SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

EMERSON RADIO CORP.

(Exact name of registrant as specified in its charter)

DELAWARE		22-3285224
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
9 Entin Road Parsippany, New Jersey		07054
(Address of principal executive offices)		(Zip code)

(973) 884-5800

(Registrant’s telephone number, including area code)

(Former name, former address, and former fiscal year, if changed since last report)

     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. þ Yes o No

     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):

o Large accelerated filer		o Accelerated filer		þ Non-accelerated filer		o Smaller reporting company
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number of shares outstanding of common stock as of February 12, 2008: 27,129,832.

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			17
Item 4. Controls and Procedures			17
PART II — OTHER INFORMATION			19
Item 1. Legal Proceedings			19
Item 1A. Risk Factors			19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			19
ITEM 3. Defaults Upon Senior Securities			21
ITEM 4. Submission of Matters to a Vote of Security Holders			21
ITEM 5. Other Information			21
ITEM 6. Exhibits			21
SIGNATURES			22
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS
EX-3.1: BYLAWS OF EMERSON RADIO CORP., AS AMENDED
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS

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)

		Three Months Ended								Nine Months Ended
		December 31								December 31
		2007				2006				2007				2006
Net revenues
Net revenues		$	75,543			$	89,339			$	185,969			$	244,168
Net revenues-related party			246				—				370				—
			75,789				89,339				186,339				244,168
Costs and expenses:
Cost of sales			68,191				64,344				164,832				177,920
Cost of sales-related party			232				—				232				—
Cost of sales-related party purchases			—				12,148				—				33,090
Other operating costs and expenses			1,434				1,330				4,778				4,355
Selling, general and administrative expenses (exclusive of non-cash compensation shown below)			7,623				5,402				17,907				16,208
Acquisition costs incurred			—				—				—				21
Non-cash compensation, net of recoveries			28				83				(159	)			138
			77,508				83,307				187,590				231,732
Operating income (loss)			(1,719	)			6,032				(1,251	)			12,436
Gain on sale of building			—				—				854				—
Gains on foreign exchange forward contracts			515				—				515				—
Interest (expense), net			(76	)			(457	)			(72	)			(564	)
Interest income-related party			—				—				163				—
Income (loss) before income taxes			(1,280	)			5,575				209				11,872
Provision (benefit) for income taxes			(2,394	)			1,880				1,937				3,792
Net income (loss)		$	1,114			$	3,695			$	(1,728	)		$	8,080
Net income (loss) per share:
Basic		$	.04			$	0.14			$	(.06	)		$	0.30
Diluted		$	.04			$	0.14			$	(.06	)		$	0.30
Weighted average shares outstanding:
Basic			27,130				27,097				27,125				27,080
Diluted			27,136				27,117				27,125				27,121

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

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

		December 31, 2007				March 31, 2007(A)
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	20,395			$	1,851
Restricted cash			—				3,000
Foreign exchange forward contracts			279				—
Accounts receivable (less allowances of $5,722 and $3,573, respectively)			26,470				19,375
Other receivables			1,673				1,536
Due from affiliates			797				24,690
Net inventory			33,110				32,463
Prepaid expenses and other current assets			2,956				3,376
Deferred tax assets			5,071				5,737
Total current assets			90,751				92,028
Property, plant and equipment, net			1,474				2,492
Trademarks and other intangible assets, net			285				311
Deferred tax assets			5,787				4,067
Other assets			629				510
Total assets		$	98,926			$	99,408
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings		$	—			$	3,111
Current maturities of long-term borrowings			73				146
Accounts payable and other current liabilities			25,321				20,044
Accrued sales returns			924				1,191
Income taxes payable			492				306
Deferred tax liabilities			—				47
Total current liabilities			26,810				24,845
Long-term borrowings			136				651
Deferred tax liabilities			50				25
Shareholders’ equity:
Preferred shares — 10,000,000 shares authorized; 3,677 shares issued and outstanding; liquidation preference of $3,677			3,310				3,310
Common shares — $.01 par value, 75,000,000 shares authorized; 52,965,797 shares issued at December 31, 2007; 52,945,797 shares issued at March 31, 2007; 27,129,832 shares outstanding at December 31, 2007 and 27,109,832 shares outstanding at March 31, 2007, respectively			529				529
Capital in excess of par value			117,263				117,371
Accumulated other comprehensive losses			(82	)			(82	)
Accumulated deficit			(24,866	)			(23,017	)
Treasury stock, at cost, 25,835,965 shares			(24,224	)			(24,224	)
Total shareholders’ equity			71,930				73,887
Total liabilities and shareholders’ equity		$	98,926			$	99,408

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

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

		Nine Months Ended
		December 31
		2007				2006
Cash flows from operating activities:
Net income (loss)		$	(1,728	)		$	8,080
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization			620				701
Non cash compensation			(159	)			138
Deferred tax expenses			(1,076	)			2,445
Asset allowances, reserves and other			2,510				2,253
Gain on sale of building			(854	)			—
Write down of asset — molds			120				—
Gains on foreign exchange forward contracts not settled			(279	)			—
Changes in assets and liabilities:
Restricted cash			3,000				—
Accounts receivable			(11,986	)			(4,325	)
Other receivables			(137	)			(263	)
Due from affiliates			23,893				(22,605	)
Inventories			1,467				(7,861	)
Prepaid expenses and other current assets			420				(1,219	)
Other assets			(181	)			525
Accounts payable and other current liabilities			5,277				3,929
Income taxes payable			65				1,309
Net cash provided(used) by operating activities			20,972				(16,893	)
Cash flows from investing activities:
Proceeds from sale of building			2,000				—
Additions to property and equipment			(741	)			(225	)
Net cash provided (used) by investing activities			1,259				(225	)
Cash flows from financing activities:
Short-term borrowings			(73	)			31,894
Repayments of short-term borrowings			—				(24,045	)
Net borrowings under foreign bank facilities			(3,111	)			2,886
Exercise of stock options			51				94
Long-term borrowings			143,671				63,321
Repayments of long-term borrowings			(144,225	)			(63,487	)
Net cash provided (used) by financing activities			(3,687	)			10,663
Net increase (decrease) in cash and cash equivalents			18,544				(6,455	)
Cash and cash equivalents at beginning of period			1,851				17,517
Cash and cash equivalents at end of period		$	20,395			$	11,062

Supplemental disclosures of non-cash investing and financing activities:

The Company has entered into certain capital lease agreements. For the nine month periods ended December 31, 2007 and December 31, 2006, the Company entered into agreements related to approximately $39 and $264 of equipment, respectively, which are excluded from the statement of cash flows as the transactions were non-cash in nature.

Cash paid during the period for:

Interest		$	410			$	906
Income taxes		$	5,200			$	1,069

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

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”), which operates in the consumer electronics business. The consumer electronics business includes the design, sourcing, importing and marketing of a variety of consumer electronic products and the licensing of the “(EMERSON LOGO)” and H.H. Scott(R) trademarks for a variety of products domestically and internationally to certain licensees.

     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, 2007 and the results of operations for the three and nine month periods ended December 31, 2007 and December 31, 2006. 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. 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. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2007 (“fiscal 2007”), included in our annual report on Form 10-K, as amended, for fiscal 2007.

     Due to the seasonal nature of Emerson’s business, the results of operations for the three and nine month periods ended December 31, 2007 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, 2008 (“fiscal 2008”).

