Electrohome announces first quarter results



    TORONTO, Feb. 12 /CNW/ -

    Management Discussion and Analysis - dated February 12, 2008
    ----------------------------------

    The following comments and the accompanying unaudited interim financial
statements of Electrohome Limited ("Electrohome" or the "Corporation") for the
three months ended December 31, 2007 have been prepared by management and
approved by the Board of Directors of the Corporation. These interim financial
statements and MD&A ("interim filings") have been certified by the CEO and CFO
of the Corporation.
    These comments and financial statements should be read in conjunction
with the Corporation's September 30, 2007 audited consolidated financial
statements, which form part of the Electrohome Limited 2007 Annual Report
dated November 8, 2007.
    This report contains certain "forward looking statements" that involve a
number of risks and uncertainties. There can be no assurance that such
statements will prove to be accurate and future events could differ materially
from those anticipated.
    Additional information pertaining to the Corporation's regulatory filings
including annual reports, annual information forms, management information
circulars, etc. can be found on the SEDAR website at www.sedar.com.

    Description of the Business
    ---------------------------

    Electrohome's business is that of a holding company with a 26% interest
in Mechdyne Corporation which is the largest international company operating
exclusively in the advanced visualization marketplace. During the first
quarter of fiscal 2008 the Corporation recorded its final quarter of royalty
income. Going forward, there will be no further royalty income as its
trademarks were sold for $1.5 million effective January 1, 2008, (netting
$887,000 after associated cash advances and fees from the purchaser were
deducted). This transaction will be recorded in the second quarter of fiscal
2008. Electrohome's obligations primarily consist of post-employment benefit
costs, general and administrative expenses and environmental remediation
associated with a previously discontinued operation.

    Results from Operations - Three Months Ended December 31, 2007
    --------------------------------------------------------------

    A loss of $295,000 for the first quarter compares to a loss of $115,000
last year.
    Royalty income for the quarter of $78,000 compares to $112,000 last year.
The decrease was primarily due to a larger than anticipated shift in consumer
television purchases (of the major licensee) from CRT to LCD models and also
from a first time decline in DVD player sales. There was no investment income
from marketable securities during the current quarter as they were completely
sold prior to the Corporation's year end on September 30, 2007. Investment
income for the same quarter last year was $43,000.
    Retiree post-employment benefit costs and general and administrative
expenses were $373,000 for the current quarter which compares to $270,000 last
year. The increase was due to a non-cash pension expense of $133,000
associated with a settlement for one of two members in the supplementary
pension plan. Excluding this adjustment, expenses for the current quarter were
$240,000 which is a $30,000 decrease versus last year.

    
    Summary of Quarterly Information for the Last Eight Quarters

    -------------------------------------------------------------------------
    (thousands
     except per
     share    Dec 31  Sep 30  Jun 30  Mar 31  Dec 31  Sep 30  Jun 30  Mar 31
     amounts)   2007    2007    2007    2007    2006    2006    2006    2006
    -------------------------------------------------------------------------
    Royalties $   78  $   80  $   69  $   79  $  112  $  104  $   79  $   69
    Investment
     income        -       -       7       4      43      20      11      52
    Total
     revenue      78      80      76      83     155     124      90     121
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Earnings
     (loss) from
     continuing
     operations (295)   (169)   (184)    110    (115)   (151)   (228)   (189)
      - Per
       share
       basic   (0.03)  (0.02)  (0.02)   0.01   (0.01)  (0.01)  (0.03)  (0.02)
      - Per
       share
       diluted (0.03)  (0.02)  (0.02)   0.01   (0.01)  (0.01)  (0.03)  (0.02)
    -------------------------------------------------------------------------
    Net earnings
     (loss)     (295)   (442)   (184)    110    (115)   (151)   (228)   (189)
      - Per
       share
       basic   (0.03)  (0.05)  (0.02)   0.01   (0.01)  (0.02)  (0.02)  (0.02)
      - Per
       share
       diluted (0.03)  (0.05)  (0.02)   0.01   (0.01)  (0.02)  (0.02)  (0.02)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Notes:       1        2              3
    -------------------------------------------------------------------------
    1.  Includes a $133,000 non-cash pension expense associated with the
        settlement with one of the two members in the supplemental pension
        plan.
    2.  Includes a $273,000 discontinued operation expense associated with
        environmental remediation of a historic property.
    3.  Includes a $328,000 gain from receipt of surplus funds from the
        Hourly Pension Plan.
    

