[EMERSON LOGO]
EMERSON RADIO CORP 9 ENTIN ROAD, P.O. BOX 430, PARSIPPANY, NEW JERSEY 07054-0430
(973) 884-5800
April 11, 2006
VIA FACSIMILE AND FEDERAL EXPRESS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Michael Moran, Accounting Branch Chief
RE: EMERSON RADIO CORP.
FORM 10-K FOR FISCAL YEAR ENDED MARCH 31, 2005
FILED JUNE 29, 2005
FORM 10-Q FOR FISCAL QUARTER ENDED DECEMBER 31, 2005
FILED FEBRUARY 15, 2006
FILE NO. 1-07731
Dear Ladies and Gentlemen:
In response to the Staff's letter of comment dated February 24, 2006 (the
"Comment Letter"), attached please find a memorandum in response to such Comment
Letter.
Very truly yours,
/s/ Guy A. Paglinco
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Guy A. Paglinco
Vice President - Chief Financial Officer
Enclosures
cc: Mr. Brian V. McAllister
Mr. Geoffrey P. Jurick - Emerson Radio Corp.
Steven M. Skolnick, Esq. -
Lowenstein Sandler PC John D. Schupper, Esq. - Lowenstein Sandler PC
Emerson Radio Corp.
Memorandum in Response to SEC Comment Letter
The following are responses to the Staff's Comment Letter. To assist
the Staff's review, the responses are numbered to correspond to the numbered
paragraphs in the Staff's Comment Letter.
FORM 10-K FOR FISCAL YEAR ENDED MARCH 31, 2005
Front Cover
1. YOUR COMMISSION FILE NUMBER IS 001-07731 AND NOT 0-25226. PLEASE REVISE
IN FUTURE FILINGS.
The Company acknowledges the Staff's comment and hereby advises the
Staff that it will change the commission file number to 001-07731 for
future filings.
Item 8. Financial Statements and Supplementary Data, page 50
Consolidated Statements of Operations, page 53
2. PLEASE ADVISE OR REVISE YOUR FUTURE FILINGS TO PRESENT INTEREST EXPENSE
ON A GROSS BASIS RATHER THAN A NET BASIS ON THE FACE OF THE STATEMENT
OF OPERATIONS OR PROVIDE SIMILAR DISCLOSURE IN THE NOTES TO THE
FINANCIAL STATEMENTS.
The Company acknowledges the Staff's comment and hereby advises the
Staff that it will disclose in the notes to the financial statements
for future filings, the components of net interest expense. The
Company's disclosure for fiscal 2005 would have been as shown below. A
similar table will be presented in the Company's Annual Report on Form
10-K for the fiscal year ending March 31, 2006 and future filings:
Interest Expense
The components of interest expense for fiscal 2005, 2004 and
2003 are as follow:
2005 2004 2003
---- ---- ----
Interest expense $ 1,306 $ 1,067 $ 2,261
Deferred financing costs 401 370 424
Interest income (145) (95) (193)
------------------ --------------- ---------------
Interest expense, net $ 1,562 $ 1,342 $ 2,492
================== =============== ===============
3. EXPENSE RELATED TO SHARE BASED PAYMENTS IS REQUIRED TO BE DISCLOSED IN
THE SAME LINE OR LINES AS CASH COMPENSATION PAID TO EMPLOYEES. YOU ARE
PERMITTED TO DISCLOSE THE AMOUNT OF EXPENSE RELATED TO SHARE BASED
PAYMENT ARRANGEMENTS IN AN ACCOMPANYING DISCLOSURE BUT NOT PERMITTED TO
DISCLOSE THE EXPENSE IN 1 LINE IN THE STATEMENT OF OPERATIONS. SEE SAB
TOPIC 7.F. PLEASE ADVISE OR REVISE ALL PRESENTATION FOR YOUR RESULTS OF
OPERATIONS TO COMBINE SHARE BASED AND CASH COMPENSATION ARRANGEMENTS IN
YOUR FUTURE FILINGS.