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

Stock— Based Compensation

The Company accounts for all share based payments in accordance with Statement of Financial Accounting Standard (“FAS”) No. 123R, “Share-Based Payment” (“FAS 123R”). As a result, the Company has applied FAS 123R to new awards and to awards modified, repurchased, or cancelled. Compensation cost for the portion of awards for which the requisite service had not been rendered are being recognized as the requisite service is rendered (generally over the remaining option vesting period). The compensation cost for that portion of awards has been based on the grant-date fair value of those awards as calculated for pro forma disclosures under previously issued accounting standards. As a result of applying the provisions of FAS 123R, the Company has recorded compensation costs of $28,000 and $83,000 for the three months ended December 31, 2007 and December 31, 2006, respectively. For the nine month period ended December 31, 2007, the Company recorded a recovery of compensation costs of $159,000, and for the nine month period ended December 31, 2006, the Company recorded compensation costs of $138,000.

NOTE 2 — COMPREHENSIVE INCOME

     Comprehensive income for the three and nine month periods ended December 31, 2007 and December 31, 2006 is as follows (in thousands):

		Three months ended								Nine months ended
		December 31								December 31
		2007				2006				2007				2006
		(Unaudited)
Net income (loss)		$	1,114			$	3,695			$	(1,728	)		$	8,080
Recognition of realized losses in net income			—				—				—				(2	)
Change in unrealized loss on securities, net			—				(5	)			—				(10	)
Comprehensive income		$	1,114			$	3,690			$	(1,728	)		$	8,068

NOTE 3 — NET EARNINGS PER SHARE

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

		Three months ended								Nine months ended
		December 31								December 31
		2007				2006				2007				2006
		(Unaudited)								(Unaudited)
Numerator:
Net income (loss) for basic and diluted earnings per share		$	1,114			$	3,695			$	(1,728	)		$	8,080
Denominator:
Denominator for basic earnings per share — weighted average shares			27,130				27,097				27,125				27,080
Effect of dilutive securities on denominator:
Options and warrants			6				20				—				41
Denominator for diluted earnings per share — weighted average shares and assumed conversions			27,136				27,117				27,125				27,121
Basic and diluted earnings (loss) per share		$	0.04			$	0.14			$	(0.06	)		$	0.30

NOTE 4— SHAREHOLDERS’ EQUITY

     Outstanding capital stock at December 31, 2007 consisted of common stock and Series A convertible preferred stock. 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.

     At December 31, 2007, Emerson had approximately 312,000 options outstanding with exercise prices ranging from $1.00 to $3.23.

     In September 2003, the Company publicly announced the Emerson Radio Corp. common stock repurchase program. The program provides for share repurchase of up to 2,000,000 shares of Emerson’s outstanding common stock. As of December 31, 2007, the Company has repurchased 1,267,623 shares under this program. No shares have been repurchased under the program since June 14, 2005. Repurchases of the Company’s shares are subject to certain conditions under Emerson’s banking facility.

     On October 7, 2003, in connection with a consulting arrangement, the Company granted 50,000 warrants with 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. As of December 31, 2007, these warrants had not been exercised.

     On August 1, 2004, in connection with a consulting agreement, the Company granted 50,000 warrants with immediate vesting and an exercise price of $3.00 per share with an expiration date of August 2009. These warrants were valued using the Black-Scholes valuation model, which resulted in $88,500 being charged to earnings during fiscal 2005. As of December 31, 2007, 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. As of December 31, 2007 and March 31, 2007, inventories consisted of the following (in thousands):

		December 31, 2007				March 31, 2007
		(Unaudited)
Finished goods		$	35,372			$	36,839
Less inventory allowances			(2,262	)			(4,376	)
Net inventory		$	33,110			$	32,463

NOTE 6 — INCOME TAXES

     The Company has 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, management believes it is more likely than not that all of the net deferred tax assets will be realized through tax planning strategies available in future periods and through future profitable operating results. The amount of the deferred tax asset considered realizable 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 management determines that the Company 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.

     During the current quarter, the Company resolved all of the outstanding disputes which its predecessor had relating to franchise taxes, interest and penalties due and owing to the State of California for the tax years through and including the date that such predecessor ceased doing business. As a consequence of the settlement, Emerson reversed and recognized in the current quarter, a reduction of its tax provision of $1,041,826 which was previously accrued for such liability.

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold which a tax position is required to attain before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption of FIN 48, as of April 1, 2007, we recorded a net increase to accumulated deficit of $121,000, including approximately $68,000 related to accrued interest and penalties related to state income tax matters.

     As of April 1, 2007, the Company had $121,000 of unrecognized tax benefits related to state taxes. All of the unrecognized tax benefits could impact our effective tax rate if recognized.

     Estimated interest and penalties related to the underpayment of income taxes are classified as a component of income tax expense in the Consolidated Statement of Operations and totaled $16,000. Accrued interest and penalties were $80,000 as of December 31, 2007 and are recognized in the balance sheet.

     The effective tax rate for the respective three and nine months ended December 31, 2007 differs from the federal statutory rate primarily as a result of the settlement made in relation to the California franchise tax issue described in the second paragraph of this note. The effective tax rate for the respective three and nine months ended December 31, 2006 differs from the federal statutory rate primarily as a result of state income taxes.

     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 December 31, 2007:

Jurisdiction		Open tax years
U.S. federal		2003-2006
States with ongoing examinations		2003-2006
States without ongoing examinations		2003-2006

     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 7 — RELATED PARTY TRANSACTIONS

     On December 5, 2005, The Grande Holdings Limited (“Grande”) purchased approximately 37% (10,000,000 shares) of the Company’s outstanding common stock from our former Chairman and Chief Executive Officer, Geoffrey P. Jurick. Since its initial purchase, Grande has increased its ownership of the Company’s common stock through open market and private purchases, including the purchase on September 21, 2007 from a former holder of more than five percent of Emerson’s common stock of 1,853,882 shares. Grande beneficially owned approximately 57.6% of the Company’s common stock on December 31, 2007.

     In October 2006, Emerson entered into an agreement with a consumer electronics distributor , APH (the “Licensee”), pursuant to which, among other things, Emerson agreed to grant the Licensee a license to distribute and sell LCD televisions (“LCD sets”) in North America under Emerson’s “H.H. Scott” brand name. The licensee has a distributor relationship with Grande, a related party to Emerson. In the fiscal quarter ended December 31, 2006, the Licensee began selling 32” and 37” LCD sets to a major United States based retailer. Pursuant to the terms of the agreement with the licensee, Emerson was paid a royalty of $110,000 as a result of such sales through March 31, 2007. No sales of LCD televisions pursuant to this agreement occurred and no royalty was paid to Emerson under this agreement during the nine month period ended December 31, 2007.

     During the third quarter of fiscal 2007, Emerson provided unsecured financial assistance to Capetronic Display Limited

(“Capetronic”), Nakamichi Corporation (“Nakamichi”), Akai Electric (China) Co. Ltd. (“Akai”), and Sansui Electric (China) Co. (“Sansui”), each of which is a wholly-owned subsidiary of Grande, the manufacturer of the LCD sets, in the form of letters of credit and loans which aggregated approximately $22.0 million at December 31, 2006. In reviewing the documentation for certain of the letters of credit referred to above, Emerson determined that some of the parts for which letters of credit were opened were to be used for the manufacture of 27” and 42” television sets to be sold to the Licensee by Akai. Emerson had no direct or indirect interest in such sales, and Capetronic paid Emerson $57,000 as a fee for facilitating these transactions.

