• 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 parties 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, 2008 and other filings with the Securities and Exchange Commission (the "SEC").

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Company Filings
We make available through our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports and other filings made by us with the SEC, as soon as practicable after we electronically file such reports and filings with the SEC. Our website address is www.emersonradio.com. The information contained in this website is not incorporated by reference in this report. Results of Operations
Emerson operates in one segment, the consumer electronics segment, as presented in the following Management's Discussion and Analysis.
The following table summarizes certain financial information for the three and six month periods ended September 30, 2008 (fiscal 2009) and September 30, 2007 (fiscal 2008) (in thousands):

                                                        Three Months Ended                   Six Months Ended
                                                           September 30                        September 30
                                                      2008              2007              2008              2007


Net revenues                                       $ 55,094          $ 57,862          $ 98,202          $ 110,550

Cost of sales                                        47,361            51,393            85,382             96,641
Other operating costs and expenses                    1,593             1,548             2,724              3,344
Selling, general and administrative expenses          5,073             5,307             9,901             10,284
Non-cash compensation, net of recoveries                 18              (266 )              36               (187 )

Operating income (loss)                               1,049              (120 )             159                468

                                                     Three Months Ended                  Six Months Ended
                                                        September 30                       September 30
                                                   2008              2007             2008              2007
Interest income (expense), net                        49               (66 )            181               167
Gain on sale of building                               -               854                -               854
Unrealized holding (losses) on trading
securities                                           (52 )               -              (21 )               -
Realized gains on trading securities                 301                 -              532                 -

Income before income taxes and minority
interest                                           1,347               668              851             1,489
Provision for income taxes                           699             3,952            1,226             4,331
Minority interest in loss of consolidated
subsidiary                                           (39 )               -             (133 )               -

Net income (loss)                               $    687          $ (3,284 )        $  (242 )        $ (2,842 )

Net Revenues - Net revenues for the second quarter of fiscal 2009 were $55.1 million as compared to $57.9 million for the second quarter of fiscal 2008, a decrease of $2.8 million or 4.8%. For the six month period of fiscal 2009, net revenues were $98.2 million as compared to $110.5 million for the six month period of fiscal 2008, a decrease of $12.3 million or 11.1%. Net revenues are comprised of Emerson(R) branded product sales, themed product sales and licensing revenues. Emerson(R) branded product sales are earned from the sale of products bearing the Emerson(R) or HH Scott(R) brand name; themed product sales represent products sold bearing a certain theme or character. Furthermore, licensing revenues are derived from licensing the Emerson(R) and HH Scott(R) brand names to licensees for a fee. The major elements which contributed to the overall decrease in net revenues were as follows:
i) Home appliances product sales increased $2.3 million, or 6.1%, to $38.4 million in the second quarter of fiscal 2009 as compared to $36.1 million in the second quarter of fiscal 2008. Home appliances products sales were $68.3 million in the six month period of fiscal 2009 as compared to $62.1 million in the six month period of fiscal 2008, an increase of $6.2 million or 10.0%. Home appliance product sales consist of microwave ovens, wine coolers, small refrigerators, coffee makers, and toaster ovens;

ii) Emerson(R) branded products sales, excluding home appliances products, were $10.9 million in the second quarter of fiscal 2009 as compared to $17.5 million in the second quarter of fiscal 2008, a decrease of $6.6 million, or 37.7%, primarily resulting from decreased sales volumes in several audio product lines and the Ipod(R) compatible product category. For the six month period of fiscal 2009, sales of Emerson(R) branded products sales, excluding home appliances products, were $21.3 million as compared to $40.2 million for the six month period of fiscal 2008, a decrease of $18.9 million or 47.0%;

iii) Themed product sales were $3.5 million in the second quarter of fiscal 2009 compared to $2.6 million in the second quarter of fiscal 2008, an increase of $937,000, or 36.0%, primarily resulting from the recently introduced sales of a new line associated with Mattel(R) themed products in addition to a line that had also been sold in fiscal 2008. For the six month period of fiscal 2009, themed product sales were $4.2 million as compared to $4.8 million, a decrease of $625,000 or 13.1%. In addition to Mattel(R) themed products, the six month period of fiscal 2008 included sales of Nickelodeon(R) themed products which were discontinued after the first quarter of fiscal 2008;

iv) Licensing revenues increased approximately $174,000, or 10.2%, to $1.9 million in the second quarter of fiscal 2009 as compared to $1.7 million in the second quarter of fiscal 2008, primarily due to a settlement received from a licensee to end an arrangement and our video licensing arrangements. For the six month period of fiscal 2009, licensing revenues were $3.6 million as compared to $3.4 million for the six month period of fiscal 2008, an increase of $228,000 or 6.7%, largely as a result of our video licensing arrangements;