    Liquidity and Cash Flows

    During the first quarter of fiscal 2008 cash increased $73,000. Cash was
generated from advances made by the purchaser of the Corporation's trademarks
of $300,000, which was repaid January 1, 2008. Cash used by operations was
$227,000.
    During the first quarter of fiscal 2007 cash increased $10,000. Cash was
generated by the sale of marketable securities of $275,000. Cash was used by
operations of $248,000 and was used to reduce other liabilities of $17,000.
    Going forward, the Corporation's cash inflows will consist only of
proceeds from the sale of assets. The Corporation sold its trademarks
effective January 1, 2008 for $1,500,000 which was reduced by advances and
fees from the purchaser resulting in net proceeds of $887,000 received in
January, 2008. Cash inflows may be periodically increased as the Corporation
monetizes its remaining assets, however, due to the nature of these assets,
the timing and amount of any potential proceeds is unknown. The Corporation's
present cash outflows consist of corporate administration, retiree benefit
costs and environmental costs, which are approximately $1,200,000 annually.
Below is a chart which sets out the Corporation's long-term obligations. The
Corporation's cash inflows and outflows are subject to fluctuation.

    Long-Term Obligations

    The Corporation has several long-term obligations as set out in the table
below.

    
    As at December 31, 2007 (thousands)
    -------------------------------------------------------------------------
                                       Current   13 - 36   37 - 60        60
                               Total   / 12 Mo.       Mo.       Mo.    Mo. +
    -------------------------------------------------------------------------
    Executive supplemental
     pension(1,2)            $   659   $   192   $     -   $     -   $   467
    Post-employment health
     benefits(1)                 950        86       271       183       410
    Environmental                489       202       209        78         -
    Long-term disability
     payments                     30        12        18         -         -
    -------------------------------------------------------------------------
    Total(2)                 $ 2,128   $   492   $   498   $   261   $   877
    -------------------------------------------------------------------------
    1.  actuarially determined - these figures represent the present value of
        future cash outflows.
    2.  the payment schedule takes into account a $1.5 million deposit in an
        associated Retirement Compensation Arrangement.
    

    Based on the Corporation's current information as well as certain
assumptions regarding the monetization of assets, the Corporation anticipates
that it will be capable of meeting its financial obligations over the next 12
months. See comments under Risks and Uncertainties.

    Critical Accounting Estimates

    The financial statements are prepared using a number of accounting
estimates. A discussion of the critical accounting estimates is as follows:

    Investment in Mechdyne
    ----------------------

    The carrying value of the Corporation's investment in Mechdyne was set at
$4,000,000 during the fourth quarter of fiscal 2004 based on a valuation range
by an Accredited Senior Appraiser ("ASA"). The same ASA provided an updated
valuation in September 2007. Based on these valuations, the Corporation
currently believes that its carrying value is appropriate, however, it may be
subject to future adjustments. The Corporation is also aware, however, that
the ASA's estimate is subject to risk as its assessment is based on
assumptions about certain events that may or may not occur. See the comments
under Risks and Uncertainties.

    Environmental Accrual
    ---------------------

    The environmental liability is based on an ongoing analysis by an
independent third party environmental consulting firm that has been associated
with the remediation of the property in question since 1991. It is estimated
that the property had contaminants dumped on it in the early to mid-1900s. The
remediation process continues to be monitored and regulated by the Ontario
Ministry of the Environment ("MOE") under a Certificate of Approval. It is the
Corporation's position at December 31, 2007 that the carrying value of this
liability is appropriate, however, it may be subject to future adjustments. As
remediation activities occur, they are recorded as a reduction to the accrual,
however, they require an outflow of cash. The Corporation is also aware that
the consultant's judgment is subject to risk as its assessment is based on
assumptions about certain events that may or may not occur.

