<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-3295
- --------------------------------------------------------------------------------
KOSS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
A DELAWARE CORPORATION 39-1168275
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4129 North Port Washington Avenue, Milwaukee, Wisconsin 53212
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (414) 964-5000
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
At March 31, 2000, there were 2,502,369 shares outstanding of the Registrant's
common stock, $0.01 par value per share.
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<PAGE> 2
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and June 30, 1999 3
Condensed Consolidated Statements
of Income (Unaudited)
Three months and nine months ended
March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Nine months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) March 31, 2000 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II Item 2 OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
</TABLE>
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<PAGE> 3
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
(Unaudited) (*)
----------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,273,545 $ 1,171,504
Accounts receivable 7,570,255 7,407,539
Inventories 10,346,960 12,955,118
Income taxes receivable 552,961 266,329
Other current assets 796,467 867,846
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 21,540,188 22,668,336
Property and Equipment, net 1,526,469 1,869,598
Intangible and Other Assets 1,146,016 1,183,762
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$24,212,673 $25,721,696
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 453,821 $ 791,785
Accrued liabilities 1,119,223 891,392
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,573,044 1,683,177
Deferred Compensation and Other Liabilities 1,453,894 1,367,584
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 19,695,735 21,180,935
========================================================================================================================
$24,212,673 $25,721,696
========================================================================================================================
</TABLE>
* The balance sheet at June 30, 1999 has been prepared from the audited
financial statements at that date.
See accompanying notes.
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<PAGE> 4
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Period Ended March 31 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 8,289,742 $ 7,679,636 $25,265,601 $25,097,558
Cost of goods sold 4,748,926 4,607,716 14,948,760 14,718,094
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 3,540,816 3,071,920 10,316,841 10,379,464
Selling, general and
administrative expense 1,999,384 1,857,875 5,756,994 5,964,629
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations 1,541,432 1,214,045 4,559,847 4,414,835
Other income (expense)
Royalty income 240,802 102,414 972,181 812,132
Interest income 22,363 12,319 57,735 17,675
Interest expense 0 (3,282) 0 (59,899)
- -----------------------------------------------------------------------------------------------------------------------------
Income before income tax provision 1,804,597 1,325,496 5,589,763 5,184,743
Provision for income taxes 701,949 519,338 2,164,289 2,053,509
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 1,102,648 $ 806,158 $ 3,425,474 $ 3,131,234
=============================================================================================================================
Earnings per common share:
Basic $0.45 $0.26 $1.32 $0.99
Diluted $0.44 $0.26 $1.29 $0.98
=============================================================================================================================
Dividends per common share None None None None
=============================================================================================================================
</TABLE>
See accompanying notes.
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<PAGE> 5
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 3,425,474 $ 3,131,234
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 635,011 611,783
Deferred compensation 86,310 86,310
Net changes in operating assets and
liabilities 2,145,325 2,544,001
-----------
Net cash provided by operating
activities 6,292,120 6,373,328
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (279,405) (334,410)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayments under line of credit agreements -- (9,443,000)
Borrowings under line of credit agreements -- 6,697,000
Purchase and retirement of common stock (5,392,754) (2,724,738)
Exercise of stock options 482,080 56,625
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Net cash used in financing
activities (4,910,674) (5,414,113)
- -----------------------------------------------------------------------------------
Net increase in cash 1,102,041 624,805
Cash at beginning of period 1,171,504 14,778
===================================================================================
Cash at end of period $ 2,273,545 $ 639,583
===================================================================================
</TABLE>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
March 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements presented herein are based on interim amounts
and are subject to audit. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position, results of operations and
cash flows at March 31, 2000 and for all periods presented have been
made. The income from operations for the quarter ended March 31, 2000
is not necessarily indicative of the operating results for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Registrant's June 30, 1999, Annual Report on Form 10-K.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per share are computed based on the weighted
average number of common shares outstanding. The weighted average
number of common shares outstanding for the quarters ending March 31,
2000 and 1999 were 2,460,567 and 3,091,447, respectively. For the nine
months ended March 31, 2000 and 1999, the weighted average number of
common shares outstanding were 2,595,184 and 3,150,144, respectively.
When dilutive, stock options are included as share equivalents using
the treasury stock method. Common stock equivalents of 60,052 and
42,801 related to stock option grants were included in the computation
of the average number of shares outstanding for diluted earnings per
share for the quarters ended March 31, 2000 and 1999, respectively.
Common stock equivalents 59,432 and 38,765 related to stock option
grants were included in the computation of the average number of
shares outstanding for diluted earnings per share for the nine months
ended March 31, 2000 and 1999, respectively.