v) A reversal of the marketing fund accrual for iPod(R) compatible products resulted in an increase in net revenues in the amount of $1.1 million. The accrual was an accumulation of anticipated buydowns and other vendor concessions on product sold between 2006 and 2008, associated with the marketing of a second generation of these products which never materialized;

vi) Sales of a joint venture which was formed in fiscal 2008 for the primary purpose of manufacturing, selling, distributing, and/or licensing audio and video equipment for the home and/or office with sales of $410,000 in the second quarter of fiscal 2009 and $831,000 for the six months of fiscal 2009; and

vii) We charged fees of $2,000 in the second quarter of fiscal 2009 as compared to $7,000 in the second quarter of fiscal 2008 to Sansui Sales PTE, Ltd ("Sansui Sales") and Akai Sales PTE, Ltd ("Akai Sales"), both of which are related parties to us, for assistance in procuring their product from third-party suppliers. For the six month period of fiscal 2009, we charged fees of $15,000 for providing this service as compared to $92,000 in the six month period of fiscal 2008. In the second quarter of fiscal 2008, we charged commissions of $29,000 to Capetronic Displays Ltd, which is a related party to us, for importation assistance. In the second quarter of fiscal 2008, we sold to Sansui Sales and Akai Sales $3,000 of Sansui- and Akai- branded product which we sourced on their behalf from third-party suppliers. See Note 7 "Related Party Transactions".

Cost of Sales - In absolute terms, cost of sales decreased $4.0 million, or 7.8%, to $47.4 million in the second quarter of fiscal 2009 as compared to $51.4 million in the second quarter of fiscal 2008. In absolute terms, cost of sales was $85.4 million in the six month period of fiscal 2009 as compared to $96.6 million in the six month period of fiscal 2008. Cost of sales, as a percentage of net revenues, was 86.0% and 88.8% in the second quarters of fiscal 2009 and fiscal 2008, respectively, and 86.9% and 87.4% in the six month periods of fiscal 2009 and fiscal 2008, respectively. Cost of sales as a percentage of sales revenues less license revenues was 89.0% in the second quarter of fiscal 2009 as compared to 91.5% in the second quarter of fiscal 2008. Cost of sales as a percentage of sales revenues less license revenues was 90.3% in the six month period of fiscal 2009 as compared to 90.2% in the six month period of fiscal 2008. The decrease in cost of sales in absolute terms for the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 was primarily related to the decrease in sales volume, warehousing costs, import brokerage, and royalty expense offset by an increase in costs of personnel in Asia involved in quality assurance in production of our product, an increase in writedowns of inventory, and costs in fiscal 2009 associated with independent quality assurance consultants. The decrease in cost of sales as a percentage of net revenues for the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 was primarily related to decreased warehousing costs which largely resulted from higher inventory levels in the second quarter of fiscal 2008 offset by lower margins in several audio categories and an increase in quality assurance costs. The decrease in cost of sales in absolute terms for the six month period of fiscal 2009 as compared to the six month period of fiscal 2008 resulted from the decrease in sales volume and lower royalty expense offset by an increase in quality assurance costs. The decrease in cost of sales as a percentage of net revenues for the six months of fiscal 2009 as compared to the six months of fiscal 2008 resulted from decreased warehousing costs offset by an increase in quality assurance costs. In addition, a decrease in inventory reserves in the six month period of fiscal 2008 resulted primarily from the reduction of inventory levels of a discontinued themed-product line and returned, substandard goods which are not sold to retailers, which had been fully reserved at the end of the preceding fiscal year.
Gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the categories of the consumer electronics market in which we compete. Our products are generally placed in the low-to-medium priced category of the market, which has a tendency to be highly competitive.
Other Operating Costs and Expenses - As a percentage of net revenues, other operating costs and expenses were 2.9% in the second quarter of fiscal 2009 and 2.7% in the second quarter of fiscal 2008. For the six month periods of fiscal 2009 and fiscal 2008, other operating costs, as a percentage of net revenues, were 2.8% and 3.0%, respectively. In absolute terms, other operating costs and expenses increased $46,000, or 3.0%, to $1.6 million for the second quarter of fiscal 2009 as compared to $1.5 million in the second quarter of fiscal 2008 as a result of increased service costs. Also in absolute terms, other operating costs and expenses decreased $619,000, or 18.5%, to $2.7 million for the six month period of fiscal 2009 as compared to $3.3 million for the six month period of fiscal 2008 as a result of decreased warehousing costs offset by higher service costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage of net revenues, were 9.2% in the second quarter of fiscal 2009 and fiscal 2008. S,G&A, in absolute terms, decreased $235,000, or 4.4%, to $5.1 million for the second quarter of fiscal 2009 as compared to $5.3 million for the second quarter of fiscal 2008. The decrease in S,G&A in absolute terms between the second quarter of fiscal 2009 and second quarter of fiscal 2008 was primarily due to a decrease in variable selling expenses of $420,000 and legal fees of $360,000 offset by the payment of a claim by Capetronic for reimbursement of costs incurred on Emerson's behalf of $313,000 (see Note 7 - "Related Party Transactions"), an increase in advertising of $214,000, director fees of $112,000, and rent expense of $105,000. As a percentage of net revenues, S,G&A were 10.1% in the six month period of fiscal 2009 as compared to 9.3% in the six month period of fiscal 2008. In absolute terms, S,G&A decreased $384,000, or 3.7%, to $9.9 million for the six month period of fiscal 2009 as compared to $10.3 million for the six month period of fiscal 2008. The decrease in S,G&A in absolute terms between the six month periods of fiscal 2009 and fiscal 2008 was primarily due to a decrease in variable selling expenses of $742,000 and distribution consulting services of $104,000 offset by an increase in rent expense of $269,000.
Non Cash Compensation - Non cash compensation relates to stock options expense. For the second quarter of fiscal 2009, non-cash compensation costs were $18,000. For the second quarter of fiscal 2008, adjustments to non cash compensation expenses incurred in prior periods were recorded netting to a recovery of such costs of $266,000, or 0.5% of net revenues. These adjustments were the result of stock option forfeitures due to senior management and board of director changes. For the six month period of fiscal 2009, non-cash compensation costs were $36,000. For the six month period of fiscal 2008, adjustments to non cash compensation expenses incurred in prior periods were recorded netting to a recovery of such costs of $187,000, or 0.2% of net revenues.
Gain on sale of building - Emerson sold its office location in Macao to an unaffiliated buyer for approximately $2.0 million in the second quarter of fiscal 2008. The gain on the sale of this property was $854,000.
Interest Income (Expense), net - Interest income, net, was $49,000 in the second quarter of fiscal 2009 as compared to interest expense of $66,000. For the six month period of fiscal 2009, interest income, net, was $181,000 (0.2% of net revenues). For the six month period of fiscal 2008, interest income, net, was $167,000 (0.1% of net revenues), including interest income on a note receivable from a related party of $163,000. See Note 7 - "Related Party Transactions." Interest income, net, for the second quarter of fiscal

