##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      Form 10-K
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number
    000-26660
      ESS Technology, Inc.
 (Exact name of Registrant as
    specified in its charter)
 California

94-2928582(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)48401 Fremont Blvd.,
    Fremont, California(Address of principal
    executive offices)

94538(Zip
    Code)   Registrants telephone number, including area code:
 (510) 492-1088
  Securities
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, no par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





ESS
    TECHNOLOGY, INC.
    2007
    FORM 10-K
    TABLE OF CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


11Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


23Item 3.


Legal Proceedings


24Item 4.


Submission of Matters to a Vote of Security
    Holders


25PART IIItem 5.


Market for the Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities


26Item 6.


Selected Financial Data


27Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


28Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


41Item 8.


Financial Statements and Supplementary Data


43Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


75Item 9A(T).


Controls and Procedures


75Item 9B.


Other Information


76PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


76Item 11.


Executive Compensation


76Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters


76Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


77Item 14.


Principal Accounting Fees and Services


77PART IVItem 15.


Exhibits and Financial Statement Schedules


77Signatures


78EXHIBIT 21EXHIBIT 23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I  Certain information contained in or incorporated by reference
    in this Report contains forward-looking statements that involve
    risks and uncertainties. The statements contained in this Report
    that are not purely historical are 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, including statements regarding
    our expectations, beliefs, intentions or strategies regarding
    the future. All forward-looking statements included in this
    Report are based on information available to us on the date
    hereof, and we assume no obligation to update any such
    forward-looking
    statements. Our actual results could differ materially from
    those discussed herein. Factors that could cause or contribute
    to such differences include, but are not limited to, those
    discussed in Item 1A, Risk Factors, and elsewhere in this
    Report. References herein to ESS, the
    Company, we, our, us
    and similar words or phrases are references to ESS Technology,
    Inc. and its subsidiaries, unless the context otherwise
    requires. Unless otherwise provided in this Report, trademarks
    identified by-Registered Trademark- and -TM- are registered
    trademarks or trademarks, respectively, of ESS Technology, Inc.
    or its subsidiaries. All other trademarks are the properties of
    their respective owners.
  Item 1.
    Business  Proposed
    Merger
         1




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The
    Company
       2




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end-customers
  Industry
    Background
    ,
       3




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Our
    Current Businesses
      Our
    Future Businesses
      Our
    Strategy
      Leverage Expertise Across Market
    Applications.
 4




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Offer a Low-Cost Solution.
  Leverage Our Existing Relationships with OEMs and ODMs
    Worldwide.
  Employ Our Software and Hardware Expertise to Develop New
    Technologies.
  Leverage Our Relationships with Large Suppliers to Be One of
    the Low-Cost Providers.
  Pursue Acquisitions of Complementary and Advanced
    Technologies.
  Explore Opportunities To Maximize Shareholder
    Value.
  Pursue Licenses of Complementary
    Technologies.
  Leverage Our Proprietary Technology.
  Products
  and/or
   5




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DVD Decoder Chips.
  Video CD Chips.
  Image Sensor Chips.
  Consumer Digital Audio Chips. class-D
  Communication Chips.
  PC Audio Chips.
    Percentage of NetRevenues for YearsEnded December 31,2007


2006


2005Video business:DVD


79
%


68
%


57
%VCD


7
%


18
%


17
%License and royalty


1
%


2
%


11
%Other


13
%


7
%


3
%Total Video business


100
%


95
%


88
%Digital Imaging business


0
%


5
%


12
%Total


100
%


100
%


100
%     Technology
    and Research and Development
   6




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Customers
        Sales and
    Distribution
       7




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end-customers.
    Manufacturing
    third-party
  Competition
   8




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Proprietary
    Technology
        Backlog
   9




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and/or
  Employees
    Available
    Information
  http://www.ESSTECH.com.
  Executive
    Officers of the Registrant
    Name

Age

PositionRobert L. Blair


60


President, Chief Executive Officer and DirectorJohn A. Marsh


49


Chief Financial Officer and Vice President   Robert L. Blair
  John A. Marsh
   10




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Item 1A.
    Risk
    Factors  Risks
    Related to the Mergers
  There
    may be unexpected delays in the consummation of the mergers,
    which would delay receipt of merger consideration by ESS
    Delaware stockholders.
    If the
    mergers are not completed, ESS Californias stock price and
    future business operations could be harmed.
      Uncertainty
    about the mergers and diversion of management could harm ESS
    California, whether or not the mergers are
    completed.
    We may
    be delisted from the NASDAQ Global Market and the shares of
    common stock of ESS Delaware may not be listed on the NASDAQ
    Global Market.
   11




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Following
    the reincorporation merger, your rights as a shareholder will be
    governed by Delaware law instead of California law and you
    should note the differences.
      Your
    ability to sell or otherwise transfer your shares of ESS
    Delaware common stock between the closing of the reincorporation
    merger and the closing of the cash-out merger may be
    limited.
   12




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and/or
  Certain
    directors and executive officers of ESS California may have
    potential conflicts of interest in recommending that you vote to
    approve the principal terms of the reincorporation merger and
    adopt the merger agreement.
    In
    certain instances, the merger agreement requires payment of a
    termination fee to Imperium and reimbursement of expenses of
    Imperium. Payment of these amounts could adversely affect ESS
    Californias financial condition or reduce the likelihood
    that another party proposes an alternative transaction to the
    mergers.
    Risks
    Related to the Companys Business
  We
    have a history of losses and expect to continue to incur net
    losses in the near-term.
    If our
    new business strategy is unsuccessful, it could significantly
    harm our business and operating results.
   13




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Blu-ray and/or and/or
  Our
    business strategy is currently going through significant
    evaluation and change.
  and/or
  Our
    business is highly dependent on the expansion of the consumer
    electronics market and our ability to respond to changes in such
    market.
    We
    operate in highly competitive markets.
   14




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
    The timing and success of our new product introductions and
    those of our customers and competitors;
    The ability to control product cost and produce consistent yield
    of our products;
    The ability to obtain adequate foundry capacity and sources of
    raw materials;
    The price, quality and performance of our products and the
    products of our competitors;
    The emergence of new multimedia standards;
    The development of technical innovations;
    The rate at which our customers integrate our products into
    their products;
    The number and nature of our competitors in a given
    market; and
    The protection of our intellectual property rights.  We may
    need additional funds to execute our business plan, and if we
    are unable to obtain such funds, we may not be able to expand
    our business, and if we do raise such funds, the
    shareholders ownership in ESS may be subject to
    dilution.
    To
    compete in our industry, we may need to acquire other companies
    and technologies and/or restructure our businesses, and we may
    not be successful acquiring key targets, integrating our
    acquisitions into our businesses or restructuring our businesses
    effectively.
   15




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
    The failure of the acquired products or technology to attain
    market acceptance, which may result from our inability to
    leverage such products and technology successfully;
    The failure to integrate acquired products and business with
    existing products and corporate culture;
    The inability to restructure or realign our businesses
    effectively and cost-efficiently;
    The inability to retain key employees from the acquired company;
    Diversion of management attention from other business concerns;
    The potential for large write-offs of intangible assets;
    Issuances of equity securities dilutive to our existing
    shareholders;
    The incurrence of substantial debt and assumption of unknown
    liabilities; and
    Our ability to properly access and maintain an effective
    internal control environment over an acquired company in order
    to comply with public reporting requirements.  Our
    quarterly operating results are subject to fluctuations that may
    cause volatility or a decline in the price of our
    stock.
    
