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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number 001-07731
 EMERSON RADIO CORP.
  DELAWARE
    
    22-3285224(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)9 Entin Road Parsippany, New Jersey
    
    07054(Address of principal executive offices)
    
    (Zip code)
  
  
  þ o
  o o þ
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Results of Operations and Financial ConditionItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 3. Defaults Upon Senior SecuritiesITEM 4. Submission of Matters to a Vote of Security HoldersITEM 5. Other InformationITEM 6. ExhibitsSIGNATURESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATIONS    Table of Contents  
  
 Item 1. Financial Statements.
 EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)
 Three Months EndedJune 302007
    
    2006Net revenuesNet revenues
    
    $
    52,603
    
    
    $
    55,241Net revenues-related party
    
    
    85
    
    
    
    52,688
    
    
    
    55,241Costs and expenses:Cost of sales
    
    
    45,248
    
    
    
    47,840Other operating costs and expenses
    
    
    1,796
    
    
    
    1,599Selling, general and administrative
expenses (exclusive of non-cash
compensation shown below)
    
    
    4,977
    
    
    
    5,207Non-cash compensation
    
    
    79
    
    
    
    10552,100
    
    
    
    54,751Operating income
    
    
    588
    
    
    
    490Interest income, net
    
    
    70
    
    
    
    105Interest income-related party
    
    
    163
    
    
    
    Income before income taxes
    
    
    821
    
    
    
    595Provision for income taxes
    
    
    379
    
    
    
    14Net income
    
    $
    442
    
    
    $
    581Net income per share:Basic
    
    $
    0.02
    
    
    $
    0.02Diluted
    
    $
    0.02
    
    
    $
    0.02Weighted average shares
outstanding:Basic
    
    
    27,130
    
    
    
    27,065Diluted
    
    
    27,156
    
    
    
    27,140
 
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EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
 June 30, 2007
    
    
    March 31, 2007(A)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,165
    
    
    $
    1,851Restricted cash
    
    
    3,000
    
    
    
    3,000Accounts receivable (less allowances of $3,160 and
$3,573, respectively)
    
    
    27,785
    
    
    
    19,375Other receivables
    
    
    1,635
    
    
    
    1,536Due from affiliates
    
    
    239
    
    
    
    24,690Inventories
    
    
    45,102
    
    
    
    32,463Prepaid expenses and other current assets
    
    
    3,624
    
    
    
    3,376Deferred tax assets
    
    
    4,916
    
    
    
    5,737Total current assets
    
    
    109,466
    
    
    
    92,028Property, plant and equipment, net
    
    
    2,490
    
    
    
    2,492Trademarks and other intangible assets, net
    
    
    297
    
    
    
    311Deferred tax assets
    
    
    4,744
    
    
    
    4,067Other assets
    
    
    402
    
    
    
    510Total assets
    
    $
    117,399
    
    
    $
    99,408LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings
    
    $
    616
    
    
    $
    3,111Current maturities of long-term borrowings
    
    
    150
    
    
    
    146Accounts payable and other current liabilities
    
    
    40,144
    
    
    
    20,044Accrued sales returns
    
    
    906
    
    
    
    1,191Income taxes payable
    
    
    518
    
    
    
    306Deferred tax liabilities
    
    
    46
    
    
    
    47Total current liabilities
    
    
    42,380
    
    
    
    24,845Long-term borrowings
    
    
    647
    
    
    
    651Deferred tax liabilities
    
    
    34
    
    
    
    25Shareholders equity:Preferred shares  10,000,000 shares authorized; 3,677
shares issued and outstanding; liquidation preference of $3,677
    
    
    3,310
    
    
    
    3,310Common shares  $.01 par value, 75,000,000 shares
authorized; 52,965,797 and 52,945,797 shares issued,
27,129,832 and 27,109,832 shares outstanding,
respectively
    
    
    529
    
    
    
    529Capital in excess of par value
    
    
    117,501
    
    
    
    117,371Accumulated other comprehensive losses
    
    
    (82
    )
    
    
    (82
    )Accumulated deficit
    
    
    (22,696
    )
    
    
    (23,017
    )Treasury stock, at cost, 25,835,965 shares
    
    
    (24,224
    )
    
    
    (24,224
    )Total shareholders equity
    
    
    74,338
    
    
    
    73,887Total liabilities and shareholders equity
    
    $
    117,399
    
    
    $
    99,408
 
 (A)
    
    Reference is made to the Companys Annual Report on Form 10-K for the fiscal year ended
March 31, 2007 filed with the Securities and Exchange Commission in June 2007 and amended in July
2007.  3