2009 was primarily comprised of interest earned on the auction rate securities net of interest expense on an outstanding balance on a line of credit. Interest expense, net, for the second quarter of 2008 was related to letter of credit purchases offset by interest earned on money market accounts.
Unrealized holding losses and realized gains on trading securities - In the second quarter of fiscal 2009, the Company recorded realized gains of $301,000 on redemptions and unrealized holding losses of $52,000 after evaluating the Company's investments in auction rate securities. For the six months of fiscal 2009, the Company recorded realized gains of $532,000 and unrealized holding losses of $21,000. The Company's valuation was estimated by comparing current value based on projected cash flows discounted to the present and taking into account yields of similar illiquid instruments and assumptions about the extent of the failure of the auction process and the amount of discounts exhibited in limited sales of comparable securities. For the second quarter of fiscal 2009, the Company based its valuation of one of the securities on the price extended in an offer from its broker to purchase from Emerson the securities of a particular CUSIP, which was discounted from principal, rather than the estimation method mentioned in the preceding sentence. See note 11 - Marketable Securities.
Provision for Income Taxes - The Company's provision for income taxes, which primarily represents the deferred tax charges associated with its profits in the United States, was $699,000 for the second quarter of fiscal 2009, or 1.3% of net revenues, as compared to a provision of $4.0 million for the second quarter of fiscal 2008, or 6.8% of net revenues. In the second quarter of fiscal 2008, Emerson increased its estimated liability for California franchise taxes for tax years 1979-1990 in the amount of $3.7 million. California franchise taxes are effectively tax on income and are recorded as such. See Note 6 - "Income Taxes". Separate from the increase in the liability associated with California franchise taxes, the Company's provision for income taxes, which primarily represents the deferred tax charges associated with its profits in the United States, resulted in a provision of $255,000 for the second quarter of fiscal 2008, or 0.4% of net revenues. For the six months of fiscal 2009, Emerson's provision for income taxes was $1.2 million, or 1.2% of net revenues. Separate from the increase in the liability associated with California franchise taxes, the provision for income taxes for the six month period of fiscal 2008 was $634,000, or 0.6% of net revenues.
Minority interest in net loss of a consolidated subsidiary - Minority interest of $39,000 in the second quarter of fiscal 2009 represents the share of net loss of the Company's joint venture formed in February 2008, Advanced Sound and Image, LLC ("ASI"), that is attributable to the equity of ASI that Emerson does not own. Because the minority share of accumulated losses has exceeded the minority shareholder's total equity in ASI, the Company has charged the excess loss of $84,000 to its interest in ASI for the second quarter of fiscal 2009. For the six month period of fiscal 2009, the share of net loss attributable to the equity of ASI that Emerson does not own was $133,000. Transactions between Emerson and ASI are eliminated in the consolidated financial statements. Net Income (Loss) - As a result of the foregoing factors, Emerson's net income was $687,000 (1.2% of net revenues) for the second quarter of fiscal 2009 as compared to net (loss) of $3.3 million in the second quarter of fiscal 2008. For the six month period of fiscal 2009, Emerson's net (loss) was $242,000 as compared to net (loss) of $2.8 million for the six month period of fiscal 2008. Liquidity and Capital Resources
As of September 30, 2008, Emerson had cash and cash equivalents of approximately $6.4 million, compared to approximately $7.4 million at September 30, 2007. Working capital decreased to $47.8 million at September 30, 2008 as compared to $63.8 million at September 30, 2007. The decrease in cash and cash equivalents of approximately $1.0 million was primarily due to investments in securities which have been classified as long-term and property and equipment additions, partially offset by an amount received from a new revolving loan agreement as described in the following paragraphs.
Operating cash flow used by operating activities was approximately $15.9 million for the six months ended September 30, 2008, resulting from purchases of inventory, growth in accounts receivable on our direct import sales, which represent sales under letter of credit arrangements, and the amount of restricted cash for balances pledged to assure the availability of credit facilities. The decrease in cash was primarily offset by increases in amounts payable for purchasing Emerson's products, which are settled primarily through the use of letters of credit but also on open account.
Net cash provided by investing activities was $3.8 million for the six months ended September 30, 2008 and resulted primarily from partial calls on the auction rate securities offset by purchases of showroom furniture and computer equipment for the Company's US operations as well as tooling by a foreign subsidiary related to sourcing of product.
Net cash provided by financing activities was $4.1 million for the six months ended September 30, 2008, resulting from the amount received from a new revolving loan agreement. See Note 8 - "Borrowings".
On December 23, 2005, we entered into a $45.0 million Revolving Credit Agreement with Wachovia Bank. This credit facility provides for revolving loans subject to individual maximums which, in the aggregate, are not to exceed the lesser of $45.0 million or a "Borrowing Base" as defined in the loan agreement. The Borrowing Base amount is established by specified percentages of eligible