     As a result of the transactions described in the preceding paragraph, Emerson may have been deemed to be in breach of certain covenants contained in Emerson’s credit facility. The lender under the credit facility agreed to waive such breaches and Emerson and the lender negotiated an amendment to the credit facility. Emerson was required to pay $125,000 to the lender in connection with the amendment. Emerson charged this amount to Capetronic and $125,000 was paid to one of Emerson’s foreign subsidiaries on August 14, 2007 by Capetronic.

     On February 21, 2007, Capetronic, Nakamichi, Akai, and Sansui (collectively, the “Borrowers”), each of which is a wholly-owned subsidiary of Grande, jointly and severally, issued a promissory note (the “Note”) in favor of the Company in the principal amount of $23,501,514. The principal amount of the Note represented the outstanding amount owed to the Company as of February 21, 2007, as a result of certain related party transactions entered into between the Company and the Borrowers described above, including interest that had accrued from the date of such related party transactions until the date of the Note. Simultaneously with the execution of the Note, Grande executed a guaranty (the “Guaranty”) in favor of the Company pursuant to which Grande guaranteed payment of all of the obligations of the Borrowers under the Note in accordance with the terms thereof.

     Interest on the unpaid principal balance of the Note accrued at a rate of 8.25% per annum, commencing on February 21, 2007, until all obligations under the Note were paid in full, subject to an automatic increase of 2% per annum in the event of default under the Note in accordance with the terms thereof. Payments of principal and interest under the Note were to be made in nine installments from April 1, 2007 through June 3, 2007 in such amounts and on such dates as set forth in the Note, with all amounts of interest due under the Note scheduled to be paid with the final installment.

     By June 3, 2007, all amounts due under the note were repaid.

     Since August 2006, Emerson has been providing to Sansui Sales PTE Ltd (“Sansui Sales”) and Akai Sales PTE Ltd (“Akai Sales”), both of which are subsidiaries of Grande, assistance with acquiring certain products for resale. Emerson issues purchase orders to third-party suppliers who manufacture these products, and Emerson issues sales invoices to Sansui Sales’ and Akai Sales’ at gross amounts for these products. Financing is provided by Sansui Sales’ and Akai Sales’ customers in the form of transfer letters of credit to the suppliers, and goods are shipped directly from the suppliers to Sansui Sales’ and Akai Sales’ customers. Emerson recorded income totaling $100,000 for providing this service in the nine months ended December 31, 2007. Sansui Sales and Akai Sales collectively owe Emerson $126,000 at December 31, 2007 as a result of these transactions.

     In addition to the product sourcing transactions described in the preceding paragraph, Emerson has 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 are 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 utilizes its own cash to pay Sansui Sales’ and Akai Sales’ suppliers (See Item 4.B “Changes in Internnal Control Over Financial Reporting”). Emerson invoices Sansui Sales and Akai Sales an amount that is marked up between two and three percent from the cost of the product. In comparison to similar direct import sales which Emerson makes to third-party customers, the mark-up on these related party sales, despite the fact that Emerson does not incur a trademark royalty on these sales, cannot be considered to be at arms length. Emerson recorded sales to Akai and Sansui of $241,000 in the nine months ended December 31, 2007. Sansui Sales and Akai Sales collectively owe Emerson $44,000 at December 31, 2007 on these sales. In addition, Emerson has outstanding liabilities with suppliers of product invoiced to Sansui Sales and Akai Sales totaling $41,000 at December 31, 2007.

     Effective January 1, 2006, we entered into a lease for office space in Hong Kong with Grande and an agreement for services in connection with this office space rental from Grande, which was extended through December 31, 2008, and which will expire at that date unless terminated earlier by either party upon three months prior written notice of termination by either party. We incurred rent expense with Grande of approximately $105,000 and $45,000 for the three month periods ended December 31, 2007 and December 31, 2006, respectively. Rent expense with Grande was $185,000 and $158,000 for the nine month periods ended December 31, 2007 and December 31, 2006, respectively. The amount of expense incurred with Grande for all other services in connection with this office space rental was approximately $58,000 and $61,000 for the three month periods ended December 31, 2007 and December 31, 2006, respectively. The amount of expense incurred with Grande for all other services in connection with this office space rental was approximately $172,000 and $182,000 for the nine month periods ended December 31, 2007 and December 31, 2006, respectively.

     In May 2007 Emerson paid an initial $10,000 commission to Vigers Hong Kong Ltd (“Vigers”), a property agent and a subsidiary

of Grande, related to the sale of a building owned by Emerson to an unaffiliated buyer. Also, Emerson received a deposit of approximately $300,000 from the buyer on this date. The sale was concluded on September 27, 2007. An additional $10,000 commission was paid to Vigers by Emerson on the closing date of the sale of the property. Emerson received the balance of the purchase price of approximately $1,700,000 on September 27, 2007, the closing date of the sale.

     In June 2007 Emerson paid a one-time sales commission in the amount of $14,000 to an Executive Director of Grande Holdings, who is also Emerson’s President-International Sales and also a Director of Emerson. The commission was 50% of the net margin on a sale by Emerson to an unaffiliated customer.

     In May 2007, Emerson entered into an agreement with Goldmen Electronic Co. Ltd. (“Goldmen”), pursuant to which we agreed to pay $1,682,220 in exchange for Goldmen’s manufacture and delivery to us of musical instruments in order for us to meet our delivery requirements of these instruments in the first week of September 2007. In July 2007, we learned that Goldmen had filed for bankruptcy and was unable to manufacture the musical instruments we had ordered. Promptly after we learned of Goldmen’s bankruptcy, Capetronic agreed to manufacture the musical instruments on substantially the same terms and conditions, including the price, as Goldmen had agreed to manufacture them. Accordingly, on July 12, 2007, we 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 (not the $1,682,220 previously mistakenly being reported as having been advanced). On July 20, 2007, Capetronic advised us that it was unable to manufacture the musical instruments for us because it did not have the requisite governmental licenses to do so. As of December 31, 2007, Capetronic physically possesses the musical instrument molds owned by Emerson and owes to Emerson $546,000 for the upfront advances made in anticipation of Capetronic’s manufacture of the instruments. As a result of the above, Emerson has written the cost of the molds down to $0 at December 31, 2007.

In June 2007, Emerson and Capetronic signed an agreement for Emerson to provide freight forwarding services to Capetronic, whereupon Emerson will pay the costs of importation of Capetronic’s inventory on Capetronic’s behalf. Under the agreement, Emerson is also to arrange for the inventory to be received at a port of entry, cleared through the United States Customs Service using Emerson’s regularly engaged broker, and transfer the inventory to a common carrier as arranged by Capetronic’s customer. If Capetronic’s customer has not made such arrangements with a common carrier, Emerson is to transfer the inventory to Emerson’s warehouse for storage or make other arrangements with a public warehouse. Following the transfer of Capetronic’s inventory, Emerson is required to provide Next Day delivery of all importation documents and bills of lading to Capetronic’s customer. Capetronic agrees to reimburse Emerson for all costs incurred by Emerson in connection with the activity just described within thirty days of demand by Emerson, after which interest will accrue. As compensation, Capetronic agrees to pay Emerson a service fee of 12% of the importation costs. Emerson billed Capetronic for the reimbursement of importation costs totaling $246,000 and a commission of $29,000. Capetronic paid Emerson $275,000 on November 14, 2007.