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3. INVENTORIES
The classification of inventories is as follows:
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
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<S> <C> <C>
Raw materials and
work in process $ 3,656,734 $ 4,642,396
Finished goods 7,751,495 9,334,805
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11,408,229 13,977,201
LIFO Reserve (1,061,269) (1,022,083)
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$10,346,960 $12,955,118
=================================================================================
</TABLE>
4. STOCK PURCHASE AGREEMENT
The Company has an agreement with its Chairman to repurchase stock
from his estate in the event of his death. The repurchase price is 95%
of the fair market value of the common stock on the date that notice
to repurchase is provided to the Company. The total number of shares
to be repurchased shall be sufficient to provide proceeds which are
the lesser of $2,500,000 or the amount of estate taxes and
administrative expenses incurred by his estate. The Company is
obligated to pay in cash 25% of the total amount due and to execute a
promissory note at the prime rate of interest for the balance. The
Company maintains a $1,150,000 life insurance policy to fund a
substantial portion of this obligation. At March 31, 2000 and June 30,
1999, $1,490,000 has been classified as a Contingently Redeemable
Equity Interest reflecting the estimated obligation in the event of
execution of the agreement.
5. DEFERRED COMPENSATION
In 1991, the Board of Directors agreed to continue John C. Koss'
current base salary in the event he becomes disabled prior to age 70.
After age 70, Mr. Koss shall receive his current base salary for the
remainder of his life, whether or not he becomes disabled. The Company
is currently recognizing an annual expense of $115,080 in connection
with this agreement, which represents the present value of the
anticipated future payments. At March 31, 2000 and June 30, 1999,
respectively, the related liabilities in the amounts of $967,770 and
$881,460 have been included in deferred compensation and other
liabilities on the accompanying balance sheets.
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<PAGE> 8
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash generated by operating activities during the nine months ended March 31,
2000 amounted to $6,292,120. Working capital was $19,967,144 at March 31, 2000,
a decrease of $1,018,015 from the balance at June 30, 1999. The decrease in
working capital is primarily attributable to the decrease in inventory. The cash
necessary to fund the Company's operating activities fluctuates from time to
time; however, as a general rule, the Company expects to generate adequate
amounts of cash to meet future operating needs. The Company maintains sufficient
borrowing capacity to fund any shortfall.
Capital expenditures for new property and equipment (including production
tooling) were $279,405 for the nine months. Budgeted capital expenditures for
fiscal year 2000 are $832,100. The Company expects to generate sufficient
operating funds to fulfill these expenditures.
Stockholders' investment decreased to $19,695,735 at March 31, 2000, from
$21,180,935 at June 30, 1999. The decrease reflects the effect of net income,
the purchase and retirement of common stock, and the exercise of stock options
for the nine months.
The Company amended its existing credit facility, extending the maturity date of
the unsecured line of credit to November 1, 2001. This credit facility provides
for borrowings up to a maximum of $10,000,000. The Company can use this credit
facility for working capital purposes or for the purchase of its own stock
pursuant to the Company's stock repurchase program. This credit facility was
increased from $8,000,000 to $10,000,000 as a result of combining the Company's
$8,000,000 working capital credit facility with the Company's $2,000,000 stock
repurchase credit facility. Borrowings under this credit facility bear interest
at the bank's prime rate, or LIBOR plus 1.75%. This credit facility includes
certain financial covenants that require the Company to maintain a minimum
tangible net worth and specified current, interest coverage, and leverage
ratios. There was no utilization of this credit facility at March 31, 2000.
In April of 1995, the Board of Directors approved a stock repurchase program
authorizing the Company to purchase from time to time up to $2,000,000 of its
common stock for its own account. In January of 1996, the Board of Directors
approved a $1,000,000 increase in the stock repurchase program, increasing the
total amount from $2,000,000 to $3,000,000. In July of 1997, the Board of
Directors approved a $2,000,000 increase in the stock repurchase program,
increasing the total amount from $3,000,000 to $5,000,000. In January of 1998,
the Board of Directors approved an increase of an additional $2,000,000,
increasing the total stock repurchase program from $5,000,000 to $7,000,000. In
August of 1998, the Board of Directors approved an increase of $3,000,000 in the
Company's stock repurchase program, increasing the program from $7,000,000 to
$10,000,000. In April of 1999, the Board of Directors increased the stock
repurchase program by $5,000,000 from $10,000,000 to $15,000,000. In October of
1999, the Board of Directors increased the stock repurchase program by another
$5,000,000, up to a
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<PAGE> 9
maximum of $20,000,000. The Company intends to effectuate all stock purchases
either on the open market or through privately negotiated transactions, and
intends to finance all stock purchases through its own cash flow or by borrowing
for such purchases. For the quarter ended March 31, 2000, the Company purchased
185,500 shares of its common stock at an average gross price of $14.69 per share
(and an average net price of $14.69 per share), and retired all such shares.