    Post-Retirement Health and Pension Benefits
    -------------------------------------------

    The pension and post-employment health benefits are calculated based on
assumptions of management with the assistance of an independent actuary and
consulting firm. These assumptions include liability discount rates, health
care cost trend rates, mortality rates, etc. These assumptions require
significant judgment and therefore have inherent risk and uncertainty
associated with them as follows:

    
    -   With regards to the executive supplemental pension, the actuarial
        estimate is based on a small population, which results in a greater
        degree of uncertainty.

    -   With regards to the post-retirement health benefits, management
        implemented certain adjudication procedures in February 2005 which
        are now providing cost savings and effective October 1, 2007 further
        cost reduction changes were made to the plan. As a result, during the
        first quarter of fiscal 2008, the Corporation commissioned an
        actuarial valuation of the plan which resulted in an unrecognized
        actuarial gain of $490,000 to be amortized over the average remaining
        life of the plan members. Other factors, however, such as rising
        health care costs and potential changes to the Ontario Drug Benefit
        Program, may also have a positive or negative impact on the remaining
        obligation. These are issues that require further analysis and
        consideration.

    -   With regards to the salary pension plan, the Corporation has recorded
        a valuation allowance against the assets based on management's
        estimate of the Corporation's ability to realize on those assets.
    

    Income Taxes
    ------------

    Since the Corporation has determined it does not meet the "more likely
than not" test required by CICA Handbook Section 3465, Income Taxes, potential
future income tax assets of $8,065,000, at September 30, 2007, as set out in
Note 8 to the Consolidated Financial Statements in the Corporation's 2007
Annual Report, have not been recorded. This determination is based on the
Corporation's historical results from operations. The Corporation may change
its estimate if it establishes a strong earnings history or other evidence to
support a "more likely than not" conclusion, that the benefit of the potential
income tax assets will be realized in the future. A change in estimate of the
future income tax asset valuation allowance will be reflected as a recovery of
income taxes in the period for which the estimate changes.

    Risks and Uncertainties

    Going Concern
    -------------

    These financial statements have been prepared on a going concern basis in
accordance with Canadian generally accepted accounting principles ("GAAP").
The going concern basis of presentation assumes that the Corporation will
continue in operation for the foreseeable future and be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business. There is doubt about the appropriateness of the use of the going
concern assumption because going forward, the Corporation's cash inflows will
consist of one final royalty payment in the second quarter (for the quarter
ended December 31, 2007) and proceeds from the sale of the Corporation's
trademarks (effective January 1, 2008) for $1,500,000, which were reduced by
advances made by the purchaser plus associated fees. The net proceeds from the
sale which were received in early January 2008 were $887,000. Cash inflows may
also be periodically increased as the Corporation monetizes its remaining
assets, however, the timing of such inflows is unknown. Current annual cash
outflows of the Corporation are approximately $1,200,000. Consequently, given
the status quo, it is estimated that the Corporation would run out of funds in
the first quarter of fiscal 2009. As a result, the Corporation continues to
explore the monetization of its remaining assets at which time it expects to
fulfill its obligations.
    The ability of the Corporation to continue as a going concern and to
realize on the carrying value of its assets and discharge its liabilities when
due, is dependent on the successful completion of certain actions, which
management believes will mitigate (at least for a period of 12 months) the
condition which raises doubt about the validity of the going concern
assumption used in preparing these financial statements. There is, however, no
absolute certainty that the planned actions will be sufficient under all
circumstances to permit the Corporation to continue to operate during the next
12 months.
    The financial statements do not reflect any adjustments that would be
necessary if the going concern assumption were not appropriate. If the going
concern basis was not appropriate for these financial statements, then
adjustments would be necessary in the carrying value of assets and
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.

