Emerson, and the Individual Defendants intend to defend these lawsuitsthe lawsuit vigorously.

          We are also involved in legal proceedings and claims of various types in the ordinary course of our business. While any such litigation to which we areOther Matters

     The Company is a party contains an elementto 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 uncertainty, we presently believesuch matters, that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined,its ultimate liability will not have a material adverse effect on our consolidatedits financial position.position, results of operations or cash flows.

NOTE 12 -— DISCONTINUED OPERATIONS

     InFrom July 2003 SSG discontinued operations at itsthrough October 2003, certain of SSG’s team dealer located in Little Rock, Arkansas and in October 2003, sold substantially all of the assets at that location (other than cash and accounts receivable).locations were closed. In October 2003, SSG discontinued operations at its team dealer located in Enid, Oklahoma and in November 2003, sold substantially all the assets (other than cash and accounts receivable) of its team dealer located in Wichita, Kansas. These closures and sales of assets, and related discontinued operations resulted in a loss of approximately $780,000 for the three months ended December 31, 2003, which combined with the previously recorded loss recognized totaled $1.2 million for the nine months ended December 31, 2003. On November 18, 2003, SSG sold all of the issued and outstanding capital stock of ATEC, resultingits wholly owned subsidiary, ATEC. These closures and sale of stock, and related discontinued operations resulted in a net gainloss of approximately $3.8 million.$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 nine month periods ended December 31, 2003. See(See Note 1 - Background and Basis of Presentation.1)

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