Electrohome announces third quarter results



    TORONTO, Aug. 8 /CNW/ -

    Management Discussion and Analysis - dated August 8, 2007
    ----------------------------------
    The following comments and the accompanying unaudited interim financial
statements of Electrohome Limited ("Electrohome" or the "Corporation") for the
three and nine months ended June 30, 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, 2006 audited consolidated financial
statements, which form part of the Electrohome Limited 2006 Annual Report
dated November 8, 2006.
    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 principally that of a holding company with a
31% interest in Mechdyne Corporation ("Mechdyne" - previously referred to as
Fakespace Systems) which is the largest international company operating
exclusively in the advanced visualization marketplace. The Corporation also
receives royalty income under two licensing agreements for the use of the
Electrohome brand name. Electrohome's obligations primarily consist of
post-employment benefit costs, and environmental remediation associated with a
previously discontinued operation.

    Financial Highlights
    --------------------
    Financial results for the Corporation consist of Royalties from licensing
agreements and investment income from marketable securities, and the
Corporation's Head Office expenses, which include post-employment benefit
costs and general and administrative expenses.

    Results from Operations - Three Months Ended June 30, 2007

    A loss of $184,000 for the third quarter compares to a loss of $228,000
last year.
    Royalty income for the quarter of $69,000 compares to $79,000 last year.
Investment income from marketable securities was $7,000 versus $11,000 last
year. The decrease is a result of a lower investment base due to sale of
marketable securities during the past 12 months.
    Retiree post-employment benefit costs and general and administrative
expenses were $260,000 for the current quarter which compares to $318,000 last
year. The decrease is due to a general reduction of expenses.

    Results from Operations - Nine Months Ended June 30, 2007

    A loss for the nine months of fiscal 2007 of $189,000 compares to a loss
of $715,000 last year.
    Royalty income of $260,000 compares to $345,000 last year. The decrease,
which primarily occurred in the first quarter was due to personnel changes at
two major customers of one of the licensees, as business relationships had to
be re-established.
    Investment income from marketable securities for the nine months was
$54,000 which compares to $130,000 last year. The decrease is a result of a
lower investment base due to the sale of marketable securities during the past
12 months.
    Retiree post-employment benefit costs and general and administrative
expenses were $829,000 for the nine months which compares to $1,188,000 last
year. Last year's figures include a pension adjustment in the first quarter of
$251,000. Excluding this item, fiscal 2006 year-to-date expenses were
$937,000. The decrease this year is due to a general reduction of expenses.
    During the second quarter of fiscal 2007, the Corporation realized a net
gain of $328,000 for surplus received from the Hourly Pension Plan under a
surplus sharing arrangement with the members of that Plan.

    
    Summary of Quarterly Information for the Last Eight Quarters

    -------------------------------------------------------------------------
    (thousands except   Jun    Mar    Dec    Sep    Jun    Mar    Dec    Sep
     per share           30     31     30     30     30     31     31     30
     amounts)          2007   2007   2006   2006   2006   2006   2005   2005
                       ----   ----   ----   ----   ----   ----   ----   ----
    -------------------------------------------------------------------------

    Royalties         $  69  $  79  $ 112  $ 104  $  79  $  69  $ 197  $ 116
    Investment income     7      4     43     20     11     52     67     57
    -------------------------------------------------------------------------
    Total revenue        76     83    155    124     90    121    264    173
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Earnings (loss)
     from continuing
     operations        (189)   110   (115)  (151)  (228)  (189)  (298)  (570)
      - Per share
        basic         (0.02)  0.01  (0.01) (0.01) (0.03) (0.02) (0.03) (0.06)
      - Per share
        diluted       (0.02)  0.01  (0.01) (0.01) (0.03) (0.02) (0.03) (0.06)
    -------------------------------------------------------------------------
    Net earnings
     (loss)            (189)   110   (112)  (151)  (228)  (189)  (298)  (570)
      - Per share
        basic         (0.02)  0.01  (0.01) (0.01) (0.03) (0.02) (0.03) (0.06)
      - Per share
        diluted       (0.02)  0.01  (0.01) (0.01) (0.03) (0.02) (0.03) (0.06)
    -------------------------------------------------------------------------
    Notes:                     1                                  2      3
    -------------------------------------------------------------------------

    1.  Includes a $328,000 gain from receipt of surplus funds from the
        Hourly Pension Plan.
    2.  Includes a $251,000 write off of deferred pension expense.
    3.  Includes a $500,000 write off of Immersion Studios Inc.
    