Between August and December 2007, Emerson paid invoices and incurred charges for goods and services relating to the Hong Kong Electronics Fair of $153,069.00. Portions of these charges totaling $87,353.18, have been allocated and invoiced to affiliates of Grande in proportion to their respective share of space occupied and services rendered during the Electronics Fair as follows; Nakamichi Corporation Ltd. $17,143.08, Akai Sales Pte Ltd $44,495.48 and Sansui Sales Pte Ltd $25,714.62. All of the respective amounts have been classified as Due from Affiliates.

NOTE 8 — BORROWINGS

Short-term Borrowings

     During the third quarter of fiscal 2008, Emerson elected to cancel it’s foreign bank facilities. As a result, the $3.0 million in certificates of deposit at these banks to assure the availability of the credit facilities was returned.

     At March 31, 2007, short-term borrowings consisted of amounts outstanding under foreign bank facilities held by the Company’s foreign subsidiaries. Availability under the foreign bank facilities totaled $17.5 million prior to their cancellation in December 2007.

		December 31, 2007				March 31, 2007
		(In thousands)
		(Unaudited)
Foreign bank loans		$	0			$	3,111
Short term borrowings		$	0			$	3,111

Long-term Borrowings

     As of December 31, 2007 and March 31, 2007, borrowings under long-term facilities consisted of the following:

		December 31, 2007				March 31, 2007
		(In thousands)
		(Unaudited)
Mortgage payable		$	—			$	567
Capitalized lease obligations and other			209				230
			209				797
Less current maturities			(73	)			(146	)
Long term debt and notes payable		$	136			$	651

     Credit Facility — On December 23, 2005, Emerson entered into a $45.0 million Revolving Credit Agreement with Wachovia Bank. The loan agreement provides for a $45.0 million revolving line of credit for revolving loans subject to individual maximums which, in the aggregate, are not to exceed the lesser of $45.0 million or a “Borrowing Base” as defined in the loan agreement. The Borrowing Base amount is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime (7.25% as of December 31, 2007) plus 0.00% to 0.50% or, at Emerson’s election, the London Interbank Offered Rate (“LIBOR” which was 5.02% as of December 31, 2007) plus 1.25% to 2.25% depending on excess availability. Pursuant to the Revolving Credit Agreement, Emerson 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. Amounts outstanding under the loan agreement are secured by substantially all of Emerson’s tangible assets.

     During the quarter ended September 30, 2006, Emerson amended its Revolving Credit Agreement with Wachovia Bank, National Association to finance its working capital requirements through October 31, 2006, primarily to ensure funding of the promotional item purchases totaling over $30.0 million. Under this amendment, Emerson’s line of credit was increased to $53 million from $45 million for this period, and its revolver commitments, letters of credit and inventory borrowing bases were increased. Emerson did not utilize the additional available funds during the amendment period, and this amendment expired at October 31, 2006.

     At December 31, 2007, there were no borrowings outstanding under the facility.

     As of December 31, 2007, the carrying value of this credit facility approximated fair value.

     As a result of the related party transactions entered into between Emerson and affiliates of Grande described in Note 7, Emerson may have been deemed to be in breach of certain covenants contained in Emerson’s credit facility, including a covenant restricting Emerson from lending money and from entering into related party transactions without the consent of its lender. The lender under the credit facility agreed to waive such breaches and Emerson and the lender negotiated an amendment to the credit facility. Under the amendment, (i) Emerson granted the lender a security interest in the $23 million Note and the Guaranty referred to in Note 7, (ii) a failure (following a 15 day cure period) by the borrowers to make payments to Emerson as required by the terms of the Note would be deemed a default under the credit facility, (iii) the number of field audits by the lender was increased from two to three each year and (iv) Emerson was required to pay $125,000 to the lender in connection with the amendment. All amounts due under the $23 million Note were repaid in full as of June 3, 2007. As of August 14, 2007 the amendment fee of $125,000 was repaid by Capetronic to Emerson.

NOTE 9 — LEGAL PROCEEDINGS

          There currently is pending against three directors of the Company (Messrs. Ho, Ma and Binney) a purported derivative action filed on the Company’s behalf by two of its shareholders. The complaint, which has not yet been answered by the defendants, alleges that the named defendants, each of whom also is an executive officer of Grande Holdings, the Company’s controlling shareholder, violated their fiduciary duties to Emerson in connection with a number of previously disclosed related party transactions with affiliates of Grande Holdings. The recovery in such lawsuit, if any, will inure to Emerson’s benefit.

NOTE 10 — FINANCIAL INSTRUMENTS

     The Company entered into foreign exchange forward contracts (between the U.S. and Hong Kong dollar), based on economic and market conditions and solely for the purpose of speculative trading, (See “Other Events and Circumstances Pertaining to Liquidity” and Item 4.b “Changes in Internal Control Over Financial Reporting” ). The contract terms are for fixed periods and at December 31, 2007, the Company’s foreign exchange forward contracts had expiration dates that ranged from one to six months, with notional amounts of $11 million.

     At each balance sheet date the Company accounts for its foreign exchange forward contracts as a current asset with corresponding realized or unrealized gains and losses included in the income statement. Realized gains of $281,308 and unrealized gains of

$233,547 have been recorded as non-operating income at December 31, 2007. There were no foreign exchange forward contracts at December 31, 2006.

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

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

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

Forward-Looking Information

     This report contains 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.

     Forward-looking statements include statements with respect to Emerson’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 Emerson’s control, and which may cause Emerson’s 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 Emerson’s 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:

	•		the loss of any of our key customers or reduction in the purchase of our products by any such customers;
	•		Our inability to maintain effective internal controls or the failure by our personnel to comply with such internal controls;
	•		the failure to maintain our relationships with our licensees and distributors or the failure to obtain new licensees or distribution relationships on favorable terms;
	•		our inability to anticipate market trends, enhance existing products or achieve market acceptance of new products;
	•		our dependence on a limited number of suppliers for our components and raw materials;
	•		our dependence on third party manufacturers to manufacture and deliver our products;
	•		the seasonality of our business, as well as changes in consumer spending and economic conditions;
	•		the failure of third party sales representatives to adequately promote, market and sell our products;
	•		our inability to protect our 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 we operate;
	•		conflicts of interest that exist based on our relationship with Grande;
	•		the outcome of the Audit Committee’s review of our related party transactions and internal controls;
	•		changes in accounting policies, rules and practices; and
	•		the other factors listed under “Risk Factors” in our Form 10-K, as amended, for the fiscal year ended March 31, 2007 and

other filings with the Securities and Exchange Commission (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 report or the date of the document incorporated by reference into this report. We have 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. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

Company Filings

     We make available through our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by us with the SEC, as soon as practicable after we electronically file such reports and filings with the SEC. Our website address is www.emersonradio.com. The information contained in this website is not incorporated by reference in this report.

     Results of Operations

          We operate in one segment, the consumer electronics segment, as presented in the following Management’s Discussion and Analysis.