    Other
    -----

    Mechdyne continued to make good progress in its fiscal performance
through fiscal 2007 and into fiscal 2008. It is forecast that this progress
will continue through the foreseeable future. Mechdyne operates in a market in
which there are various uncertainties and risks. While its technology and
products continue to become more commercially acceptable, its revenue is
generally dependent on the availability of funds for large capital
expenditures. Mechdyne primarily competes with a few international
corporations whose main hardware and software products address the large
screen, high resolution projection business. More information about Mechdyne
can be found on its website at www.mechdyne.com.
    The Corporation's two registered pension plans are in the process of
being wound-up. The assets in the Hourly Plan have now been distributed as
approved by the Financial Services Commission of Ontario and the Corporation
is in the final stages of dissolving this Plan. At the time of the Salaried
Plan wind-up on December 31, 2003, based on an actuarial report as of that
date, the Salaried Plan was reported to have over a $1,000,000 surplus.
However, since that time there have been unfavourable changes in long-term
interest rates, which could result in a potential funding cost in the future.
The likelihood of the need for the Corporation to pay such funding cost to the
Salaried Plan cannot be ascertained at the moment as it depends on a number of
factors including the change in costs of purchasing annuities. In addition,
the July 2004 Monsanto court ruling dealing with surpluses at the time of any
partial plan wind-up, of which the Corporation had four in respect of its
Salaried Plan between 1990 and 1992, has added to the complexity of this
issue. The Corporation is continuing to investigate its options with regard to
purchasing annuity contracts, as well as the need and means of funding this
potential cost, if required.
    Similarly, there is uncertainty associated with the total obligation
amounts of the supplemental pension plan and the post-employment health
benefit plan, both of which are based on a number of assumptions.
    During the fourth quarter of fiscal 2007, the Corporation increased its
accrual by $273,000 for the environmental remediation of its remaining
historic properties. The additional accrual was based on new information
provided by the Corporation's consultants which was largely affected by ever
increasing remediation requirements of the Ministry of the Environment. The
Corporation believes that the current accrual is adequate, however, until such
time as the property has been satisfactorily remediated, there remains
uncertainty regarding this obligation and the disposition of this asset.
    During the first quarter of fiscal 2008, the Corporation made a
settlement with one of the two members in the supplementary pension plan
effectively removing the associated assets and liability from the Corporation.
The result of this transaction was a non-cash expense of $133,000.

    
    Capital Stock

                                                                 Options (*)
    Description                          Authorized      Issued  Outstanding
    -------------------------------------------------------------------------
    Class X voting participating shares   5,000,000   1,800,127          Nil
    Class Y non-voting participating
     shares                              10,000,000   7,323,277       50,000
    -------------------------------------------------------------------------
    (*) Options Outstanding

                                                                    Exercise
    Option Expiry Date                           No. of Options        Price
    -------------------------------------------------------------------------
    February 12, 2008                                    50,000        $1.51
    -------------------------------------------------------------------------
    Note:  The closing prices of Class X voting shares and Class Y non-voting
           shares on December 31, 2007 were $0.100 and $0.650 respectively.
    

    Related Party Transactions

    Mr. John A. Pollock, Chairman, President, Chief Executive Officer
("CEO"), director and controlling shareholder, provides his services as
Chairman, President and CEO under a consulting agreement at the rate of
$88,000 annually. The CEO's compensation is determined by the independent
members of the Corporation's board.

    Note, the Corporation's discussion of Disclosure Controls and Procedures
and Internal Control Over Financial Reporting have not changed from the
Management Discussion and Analysis included in the September 30, 2007 annual
report.

    Outlook

    Going forward, the Corporation's cash position will be influenced by a
small amount of investment income from its cash balance, but primarily from
the sale of the Corporation's remaining assets, the timing and amount of which
is unknown. The current cash outflows consist of post-employment benefit costs
and general and administrative expenses.
    Electrohome's shares are traded on the NEX board of the TSX Venture
Exchange under the symbols ELL.H and ELL.K. Trading data for these shares can
be found on www.tsx.com/en/nex/index.html. Electrohome's regulatory filings
including its Annual Report, Audited Financial Statements, Management
Discussion and Analysis, Proxy Information Circular, Annual Information Form
and all other interim filings can be found on www.sedar.com. Also visit
Electrohome's website at www.electrohome.com.