    Liquidity and Cash Flows

    During the third quarter of fiscal 2007 cash decreased $120,000. Cash was
generated by the sale of marketable securities ($175,000), and it was used by
operations ($295,000).
    During the third quarter of fiscal 2006, cash decreased $50,000. Cash was
generated by the sale of marketable securities ($350,000) and it was used by
operations ($375,000) and to reduce other liabilities ($25,000).
    For the nine months ended June 30, 2007, cash increased $4,000. Cash was
generated by the sale of marketable securities ($550,000). It was used by
operations ($529,000) and to reduce other liabilities ($17,000).
    For the nine months ended June 30, 2006, cash decreased $22,000. Cash was
generated by the sale of marketable securities ($975,000) and it was used by
operations ($922,000) and to reduce other liabilities ($75,000).
    The Corporation's present cash inflows consist of royalties and
investment income from marketable securities which together currently generate
approximately $450,000 annually. The Corporation has entered into an agreement
to sell its trademarks effective January 1, 2008 for $1.5 million; after that
date the Corporation will no longer receive any royalty income. Cash inflows
may be periodically increased as the Corporation monetizes some of its
remaining assets, however, due to the nature of these assets, this may take
several years. The Corporation's present cash outflows consist of corporate
administration and retiree benefit costs, which are approximately $1,200,000
annually. These are anticipated to reduce each year as certain liabilities are
satisfied. Below is a chart which sets out the Corporation's long-term
obligations. Both 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 June 30, 2007 (thousands)
    -------------------------------------------------------------------------
                                          Current    13-36    37-60       60
    Item                           Total   /12 Mo.      Mo.      Mo.   Mo. +
    -------------------------------------------------------------------------

    Executive supplemental
     pension(1,2)                $ 2,659  $   247  $   642  $   351  $ 1,419
    Post-employment
     health benefits(1)            1,790      166      434      240      950
    Environmental                    282      219       63        -        -
    Long-term disability payments     35       12       23        -        -
    Facility lease                    17       17        -        -        -
    -------------------------------------------------------------------------
    Total(2)                     $ 4,783  $   661  $ 1,162  $   591  $ 2,369
    -------------------------------------------------------------------------
    (1) actuarially determined - these figures represent the present value of
        future cash outflows
    (2) the payment schedule does not take into account a $2.1 million
        deposit in an associated Retirement Compensation Arrangement which
        will be used to partially offset the above payment schedule
    

    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 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 a Certified Business Valuator ("CBV"). The Corporation is aware, however,
that the CBV's estimate is subject to risk as its assessment is based on
assumptions about certain events that may or may not occur. The Corporation
currently believes that its carrying value is appropriate, however, it may be
subject to future adjustments. 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 June 30, 2007 that this liability has been
adequately reserved for, however, any activities 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, however, other factors 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 as their long-term funding is problematic.

    -   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 $10,331,000, at September 30, 2006, as set out in
Note 5 to the Consolidated Financial Statements in the Corporation's 2006
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.

    Changes in Accounting Policies
    ------------------------------
    In January 2005, the CICA issued Section 1530, "Comprehensive income" and
Section 3855, "Financial instruments - recognition and measurement". The new
standards are effective for interim and annual financial statements commencing
with this first quarter of fiscal 2007.

    Comprehensive income:
    ---------------------
    Comprehensive income introduces a new requirement to present, among other
things, certain unrealized gains and losses outside of net income or loss.
Section 1530 defines comprehensive income as a change in net assets arising
from transactions and other events and circumstances from non-owner sources.
The new standard requires presentation of a statement of comprehensive income,
which has been combined with the former statement of earnings and retained
earnings. Foreign exchange gains and losses on the translation of the
financial statements of self-sustaining subsidiaries, previously recorded in a
separate section of shareholders' equity, are now presented as accumulated
other comprehensive income. Financial assets that are classified as available
for sale could have revaluation gains and losses included in other
comprehensive income until the asset is removed from the balance sheet. At
present, the Corporation's only available for sale financial asset is its
investment in Mechdyne Corporation.