          The following table summarizes certain financial information for the three and nine month periods ended December 31, 2007 (fiscal 2008) and the three and nine month periods ended December 31, 2006 (fiscal 2007) (in thousands):

		Three Months Ended								Nine Months Ended
		December 31								December 31
		2007				2006				2007				2006
		(Unaudited)
Net revenues		$	75,543			$	89,339			$	185,969			$	244,168
Net revenues — related party			246				—				370				—
			75,789				89,339				186,339				244,168
Cost of sales			68,191				64,344				164,832				177,920
Cost of sales — related party			232				—				232				—
Cost of sales — related party purchases			—				12,148				—				33,090
Other operating costs			1,434				1,330				4,778				4,355
Selling, general and administrative costs			7,623				5,402				17,907				16,208
Acquisition costs incurred			—				—				—				21
Non-cash compensation costs (recovered)			28				83				(159	)			138
Operating income (loss)			(1,719	)			6,032				(1,251	)			12,436
Gain on sale of building			—				—				854				—
Gains on foreign exchange forward contracts			515				—				515				—
Interest (expense), net			(76	)			(457	)			(72	)			(564	)
Interest income — related party			—				—				163				—
Income (loss) before income taxes			(1,280	)			5,575				209				11,872
Provision (benefit) for income taxes			(2,394	)			1,880				1,937				3,792
Net income (loss)		$	1,114			$	3,695			$	(1,728	)		$	8,080

Net Revenues — Net revenues for the third quarter of fiscal 2008 were $75.8 million as compared to $89.3 million for the third quarter of fiscal 2007, a decrease of $13.5 million or 15.1%. For the nine month period of fiscal 2008, net revenues were $186.3 million as compared to $244.2 million for the nine month period of fiscal 2007, a decrease of $57.9 million or 23.7%. Net revenues are comprised of Emerson(R) branded product sales, themed product sales and licensing revenues. Emerson(R) branded product sales are earned from the sale of products bearing the Emerson(R) or HH Scott(R) brand name; themed product sales represent products sold bearing a certain theme or character; and licensing revenues are derived from licensing the Emerson(R) and HH Scott(R) brand names to licensees for a fee. The decrease in net revenues was comprised of:

i)

Emerson(R) branded products sales of $67.2 million in the third quarter of fiscal 2008 as compared to $60.3 million in the third quarter of fiscal 2007, an increase of $6.9 million, or 11.4%. Emerson(R) branded products sales were $169.4 million in the nine month period of fiscal 2008 as compared to $176.3 million in the nine month period of fiscal 2007, a decrease of $7.0 million, or 4.0%. The increase for the three month period primarily resulted from increased sales in our home appliance product category, specifically microwave ovens, refrigerators and wine coolers. The nine month decrease resulted primarily from decreased sales volumes in several audio product lines and the Ipod(R) compatible product category, partially offset by an increases in the home appliance and clock radio categories;

	ii)		During the third quarter and nine months ended December 31, 2006 Emerson had promotional item sales to ESI International of $12.3 million and $33.1 million, respectively, associated with a major holiday promotion with one of our major customers. In addition to increasing net revenues, this promotional sale resulted in an increase in accounts payable and other current liabilities and accounts receivable of $20.6 million and $20.8 million, respectively, in the period ended September 30, 2006 as well as an increase in short term deposits of $28.8 million in the same period due to parts and inventory purchases related to this sale. In order to fund these purchases, short term borrowings through our revolving line of credit increased by $24.0 million for the period ended September 30, 2006. These short term borrowings were repaid in the three months ended December 31, 2006;
	iii)		Themed product sales of $6.8 million in the third quarter of fiscal 2008 compared to $15.0 million in the third quarter of fiscal 2007, a decrease of $8.2 million, or 54.6%. For the nine month period of fiscal 2008, themed product sales were $11.6 million as compared to $30.0 million for the nine month period of fiscal 2007, a decrease of $18.4 million or 61.3%. The decrease for the three and nine month periods was primarily a result of the discontinuance of Nickelodeon(R) themed products, partially offset by sales of Mattel(R) themed products which began in the fourth quarter of fiscal 2007, which were dampened in the current quarter by a $2.9 million sales return allowance the Company recorded for a product return made by one long time distribution partner. The Company is reserving for the complete return, as it works to place the returned inventory elsewhere within its customer base;
	iv)		Licensing revenues decreased approximately $122,000, or 7.0%, to $1.6 million in the third quarter of fiscal 2008 as compared to $1.7 million in the third quarter of fiscal 2007. For the nine month period of fiscal 2008, licensing revenues increased $259,000, or 5.4%, to $5.0 million as compared to $4.8 million in the nine months of fiscal 2007. The decrease in comparative quarters as compared to the increase in the comparative nine month periods are due primarily to the mix in the portfolio of licensees. Emerson’s current licensees as of December 31, 2007, particularly the newer licensees added during the nine month period have delivered more licensing revenue than the previous licensees whom they have in some cases replaced.
	v)		In the three and nine month periods ended December 31, 2007, Emerson charged fees of $8,000 and $100,000, respectively, to Sansui Sales PTE, Ltd (“Sansui Sales”) and Akai Sales PTE, Ltd (“Akai Sales”), both of which are related parties to Emerson, for assistance in procuring their product. In the nine month period of fiscal 2008, Emerson charged commissions of $29,000 to Capetronic Displays, Ltd, which is a related party to Emerson, for importation assistance. As of December 31, 2007, Capetronic has repaid this commission to Emerson. In the three and nine month periods ended December 31, 2007, Emerson sold to Sansui Sales and Akai Sales $238,000 and $241,000 of Sansui- and Akai-branded product which it sourced on their behalf from third-party suppliers. See Note 7 “Related Party Transactions”. No related party revenue was recorded in the third quarter and nine month period of fiscal 2007.

Cost of Sales — In absolute terms, cost of sales decreased $8.1 million, or 10.5%, to $68.4 million in the third quarter of fiscal 2008 as compared to $76.5 million in the third quarter of fiscal 2007. In absolute terms, cost of sales was $165.1 million in the nine month period of fiscal 2008 as compared to $211.0 million in the nine months of fiscal 2007. Cost of sales, as a percentage of net revenues, was 90.3% and 85.6% in the third quarters of fiscal 2008 and fiscal 2007, respectively, and 88.6% and 86.4% in the nine month periods of fiscal 2008 and fiscal 2007, respectively. Cost of sales as a percentage of sales revenues less license revenues increased to 92.2% in the third quarter of fiscal 2008 from 87.3% in the third quarter of fiscal 2007. Cost of sales as a percentage of sales revenues less license revenues increased to 91.0% in the nine month period of fiscal 2008 from 88.1% in the nine month period of fiscal 2007. As a percentage of net revenues for the third quarter and nine month period of fiscal 2008, cost of sales associated with sales to Akai Sales PTE, Ltd and Sansui Sales PTE, Ltd, related parties, were 0.3% and 0.1% of total Emerson net revenues. As a percentage of net revenues for the third quarter and nine month period of fiscal 2007, cost of sales associated with purchases from Capetronic Displays Ltd, a related party, was 13.6% of total Emerson net revenues. The decrease in cost of sales in absolute terms for the third quarter and nine month period of fiscal 2008 as compared to the same periods of fiscal 2007 was primarily related to the decrease in sales volume, an increase in reserves for sales returns, a decrease in inventory reserves, and a decrease in royalty expense offset by an increase in writedowns of inventory, warehousing costs, and inventory overhead. The increase in cost of sales as a percentage of net revenues for the third quarter of fiscal 2008 as compared to fiscal 2007 resulted from lower margins in several audio categories as well as an increase in warehousing costs. The increase in cost of sales as a percentage of net revenues for the nine months of fiscal 2008 as compared to fiscal 2007 resulted from lower margins in several audio categories offset by a decrease in inventory costs due to a decrease in inventory reserves. The decrease in inventory reserves resulted primarily from the reduction of inventory levels of a discontinued themed-product line and returned, substandard goods which are not sold to retailers, which were fully reserved in our previous quarter; however, there was an offsetting impact on margins for the reduction in themed-product line goods as a consequence.

Gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the categories of the consumer electronics market in which we compete. Our products are generally placed in the low-to-medium priced category of the market, which is highly competitive.

Other Operating Costs and Expenses — As a percentage of net revenues, other operating costs and expenses were 1.9% in the third

quarter of fiscal 2008 and 1.5% in the third quarter of fiscal 2007. For the nine month periods of fiscal 2008 and fiscal 2007, other operating costs, as a percentage of net revenues, were 2.6% and 1.8%, respectively. In absolute terms, other operating costs and expenses increased $105,000, or 7.9%, to $1.4 million for the third quarter of fiscal 2008 as compared to $1.3 million in the third quarter of fiscal 2007. Also in absolute terms, other operating costs and expenses increased $423,000, or 9.7%, to $4.8 million for the nine month period of fiscal 2008 as compared to $4.4 million for the nine month period of fiscal 2007. For the third quarter of fiscal 2008 as compared to the third quarter of fiscal 2007, the increase in absolute terms was the result of increased service costs. For the nine month period of fiscal 2008 as compared to the nine month period of fiscal 2007, the increase in absolute terms was the result of increased handling charges offset by lower service costs.

Selling, General and Administrative Expenses (“S,G&A”) — S,G&A, as a percentage of net revenues, were 9.7% in the third quarter of fiscal 2008 as compared to 6.0% in the third quarter of fiscal 2007. S,G&A, in absolute terms, increased $2.0 million, or 36.7%, to $7.4 million for the third quarter of fiscal 2008 as compared to $5.4 million for the third quarter of fiscal 2007. The increase in S,G&A in absolute terms between the third quarter of fiscal 2008 and third quarter of fiscal 2007 was primarily due to an increase in professional fees of $899,000 largely as a result of legal fees associated with related party transaction investigations, variable selling expenses of $666,000, salaries and bonuses of $282,000, accounts receivable reserves of $239,000, and consulting fees including fees related to the Company’s Sarbanes-Oxley section 404 implementation of $146,000. These increases were slightly offset by a decrease in advertising expense of $132,000 mostly connected to inward licensing requirements. As a percentage of net revenues, SG&A were 9.5% in the nine month period of fiscal 2008 as compared to 6.6% in the nine month period of fiscal 2007. In absolute terms, SG&A increased $1.4 million, or 8.9%, to $17.7 million for the nine month period of fiscal 2008 as compared to $16.2 million for the nine month period of fiscal 2007. The increase in S,G&A in absolute terms between the nine month periods of fiscal 2008 and fiscal 2007 was primarily due to an increase in professional fees of $1.2 million, salaries and bonuses of $1.2 million, and variable selling expenses of $287,000. These increases were offset by adjustments to accounts receivable reserves of $434,000, severance pay in the first quarter of the prior fiscal year of $300,000, a gain on the sale of marketable securities of $205,000, and a decrease in amortization expense of $92,000.

Gain on sale of building — Emerson sold its office location in Macao to an unaffiliated buyer for approximately $2.0 million in the second quarter of fiscal 2008. The gain on the sale of this property was $854,000, net of a $20,000 commission paid to a related party.

Gains on foreign exchange forward contracts — Realized gains of $281,000 and unrealized gains of $234,000 have been recorded as non-operating income at December 31, 2007. There were no foreign exchange forward contracts at December 31, 2006.

Non Cash Compensation — Non cash compensation relates to stock options expense associated with the adoption of FAS 123(R) “Share-Based Payment.” For the third quarter of fiscal 2008, non-cash compensation expenses of $28,000 were recorded, as compared to $83,000 in non-cash compensation costs recorded for the third quarter of fiscal 2007. As a result of stock option forfeitures due to senior management and board of director changes over the past year, adjustments representing recovery of these non-cash compensation costs incurred in prior years of $159,000 were recorded in the nine month period of fiscal 2008, as compared to expense of $138,000 in the nine month period of fiscal 2007.

Interest Income (Expense), net — Interest expense, net, decreased $381,000 or 83.4%, to $76,000 (0.1% of net revenues) in the third quarter of fiscal 2008 as compared to $457,000 (0.5% of net revenues) in the third quarter of fiscal 2007. For the nine month period of fiscal 2008, interest income on a note receivable from a related party was $163,000. See Note 7 — “Related Party Transactions.” Exclusive of this related party interest income, interest expense, net, was $72,000 (less than 0.1% of net revenues) for the nine month period of fiscal 2008 as compared to interest expense, net, of $564,000 (0.2% of net revenues) for the nine month period of fiscal 2007. Interest income for the nine month period of fiscal 2007 was primarily comprised of the related party interest income as well as money market account interest.

Provision for Income Taxes — In the second quarter of fiscal 2008, Emerson increased its estimated liability for California franchise taxes due and owing by its predecessor in the amount of $3.7 million. California franchise taxes are effectively tax on income and are recorded as such. In the third quarter of fiscal 2008, Emerson reduced its estimated liability by $1.0 million as a result of having resolved the matter. See Note 6 — “Income Taxes”. Separate from the decrease in the liability associated with California franchise taxes, our provision for income taxes, which primarily represents the deferred tax charges associated with our profits in the United States, resulted in a benefit of $1.4 million for the third quarter of fiscal 2008, or 1.8% of net revenues, as compared to a provision of $1.9 million for the third quarter of fiscal 2007, or 2.1% of net revenues. Separate from the California franchise tax paid on amounts due and owing by Emerson’s predecessor, we had a benefit for income taxes for the nine month period of fiscal 2008 of $719,000, or 0.4% of net revenues, as compared to a provision of $3.8 million, or 1.6% of net revenues, for the nine month period of fiscal 2007.

Net Income (Loss) — As a result of the foregoing factors, Emerson recognized net income of $1.1 million (1.5% of net revenues) for the third quarter of fiscal 2008 as compared to net income of $3.7 million (4.1% of net revenues) in the third quarter of fiscal 2007. For the nine month period of fiscal 2008, our net (loss) was $1.7 million as compared to net income of $8.1 million for the nine month period of fiscal 2007.

Liquidity and Capital Resources

     As of December 31, 2007, Emerson had cash and cash equivalents of approximately $20.4 million, compared to approximately $11.1 million at December 31, 2006. Working capital was $63.9 million at December 31, 2007 and $70.8 million at December 31, 2006. The increase in cash and cash equivalents of approximately $9.3 million was primarily due to increases in cash provided by operating activities, the settlement of a receivable due from affiliate and the sale of a building, partially offset by cash used for repayment of short-term debt, property and equipment additions and the payment of taxes, as described in the following paragraphs.

     Operating cash flow provided by continuing operating activities was approximately $21.0 million for the nine months ended December 31, 2007, resulting from the repayment to Emerson of financing provided to an affiliate in the prior fiscal year (see Note 7 — “Related Party Transactions”), primarily offset by growth in accounts receivable in the third quarter of fiscal 2008.