    Charges related to the net realizable value of inventories;
    Changes in demand or sales forecast for our products;
    Changes in the mix of products sold and our revenue mix;
    Changes in the cost of producing our products;
    The timely implementation of customer-specific hardware and
    software requirements for specific design wins;
    Increasing pricing pressures and resulting reduction in the ASP
    of any or all of our products;
    Availability and cost of foundry capacity;
    Gain or loss of significant customers;
    Seasonal customer demand;
    The cyclical nature of the semiconductor industry;
    The timing of our and our competitors new product
    announcements and introductions and the market acceptance of new
    or enhanced versions of our and our customers products;
    The timing of significant customer orders
    and/or
    design wins;
    Charges related to the impairment of other intangible assets;
    Loss of key employees which could impact sales or the pace of
    product development;
    The turns basis of most of our orders, which makes
    backlog a poor indicator of the next quarters revenue; 16




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
    The potential for large adjustments due to resolution of
    multi-year tax examinations;
    The lead time we normally receive for our orders, which makes it
    difficult to predict sales until the end of the quarter;
    Availability and cost of raw materials;
    Significant increases in expenses associated with the expansion
    of operations; and
    A shift in manufacturing of consumer electronic products away
    from Asia.  We
    often purchase inventories based on sales forecasts and if
    anticipated sales do not materialize, we may continue to
    experience significant inventory charges.
    Our
    research and development investments may fail to enhance our
    competitive position.
      Our
    success within the semiconductor industry depends upon our
    ability to develop new products in response to rapid
    technological changes and evolving industry
    standards.
    
    Anticipation of market trends;
    Timely completion of design, development, and testing of both
    the hardware and software for each product; 17




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
    Timely completion of customer specific design, development and
    testing of both hardware and software for each design win;
    Market acceptance of our products and the products of our
    customers;
    Offering new products at competitive prices;
    Meeting performance, quality and functionality requirements of
    customers and OEMs; and
    Meeting the timing, volume and price requirements of customers
    and OEMs.    Our
    sales may fluctuate due to seasonality and changes in customer
    demand.
  non-holiday
  Our
    products are subject to increasing pricing
    pressures.
    We may
    lose business to competitors who have significant competitive
    advantages.
   18




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video-on-demand,
    Our
    business is dependent upon retaining key personnel and
    attracting new employees.
      Changes
    in stock option accounting rules may adversely impact our
    reported operating results prepared in accordance with generally
    accepted accounting principles, our stock price and our
    competitiveness in the employee marketplace.
    We
    rely on distributors for a significant portion of our revenues
    and if these relationships deteriorate our financial results
    could be adversely affected.
   19




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Our
    customer base is highly concentrated, so the loss of a major
    customer could adversely affect our business.
    Because
    we are dependent upon a limited number of suppliers, we could
    experience delivery disruptions or unexpected product cost
    increases.
      We may
    not be able to adequately protect our intellectual property
    rights from unauthorized use and we may be subject to claims of
    infringement of third-party intellectual property
    rights.
     20




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We
    have significant international sales and operations that are
    subject to the special risks of doing business outside the
    United States.
    
    Unexpected changes in legislative or regulatory requirements and
    related compliance problems;
    Political, social and economic instability;
    Lack of adequate protection of our intellectual property rights;
    Changes in diplomatic and trade relationships, including changes
    in most favored nations trading status;
    Tariffs, quotas and other trade barriers and restrictions;
    Longer payment cycles, greater difficulties in accounts
    receivable collection and greater difficulties in ascertaining
    the credit of our customers and potential business partners;
    Potentially adverse tax consequences, including withholding in
    connection with the repatriation of earnings and restrictions on
    the repatriation of earnings;
    Difficulties in obtaining export licenses for technologies;
    Language and other cultural differences, which may inhibit our
    sales and marketing efforts and create internal communication
    problems among our U.S. and foreign counterparts; and
    Currency exchange risks.  Our
    products are manufactured by independent third
    parties.
    
    Possibility of an interruption or loss of manufacturing capacity;
    Reduced control over delivery schedules, manufacturing yields
    and costs; and
    The inability to reduce our costs as rapidly as competitors who
    perform their own manufacturing and who are not bound by volume
    commitments to subcontractors at fixed prices.     21




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We
    have extended sales cycles, which increase our costs in
    obtaining orders and reduce the predictability of our
    earnings.
    Our
    products are subject to recall risks.
    The
    semiconductor industry is subject to cyclical variations in
    product supply and demand.
    The
    value of our common stock may be adversely affected by market
    volatility.
    
    Future announcements concerning us, our competitors or our
    principal customers, such as quarterly operating results,
    changes in earnings estimates by analysts, technological
    innovations, new product introductions, governmental
    regulations, or litigation;
    Changes in accounting rules, particularly those related to the
    expensing of stock options and accounting for uncertainty in
    income taxes;
    The liquidity within the market for our common stock;
    Sales or purchases by us or by our officers, directors, other
    insiders and large shareholders;
    Investor perceptions concerning the prospects of our business
    and the semiconductor industry;
    Market conditions and investor sentiment affecting market prices
    of equity securities of high technology companies; and
    General economic, political and market conditions, such as
    recessions or international currency fluctuations. 22




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We are
    incurring additional costs and devoting more management
    resources to comply with increasing regulation of corporate
    governance and disclosure.
    Failure
    to maintain effective internal controls could have a material
    adverse effect on our business, operating results and stock
    price.
  Form 10-K.
  We are
    exposed to fluctuations in the market values of our investments
    and in interest rates.
      Item 1B.
    Unresolved
    Staff Comment    Item 2.
    Properties   23




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30-day
    Item 3.
    Legal
    Proceedings     24




---



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Item 4.
    Submission
    of Matters to a Vote of Security Holders   25




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PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities    High


LowFiscal 2007:First Quarter ended March 31, 2007

$
1.33


$
0.92Second Quarter ended June 30, 2007

$
1.66


$
1.20Third Quarter ended September 30, 2007

$
1.80


$
1.23Fourth Quarter ended December 31, 2007

$
1.65


$
1.26Fiscal 2006:First Quarter ended March 31, 2006

$
4.00


$
3.23Second Quarter ended June 30, 2006

$
3.75


$
2.02Third Quarter ended September 30, 2006

$
2.17


$
0.81Fourth Quarter ended December 31, 2006

$
1.33


$
0.91     ISSUER
    PURCHASES OF EQUITY SECURITIES
  Total Number of


Maximum NumberWeighted


Shares Purchased as


of Shares That mayAverage Price


Part of Publicly


yet be PurchasedTotal Number of


Paid per


Announced


Under thePeriod

Shares Purchased


Share


Programs


Programs(1)October 1, 2007 October 31, 2007





$








5,688,000November 1, 2007 November 30, 2007














5,688,000December 1, 2007 December 31, 2007














5,688,000Total





$




     (1)
    
    We announced on April 16, 2003 that our Board of Directors
    authorized us to repurchase up to 5,000,000 shares of our
    common stock. As of December 31, 2007, we had approximately
    688,000 shares remaining available for repurchase under
    this program, for which there is no stated expiration. In
    addition, we announced on February 16, 2007 that our Board
    of Directors authorized us to repurchase up to an additional
    5,000,000 shares of our common stock with no stated
    expiration for this program.  Dividend
    Policy
     26




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Item 6.
    Selected
    Financial Data      Years Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Statement of Operations Data:Net revenues:Product

$
67,393


$
97,797


$
161,921


$
237,278


$
190,273License and royalty


938



2,668



20,000



20,000



5,000Total net revenues


68,331



100,465



181,921



257,278



195,273Cost of product revenues(1)