accounts receivables and inventories and bears interest ranging from Prime plus 0.00% to 0.50% or, at our election, LIBOR plus 1.25% to 2.25% depending on excess availability. Pursuant to the loan agreement, the Company is restricted from, among other things, paying certain cash dividends, and entering into certain transactions without the lender's prior consent and are subject to certain leverage financial covenants. Borrowings under the loan agreement are secured by substantially all of the Company's tangible assets.
At September 30, 2008, there were approximately $32.2 million of letters of credit outstanding under this facility. There were no borrowings outstanding at September 30, 2008 under this facility. At September 30, 2008, the Company was in compliance with the covenants on its credit facilities.
On August 7, 2008, Emerson entered into a revolving loan agreement with Citigroup Global Markets Inc. The limit of the credit facility was determined as a percentage of the outstanding principal value of the Company's auction rate securities as of the date of the agreement. The loan is secured by the sum of all cash and other securities maintained by us in the Company's accounts with Citigroup Global Markets Inc. The agreement compels Emerson to keep the aforementioned cash and securities free of security interests, liens, or other impediments to transfer which do not favor Citigroup Global Markets, and Emerson may not pledge the collateral to a different third-party. All payments received in respect of securities in the Company's accounts, including interest received and redemptions of principal, may be applied against the Company's outstanding loan balance and accrued interest thereon at the sole discretion of Citigroup Global Markets Inc. There is no specific term for the credit facility, and full or partial payment of the loan principal and accrued interest may be demanded at any time by Citigroup Global Markets Inc. Interest on the outstanding loan balance is calculated at the Federal Open Market Rate plus 1.1% to 1.5%.
At September 30, 2008 were approximately $4.1 million of borrowings outstanding under this facility.
As of September 30, 2008 the Company has maintained $3.0 million on deposit with Wachovia Bank, to secure on a dollar for dollar basis, additional letter of credit availability. As such, this amount has been classified on the balance sheet as restricted cash.
Short-Term Liquidity. Liquidity is impacted by seasonality in that Emerson generally records the majority of its annual sales in the quarters ending September and December. This requires Emerson to maintain higher inventory levels during the quarters ending June and September, therefore increasing the working capital needs during these periods. Additionally, Emerson receives the . . .