The Company acknowledges the Staff's comment and hereby advises the
Staff that, expenses related to share based payments will be included
in the same line as cash compensation paid to employees in future
filings.
Consolidated Balance Sheets, page 54
4. PLEASE SPECIFICALLY TELL US THE TERMS AND NATURE OF THE CASH SECURING
BANK LOANS ARRANGEMENT. TELL US IF THIS CASH IS LEGALLY RESTRICTED FOR
GENERAL BUSINESS PURPOSES AND, IF SO, WHY IT IS NOT CHARACTERIZED AS
RESTRICTED AND PRESENTED AS A NON-CURRENT ASSET. WE NOTE YOU DISCLOSE
CASH SECURING BANK LOANS IN NOTES 1 AND 6. IN FUTURE FILINGS, PLEASE
EXPAND THE CURRENT DISCLOSURE IN YOUR FINANCIAL STATEMENTS NOTES AND
LIQUIDITY DISCUSSION IN MD&A TO INCLUDE THE REQUIRED DISCLOSURES FOR
THIS ARRANGEMENT, AS APPLICABLE. SEE RULE 5-02.1 OF REGULATION S-X AND
SAB TOPIC 6.H. IN YOUR RESPONSE PLEASE SHOW US WHAT YOUR REVISED
DISCLOSURES WILL LOOK LIKE.
The Company acknowledges the Staff's comment and hereby advises the
Staff on a supplemental basis that the Company deposits cash with
foreign banks to secure letter of credit facilities. Such facilities
require that every $1 of availability on the letter of credit
facilities with the foreign bank be supported by between $0.25 to $0.30
of cash on deposit with that bank. While such cash is legally
restricted for general business purposes, these deposits provide the
Company with current liquidity in the form of access to letters of
credit for the purpose of making inventory purchases. In this regard,
management views the cash deposit as essentially the same as a deposit
on inventory purchases and, therefore, has been presented as a current
asset.
Based upon the disclosures found in MD&A, and notes 1 and 6 of the
notes to Consolidated Financial Statements, management believes that
such current disclosures are adequate.
Consolidated Statements of Changes in Stockholders' Equity, page 55
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5. PLEASE TELL US THE AMOUNT OF THE ACCUMULATED TRANSLATION ADJUSTMENT
RECORDED IN YOUR FINANCIAL STATEMENTS AS OF MARCH 31, 2005, 2004 AND
2003 AND WHY IT DOES NOT APPEAR AS A SEPARATE COMPONENT OF
STOCKHOLDERS' EQUITY OR IN THE NOTES TO YOUR FINANCIAL STATEMENTS. WE
REFER TO YOUR POLICY NOTE ON PAGE 60. ALSO TELL US WHY THE EFFECT OF
THE EXCHANGE RATE CHANGES ON CASH IS NOT SEPARATELY PRESENTED IN YOUR
CONSOLIDATED STATEMENTS OF CASH FLOWS AND WHERE THESE EFFECTS ARE
RECORDED IN BOTH STATEMENTS.
The Company acknowledges the Staff's comment and hereby advises the
Staff on a supplemental basis that for the fiscal years of 2003, 2004
and 2005, the Company did not have any active foreign subsidiaries for
which the reported amounts are denominated in other than US dollars.
Accordingly, there has been no activity in the accumulated translation
adjustments account. The Company hereby advises the Staff that it does
have some foreign currency transactions, the gains and losses for which
are reflected in the Consolidated Statement of Operations under the
caption "Selling, general and administrative expenses", the net amount
of which has not exceeded $80,000 in any fiscal year. The Company also
hereby advises the Staff that it will modify its Foreign Currency
Policy footnote in future filings to exclude the reference to
translation adjustments.