    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.


    
                             Electrohome Limited
                       Unaudited Financial Statements

    -------------------------------------------------------------------------
    BALANCE SHEETS                                         As At       As At
                                                          Dec 31      Sep 30
    -------------------------------------------------------------------------
    (thousands)                                             2007        2007
    -------------------------------------------------------------------------
    Assets                                                          (audited)
    Current assets
      Cash                                              $    276    $    203
      Accounts receivable                                     81          83
      Prepaid expenses                                        17          27
    -------------------------------------------------------------------------
                                                             374         313
    -------------------------------------------------------------------------
      Capital assets, net of amortization                      7           7
      Investment in Mechdyne Corporation                   4,000       4,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        $  4,381    $  4,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Liabilities & shareholders' equity
    Current liabilities
    Accounts payable and accrued liabilities            $    100    $     76
    Loan payable                                             600         300
    Current portion of other liabilities                     550         581
    -------------------------------------------------------------------------
                                                           1,250         957
    -------------------------------------------------------------------------
    Other liabilities                                      1,720       1,658
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock                                          7,086       7,086
    -------------------------------------------------------------------------
    Contributed surplus                                       18          17
    -------------------------------------------------------------------------
      Retained earnings (deficit)                         (4,578)     (4,283)
      Accumulated other comprehensive income              (1,115)     (1,115)
    -------------------------------------------------------------------------
                                                          (5,693)     (5,398)
    -------------------------------------------------------------------------
                                                           1,411       1,705
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        $  4,381    $  4,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME          Three Months Ended
     AND RETAINED EARNINGS                                     December 31
    -------------------------------------------------------------------------
    (thousands, except per share amounts)                   2007        2006
    -------------------------------------------------------------------------
    Revenue
      Royalty income                                    $     78    $    112
      Investment income from marketable securities             -          43
    -------------------------------------------------------------------------
    Total revenue                                             78         155
    -------------------------------------------------------------------------
    Expenses and other items
      General and administrative                            (373)       (269)
      Amortization                                             -          (1)
    -------------------------------------------------------------------------
                                                            (373)       (270)
    -------------------------------------------------------------------------
    Net earnings (loss) and comprehensive income (loss)     (295)       (115)
    Retained earnings (deficit) at beginning of period    (4,283)     (3,652)
    -------------------------------------------------------------------------
    Retained earnings (deficit) at end of period        $ (4,578)   $ (3,767)
    -------------------------------------------------------------------------

    Weighted average shares outstanding (000's)            9,123       9,123
    Earnings (loss) per share                           $  (0.03)   $  (0.01)
    -------------------------------------------------------------------------
    Earnings (loss) per share diluted                   $  (0.03)   $  (0.01)
    -------------------------------------------------------------------------
    Certain comparative figures have been restated to conform with the
    current period's presentation.

    See Notes to the Financial Statements



                             Electrohome Limited
                       Unaudited Financial Statements

    -------------------------------------------------------------------------
    CASH FLOW STATEMENTS                                  Three Months Ended
                                                              December 31
    -------------------------------------------------------------------------
    (thousands)                                             2007        2006
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net earnings (loss)                                 $   (295)   $   (115)
    Items not affecting cash:
      Amortization                                             -           1
      Stock-based compensation                                 1           1
      Investment income from marketable securities             -         (43)
      Net decrease in defined benefit plans                   89         (34)
    Change in non-cash working capital                       (22)        (58)
    -------------------------------------------------------------------------
                                                            (227)       (248)
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Loan payable                                             300           -
    Reduction in other liabilities                             -         (17)
    -------------------------------------------------------------------------
                                                               -         (17)
    -------------------------------------------------------------------------
    Cash flows from investing activities
    Redemption of marketable securities                        -         275
    -------------------------------------------------------------------------
                                                               -         275
    -------------------------------------------------------------------------

    Increase (decrease) in cash                               73          10
    Cash at beginning of period                              203          87
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash at end of period                               $    276    $     97
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Certain comparative figures have been restated to conform with the
    current period's presentation.
    

