According to the Company’s FORM 10-Q for the quarterly period ended December 31, 2005, for the past two years, Emerson has been defending a consolidated putative class action captioned In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the "Consolidated Action") filed in the United States District Court for the District of New Jersey. The class action complaint asserted claims against Emerson certain Individual Defendants on behalf of purchasers of Emerson's publicly traded securities between January 29, 2003 and August 12, 2003 (the "Class Period"). By a December 19, 2005 Opinion and Order, the Court granted the defendants' motion to dismiss the complaint without prejudice and granted the plaintiffs leave to amend their pleading consistent with the rulings in the Court's Opinion and Order.
The first complaint against Emerson Radio Corporation was filed on September 4, 2003, case number 03-CV-4202. On December 17, 2003, the Court entered the Stipulation and Order consolidating the several cases into lead case number 03-CV-4201, and appointing lead plaintiffs and lead counsel.
The original action charges that defendants violated federal securities laws by issuing a series of materially false and misleading statements to the market throughout the Class Period which statements had the effect of artificially inflating the market price of the Company's securities. Specifically, the complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and rule 10b-5 promulgated thereunder, by issuing false and misleading statements concerning the Company's business. Specifically, the complaint alleges that defendants issued numerous statements concerning Emerson's growth and demand for the Company's products. Specifically these statements were false and misleading when made as they misrepresented and omitted the following adverse facts: that Emerson's customers were deferring and foregoing purchases of product and reducing inventory levels as they shifted to just-in-time stocking, that since at least March of 2003, the outbreak of severe acute respiratory syndrome in Asia was dramatically reducing Emerson's product demand and supply, that Emerson was planning to discontinue and did, several popular brands. On August 12, 2003, Emerson shocked the investing public when it released its financial and operational results for the first quarter of fiscal 2004, ended June 30, 2003, announcing, among others, a 44.3% revenue decline in its consumer electronics segment. In response to the announcement, shares of Emerson stock fell more than 49% on heavy trading volume.