     Net cash provided by investing activities was $1.3 million for the nine months ended December 31, 2007 and resulted primarily from the sale of a building in Macao, offset by purchases of tooling by a foreign subsidiary related to sourcing of product and molds delivered to Capetronic, a related party, to manufacture musical instruments (see Note 7).

     Net cash used by financing activities was $3.7 million for the nine months ended December 31, 2007, resulting primarily from the pay down of loans of a foreign subsidiary.

     On December 23, 2005, we entered into a $45.0 million Revolving Credit Agreement with Wachovia Bank. This credit facility provides for revolving loans subject to individual maximums which, in the aggregate, are not to exceed the lesser of $45.0 million or a “Borrowing Base” as defined in the loan agreement. The Borrowing Base amount is established by specified percentages of eligible accounts receivables and inventories and bears interest ranging from Prime plus 0.00% to 0.50% or, at our election, the London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.25% depending on excess availability. Pursuant to the loan agreement, we are restricted from, among other things, paying certain cash dividends, and entering into certain transactions without the lender’s prior consent and are subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of our tangible assets.

     At December 31, 2007, there were approximately $11.1 million of letters of credit outstanding under this facility. There were no borrowings outstanding at December 31, 2007 under this facility. At December 31 2007, we were in compliance with the covenants on our credit facilities.

     As a result of Emerson electing to cancel its foreign bank facilities in December 2007, our foreign subsidiaries maintain no credit facilities as of December 31, 2007.

     At December 31, 2007, as a result of Emerson electing to cancel its foreign bank facilities, the requirement to maintain pledged deposits with foreign banks for our foreign subsidiaries was eliminated. As such, $3.0 million in certificates of deposit held at these banks have been returned.

     Short-Term Liquidity. Liquidity is impacted by seasonality in that Emerson generally records the majority of its annual sales in the quarters ending September and December. This requires Emerson to maintain higher inventory levels during the quarters ending June and September, therefore increasing the working capital needs during these periods. Additionally, Emerson receives the largest percentage of product returns in the quarter ending March. The higher level of returns during this period adversely impacts collection activity, and therefore liquidity. Management believes that continued sales margin improvement and the policies in place for returned products should continue to favorably impact cash flow. In the nine months ended December 31, 2007, products representing approximately 27% of net revenues were imported directly to Emerson’s customers. This contributes significantly to Emerson’s liquidity in that this inventory does not need to be financed.

Emerson’s principal existing sources of cash are generated from operations and borrowings available under it’s revolving credit facilities. As of December 31, 2007, Emerson had $45 million of borrowing capacity available under it’s $45.0 million revolving credit facilities, as there were $11.1 million of letters of credit outstanding, and no outstanding loans. Emerson believes that it’s existing sources of cash, including cash flows generated from operations, will be sufficient to support existing operations over the next 12 months; however, management may decide to raise additional financing, which may include the issuance of equity securities, or the incurrence of additional debt, in connection with existing operations or if we elect to pursue acquisitions.

     The following summarizes obligations at December 31, 2007 for the periods shown (in thousands):

		Payment due by period
						Less than												More than 5
		Total				1 year				1 — 3 years				3 — 5 years				years
		—
Capital lease obligations		$	209			$	73			$	123			$	13			$	—
Lease-related party			204				204				—				—				—
Leases- non-affiliate			5,386				1,718				2,836				832				—
		—
Total		$	5,799			$	1,995			$	2,959			$	845			$	—

     There were no material capital expenditure commitments and no substantial commitments for purchase orders outside the normal purchase orders used to secure product as of December 31, 2007.

Other Events and Circumstances Pertaining to Liquidity

     The Company entered into foreign exchange forward contracts (denominated in U.S. and Hong Kong dollar), based on economic and market conditions and solely for the purpose of speculative trading, (See “Note 10. Financial Instruments” and Item 4.b “Changes in Internal Control Over Financial Reporting” ). The contract terms are for fixed periods and at December 31, 2007, the Company’s foreign exchange forward contracts had expiration dates that ranged from one to six months, with notional amounts of $11 million.

     At each balance sheet date the Company accounts for its foreien exchange forward contracts as a current asset with corresponding realized or unrealized gains and losses included in the income statement. Realized gains of $281,308 and unrealized gains of $233,547 have been recorded as non-operating income at December 31, 2007. There were no foreign exchange forward contracts to report at December 31, 2006.

Critical Accounting Policies

     For the nine month period ended December 31, 2007, there were no significant changes to accounting policies from those reported in the Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

Inflation, Foreign Currency, and Interest Rates

     Neither inflation nor currency fluctuations had a significant effect on our results of operations during the first quarter of fiscal 2008. Our exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders. We purchase virtually all of our products from manufacturers located in China.

     The interest on any borrowings under our credit facilities would be based on the prime and LIBOR rate.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There have been no significant changes from items disclosed in Form 10-K for the fiscal year ended March 31, 2007.

Item 4. Controls and Procedures

(a) Disclosure controls and procedures.

During fiscal 2007, our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the SEC. These disclosure controls and procedures have been designed to ensure that material information relating to us, including our

subsidiaries, is made known to our management, including these officers, by other of our employees, and that this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms. 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 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.

Based on their evaluation as of December 31, 2007, our principal executive officer and principal financial officer have concluded that, for the reasons set forth below under “Changes In Internal Control Over Financial Reporting”; our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective to reasonably ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

(b) Changes in Internal Controls Over Financial Reporting

Emerson has operated for many years under a system of internal controls governing the purchase and sale of inventory and the use of its credit facilities to support its working capital needs. This system was designed in order to insure participation by and coordination among employees involved in each of the major functional areas of Emerson, namely sales, procurement and finance both in the United States and in its Asian offices.

The process begins with a monthly sales meeting in the United States chaired by the President of Sales and attended by sales, treasury, sales planning and production scheduling personnel. At this meeting, sales projections, pipeline and forecasts for all customers and for all models are reviewed and the foundation for the Monthly Buy Package is established. Subsequent to the monthly sales meeting, a Monthly Buy Package is developed, including a schedule of production needs by month, model and quantity. This package is forwarded to the Director of Sales and the Director of the Corporate Treasury and, when approved, forwarded to the Macao office.

Experienced personnel in Macao then review and combine all buy packages received and schedule letters of credit and on-account buys with manufacturers covering production for the month necessary to fill outstanding orders and the likely needs of customers on a timely basis. The report from Macao is then sent for final approval to the Director of the Corporate Treasury and the Treasurer. This system of internal controls provides that no letter of credit may be authorized for issuance and no open account production is permitted to begin until this final approval is received.

Once approved by Treasury, the package is sent back to the Macao office for execution of the buy transactions. Orders are placed and letters of credit are issued as needed. The Macao office produces and forwards to the Treasury and Finance Departments a Daily Activity Report which includes, among other things, letter of credit number, dollar amount, model number, manufacturer and quantity produced. All information on the Daily Activity Report should be able to be traced back to and tie in with the original approved Buy Package. This information becomes the basis on which Emerson’s cash and credit line are managed on a daily basis.

Emerson’s primary domestic bank is notified of each letter of credit presented for payment and, when paid, the applicable item is removed from the Daily Activity Report. In summary, this system, which was developed over many years, was intended to ensure that every major function within the firm participates at every stage of the purchase, sale and finance process and that there is centralized and continuing monitoring of the Company’s liquidity position.