42,597



97,640



169,312



219,397



132,690Gross profit


25,734



2,825



12,609



37,881



62,583Operating expenses:Research and development(1)


12,550



36,044



33,983



37,467



33,184Selling, general and administrative(1)


18,211



27,566



34,973



41,056



31,761In-process research and development


















2,690Impairment of goodwill and intangible assets










42,743







Impairment of property, plant and equipment


859















Gain on sale of technology and tangible assets(2)


(10,481
)














Operating income (loss)


4,595



(60,785
)


(99,090
)


(40,642
)


(5,052
)Non-operating income (loss), net


1,663



(652
)


1,316



3,360



45,946Income (loss) before income taxes


6,258



(61,437
)


(97,774
)


(37,282
)


40,894Provision for (benefit from) income taxes


3,136



(17,343
)


1,779



(1,732
)


15,603Net income (loss)

$
3,122


$
(44,094
)

$
(99,553
)

$
(35,550
)

$
25,291Net income (loss) per share:Basic

$
0.09


$
(1.14
)

$
(2.50
)

$
(0.90
)

$
0.64Diluted

$
0.09


$
(1.14
)

$
(2.50
)

$
(0.90
)

$
0.61Shares used in calculating net income per share:Basic


35,525



38,723



39,781



39,476



39,517Diluted


35,527



38,723



39,781



39,476



41,238Balance Sheet Data:Cash, cash equivalents and short-term investments

$
49,947


$
43,995


$
99,722


$
126,688


$
164,846Working capital

$
55,918


$
20,975


$
58,718


$
107,305


$
145,221Total assets

$
91,373


$
90,428


$
171,841


$
283,744


$
352,593Current liabilities

$
7,947


$
43,405


$
78,507


$
90,384


$
113,804Total shareholders equity

$
47,765


$
47,023


$
93,334


$
192,912


$
227,081  27




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(1)
    
    In 2006 and 2007, the cost of product revenues, research and
    development expenses, and selling, general and administrative
    expenses include the effect of the adoption of
    SFAS No. 123(R). See Note 12, Stock-Based
    Compensation to our consolidated financial statements for
    additional information.(2)
    
    In 2007, we sold certain tangible assets and licensed
    intellectual property related to our HD-DVD and Blu-ray DVD
    technologies. See Note 9 Gain on Sale of Technology
    and Tangible Assets to our consolidated financial
    statements for additional information.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Executive
    Overview
       28




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29




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Critical
    Accounting Policies and Estimates
  Use of
    Estimates
    
    Revenue Recognition
    Inventories and Inventory Reserves
    Impairment of Long-Lived Assets
    Income Taxes
    Legal Contingencies
    Stock-based Compensation    Revenue
    Recognition
   30




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Inventories
    and Inventory Reserves
  work-in-process first-in,
      Impairment
    of Long-Lived Assets
    Income
    Taxes
     31




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Legal
    Contingencies
      Stock-based
    Compensation
    Recent
    Accounting Pronouncements
  157-1, (FSP 157-1) FSP 157-2, (FSP 157-2). FSP 157-1 FSP 157-2
     32




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Comparison
    of Year ended December 31, 2007 and December 31,
    2006
  Results
    of Operations
    Year Ended December 31,2007


2006(In thousands, except percentage data)Net revenues

$
68,331



100.0
%

$
100,465



100.0
%Cost of product revenues


42,597



62.3



97,640



97.2Gross profit


25,734



37.7



2,825



2.8Operating expenses:Research and development


12,550



18.4



36,044



35.9Selling, general and administrative


18,211



26.7



27,566



27.4Impairment of property, plant and equipment


859



1.2







Gain on sale of technology and tangible assets


(10,481
)


(15.3
)






Operating income (loss)


4,595



6.7



(60,785
)


(60.5
)Non-operating income (loss), net


1,663



2.4



(652
)


(0.6
)Net income (loss) before income taxes


6,258



9.1



(61,437
)


(61.1
)Provision for (benefit from) income taxes


3,136



(4.5
)


(17,343
)


(17.2
)Net income (loss)

$
3,122



4.6
%

$
(44,094
)


(43.9
)%   Net
    Revenues
   33




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Year EndedDecember 31,2007


2006Video business:DVD


79
%


68
%VCD


7
%


18
%License and Royalty


1
%


2
%Other


13
%


7
%Total Video business


100
%


95
%Digital Imaging business


0
%


5
%Total


100
%


100
%            34




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Gross
    Profit
    Research
    and Development Expenses
    Selling,
    General and Administrative Expenses
    Impairment
    of Property, Plant and Equipment
   35




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Gain
    on Sale of Technology and Tangible Assets
    Non-operating
    Income (Loss), Net
    Provision
    for (Benefit from) Income Taxes
         36




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Comparison
    of Year ended December 31, 2006 and December 31,
    2005
  Results
    of Operations
    Year Ended December 31,2006


2005(In thousands, except percentage data)Net revenues

$
100,465



100.0
%

$
181,921



100.0
%Cost of product revenues


97,640



97.2



169,312



93.1Gross profit


2,825



2.8



12,609



6.9Operating expenses:Research and development


36,044



35.9



33,983



18.6Selling, general and administrative


27,566



27.4



34,973



19.2Impairment of goodwill and intangible assets










42,743



23.5Operating loss


(60,785
)


(60.5
)


(99,090
)


(54.4
)Non-operating income (loss), net


(652
)


(0.6
)


1,316



0.7Loss before income taxes


(61,437
)


(61.1
)


(97,774
)


(53.7
)Provision for (benefit from) income taxes


(17,343
)


(17.2
)


1,779



1.0Net loss

$
(44,094
)


(43.9
)%

$
(99,553
)


(54.7
)%   Net
    Revenues
      Year EndedDecember 31,2006


2005Video business:DVD


68
%


57
%VCD


18
%


17
%License and Royalty


2
%


11
%Other


7
%


3
%Total Video business


95
%


88
%Digital Imaging business


5
%


12
%Total


100
%


100
%      37




---



##### Table of Contents



Gross
    Profit
    Research
    and Development Expenses
   38




---



##### Table of Contents



Selling,
    General and Administrative Expenses
    Impairment
    of Goodwill and Intangible Assets
    Non-operating
    Income (Loss), Net
    Provision
    for (Benefit from) Income Taxes
      Liquidity
    and Capital Resources
     39




---



##### Table of Contents



40




---



##### Table of Contents



Contractual
    Obligations, Commitments and Contingencies
    Payment Due by PeriodsLess Than


1-3


3-5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Operating lease obligations

$
982


$
982











Purchase order commitments


8,918



8,918











Total

$
9,900


$
9,900











               Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk   41




---



##### Table of Contents



Foreign
    Exchange Risks
    Interest
    Rate Risks
    Investment
    Risk
    start-up
 42




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data    
  Report of Independent Registered Public
    Accounting Firm