Note 1 - Significant Accounting Policies, page 57
Concentrations of Credit Risk, page 58
6. PLEASE TELL US HOW THE DISCLOSED ALLOWANCE AMOUNTS RECONCILE TO THE
ALLOWANCE AMOUNTS PARENTHETICALLY DISCLOSED IN YOUR BALANCE SHEETS.
ALSO, PLEASE TELL US HOW THE REFERENCE TO NOTE 14 BUSINESS SEGMENT IS
APPLICABLE TO YOUR DISCUSSIONS.
The Company acknowledges the Staff's comment and hereby provides, on a
supplemental basis, a reconciliation for fiscal 2005 from the amount
reported in the "Concentrations of Credit Risk" policy contained in the
"Significant Accounting Policies of the Notes to Consolidated Financial
Statements" to the parenthetically disclosed accounts receivable
allowance on the Consolidated Balance Sheet. (in thousands)
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Amount disclosed in footnote
Note 1 - Concentrations of
Credit Risk
Disclosed as allowance for
doubtful accounts $ 545
Plus contra accounts to the accounts receivable:
Chargeback reserves 330
Allowance for sales returns 3,271
Amount disclosed parenthetically
-----------------
on balance sheet $ 4,146
=================
The Company hereby advises the Staff that the Concentration of Credit
Risk Policy footnote is referenced to Note 14, Business Segment
Information and Major Customers due to the reference that is made to
the Company's three major accounts, and the respective percentages of
accounts receivable that these three major customers comprise of the
total accounts receivable.
Note 3 - Related Party Transactions, page
7. WE NOTE YOUR DISCLOSURE THAT THE RELATED PARTY TRANSACTIONS ARE CARRIED
OUT AT WHAT IS BELIEVED TO BE ARMS LENGTH. TELL US YOUR BASIS FOR THIS
STATEMENT.
The Company acknowledges the Staff's comment and hereby advises the
Staff on a supplemental basis that the Company believes that the terms
of the transaction described in Note 3 are no less favorable to the
Company than could have been obtained from an unaffiliated third party.
The Company bases this belief on its familiarity of the general market
for such management services. As a result, the Company believes that
such transaction reflects an arms length transaction.
Form 10-Q for Fiscal Quarter Ended December 31, 2005
Item 1. Financial Statements, Page 2
Consolidated Statements of Cash Flows, page 4
8 SFAS NO. 95 DOES NOT REQUIRE YOU TO SEPARATE CASH FLOWS FROM
DISCONTINUED OPERATIONS. HOWEVER, IF YOU CHOOSE TO REPORT SEPARATELY
CASH FLOWS FROM DISCONTINUED OPERATIONS YOU ARE REQUIRED TO REPORT
THESE CASH FLOWS CONSISTENTLY FOR EACH REPORTING PERIOD EITHER
SEPARATELY WITHIN EACH CATEGORY OR EACH CATEGORY PRESENTED SEPARATELY
FROM CASH FLOWS FROM CONTINUING OPERATIONS. PLEASE REVISE THIS IN
FUTURE FILINGS AND INCLUDE DISCLOSURE TO HIGHLIGHT THESE CHANGES. SEE
FOOTNOTE 10 OF SFAS NO. 95. ALSO, PLEASE CONFIRM WITH US THAT THERE ARE
NO CASH FLOWS ATTRIBUTABLE TO DISCONTINUED OPERATIONS IN YOUR FIRST
FISCAL QUARTER.
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The Company acknowledges the Staff's comment as it pertains to
separating cash flows from discontinued operations and hereby advises
the Staff that the Company will revise this presentation and disclosure
in future filings by breaking out separately for discontinued
operations, the three components of cash flows: operating, investing
and financing activity. This added disclosure will be presented in a
separate section of the cash flow statements after cash flows from
financing activities. Such amounts will be labeled revised with an
appropriate discussion in the footnotes as to the basis for the
revision. The Company hereby confirms to the Staff that there are no
cash flows attributable to discontinued operations in the Company's
first fiscal quarter of fiscal 2006.
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