In two transactions described in Note 7 (Related Party Transactions) our financial statements included in this report on Form 10-Q, Emerson’s internal control process was bypassed. In the transaction involving the 42” plasma televisions, purchase orders were issued, letters of credit were authorized and funds were advanced as a deposit with Capetronic, an affiliate of Grande, with only minimal involvement from the Treasury, Sales or Finance Departments under Emerson’s system of internal control. In addition, the distributor to which Emerson sold the television sets remitted approximately 25% of the monies due to Capetronic rather than to Emerson which then received the funds at a later time. Documentation of the entire transaction was also deficient.

The same infirmities (other than the payment by the distributor to Capetronic rather than Emerson) are present in the transactions involving the H.H. Scott LCD sets. In addition, there is virtually no documentation available to Emerson setting forth its participation in the transactions beyond the detail information set forth in the issued Letters of Credit. However, the available information shows that some of the Company’s credit was utilized to fund transactions for the benefit of Grande affiliates and in which Emerson then had no financial interest whatsoever.

As described under Note 7 to our financial statements, during the quarter ended December 31, 2006, we and affiliates of Grande entered into a number of related party transactions that resulted in loans and letters of credit under our credit facility being issued for the benefit of affiliates of Grande. These loans were (i) subject to a repayment schedule that commenced on April 1, 2007 and ended on June 3, 2007 as set forth in the Note and (ii) guaranteed by Grande. All obligations under the Note were satisfied by June 3, 2007. The Company’s Audit Committee conducted an initial review of these transactions and concluded that these financing transactions (i) were not made on substantially the same terms, including interest rates and collateral and return on investment, as those prevailing at the time for comparable transactions with unrelated persons, and (ii) involved more than the normal risk of collectibility. In addition, the review of the transactions revealed material weaknesses in the Company’s internal controls. The deficiencies that were uncovered related to (i) one or more senior managers failing to follow the Company’s existing internal controls over purchases and sales of inventory and utilization of the Company’s credit facilities and (ii) the lack of documentation related to such related party transactions. These events have also raised concerns about the Company’s overall control environment. Although such events may not result in any adjustment to the Company’s financial statements, such events reflect material weaknesses with respect to the Company internal controls.

The Company’s Audit Committee has received from an independent investigator a report with respect to certain of the related party transactions entered into by the Company, including its subsidiaries, with affiliates of Grande Holdings from December 2005 to the present, and is continuing its independent review into such transactions.

As part of the Company’s remedial actions, on February 20, 2007, the Board of Directors appointed a committee of the Board of Directors comprised of Adrian Ma, the Company’s Chief Executive Officer, Greenfield Pitts, the Company’s Chief Financial Officer, Michael A.B. Binney, the Company’s President — International Operations, and Eduard Will, the Company’s former President — North American Operations and current Vice Chairman, to internally review and approve all related party transactions in an amount in excess of $500,000. Following review and approval by this newly formed committee, all such related party transactions are required to be reviewed and approved by the Company’s Audit Committee.

As part of its efforts to improve internal controls, the Company retained the consulting affiliate of a national accounting firm to assist it in its review of internal controls as mandated by SOX Section 404. In addition, on December 13, 2007, the Board of Directors adopted, and management is in the process of implementing, a series of governance and control policies and procedures designed to accomplish the same purpose.

In performing its normal quarterly review procedures, senior corporate financial management determined that personnel had authorized or permitted to occur, without the knowledge of or communication to senior corporate financial management, two foreign exchange transactions and a series of small related party transactions involving the sourcing for and subsequent sale of inventory to affiliates of Grande. The Company recognized modest amounts of profit from each of these transactions. For further information, see Note 10 “Financial Instruments”, “Other Events and Circumstances Pertaining to Liquidity” and Note 7 - “Related Party Transactions”.

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

          There currently is pending against three directors of the Company (Messrs. Ho, Ma and Binney) a purported derivative action filed on the Company’s behalf by two of its shareholders. The complaint, which has not yet been answered by the defendants, alleges that the named defendants, each of whom also is an executive officer of Grande Holdings, the Company’s controlling shareholder, violated their fiduciary duties to Emerson in connection with a number of previously disclosed related party transactions with affiliates of Grande Holdings. The recovery in such lawsuit, if any, will inure to Emerson’s benefit.

Item 1A. Risk Factors

     There were no changes in any risk factors previously disclosed in our Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 2007.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Share Repurchases:

     For the quarter ended December 31, 2007, the Company did not repurchase any shares under Emerson Radio Corp.’s common stock share repurchase program. The share repurchase program was publicly announced in September 2003 to repurchase up to 2,000,000 shares of Emerson’s outstanding common stock. Share repurchases are made from time to time in open market transactions in such amounts as determined in the discretion of Emerson’s management within the guidelines set forth by Rule 10b-18 under the Securities Exchange Act. Prior to the December 31, 2007 quarter, the Company repurchased 1,267,623 shares under this program. As of December 31, 2007, the maximum number of shares that are available to be repurchased under Emerson Radio Corp.’s common share repurchase program was 732,377. No shares have been repurchased under the program since June 14, 2005.

ITEM 3. Defaults Upon Senior Securities.

     (a) None

     (b) None

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

          The Annual Meeting of the Stockholders of the Company (the “Annual Meeting”) was held on December 13, 2007, at which time the stockholders of the Company elected the following individuals to serve as directors of the Company until the next annual meeting of stockholders of the Company and until their successors are duly elected and qualified: Michael A.B. Binney, W. Michael Driscoll, Christopher Ho, Adrian Ma, Mirzan Mahathir, David R. Peterson, Greenfield Pitts, Kareem E. Sethi, Eduard Will and Norbert R. Wirsching. There were 27,129,832 shares of capital stock of the Company outstanding and entitled to vote at the record date for the Annual Meeting. There were present at the Annual Meeting, in person or by proxy, stockholders holding 26,047,528 shares of common stock of the Company, which represented approximately 96% of the total capital stock outstanding and entitled to vote.

          The matters voted upon at the Annual Meeting and the results of the voting at the Annual Meeting are set forth below:

          (i) With respect to the election of directors of the Company by the holders of common stock of the Company, the persons named below received the following number of votes:

		Votes				Votes
Name		For				Withheld
Michael A.B. Binney			22,336,344				3,711,184
W. Michael Driscoll			25,474,102				573,426
Christopher Ho			22,337,184				3,710,344
Adrian Ma			22,315,330				3,732,198
Mirzan Mahathir			24,253,118				1,794,410
David R. Peterson			24,262,181				1,785,347
Greenfield Pitts			22,321,881				3,725,647
Kareem E. Sethi			24,323,609				1,732,919
Eduard Will			22,328,844				3,718,684
Norbert R. Wirsching			25,480,565				566,963

          (ii) With respect to the proposal to ratify the appointment of Moore Stephens P.C. to serve as the independent registered public accounting firm for the Company for the fiscal year ending March 31, 2008, the votes cast by the holders of common stock of the Company were as follows: 24,517,626 shares were voted in favor, 330,028 shares were voted against, and 1,199,873 shares abstained from voting on the proposal. There were no broker non-votes with respect to such proposal.

ITEM 5. Other Information.

     None

ITEM 6. Exhibits.

	3.1		Bylaws of Emerson Radio Corp., as amended.
	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 302 of the Sarbanes-Oxley Act of 2002.*
	32		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.*

SIGNATURES

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