44(1). Financial Statements:Consolidated Balance Sheets


45Consolidated Statements of Operations


46Consolidated Statements of Shareholders
    Equity


47Consolidated Statements of Cash Flows


48Notes to Consolidated Financial Statements


49(2). Supplementary Data:Selected Quarterly Financial Data


74(3). Financial statement schedule:Valuation and Qualifying Accounts


75   43




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          
    44




---



##### Table of Contents



1.
    Financial
    Statements:  ESS
    TECHNOLOGY, INC.CONSOLIDATED BALANCE SHEETS
  December 31,2007


2006(In thousands)ASSETSCash and cash equivalents

$
43,110


$
33,731Short-term investments


6,837



10,264Accounts receivable, net


5,403



9,189Other receivables


482



1,154Inventory


7,210



8,278Prepaid expenses and other assets


823



1,764Total current assets


63,865



64,380Property, plant and equipment, net


12,609



16,996Non-current deferred tax asset


5,874



Other assets


9,025



9,052Total assets

$
91,373


$
90,428LIABILITIES AND SHAREHOLDERS EQUITYAccounts payable and accrued expenses

$
7,928


$
20,404Income tax payable and deferred income taxes


19



23,001Total current liabilities


7,947



43,405Non-current income tax liabilities


35,661



Total liabilities


43,608



43,405Commitments and contingencies (Note 15)Shareholders equity:Preferred stock, no par value, 10,000 shares authorized;
    none issued and outstanding






Common stock, no par value, 100,000 shares authorized;
    35,545 and 35,508 shares issued and outstanding at
    December 31, 2007 and 2006, respectively


176,459



175,528Accumulated other comprehensive income


845



86Accumulated deficit


(129,539
)


(128,591
)Total shareholders equity


47,765



47,023Total liabilities and shareholders equity

$
91,373


$
90,428    45




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2007


2006


2005(In thousands, except per share data)Net revenues:Product

$
67,393


$
97,797


$
161,921License and royalty


938



2,668



20,000Total net revenues


68,331



100,465



181,921Cost of product revenues


42,597



97,640



169,312Gross profit


25,734



2,825



12,609Operating expenses:Research and development


12,550



36,044



33,983Selling, general and administrative


18,211



27,566



34,973Impairment of goodwill and intangible assets










42,743Impairment of property, plant and equipment


859







Gain on sale of technology and tangible assets


(10,481
)






Operating income (loss)


4,595



(60,785
)


(99,090
)Non-operating income (loss), net


1,663



(652
)


1,316Income (loss) before income taxes


6,258



(61,437
)


(97,774
)Provision for (benefit from) income taxes


3,136



(17,343
)


1,779Net income (loss)

$
3,122


$
(44,094
)

$
(99,553
)Net income (loss) per share  basic

$
0.09


$
(1.14
)

$
(2.50
)Net income (loss) per share  diluted

$
0.09


$
(1.14
)

$
(2.50
)Shares used in per share calculation:Basic


35,525



38,723



39,781Diluted


35,527



38,723



39,781    46




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
  AccumulatedOther


RetainedComprehensive


Earnings


Total


TotalCommon Stock


Income


(Accumulated


Shareholders


ComprehensiveShares


Amount


(Loss)


Deficit)


Equity


Income (Loss)(In thousands)Balance at December 31, 2004


39,681



178,030



(174
)


15,056



192,912Issuance of common stock upon exercise of options


52



203











203Issuance of common stock for employee stock purchase plan


160



457











457Repurchase of common stock


(329
)


(1,165
)










(1,165
)Stock-based compensation expense






20











20Unrealized gain on marketable securities, net of tax










460







460


$
460Net loss














(99,553
)


(99,553
)


(99,553
)Total comprehensive loss





















$
(99,093
)Balance at December 31, 2005


39,564



177,545



286



(84,497
)


93,334Issuance of common stock upon exercise of options


6



17











17Issuance of common stock for employee stock purchase plan


123



227











227Repurchase of common stock


(4,185
)


(5,852
)










(5,852
)Stock-based compensation expense






3,591











3,591Unrealized loss on marketable securities, net of tax










(200
)






(200
)

$
(200
)Net loss














(44,094
)


(44,094
)


(44,094
)Total comprehensive loss





















$
(44,294
)Balance at December 31, 2006


35,508


$
175,528


$
86


$
(128,591
)

$
47,023Issuance of common stock for employee stock purchase plan


37



30











30Stock-based compensation expense






901











901FIN 48 income tax adjustment














(4,070
)


(4,070
)Unrealized gain on marketable securities, net of tax










759







759


$
759Net income














3,122



3,122



3,122Total comprehensive income





















$
3,881Balance at December 31, 2007


35,545


$
176,459


$
845


$
(129,539
)

$
47,765    47




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income (loss)

$
3,122


$
(44,094
)

$
(99,553
)Adjustments to reconcile net income (loss) to net cash used in
    operating activities:Depreciation


3,567



5,981



6,022Amortization






795



4,321Write-down of goodwill and intangible assets










42,743(Gain) on sale of technology and tangible assets


(10,481
)






Impairment of property plant and equipment


859







(Gain) loss on sale of property, plant and equipment


192



(234
)


(628
)Write-down of equity investments


643



3,534



1,316Stock-based compensation


901



3,591



20Changes in assets and liabilities:Accounts receivables, net


3,786



5,801



6,104Other receivables


672



4,641



(5,433
)Inventory, net


1,068



4,199



33,192Prepaid expenses and other assets


960



2,527



(453
)Accounts payable and accrued expenses


(12,476
)


(15,512
)


(14,730
)Income tax payable and deferred income taxes


2,728



(19,397
)


2,103Net cash used in operating activities


(4,459
)


(48,168
)


(24,976
)Cash flows from investing activities:Purchase of property, plant and equipment


(611
)


(1,854
)


(4,708
)Sale of property, plant and equipment


109



244



1,190Purchase of short-term investments


(4,791
)


(14,420
)


(44,135
)Maturities and Sales of short-term investments


8,250



35,365



98,573Purchase of long-term investments


(500
)






(282
)Purchase of other assets






(458
)


Sale of technology and tangible assets


11,351







Refund of acquisition consideration under escrow










1,946Net cash provided by investing activities


13,808



18,877



52,584Cash flows from financing activities:Repurchase of common stock






(5,852
)


(1,165
)Issuance of common stock under employee stock purchase plan and
    stock option plans


30



244



660Net cash provided by (used in) financing activities


30



(5,608
)


(505
)Net increase (decrease) in cash and cash equivalents


9,379



(34,899
)


27,103Cash and cash equivalents at beginning of year


33,731



68,630



41,527Cash and cash equivalents at end of year

$
43,110


$
33,731


$
68,630Supplemental disclosure of cash flow informationCash paid for income taxes

$
440


$
2,363


$
Cash refund for income taxes

$
10


$
698


$
491    48




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Note 1.
    Nature of
    Business         49




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Note 2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
        Use of
    Estimates
   50




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign
    Currency Translation
    Cash,
    Cash Equivalents, and Short-Term Investments
      Fair
    Value of Financial Instruments
    Inventory
  work-in-process first-in,
  Property,
    Plant and Equipment
    Building and building improvements


7-30 yearsMachinery and equipment


3-5 yearsFurniture and fixtures


3-5 years    51




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Equity
    Investments
    Impairment
    of Long-Lived Assets
    Revenue
    Recognition
      Research
    and Development Costs
    Income
    Taxes
     52




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Net
    Income(Loss) per Share
    Stock-Based
    Compensation
    No. D-32
  Warranty
    Year-Ended December 31,2007


2006


2005(In thousands)Beginning balance

$
254


$
506


$
324Accrual for warranty during the year


(87
)


47



406Settlements made during the year


(7
)


(299
)


(224
)Ending balance

$
160


$
254


$
506   Risks
    and Uncertainties
   53




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentration
    of Credit Risk
          Recent
    Accounting Pronouncements
  157-1, (FSP 157-1) FSP 157-2, (FSP 157-2). FSP 157-1 FSP 157-2
     54




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 3.
    Balance
    Sheet Components  December 31,2007


2006(In thousands)Accounts receivable, net:Accounts receivable

$
5,526


$
9,465Less: Allowance for doubtful accounts


(123
)