    See Notes to the Financial Statements
    -------------------------------------------------------------------------

    Notes to the Financial Statements
    For the three months ended December 31, 2007

    In accordance with CICA Handbook Section 1751 regarding Interim Financial
Statements, these financial statements do not include all the disclosure
required by generally accepted accounting principles applicable to annual
financial statements and therefore, should be read in conjunction with the
September 30, 2007 annual financial statements.
    These interim financial statements follow the same accounting policies
and methods of their application as the September 30, 2007 annual financial
statements, except as noted below.

    Going Concern

    These financial statements have been prepared on a going concern basis in
accordance with Canadian generally accepted accounting principles ("GAAP").
The going concern basis of presentation assumes that the Corporation will
continue in operation for the foreseeable future and be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business. There is doubt about the appropriateness of the use of the going
concern assumption because going forward, the Corporation's cash inflows will
consist of one final royalty payment in the second quarter (for the quarter
ended December 31, 2007) and proceeds from the sale of the Corporation's
trademarks (effective January 1, 2008) for $1,500,000, which were reduced by
advances made by the purchaser plus associated fees. The net proceeds from the
sale which were received in early January 2008 were $887,000. Cash inflows may
also be periodically increased as the Corporation monetizes its remaining
assets, however, the timing of such inflows is unknown. Current annual cash
outflows of the Corporation are approximately $1,200,000. Consequently, given
the status quo, it is estimated that the Corporation would run out of funds in
the first quarter of fiscal 2009. As a result, the Corporation continues to
explore the monetization of its remaining assets at which time it expects to
fulfill its obligations.
    The ability of the Corporation to continue as a going concern and to
realize on the carrying value of its assets and discharge its liabilities when
due, is dependent on the successful completion of certain actions, which
management believes will mitigate (at least for a period of 12 months) the
condition which raises doubt about the validity of the going concern
assumption used in preparing these financial statements. There is, however, no
absolute certainty that the planned actions will be sufficient under all
circumstances to permit the Corporation to continue to operate during the next
12 months.
    The financial statements do not reflect any adjustments that would be
necessary if the going concern assumption were not appropriate. If the going
concern basis was not appropriate for these financial statements, then
adjustments would be necessary in the carrying value of assets and
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.

    Defined Benefit Costs

    During the first quarter of fiscal 2008, the Corporation expensed
$135,000 (2007 - $74,000) related to its defined benefit plans, which was
primarily related to a recognized actuarial loss associated with a settlement
with one of the two members in the supplementary pension plan.

    Sale of Trademarks/Bridge Financing

    During the second quarter of fiscal 2007 the Corporation entered into an
agreement for the sale of Electrohome's trademarks and a related licensing
agreement for $1,500,000. The sale closed on January 1, 2008. During the third
quarter of fiscal 2007, Electrohome entered into an advanced payment agreement
associated with the sale of its trademarks, which provided bridge financing to
the corporation until proceeds were received from the sale on January 1, 2008.
The advanced payment agreement carried a 7.0% interest rate and nominal fees,
which were deducted from the proceeds of the sale of the trademarks netting
$887,000. Proceeds from the sale will be used to fund operations while
Electrohome's remaining assets and liabilities continue to be monetized and/or
resolved.

    Retiree Health Benefit Plan

    During the fourth quarter of fiscal 2008, the Corporation commissioned an
actuarial valuation of its retiree health benefit plan which resulted in an
unrecognized actuarial gain of $490,000 to be amortized over the average
remaining life of the plan members.





For further information:

For further information: John A. Pollock, Chairman and Chief Executive
Officer, or Gary Dumoulin, Vice-President, Chief Financial Officer and
Secretary, at (519) 749-3319

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ELECTROHOME LIMITED

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