    Financial instruments:
    ----------------------
    The new standard for financial instruments prescribes when a financial
instrument is to be recognized on the balance sheet and at what amount. It
also specifies how gains and losses on financial instruments are to be
presented. Financial instruments are classified into various categories. Held
to maturity investments, loans and receivables are measured at amortized cost,
with amortization of premium or discounts, losses and impairment included in
current period interest income or expense. Held for trading financial assets
and liabilities are measured at fair market value with all gains and losses
included in net income in the period in which they arise. Available for sale
financial assets are measured at fair market value, except where the
instrument does not have a quoted market price in an active market, with
revaluation gains and losses included in other comprehensive income until the
asset is removed from the balance sheet, and losses due to impairment are
included in net income. All other financial liabilities are to be carried at
amortized cost. The Corporation's financial instruments include cash,
marketable securities, accounts receivable, its investment in Mechdyne
Corporation and accounts payable.
    The Corporation's marketable securities, previously recorded at the lower
of cost or fair value, are now classified as held for trading and are carried
at fair value and the changes in the fair value will be recorded as income or
loss in the statement of earnings.
    The Corporation considers its most significant asset, its investment in
Mechdyne Corporation, to be an available for sale asset. It has been
determined that the carrying value of this investment does not require an
adjustment at this time.

    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 the Corporation has limited liquid assets and its
current annual cash inflow of approximately $450,000 is short of its current
cash outflow of approximately $1,200,000. Consequently, given the status quo,
it is estimated that the Corporation would run out of funds in the fourth
quarter of fiscal 2007. However, the Corporation entered into an advanced
payment agreement associated with the sale of its trademarks, which permits
the company to receive cash advances from the purchaser of the trademarks.
This allows the company to fund its operations in lieu of a bank loan, which
it would otherwise require, until the proceeds from the sale of the trademarks
are received. Any funds advanced up to the closing date of January 1, 2008,
will be deducted from the proceeds of the $1,500,000 sale price. It is
anticipated that the company will require an advance of at least $100,000 per
month for six months which will carry an interest rate of 7.0%. The remaining
funds (estimated at approximately $875,000 after interest and fees) will
extend the Corporation's cash resources until approximately the end of fiscal
2008. The Corporation also continues to explore the monetization of its
remaining assets at which time the Corporation 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 the actions planned, 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
    -----
    The Corporation currently has investments in marketable securities which
it draws upon on a periodic basis as cash is required. As the value of these
investments is market-based, there is uncertainty regarding the stability of
the market and the underlying value of the securities. It is expected that
these securities will be fully depleted during the fourth quarter of 2007.
    Mechdyne continued to make progress in its fiscal performance through the
first three quarters of fiscal 2007. 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 formally 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 $1.0 million 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.
    The Corporation's name and trademark currently provide a stream of
royalty income from two licensees, which will continue only for the remainder
of calendar 2007 at which time the trademarks will be sold for $1.5 million
(or approximately $850,000 net after associated cash advances have been
deducted). There will be no further royalty income after that transaction
closes.
    The Corporation believes that it has conservatively provided for the
environmental remediation of one of its properties, however, until such time
as the property has been satisfactorily remediated, there remains uncertainty
regarding this obligation and the disposition of this asset.

    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

    (*) Option Summary

                                                                       Price
    Option Expiry Date                            No. of Options    Exercise
    -------------------------------------------------------------------------

    February 12, 2008                                     50,000       $1.51
    -------------------------------------------------------------------------

    Note: The closing prices of Class X voting shares and Class Y non-voting
    shares on June 30, 2007 were $0.12 and $0.11 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, 2006 annual
report.