(276
)$
5,403


$
9,189Other receivables:Insurance

$
362


$
966Other


120



188$
482


$
1,154Inventories:Raw materials

$
1,531


$
1,210Work-in-process


957



758Finished goods


4,722



6,310$
7,210


$
8,278   non-cancelable,
  55




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Prepaid expenses and other assets:Prepaid insurance

$
419


$
527Prepaid maintenance


215



327Prepaid royalty


84



713Other


105



197$
823


$
1,764Property, plant and equipment, net:Land

$
2,860


$
2,860Building and building improvements


23,865



24,679Machinery and equipment


35,341



37,260Furniture and fixtures


20,661



23,60782,727



88,406Less: Accumulated depreciation and amortization


(70,118
)


(71,410
)$
12,609


$
16,996Long-term other assets:Investments  Best Elite (Note 5)

$
6,857


$
7,000Investments  Marketable securities


2,071



1,344Other


97



708$
9,025


$
9,052Accounts payable and accrued expenses:Accounts payable

$
3,194


$
6,167Accrued compensation costs


2,272



6,057Accrued commission and royalties


282



281Deferred revenue related to distributor sales, net of deferred
    cost of goods sold


250



216Non-cancelable, adverse purchase order commitments


39



3,077Deposit from SiS






1,500Other accrued liabilities


1,891



3,106$
7,928


$
20,404  56




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 4.
    Marketable
    Securities    Gross


GrossAmortized


Unrealized


UnrealizedDecember 31, 2007

Cost


Gains


(Loss)


Fair Value(In thousands)Money market funds

$
100


$



$



$
100Time deposit


3,200











3,200Corporate debt securities


23,775



11



(7
)


23,779Corporate equity security


1,233



838







2,071Government agency bonds


10,958



3







10,961Total available-for-sale

$
39,266


$
852


$
(7
)

$
40,111Classified as:Cash equivalents













$
31,203Short-term marketable securities














6,837Long-term marketable securities














2,071$
40,111   Gross


GrossAmortized


Unrealized


UnrealizedDecember 31, 2006

Cost


Gains


(Loss)


Fair Value(In thousands)Money market funds

$
3,363


$



$



$
3,363Time deposit


2,800











2,800Corporate debt securities


17,203



2



(3
)


17,202Corporate equity security


1,233



111







1,344Government agency bonds


6,676



1



(21
)


6,656Total available-for-sale

$
31,275


$
114


$
(24
)

$
31,365Classified as:Cash equivalents













$
19,757Short-term marketable securities














10,264Long-term marketable securities














1,344$
31,365     EstimatedDecember 31, 2007

Fair Value(In thousands)Maturing in 90 days or less

$
31,103Maturing between 90 days and one year


6,014Maturing in more than one year


823Total available-for-sale debt securities

$
37,940  57




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 5.
    Investments
    in Equity Securities    Note 6.
    Non-Operating
    Income (Loss), Net    Years Ended December 31,2007


2006


2005(In thousands)Interest income

$
1,987


$
2,611


$
2,212Income on other investments










102Impairment of investments


(643
)


(3,534
)


(1,316
)Vialta rental income






17



345Other


319



254



(27
)Total non-operating income (loss)

$
1,663


$
(652
)

$
1,316  58




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7.
    Income
    Taxes    Years Ended December 31,2007


2006


2005(In thousands)Domestic

$
(2,532
)

$
(3,701
)

$
(51,289
)Foreign


8,790



(57,736
)


(46,485
)$
6,258


$
(61,437
)

$
(97,774
)     Years Ended December 31,2007


2006


2005(In thousands)Current:Federal

$
2,382


$
(15,715
)

$
1,859State


2



(2,213
)


(369
)Foreign


(39
)


531



5402,345



(17,397
)


2,030DeferredFederal


791



54



(708
)State










457791



54



(251
)Total

$
3,136


$
(17,343
)

$
1,779     Years Ended December 31,2007


2006


2005(In thousands)Provision (benefit) at statutory rate

$
2,190


$
(21,503
)

$
(34,221
)Tax expense related to foreign jurisdictions


(2,604
)


6,710



25,935State income taxes, net of federal tax benefit


340



(3,250
)


(5,299
)General business credit






(497
)


(1,882
)Impairment of goodwill










16,745Stock- based compensation


255



949Interest expense


2,233







Change in Valuation Allowance


777



685



1,536Other


(55
)


(437
)


(1,035
)Provision for (benefit from) income taxes

$
3,136


$
(17,343
)

$
1,779  59




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(In thousands)Current:Accrued liabilities and reserves

$
368


$
1,163Unrealized gains/losses on investments


660



660Other






15Current deferred tax assets

$
1,028


$
1,838Non-current:Depreciation and amortization

$
3,766


$
3,818Net operating loss carryforwards


328



21,468Credit carryforwards


2,113



8,249Stock based compensation


200



357Non-current deferred tax assets


6,407



33,892Total deferred tax assets


7,435



35,730Valuation allowance


(1,561
)


(34,497
)Net deferred tax assets

$
5,874


$
1,233       non-U.S. subsidiaries
  Uncertain
    Income Tax Positions
   60




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31,2007(In thousands)Balance at January 1, 2007

$
78,323Additions for tax positions related to 2007


670Additions for tax positions of prior years


148Reductions for tax positions of prior years


Settlements


(155
)Lapse of statutes of limitations


Balance at December 31, 2007

$
78,986       Note 8.
    Impairment
    of Property, Plant and Equipment    Note 9.
    Gain on
    Sale of Technology and Tangible Assets  Blu-ray
 61




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 10.
    Net
    Income (Loss) Per Share      Years Ended December 31,2007


2006


2005(In thousands)Numerator:Net income (loss) available to common stockholders

$
3,122


$
(44,094
)

$
(99,553
)Denominator:Weighted shares outstanding used for net income (loss)
    per share:Basic


35,525



38,723



39,781Dilutive impact of stock options and ESPP


2







Diluted


35,527



38,723



39,781     Note 11.
    Shareholders
    Equity  Common
    Stock
  Stock
    Repurchase
        1995
    Equity Incentive Plan
   62




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    1995
    Employee Stock Purchase Plan
  24-month
  1995 Directors
    Stock Option Plan
  3-year
  1997
    Equity Incentive Plan
    2002
    Non-executive Stock Option Plan
    Note 12.
    Stock-Based
    Compensation   63




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Impact
    of the Adoption of SFAS No. 123(R)
      Year Ended


Year EndedDecember 31,


December 31,2007


2006(In thousands)Stock-based compensation expense by type of award:Employee stock options:Cost of product revenues

$
31


$
210Research and development


387



1,700Selling, general and administrative


453



1,527Employee stock purchase plan:Selling, general and administrative


30



154Total stock-based compensation


901



3,591Tax effect on stock-based compensation






Net effect on net income (loss)

$
901


$
3,591       Valuation
    Assumptions
     64




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Years Ended December 31,2007


2006


2005Stock option plans:Expected life (in years)


3.16



3.79



2.31Expected stock price volatility


62
%


71
%


83
%Risk-free interest rate


4.2
%


4.6
%


3.7
%Expected dividend yield


0
%


0
%


0
%Stock purchase plan:Expected life (in years)


1.0



1.0



1.0Expected stock price volatility


61
%


69
%


76
%Risk-free interest rate


4.3
%


5.1
%


4.0
%Expected dividend yield


0
%


0
%


0
%    65




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Combined
    Activity
    WeightedWeighted