From the commencement of the Company's stock repurchase program through March
31, 2000, the Company has purchased and retired a total of 1,749,998 shares for
a total gross purchase price of $20,425,594 (representing an average gross
purchase price of $11.67 per share) and a total net purchase price of
$17,285,872 (representing an average net purchase price of $9.88 per share). The
difference between the total gross purchase price and the total net purchase
price reflects the lower cost to the Company from purchasing stock from certain
employees who have exercised stock options pursuant to the Company's stock
option program. In determining the total dollar amount available for purchases
under the stock repurchase program, the Company uses the total net purchase
price paid by the Company for all stock purchases, as authorized by the Board of
Directors.
The Company also has an Employee Stock Ownership and Trust ("ESOP") pursuant to
which shares of the Company's stock are purchased by the ESOP for allocation to
the accounts of ESOP participants. For the quarter ended March 31, 2000, the
ESOP did not purchase any shares of the Company's stock.
Results of Operations
Net sales for the third quarter ended March 31, 2000 rose 8% to $8,289,742 from
$7,679,636 for the same period in 1999. Net sales for the nine months ended
March 31, 2000 were $25,265,601, up 1% compared with $25,097,558 during the same
nine months one year ago.
Gross profit as a percent of net sales was 43% for the quarter ended March 31,
2000 compared with 40% for the same period in the prior year. For the nine month
period ended March 31, 2000, the gross profit percentage was 41% compared with
41% for the same period in 1999.
Selling, general and administrative expenses for the quarter ended March 31,
2000 were $1,999,384 or 24% of net sales, as against $1,857,875 or 24% of net
sales for the same period in 1999. For the nine month period ended March 31,
2000, such expenses were $5,756,994 or 23% of net sales, as against $5,964,629
or 24% of net sales, for the same period in 1999.
For the third quarter ended March 31, 2000, income from operations was
$1,541,432 versus $1,214,045 for the same period in the prior year. Income from
operations for the nine months ended March 31, 2000 was $4,559,847 as compared
to $4,414,835 for the same period in 1999.
Interest expense amounted to $0 for the quarter as compared to $3,282 for the
same period in the prior year. For the nine month period, the interest expense
amounted to $0 compared with $59,899 for the same period in the prior year. The
decrease is a result of no borrowing activity this year as compared to the same
period last year.
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<PAGE> 10
The Company has a License Agreement with Jiangsu Electronics Industries Limited
("Jiangsu"), a subsidiary of Orient Power Holdings Limited, by way of an
assignment of a previously existing License Agreement with Trabelco N.V. Orient
Power is based in Hong Kong and has an extensive portfolio of audio and video
products. This License Agreement covers North America, Central America, and
South America. Pursuant to this License Agreement, Jiangsu has agreed to make
royalty payments through December 31, 2000, subject to certain minimum royalty
amounts due each year. The products covered by this License Agreement include
various consumer electronics products. This License Agreement is subject to
renewal for additional 3 year periods.
Effective July 1, 1998, the Company entered into a License Agreement and an
Addendum thereto with Logitech Electronics Inc. ("Logitech") of Ontario, Canada
whereby the Company licensed to Logitech the right to sell multimedia/computer
speakers under the Koss brand name. This License Agreement covers North America
and certain countries in South America and Europe. This License Agreement
extends for 5 years and includes a 5 year renewal option at the Company's
discretion. This License Agreement requires royalty payments by Logitech through
June 30, 2003, subject to certain minimum royalty amounts due each year.
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<PAGE> 11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits Filed
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
period covered by this report.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto authorized.
KOSS CORPORATION
Dated: 5/12/00 /s/ Michael J. Koss
-------------------
Michael J. Koss
Vice Chairman, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 5/12/00 /s/ Sue Sachdeva
----------------
Sue Sachdeva
Vice President--Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,273,545
<SECURITIES> 0
<RECEIVABLES> 7,570,255
<ALLOWANCES> 0
<INVENTORY> 10,346,960
<CURRENT-ASSETS> 21,540,188
<PP&E> 14,382,265
<DEPRECIATION> (12,855,796)
<TOTAL-ASSETS> 24,212,673
<CURRENT-LIABILITIES> 1,573,044
<BONDS> 0
0
0
<COMMON> 27,111
<OTHER-SE> 19,668,624
<TOTAL-LIABILITY-AND-EQUITY> 24,212,673
<SALES> 8,289,742
<TOTAL-REVENUES> 8,289,742
<CGS> 4,748,926
<TOTAL-COSTS> 4,748,926
<OTHER-EXPENSES> 1,999,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22,363)
<INCOME-PRETAX> 1,804,597
<INCOME-TAX> 701,949
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102,648
<EPS-BASIC> .45
<EPS-DILUTED> .44
</TABLE>