    Outlook

    Going forward, the Corporation's earnings will be based on royalties from
third parties for the use of the Electrohome brand name until the end of
calendar 2007 (at which time the trademarks will be sold), on investment
income from Mechdyne (in the form of dividends, if received) and investment
income from marketable securities until such time as they are completely sold.
These earnings are currently more than offset by post-employment benefit costs
and corporate expenses. The Corporation also has some one-time potential
opportunities related to monetizing its investment in Mechdyne and from a
small piece of real estate which could result in additional future earnings.
    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
                                                            June 31   Sep 30
    -------------------------------------------------------------------------
    (thousands)                                                2007     2006
    -------------------------------------------------------------------------
    Assets                                                          (audited)
    Current assets
      Cash                                                  $    91  $    87
      Marketable securities                                      79      575
      Accounts receivable                                        74      108
      Prepaid expenses                                           37       26
    -------------------------------------------------------------------------
                                                                281      796
    -------------------------------------------------------------------------
      Capital assets, net of amortization                         9       11
      Investment in Mechdyne Corporation                      4,000    4,000
      Deferred pension expense                                   17       70
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                            $ 4,307  $ 4,877
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Liabilities & shareholders' equity
    Current liabilities
    Accounts payable and accrued liabilities                $    91  $    81
    Current portion of other liabilities                        677      701
    -------------------------------------------------------------------------
                                                                768      782
    -------------------------------------------------------------------------
    Other liabilities                                         1,393    1,762
    -------------------------------------------------------------------------
    Shareholders' equity
    Capital stock                                             7,086    7,086
    -------------------------------------------------------------------------
    Contributed surplus                                          16       14
    -------------------------------------------------------------------------
      Retained earnings (deficit)                            (3,841)  (3,652)
      Accumulated other comprehensive income                 (1,115)  (1,115)
    -------------------------------------------------------------------------
                                                             (4,956)  (4,767)
    -------------------------------------------------------------------------
                                                              2,146    2,333
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                            $ 4,307  $ 4,877
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    STATEMENTS OF EARNINGS,
     COMPREHENSIVE INCOME                     Three Months      Nine Months
     AND RETAINED EARNINGS                   Ended June 30     Ended June 30
    -------------------------------------------------------------------------
    (thousands, except per share amounts)    2007     2006     2007     2006
    -------------------------------------------------------------------------
    Revenue
      Royalty income                      $    69  $    79  $   260  $   345
      Investment income from
       marketable securities                    7       11       54      130
    -------------------------------------------------------------------------
    Total revenue                              76       90      314      475
    -------------------------------------------------------------------------
    Expenses and other items
       General and administrative            (260)    (318)    (829)  (1,188)
       Recovery of pension surplus              -        -      328        -
       Amortization                             -        -       (2)      (2)
    -------------------------------------------------------------------------
                                             (260)    (318)    (503)  (1,190)
    -------------------------------------------------------------------------
    Net earnings (loss) and
     comprehensive income (loss)             (184)    (228)    (189)    (715)
    Retained earnings (deficit) at
     beginning of period                   (3,657)  (3,273)  (3,652)  (2,786)
    -------------------------------------------------------------------------
    Retained earnings (deficit) at
     end of period                        $(3,841) $(3,501) $(3,841) $(3,501)
    -------------------------------------------------------------------------

    Weighted average shares outstanding
     (000's)                                9,123    9,123    9,123    9,123
    Earnings (loss) per share             $ (0.02) $ (0.03) $ (0.02) $ (0.08)
    -------------------------------------------------------------------------
    Earnings (loss) per share diluted     $ (0.02) $ (0.03) $ (0.02) $ (0.08)
    -------------------------------------------------------------------------

    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      Nine Months
                                             Ended June 30     Ended June 30
    -------------------------------------------------------------------------
    (thousands)                              2007     2006     2007     2006
    -------------------------------------------------------------------------
    Cash flows from operating activities
    Net earnings (loss)                   $  (184) $  (228) $  (189) $  (715)
    Items not affecting cash:
      Amortization                              -        -        2        2
      Stock-based compensation                  1        -        2        2
      Investment income from marketable
       securities                              (7)     (12)     (54)    (130)
      Net decrease in defined benefit plans   (39)     (44)    (112)      86
    Change in non-cash working capital        (66)     (91)    (178)    (167)
    -------------------------------------------------------------------------
                                             (295)    (375)    (529)    (922)
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Reduction in other liabilities              -      (25)     (17)     (75)
    -------------------------------------------------------------------------
                                                -      (25)     (17)     (75)
    -------------------------------------------------------------------------
    Cash flows from investing activities
    Redemption of marketable securities       175      350      550      975
    -------------------------------------------------------------------------
                                              175      350      550      975

    Increase (decrease) in cash              (120)     (50)       4      (22)
    Cash at beginning of period               211      116       87       88
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash at end of period                 $    91  $    66  $    91  $    66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 nine months ended June 30, 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, 2006 annual financial statements.

    These interim financial statements follow the same accounting policies
    and methods of their application as the September 30, 2006 annual
    financial statements, except as noted below.

    Changes in Accounting Policies

    In January 2005, the CICA issued Section 1530, "Comprehensive income" and
    Section 3855, "Financial instruments - recognition and measurement". The
    new standards are effective for interim and annual financial statements
    commencing with this first quarter of fiscal 2007.

    Comprehensive income:

    Comprehensive income introduces a new requirement to present, among other
    things, certain unrealized gains and losses outside of net income or
    loss. Section 1530 defines comprehensive income as a change in net assets
    arising from transactions and other events and circumstances from non-
    owner sources. The new standard requires presentation of a statement of
    comprehensive income, which has been combined with the former statement
    of earnings and retained earnings. Foreign exchange gains and losses on
    the translation of the financial statements of self-sustaining
    subsidiaries, previously recorded in a separate section of shareholders'
    equity, are now presented as accumulated other comprehensive income.
    Financial assets that are classified as available for sale will have
    revaluation gains and losses included in other comprehensive income until
    the asset is removed from the balance sheet. At present, the
    Corporation's only available for sale asset is its investment in Mechdyne
    Corporation.