AverageOptions


Average


ContractualOutstanding


Exercise Price


Term(In thousands)Balances at December 31, 2004


5,562


$
7.29Granted


5,284



4.06Exercised


(52
)


3.86Forfeited


(1,041
)


7.73Expired






Balances at December 31, 2005


9,753


$
5.51Granted


293



2.33Exercised


(6
)


2.66Forfeited


(1,123
)


4.82Expired


(1,630
)


5.86Balances at December 31, 2006


7,287


$
5.40Granted


226



1.24Forfeited


(465
)


4.78Expired


(3,689
)


5.11Balances at December 31, 2007


3,359



5.53



6.13Fully vested and exercisable at December 31, 2007


2,957



5.95



5.80Expected at December 31, 2007 to vest in the future


375



2.53



8.56        66




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##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Prior
    to the Adoption of SFAS No. 123(R)
    Year EndedDecember 31,2005Net loss  as reported

$
(99,553
)Stock based compensation expense related to non-employees
    included in reported net loss


20Stock based compensation determined under fair value based
    method for all awards, net of tax


(8,593
)Pro forma net loss

$
(108,126
)Net loss per share  basic and diluted:As reported

$
(2.50
)Pro forma

$
(2.72
)   Note 13.
    Business
    Segment Information and Concentration of Certain Risks  Business
    Segments
      Percentage of NetRevenues for YearsEnded December 31,2007


2006


2005Video business:DVD


79
%


68
%


57
%VCD


7
%


18
%


17
%License and Royalty


1
%


2
%


11
%Other


13
%


7
%


3
%Total Video business


100
%


95
%


88
%Digital Imaging business


0
%


5
%


12
%Total


100
%


100
%


100
%    67




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##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended December 31,2007


2006


2005(In thousands)Net revenues:Video

$
68,153


$
95,736


$
159,522Digital Imaging


178



4,729



22,399Total net revenues

$
68,331


$
100,465


$
181,921Segment operating income (loss):Video

$
17,830


$
(36,089
)

$
(15,176
)Digital Imaging


(2,427
)


(12,388
)


(25,159
)Total segment operating income (loss)

$
15,403


$
(48,477
)

$
(40,335
)     Years Ended December 31,2007


2006


2005(In thousands)Segment operating income (loss)

$
15,403


$
(48,477
)

$
(40,335
)Unallocated corporate expenses


(10,808
)


(12,308
)


(16,012
)Impairment of goodwill and intangible assets










(42,743
)Operating income (loss)

$
4,595


$
(60,785
)

$
(99,090
)   Geographic
    Information
    Property,Plant,Net


andRevenue


Equipment(In thousands)Year Ended December 31, 2007United States

$
57


$
11,941Canada






458Hong Kong


21,425



Taiwan


19,984



Japan


5,186



China (excluding Hong Kong)


5,948



70 68




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##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property,Plant,Net


andRevenue


Equipment(In thousands)Korea


7,983



86Indonesia


5,474



Austria


1,332



Rest of the world


942



54Total foreign


68,274



668Total

$
68,331


$
12,609Year Ended December 31, 2006United States

$
59


$
15,663Canada






355Hong Kong


44,577



Taiwan


18,360



96Japan


9,708



China (excluding Hong Kong)


2,363



292Korea


15,053



156Turkey


2,484



Singapore


2,997



Rest of the world


4,864



434Total foreign


100,406



1,333Total

$
100,465


$
16,996Year Ended December 31, 2005United States

$
499Hong Kong


72,220Taiwan


44,089Japan


16,297China (excluding Hong Kong)


1,439Korea


29,659Turkey


8,337Singapore


2,221Rest of the world


7,160Total foreign


181,422Total

$
181,921   Significant
    Customers and Distributors
   69




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##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2007


2006


2005Samsung Electronics Company


31
%


13
%


11
%LG International Corporation


16
%


15
%


15
%Xing Qiu


10
%






ATLM (Eastech)










10
%     Year Ended December 31,2007


2006LG International Corporation


34
%


20
%Samsung Electronics Company


32
%


14
%Weikeng Industrial Company, Ltd


12
%


Universe Electron Corporation






11
%   Note 14.
    Related
    Party Transactions with Vialta, Inc.      Transactions BetweenESS and VialtaYears Ended December 31,2007


2006


2005(In thousands)Lease charges to Vialta under Real Estate Matters Agreement

$



$
15


$
346Products sold to Vialta










12Products purchased from Vialta










(31
)Selling, general, administrative and other services provided to
    Vialta, net of charges from Vialta






(1
)


4Total charges to Vialta, net of charges from Vialta

$



$
14


$
331   70




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  As ofDecember 31,2007


2006Receivable from Vialta

$



$
   Note 15.
    Commitments
    and Contingencies    Payment Due by PeriodsLess Than


1-3


3-5


More thanContractual Obligations

Total


1 Year


Years


Years


5 Years(In thousands)Operating lease obligations

$
982


$
982











Purchase order commitments


8,918



8,918











Total

$
9,900


$
9,900











           Legal
    Proceeding
   71




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##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       72




---



##### Table of Contents



ESS
    TECHNOLOGY, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 16.
    Employee
    Benefit Plan   73




---



##### Table of Contents



2.
    Supplementary
    Data: Selected
    Quarterly Financial Data (unaudited)  Form 10-K.
  2006


2007Mar. 31


Jun. 30


Sept. 30


Dec. 31


Mar. 31


Jun. 30


Sept. 30


Dec. 31(In thousands, except per share data)Statement of Operations Data:Net revenues:Product

$
26,886


$
29,066


$
23,190


$
18,655


$
16,991


$
17,179


$
17,570


$
15,658License and royalty










4



2,664



781



5



109



38Total net revenues


26,886



29,066



23,194



21,319



17,772



17,184



17,679



15,696Cost of product revenues


24,523



28,354



27,219



17,544



10,400



12,514



10,817



8,865Gross profit (loss)


2,363



712



(4,025
)


3,775



7,372



4,670



6,862



6,831Operating expenses:Research and development


9,597



9,941



8,691



7,815



4,591



2,570



2,734



2,655Selling, general and administrative


7,999



7,045



7,567



4,955



4,940



4,738



3,962



4,572Impairment of property, plant and equipment


















859
(b)










Gain on sale of technology and intangible assets


















(8,481
)(c)


(2,000
)(c)






Operating income (loss)


(15,233
)


(16,274
)


(20,283
)


(8,995
)


5,463



(638
)


166



(396
)Non-operating income (loss), net


476



883



505



(2,516
)


(86
)


580



540



629Income (loss) before income taxes


(14,757
)


(15,391
)


(19,778
)


(11,511
)


5,377



(58
)


706



233Provision for (benefit from) income taxes


(687
)


(167
)


(15,411
)(a)


(1,078
)


774



606



800



956Net income (loss)

$
(14,070
)

$
(15,224
)

$
(4,367
)

$
(10,433
)

$
4,603


$
(664
)

$
(94
)

$
(723
)Net income (loss) per share  basic and diluted

$
(0.36
)

$
(0.39
)

$
(0.11
)

$
(0.28
)

$
0.13


$
(0.02
)

$
(0.00
)

$
(0.02
)Shares used in per share calculation:Basic


39,122



39,150



39,177



37,450



35,508



35,522



35,529



35,540Diluted


39,122



39,150



39,177



37,450



35,508



35,522



35,529



35,540     (a)
    
    Benefit from income taxes includes a favorable tax adjustment of
    $14.9 million.(b)
    
    See Note 8, Impairment of Property, Plant and
    Equipment.(c)
    
