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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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-3295
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KOSS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
A DELAWARE CORPORATION 39-1168275
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(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 September 30, 2000, there were 2,152,369 shares outstanding of the
Registrant's common stock, $0.01 par value per share.
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KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2000 and June 30, 2000 3
Condensed Consolidated Statements
of Income (Unaudited)
Three months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Three months ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) September 30, 2000 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security-Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
</TABLE>
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $1,363,801 $3,164,401
Accounts receivable 8,530,282 8,228,185
Inventories 9,041,951 9,414,036
Income taxes receivable 359,781 244,755
Other current assets 1,289,869 1,201,001
------------------------------------------------------------------------- ------------------------- --------------------
Total current assets 20,585,684 22,252,378
Property and Equipment, net 1,503,025 1,564,302
Intangible and Other Assets 1,216,974 1,227,627
------------------------------------------------------------------------- ------------------------- --------------------
$23,305,683 $25,044,307
========================================================================= ========================= ====================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,231,784 $ 570,567
Accrued liabilities 1,105,678 1,007,443
------------------------------------------------------------------------- ------------------------- --------------------
Total current liabilities 2,337,462 1,578,010
Deferred Compensation and Other Liabilities 1,511,434 1,482,664
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 17,966,787 20,493,633
------------------------------------------------------------------------- ------------------------- --------------------
$23,305,683 $25,044,307
========================================================================= ========================= ====================
</TABLE>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 2000 1999
-------------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Net sales $ 9,713,939 $ 8,393,253
Cost of goods sold 5,761,692 4,913,277
-------------------------------------------------------------------- -------------------- ---------------------
Gross profit 3,952,247 3,479,976
Selling, general and
administrative expense 2,049,787 1,830,587
-------------------------------------------------------------------- -------------------- ---------------------
Income from operations 1,902,460 1,649,389
Other income (expense)
Royalty income 293,888 274,632
Interest income 45,387 16,799
Interest expense (7,816) --
-------------------------------------------------------------------- -------------------- ---------------------
Income before income tax provision 2,233,919 1,940,820
Provision for income taxes 849,928 757,203
-------------------------------------------------------------------- -------------------- ---------------------
Net income $ 1,383,991 $ 1,183,617
==================================================================== ==================== =====================
Earnings per common share:
Basic $0.62 $0.44
Diluted $0.59 $0.43
==================================================================== ==================== =====================
Dividends per common share None None
==================================================================== ==================== =====================
</TABLE>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 2000 1999
------------------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,383,991 $ 1,183,617
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 180,959 207,511
Deferred compensation 28,770 28,770
Net changes in operating assets and
liabilities 635,846 340,450
------------------------------------------------------------------ ----------------- ------------------
Net cash provided by operating
activities 2,229,566 1,760,348
------------------------------------------------------------------ ----------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (119,329) (117,163)
------------------------------------------------------------------ ----------------- ------------------
Net cash used in
investing activities (119,329) (117,163)
------------------------------------------------------------------ ----------------- ------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Purchase and retirement of common stock (3,987,125) (806,563)
Exercise of stock options 76,288 73,481
------------------------------------------------------------------ ----------------- ------------------
Net cash used in financing
activities (3,910,837) (733,082)
------------------------------------------------------------------ ----------------- ------------------
Net (decrease) increase in cash (1,800,600) 910,103
Cash at beginning of period 3,164,401 1,171,504
------------------------------------------------------------------ ----------------- ------------------
Cash at end of period $ 1,363,801 $ 2,081,607
================================================================== ================= ==================
</TABLE>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
September 30, 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
September 30, 2000 and for all periods presented have been made. The
income from operations for the quarter ended September 30, 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, 2000 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 September 30, 2000
and 1999 were 2,236,893 and 2,686,791, respectively. When dilutive,
stock options are included as share equivalents using the treasury
stock method. Common stock equivalents of 90,956 and 58,526 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 September 30, 2000 and 1999, respectively.