    Financial instruments:

    The new standard for financial instruments prescribes when a financial
    instrument is to be recognized on the balance sheet and at what amount.
    It also specifies how gains and losses on financial instruments are to be
    presented. Financial instruments are classified into various categories.
    Held to maturity investments, loans and receivables are measured at
    amortized cost, with amortization of premium or discounts, losses and
    impairment included in current period interest income or expense. Held
    for trading financial assets and liabilities are measured at fair market
    value with all gains and losses included in net income in the period in
    which they arise. Available for sale financial assets are measured at
    fair market value, except where the instrument does not have a quoted
    market price in an active market, with revaluation gains and losses
    included in other comprehensive income until the asset is removed from
    the balance sheet, and losses due to impairment are included in net
    income. All other financial liabilities are to be carried at amortized
    cost. The Corporation's financial instruments include cash, marketable
    securities, accounts receivable, its investment in Mechdyne Corporation
    and accounts payable.

    The Corporation's marketable securities, previously recorded at the lower
    of cost or fair value, are now classified as held for trading and are
    carried at fair value and the changes in the fair value will be recorded
    as income or loss in the statement of earnings.

    The Corporation considers its most significant asset, its investment in
    Mechdyne Corporation, to be an available for sale financial asset. It has
    been determined that the carrying value of this investment does not
    require an adjustment at this time.

    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 the
    Corporation has limited liquid assets and its current annual cash inflow
    of approximately $450,000 is short of its current cash outflow of
    approximately $1,200,000. Consequently, given the status quo, it is
    estimated that the Corporation would run out of funds in the fourth
    quarter of fiscal 2007. However, the Corporation entered into an advanced
    payment agreement associated with the sale of its trademarks, which
    permits the company to receive cash advances from the purchaser of the
    trademarks. This allows the company to fund its operations in lieu of a
    bank loan, which it would otherwise require, until the proceeds from the
    sale of the trademarks are received. Any funds advanced up to the closing
    date of January 1, 2008, will be deducted from the proceeds of the
    $1,500,000 sale price. It is anticipated that the company will require an
    advance of at least $100,000 per month for six months which will carry an
    interest rate of 7.0%. The remaining funds (estimated at approximately
    $875,000 after interest and fees) will extend the Corporation's cash
    resources until approximately the end of fiscal 2008. The Corporation
    also continues to explore the monetization of its remaining assets at
    which time the Corporation 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 the actions
    planned, 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.

    Changes in Estimate

    During the first quarter of fiscal 2006, the Corporation wrote off
    $251,000 (non-cash) of deferred pension expense related to the Salary
    Pension Plan. This Plan is in the process of being wound down and there
    is uncertainty whether value for this asset would be realized.

    Defined Benefit Costs

    During the third quarter, the Corporation expensed $72,000 (2006 -
    $65,000) related to its defined benefit plans. During the first nine
    months of the year, the Corporation expensed $200,000 (2006 - $469,000,
    which included the non-cash write off of $251,000 of deferred pension
    expense related to the Salary Pension Plan).

    Sale of Trademarks

    During the second quarter the Corporation entered into an agreement for
    the sale of Electrohome's trademarks and a related licensing agreement
    for $1.5 million. The sale is scheduled to close on January 1, 2008 (the
    "Closing Date") and has been approved by Electrohome's shareholders at a
    special meeting that was held on May 10, 2007. There was no objection by
    TSX Venture Exchange. Electrohome will continue to collect royalties from
    use of the trademarks until the Closing Date (fourth quarter fiscal 2007
    and first quarter fiscal 2008).

    Proceeds from the sale will be used to fund operations while
    Electrohome's remaining assets and liabilities continue to be monetized
    and/or resolved.

    Bridge Financing

    During the third quarter, Electrohome entered into an advanced payment
    agreement associated with the sale of its trademarks, which will provide
    bridge financing to the corporation until proceeds are received from the
    sale on January 1, 2008. The advanced payment agreement will carry a 7.0%
    interest rate and nominal fees, which will be deducted from the proceeds
    of the sale of the trademarks on January 1, 2008. It is anticipated the
    proceeds from the sale, net of the advances and costs will provide funds
    of approximately $875,000.





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

Organization Profile

ELECTROHOME LIMITED

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