    See Note 9, Gain on Sale of Technology and Tangible
    Assets. 74




---



##### Table of Contents



3.
    Financial
    Statement Schedule: VALUATION
    AND QUALIFYING ACCOUNTS  AdditionsBalance at


Charged to





Balance atBeginning


Costs and





Ending ofof Period


Expenses


Deductions


Period(In thousands)Year Ended December 31, 2007Allowance for doubtful accounts

$
276


$
8


$
161


$
123Allowance for sales returns and warranty reserve

$
365


$
10


$
121


$
254Year Ended December 31, 2006Allowance for doubtful accounts

$
449


$
(169
)

$
4


$
276Allowance for sales returns and warranty reserve

$
742


$
(67
)

$
310


$
365Year Ended December 31, 2005Allowance for doubtful accounts

$
787


$



$
338


$
449Allowance for sales returns and warranty reserve

$
757


$
601


$
616


$
742   Form 10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e)
    Managements
    Report on Internal Control over Financial Reporting
  Rule 12a-15.
 75




---



##### Table of Contents



Internal Control 
    Integrated Framework, issued by the Committee of Sponsoring
    Organizations of the Treadway Commission
    Changes
    in Internal Control over Financial Reporting
  Rule 13a-15(f)
  Item 9B.
    Other
    Information   PART III    Item 10.
    Directors,
    Executive Officers and Corporate Governance    http://www.ESSTECH.com. Form 8-K.
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters   76




---



##### Table of Contents



Equity
    Compensation Plan Information(1)
  Number of SecuritiesRemaining Availablefor Future IssuanceNumber of Securities


Weighted-Average


Under Equityto be Issued Upon


Exercise Price of


Compensation PlansExercise of Outstanding


Outstanding Options,


(Excluding SecuritiesOptions, Warrants


Warrants and


Reflected inPlan Category

and Rights(a)


Rights(b)


Column(a)(b)Equity compensation plans approved by security holders


2,726,398


$
5.95



831,243
(2)Equity compensation plans not approved by security holders


633,219


$
3.70



1,352,451Total


3,359,617


$
5.52



2,183,694     (1)
    
    Includes only options outstanding under ESS stock option
    plans, as no stock warrants or rights were outstanding as of
    December 31, 2007.(2)
    
    Includes 132,493 shares of common stock reserved for future
    issuance under the ESS Technology, Inc. 1995 Employee Stock
    Purchase Plan.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
  Form 10-K.
  Financial Statement Schedule
  Form 10-K.
    Exhibits
  Form 10-K.
 77




---



##### Table of Contents



SIGNATURES  Form 10-K
     By:
    /s/  ROBERT
    L. BLAIR   President and Chief Executive Officer
    POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title

Date/s/  ROBERT
    L. BLAIRRobert
    L. Blair

President and Chief Executive Officer (principal executive
    officer)

March 31, 2008/s/  JOHN
    A. MARSHJohn
    A. Marsh

Chief Financial Officer (principal financial officer and
    principal accounting officer)

March 31, 2008/s/  PETER
    T. MOKPeter
    T. Mok

Director

March 31, 2008/s/  ALFRED
    J. STEINAlfred
    J. Stein

Director

March 31, 2008  78




---



##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Exhibit Title2
.01

Agreement and Plan of Merger dated February 21, 2008, by
    and among the Registrant, Echo Technology (Delaware), Inc., a
    Delaware corporation and a wholly owned subsidiary of Registrant
    (Delaware Merger Subsidiary), Semiconductor Holding
    Corporation, a Delaware corporation and wholly owned subsidiary
    of Imperium Master Fund, Ltd. (Parent), and Echo
    Mergerco, Inc., a Delaware corporation and a wholly owned
    subsidiary of Parent (Merger Subsidiary),
    incorporated herein by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    (file
    no. 0000950134-08-003216)
    filed February 22, 2008.3
.01

Registrants Articles of Incorporation, incorporated herein
    by reference to Exhibit 3.01 to the Registrants
    Form S-1
    registration statement (file
    no. 33-95388)
    declared effective by the Securities and Exchange Commission on
    October 5, 1995 (the
    Form S-1).3
.02

Registrants Amended and Restated Bylaws, incorporated
    herein by reference to Exhibit 3.02 to the
    Form 10-K
    filed on March 16, 2007.10
.1

Registrants Amended 401(k) Plan, incorporated herein by
    reference to Exhibit 10.06 to the
    Form S-1
    (file
    no. 33-95388).*10
.2

Form of Indemnity Agreement entered into by Registrant with each
    of its directors and executive officers, incorporated herein by
    reference to Exhibit 10.11 to the
    Form S-1
    (file
    no. 33-95388).10
.6

1995 Employee Stock Purchase Plan amended and restated as of
    April 26, 2003, incorporated herein by reference to
    Exhibit 10.49 to the Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed August 14, 2003.10
.7

Master Technology Ownership and License Agreement between the
    Registrant and Vialta, Inc. dated August 20, 2001,
    incorporated herein by reference to Exhibit 10.38 to the
    Registrants Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed September 5, 2001.10
.8

Employee Matters Agreement between the Registrant and Vialta,
    Inc. dated August 20, 2001, incorporated herein by
    reference to Exhibit 10.39 to the Registrants Current
    Report on
    Form 8-K
    (file
    no. 000-26660)
    filed September 5, 2001.10
.9

Tax Sharing and Indemnity Agreement between the Registrant and
    Vialta, Inc. dated August 20, 2001, incorporated herein by
    reference to Exhibit 10.40 to the Registrants Current
    Report on
    Form 8-K
    (file
    no. 000-26660)
    filed September 5, 2001.10
.10

Real Estate Matters Agreement between the Registrant and Vialta,
    Inc. dated August 20, 2001, incorporated herein by
    reference to Exhibit 10.41 to the Registrants Current
    Report on
    Form 8-K
    (file
    no. 000-26660)
    filed September 5, 2001.10
.11

Master Confidential Disclosure Agreement between the Registrant
    and Vialta, Inc. dated August 20, 2001, incorporated herein
    by reference to Exhibit 10.42 to the Registrants
    Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed September 5, 2001.10
.12

Master Transitional Services Agreement between the Registrant
    and Vialta, Inc, incorporated herein by reference to
    Exhibit 10.43 to the Registrants Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed with the SEC on September 5, 2001.10
.13

Registrants 1997 Equity Incentive Plan, amended and
    restated as of April 26, 2003, incorporated herein by
    reference to Exhibit 10.50 to the Registrants
    Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed August 14, 2003.10
.14

Registrants 2002 Non-Executive Stock Option Plan dated
    May 22, 2002, incorporated herein by reference to
    Exhibits 99.1 to the
    Form S-8
    (file
    no. 333-89942)
    filed on June 6, 2002.*10
.15

Joint Development Agreement dated December 14, 2001,
    incorporated herein by reference to Exhibit 10.50 to the
    Registrants Annual Report on
    Form 10-K
    (file
    no. 000-26660)
    filed March 31, 2003.**10
.16

Amendment to Joint Development Agreement dated January 18,
    2003, incorporated herein by reference to Exhibit 10.51 to
    the Registrants Annual Report on
    Form 10-K
    (file
    no. 000-26660)
    filed March 31, 2003.**10
.17

License Agreement and Mutual Release dated June 11, 2003,
    by and among the Registrant, ESS Technology International, Inc.
    and MediaTek Incorporation, incorporated herein by reference to
    Exhibit 10.51 to the Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed August 14, 2003.**10
.18

