Mail Stop 0306
May 3, 2005
Mr. James B. Boyd
Chief Financial Officer
ESS Technology, Inc.
48401 Fremont Boulevard
Fremont CA 94538
RE: ESS Technology, Inc.
Form 10-K for the fiscal year ended December 31, 2004
File No. 0-26660
Dear Mr. Boyd:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
document
in future filings in response to these comments. If you disagree,
we
will consider your explanation as to why our comment is
inapplicable
or a revision is unnecessary. Please be as detailed as necessary
in
your explanation. In some of our comments, we may ask you to
provide
us with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the period ending December 31, 2004
Note 8. Inventory Provision - Page 63
1. Please supplementally tell us more about the events and
circumstances that resulted in the inventory impairment charges in
2004. Describe the nature of the inventory written-down or off.
How were write-downs distributed between raw material, work-in-
process and finished goods? How did you determine the amounts and
timing of these write-downs? Are all items completely written-
off?
If so, when were they discarded or when and how will they be
disposed
of? For any items retained, what consideration have you given to
the
fact that subsequent sales of these items could materially impact
future gross profit margins? Please advise supplementally.
Note 9. Non-Operating Income, net - Page 64
2. Supplementally advise us why the classification of the $45
million
related to the MediaTek settlement outside of operations is
appropriate. Generally, the costs incurred in defending the
right`s
and privileges of one`s intellectual properties, patents, etc. is
an
ordinary expense of doing business and is presented in operations.
Consistent with the expense classification, this type of recovery
or
award is also presented in operations. Please revise or advise.
Note 15. Commitments and Contingencies - Page 74
3. We note the disclosure that you are currently engaged in
certain
shareholder class action and derivative lawsuits, which could have
a
"material adverse effect on your financial position." Please note
that under SFAS 5 you should disclose the nature of any
significant
accrual, and in some circumstances disclose the amount accrued.
Even
if there is no accrual for a loss contingency because one or both
of
the conditions in paragraph 8 of SFAS 5 are not met, or if an
exposure to loss exists in excess of the amount accrued pursuant
to
the provisions of paragraph 8, you should disclose the contingency
when there is at least a reasonable possibility that a loss or an
additional loss may have been incurred. You should disclose the
nature of the contingency and give an estimate of the possible
loss
or range of loss or state that such an estimate cannot be made.
Also
see SAB Topic 5:Y. Please revise or advise.
Form 8-K filed April 27, 2005
4. We note that you present your non-GAAP measures in the form of
a
non-GAAP statement of operations. That format may be confusing to
investors as it also reflects several non-GAAP measures, including
non-GAAP gross profit, non-GAAP SG&A and R&D expenses, non-GAAP
net
income (loss), non-GAAP income (loss) before provisions for income
taxes and non-GAAP net income (loss) per share, which have not
been
described to investors. In fact, it appears that management does
not
use these non-GAAP measures but they are shown here as a result of
the presentation format. Please note that Instruction 2 to Item
2.02
of Form 8-K requires that when furnishing information under this
item
you must provide all the disclosures required by paragraph
(e)(1)(i)
of Item 10 of Regulation S-K, including a reconciliation to the
directly comparable GAAP measure for each non-GAAP measure
presented
and explain why you believe the measures provide useful
information
to investors.
* In future filings, to eliminate investor confusion please
remove
the non-GAAP Statements of Operations and disclose only those non-
GAAP measures used by management with the appropriate
reconciliations.
* Otherwise, confirm that you will revise your Forms 8-K in future
periods to provide all the disclosures required by Item
10(e)(1)(i)
of Regulation S-K for each non-GAAP measure presented in the
statement, and provide us with a sample of your proposed
disclosure.
We may have further comment.
* * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested supplemental
information. Detailed cover letters greatly facilitate our
review.
Please file your cover letter on EDGAR. Please understand that we
may have additional comments after reviewing your responses to our
comments.
You may contact Dennis Hult, Staff Accountant, at (202) 942-
2812 or myself if you have questions regarding comments on the
financial statements and related matters. Please contact me at
(202)
942-1931 with any other questions.
Sincerely,
Angela J. Crane
Accounting Branch Chief
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James B. Boyd
ESS Technology, Inc.
May 3, 2005
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