Business Context and Reporting Period
Emerson Radio Corp. filed a Form 8-K on July 9, 2009, regarding a non-reliance on previously issued financial statements. The filing addresses a review of the sales allowance reserve and iPod marketing fund initiated following a comment letter from the SEC Staff.
Key Financial Metrics
The filing does not provide current revenue, profit, cash flow, or liquidity metrics. It specifically addresses historical accounting errors affecting pre-tax loss estimates for prior periods:
- June 30, 2008 Quarter: Pre-tax loss was overstated by approximately $1.0 million.
- September 30, 2008 Quarter: Pre-tax loss was understated by approximately $1.0 million.
- Six Months Ended September 30, 2008: No restatement required as the errors offset each other.
Material Changes Versus Prior Period
The material change involves the correction of accounting errors in the sales allowance reserve and marketing fund accounts:
- In the quarter ended June 30, 2008, the Company expensed an extra $1.0 million believing it was under-reserved.
- In the quarter ended September 30, 2008, the Company incorrectly recognized approximately $1.0 million in income due to a conclusion of excess reserves in the iPod marketing account.
- Credits offered to or taken by customers were charged against the incorrect sales allowance reserve account.
Guidance, Outlook, and Risks
Management Commentary and Action Plan: Management, the Audit Committee, and the independent registered public accounting firm have discussed these matters. The Company anticipates amending its previously reported financial statements for the three months ended June 30, 2008, and September 30, 2008, on or before August 31, 2009. No amendments are planned for the six months ended September 30, 2008, or any subsequent periods.
Risks and Contingencies: The primary risk identified is the reliability of previously issued financial statements for the specified quarters, necessitating a restatement to correct the overstatement and understatement of pre-tax losses.
Investor Verification Checklist
- Verify the amended financial statements for the quarters ended June 30, 2008, and September 30, 2008, once filed by August 31, 2009.
- Confirm the specific impact of the $1.0 million adjustments on net income and earnings per share for the affected quarters.
- Review the Company's updated internal controls regarding sales allowance reserves and marketing fund accounting.
- Monitor for any further SEC comment letters or regulatory actions related to this restatement.