Addendum to the License Agreement and Mutual Release dated
    July 8, 2003, by and among the Registrant, ESS Technology
    International, Inc. and MediaTek Incorporation, incorporated
    herein by reference to Exhibit 10.52 to the
    Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed November 14, 2003.**




---



##### Table of Contents



ExhibitNumber

Exhibit Title10
.20

Registrants 1995 Equity Incentive Plan amended and
    restated as of January 25, 2003, incorporated herein by
    reference to Exhibit 10.57 to the Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed on November 9, 2004.*10
.21

Form of Stock Option Agreement under Registrants 1995
    Equity Incentive Plan, incorporated herein by reference to
    Exhibit 10.58 to the Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed on November 9, 2004.*10
.22

Form of Stock Option Agreement under Registrants 1997
    Equity Incentive Plan, incorporated herein by reference to
    Exhibit 10.59 to the Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed on November 9, 2004.*10
.23

Form of Directors Nonqualified Initial Stock Option Grant
    Agreement under Registrants 1995 Directors
    Stock Option Plan, incorporated herein by reference to
    Exhibit 10.60 to the Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed on November 9, 2004.*10
.24

Form of Directors Nonqualified Succeeding Stock Option Grant
    Agreement under Registrants 1995 Directors
    Stock Option Plan, incorporated herein by reference to
    Exhibit 10.61 to the Quarterly Report on
    Form 10-Q
    (file
    no. 000-26660)
    filed on November 9, 2004.*10
.25

Registrants 1995 Directors Stock Option Plan,
    incorporated herein by reference to Exhibit 10.62 to the
    Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed on November 30, 2004.*10
.26

Form of Directors Nonqualified Initial Stock Option Grant
    Agreement under Registrants 1995 Directors
    Stock Option Plan, amended effective November 23, 2004,
    incorporated herein by reference to Exhibit 10.63 to the
    Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed on November 30, 2004.*10
.27

Form of Directors Nonqualified Succeeding Stock Option Grant
    Agreement Registrants 1995 Directors Stock
    Option Plan, amended effective November 23, 2004,
    incorporated herein by reference to Exhibit 10.64 to the
    Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed on November 30, 2004.*10
.28

Form of Stock Option Agreement under Registrants 1995
    Equity Incentive Plan, 1997 Equity Incentive Plan and 2002
    Non-Executive Stock Option Plan, amended effective
    November 23, 2004, incorporated herein by reference to
    Exhibit 10.65 to the Current Report on
    Form 8-K
    (file
    no. 000-26660)
    filed on November 30, 2004.*10
.29

Amended and Restated Stock Option Agreement for Audit Committee
    members, incorporated herein by reference to Exhibit 10.66
    of the
    Form 8-K
    filed on February 3, 2005.*10
.30

Form of Stock Option Agreement for Audit Committee members,
    incorporated herein by reference to Exhibit 10.67 of the
    Form 8-K
    filed on February 3, 2005.*10
.31

Form of Acceleration Agreement for Directors, incorporated
    herein by reference to Exhibit 10.29 to the
    Registrants
    Form 10-K
    filed on March 16, 2005.*10
.32

Form of Acceleration Agreement for Officers, incorporated herein
    by reference to Exhibit 10.30 to the Registrants
    Form 10-K
    filed on March 16, 2005.*10
.33

Description of Performance Based Compensation Plan Bonus
    Criteria for Fiscal Year 2005, incorporated herein by reference
    to Exhibit 10.31 to the Registrants
    Form 8-K
    filed on April 6, 2005.*10
.34

Description of Bonus Payment for Fiscal Year 2005 to James Boyd,
    incorporated herein by reference to text of the
    Registrants
    Form 8-K
    filed June 2, 2005.*10
.35

Description of Amendment of Stock Option Grant to Robert Blair
    Dated June 30, 2005, incorporated herein by reference to
    Exhibit 10.31 to the Registrants
    Form 10-Q
    filed on August 9, 2005.*10
.36

Silan-ESS Cooperation in VCD Agreement between the Registrant
    and Hangzhou Silan Microelectronics Joint-Stock Co. Ltd. dated
    September 14, 2005, incorporated herein by reference to
    Exhibit 10.33 to the Registrants
    Form 10-Q
    filed on November 9, 2005.**10
.37

ESS-Silan DVD Technology License Agreement between the
    Registrant and Hangzhou Silan Microelectronics Co., Ltd. dated
    November 3, 2006, incorporated herein by reference to
    Exhibit 10.37 to the Annual Report on
    Form 10-K
    (file
    no. 000-26660)
    filed on March 16, 2007.**10
.38

Description of the amended compensation package for James Boyd,
    incorporated herein by reference to text of the
    Registrants
    Form 8-K
    filed December 27, 2006.*10
.39

Asset Purchase Agreement dated February 15, 2007, by and
    among the Registrant, ESS Technology International, Inc. and
    Silicon Integrated Systems Corporation, incorporated herein by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    (file
    no. 0000950134-07-011107)
    filed May 10, 2007.10
.40

Asset Purchase Agreement dated February 15, 2007, by and
    among the Registrant, ESS Technology International, Inc. and SiS
    Holding Limited, incorporated herein by reference to
    Exhibit 10.2 to the Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 0000950134-07-011107)
    filed May 10, 2007.




---



##### Table of Contents



ExhibitNumber

Exhibit Title10
.41

Description of the compensation package for John Marsh,
    incorporated herein by reference to the Registrants
    Current Report on
    Form 8-K
    (file
    no. 0000950134-07-018661)
    filed August 21, 2007.*10
.42

Stipulation of Settlement and Release by and among Registrant,
    certain current and former officers and directors of Registrant
    and the plaintiffs in a federal securities class action,
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 0000950134-07-023562)
    filed November 9, 2007.10
.43

Judgment of Dismissal, together with the Stipulation and
    Agreement of Settlement by and among Registrant, certain current
    and former officers and directors of Registrant and the
    plaintiffs in a derivative securities class action, incorporated
    herein by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 0000950134-07-023562)
    filed November 9, 2007.10
.44

Agreement of Purchase and Sale dated October 26, 2007, by
    and between Registrant and TC Fund Property Acquisitions,
    Inc., incorporated herein by reference to Exhibit 10.3 to
    the Registrants Quarterly Report on
    Form 10-Q
    (file
    no. 0000950134-07-023562)
    filed November 9, 2007.10
.45

Description of the November 26, 2007 termination of the
    Agreement of Purchase and Sale dated October 26, 2007 by
    and between Registrant and TC Fund Property Acquisitions,
    Inc., incorporated herein by reference to the Registrants
    Current Report on
    Form 8-K
    file
    no. 0000950134-07-024755)
    filed November 30, 2007.10
.46

Agreement and Plan of Merger dated February 21, 2008, by
    and among the Registrant, Echo Technology (Delaware), Inc., a
    Delaware corporation and a wholly owned subsidiary of Registrant
    (Delaware Merger Subsidiary), Semiconductor Holding
    Corporation, a Delaware corporation and wholly owned subsidiary
    of Imperium Master Fund, Ltd. (Parent), and Echo
    Mergerco, Inc., a Delaware corporation and a wholly owned
    subsidiary of Parent (Merger Subsidiary),
    incorporated herein by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    (file
    no. 0000950134-08-
    003216) filed February 22, 2008.21


List of Registrants subsidiaries.23


Consent of Independent Registered Public Accounting Firm.24


Power of Attorney (included on the signature page of this report
    on
    Form 10-K).31
.1

Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification Pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.32
.2

Certification Pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.     *
    
    Represents a management contract or compensatory plan or
    arrangement.**
    
    Confidential treatment has been granted with respect to certain
    portions of this agreement.