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EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Three Months EndedJune 302007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    442
    
    
    $
    581Adjustments to reconcile net income to net cash provided
(used) by operating activities:Depreciation and amortization
    
    
    202
    
    
    
    266Non cash compensation
    
    
    79
    
    
    
    105Deferred tax expenses
    
    
    152
    
    
    
    Asset allowances, reserves and other
    
    
    (2,088
    )
    
    
    890Changes in assets and liabilities:Accounts receivable
    
    
    (7,961
    )
    
    
    (11,065
    )Other receivables
    
    
    (99
    )
    
    
    (177
    )Due from affiliates
    
    
    24,451
    
    
    
    Inventories
    
    
    (11,285
    )
    
    
    (8,101
    )Prepaid expenses and other current assets
    
    
    (248
    )
    
    
    594Other assets
    
    
    87
    
    
    
    100Accounts payable and other current liabilities
    
    
    20,100
    
    
    
    13,970Income taxes payable
    
    
    91
    
    
    
    (21
    )Net cash provided(used) by operating activities
    
    
    23,923
    
    
    
    (2,858
    )Cash flows from investing activities:Additions to property and equipment
    
    
    (126
    )
    
    
    (67
    )Net cash used by investing activities
    
    
    (126
    )
    
    
    (67
    )Cash flows from financing activities:Short-term borrowings
    
    
    4
    
    
    
    42Net borrowings (repayments) under foreign bank facilities
    
    
    (2,495
    )
    
    
    702Exercise of stock options
    
    
    51
    
    
    
    Long-term borrowings
    
    
    51,158
    
    
    
    Repayments of long-term borrowings
    
    
    (51,201
    )
    
    
    (67
    )Net cash (used) provided by financing activities
    
    
    (2,483
    )
    
    
    677Net increase (decrease) in cash and cash equivalents
    
    
    21,314
    
    
    
    (2,248
    )Cash and cash equivalents at beginning of period
    
    
    1,851
    
    
    
    17,517Cash and cash equivalents at end of period
    
    $
    23,165
    
    
    $
    15,269
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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  BACKGROUND AND BASIS OF PRESENTATION
 ®
    5




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NOTE 2  COMPREHENSIVE INCOME
  Three Months EndedJune 302007
    
    2006(Unaudited)Income from continuing
operations
    
    $
    442
    
    
    $
    581Recognition of realized losses in
net income
    
    
    
    
    
    
    3Change in unrealized loss on
securities, net
    
    
    
    
    
    
    (3
    )Comprehensive income
    
    $
    442
    
    
    $
    581
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NOTE 3  NET EARNINGS PER SHARE
  Three Months EndedJune 302007
    
    2006(Unaudited)Numerator:Net income for basic and
diluted earnings per share
    
    $
    442
    
    
    $
    581Denominator:Denominator for basic earnings
per share  weighted average
shares
    
    
    27,130
    
    
    
    27,065Effect of dilutive securities
on denominator:Options and warrants
    
    
    26
    
    
    
    75Denominator for diluted
earnings per share 
weighted average shares and
assumed conversions
    
    
    27,156
    
    
    
    27,140Basic and diluted earnings per
share
    
    $
    0.02
    
    
    $
    0.02
 NOTE 4- SHAREHOLDERS EQUITY
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NOTE 5  INVENTORY
  June 30, 2007
    
    
    March 31, 2007(Unaudited)Finished goods
    
    $
    48,124
    
    
    $
    36,839Less inventory allowances
    
    
    (3,022
    )
    
    
    (4,376
    )Net inventory
    
    $
    45,102
    
    
    $
    32,463
 NOTE 6  INCOME TAXES
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NOTE 7  RELATED PARTY TRANSACTIONS
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NOTE 8  BORROWINGS
 Short-term Borrowings
  June 30, 2007
    
    
    March 31, 2007(In thousands)(Unaudited)Foreign bank loans
    
    $
    616
    
    
    $
    3,111Short term borrowings
    
    $
    616
    
    
    $
    3,111
 Long-term Borrowings
  June 30, 2007
    
    
    March 31, 2007(In thousands)(Unaudited)Mortgage payable
    
    $
    548
    
    
    $
    567Capitalized lease obligations
and other
    
    
    249
    
    
    
    230797
    
    
    
    797Less current maturities
    
    
    (150
    )
    
    
    (146
    )Long term debt and notes payable
    
    $
    647
    
    
    $
    651
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Credit Facility
     13




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NOTE 9  LEGAL PROCEEDINGS
  
 Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
   Forward-Looking Information
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
    
    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).
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Company Filings
  Results of Operations
   Three Months EndedJune 302007
    
    2006(Unaudited)Net revenues
    
    $
    52,688
    
    
    $
    55,241Cost of sales
    
    
    45,248
    
    
    
    47,840Other operating costs
    
    
    1,796
    
    
    
    1,599Selling, general and
administrative costs
    
    
    4,977
    
    
    
    5,207Non-cash compensation
costs
    
    
    79
    
    
    
    105Operating income
    
    
    588
    
    
    
    490Interest income, net
    
    
    233
    
    
    
    105Income before income taxes taxes
    
    
    821
    
    
    
    595Provision for income taxes
    
    
    379
    
    
    
    14Net Income
    
    $
    442
    
    
    $
    581
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Net Revenues ® ® ® ® ® ®
 i)
    
    Emerson® branded products sales of $48.7 million in the first quarter
of fiscal 2008 compared to $51.4 million in the first quarter of fiscal 2007, a
decrease of $2.7 million, or 5.3%, primarily resulting from decreased sales volumes
in audio product lines and Ipod® compatible product category, partially offset by
an increase in the microwave ovens category;ii)
    
    Themed product sales of $2.2 million in the first quarter of fiscal
2008 compared to $2.3 million in the first quarter of fiscal 2007, a decrease of
$119,000, or 5.2%, primarily due to the discontinuance of Nickelodeon® themed
products, partially offset by start-up sales of Mattel® themed products;iii)
    
    Licensing revenues of $1.7 million in the first quarter of fiscal 2008
compared to $1.5 million in the first quarter of fiscal 2007, an increase of
$176,000, or 11.7% primarily due to the commencement of several new licensing
agreements in the first quarter of fiscal 2008; andiv)
    
    In fiscal 2007 Emerson charged agent fees of $85,000, or 0.2% of net
revenue, to Sansui Sales PTE, Ltd and Akai Sales PTE, Ltd, both of which are
related parties to Emerson, for assistance in procuring their product. See Note 7
Related Party Transactions. No related party revenue was recorded in the three
months ending June 30, 2006.
 Cost of Sales
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Other Operating Costs and Expenses
 Selling, General and Administrative Expenses (S,G&A)
 Non Cash Compensation
 Interest Income, net
 Provision (benefit) for Income Taxes
 18




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Net Income
 Liquidity and Capital Resources
      19




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
    
    two letter of credit facilities totaling $10.0 million which are used for
inventory purchases; and
    
    two back-to-back letter of credit facilities totaling $7.5 million.
  Short-Term Liquidity.
  20




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Payment due by periodLess than
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    1 year
    
    1  3 years
    
    3  5 years
    
    yearsNotes and
mortgages payable
    
    $
    549
    
    
    $
    74
    
    
    $
    148
    
    
    $
    148
    
    
    $
    179Capital lease
obligations
    
    
    248
    
    
    
    76
    
    
    
    144
    
    
    
    28
    
    
    
    Lease-related party
    
    
    102
    
    
    
    102
    
    
    
    
    
    
    
    Leases-
non-affiliate
    
    
    4,792
    
    
    
    1,436
    
    
    
    2,587
    
    
    
    769
    
    
    
    Total
    
    $
    5,691
    
    
    $
    1,688
    
    
    $
    2,879
    
    
    $
    945
    
    
    $
    179
   Critical Accounting Policies
  Inflation, Foreign Currency, and Interest Rates
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 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 June 30, 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 ReportingEmerson 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
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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 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
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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 is continuing its independent review into certain related party
transactions entered into by the Company, including its subsidiaries, with affiliates of Grande
from December 2005 to the present, and internal controls related to 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 President  North
American Operations, to internally review and approve all related party transactions in an amount
in excess
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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.
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Share Repurchases:
  25




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ITEM 3. Defaults Upon Senior Securities.
   
 ITEM 4. Submission of Matters to a Vote of Security Holders.
  
 ITEM 5. Other Information.
  
 ITEM 6. Exhibits.
 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.*
 
 *
    
    filed herewith 26




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SIGNATURES
  EMERSON RADIO CORP.
           (Registrant)/s/ Adrian MaDate: August 14, 2007
    Adrian Ma
Chief Executive Officer
(Principal Executive Officer)/s/ Greenfield PittsDate: August 14, 2007

Greenfield Pitts
Chief Financial Officer
(Principal Financial and Accounting Officer) 27