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3. INVENTORIES
The classification of inventories is as follows:
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
---------------------------------- -------------------------- -------------------
<S> <C> <C>
Raw materials and
work in process $3,521,751 $4,355,016
Finished goods 6,596,311 6,135,131
---------------------------------- -------------------------- -------------------
10,118,062 10,490,147
LIFO Reserve (1,076,111) (1,076,111)
---------------------------------- -------------------------- -------------------
$9,041,951 $9,414,036
================================== ========================== ===================
</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 September 30, 2000 and June 30, 2000, $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 that after age 70, Mr. John C.
Koss shall receive his current base salary for the remainder of his
life. Mr. Koss turned 70 this calendar year and the Company is
currently recognizing an annual expense of $150,000 in connection with
this agreement. At September 30, 2000 and June 30, 2000, respectively,
the related liabilities in the amounts of $1,074,080 and $1,045,310
have been included in deferred compensation and other liabilities in
the accompanying consolidated balance sheets.
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KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q - September 30, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash provided by operating activities during the three months ended September
30, 2000 amounted to $2,229,566. The decrease in working capital of $2,426,146
from the balance at June 30, 2000 represents primarily the net effect of a
decrease in cash and inventories, and increases in accounts receivables and
accounts payables.
Capital expenditures for new property and equipment (including production
tooling) were $119,329 for the quarter. Budgeted capital expenditures for fiscal
year 2001 are $1,123,100. The Company expects to generate sufficient funds
through operations to fund these expenditures.
Stockholders' investment decreased to $17,966,787 at September 30, 2000, from
$20,493,633 at June 30, 2000. The decrease reflects the effect of net income,
the purchase and retirement of common stock, and the exercise of stock options
for the quarter.
The Company amended its existing credit facility in December 1999, 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. 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 September 30, 2000 and June 30, 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 an increase in the stock repurchase program from $2,000,000 to
$3,000,000. In July of 1997, the Board of Directors again approved an increase
in the stock repurchase program 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, thereby increasing the total amount of stock
repurchases from $7,000,000 to $10,000,000. In April of 1999, the Board of
Directors again approved an increase in the stock repurchase program 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 maximum of
$20,000,000, and in July of 2000 the Board increased the program by an
additional $5,000,000, for a maximum of $25,000,000 of the Company's common
stock (net purchase price). 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 September 30,
2000, the Company purchased 207,000 shares of its common stock at an average
price of $19.26 per share, and retired all such shares.
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From the commencement of the Company's stock repurchase program through
September 30, 2000, the Company has purchased and retired a total of 2,022,498
shares for a total gross purchase price of $25,524,831 (representing an average
gross purchase price of $12.62 per share) and a total net purchase price of
$22,628,109 (representing an average net purchase price of $11.19 per share).
The difference between the total gross purchase price and the total net purchase
price reflects the lower cost to the Company of 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 September 30, 2000, the
ESOP did not purchase any shares of the Company's stock.
Results of Operations
Net sales for the quarter ended September 30, 2000 were $9,713,939 compared with
$8,393,253 for the same period in 1999, an increase of $1,320,686.
Gross profit as a percent of net sales was 41% for the quarter ended September
30, 2000 compared with 41% in the prior year.
Selling, general and administrative expenses for the quarter ended September 30,
2000 were $2,049,787 or 21% of net sales, as against $1,830,587 or 22% of net
sales for the same period in 1999.
For the quarter ended September 30, 2000, income from operations was $1,902,460
versus $1,649,389 for the same period in 1999, an increase of $253,071.
Interest expense amounted to $7,816 for the quarter as compared to $0 for the
same period in the prior year.
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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PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security-Holders
(a) On October 19, 2000 an Annual Meeting of Stockholders was
held.
(b) Proxies for the election of directors were solicited
pursuant to Regulation 14. There was no solicitation in
opposition to management's nominees, and all such nominees
were elected.
(c) There were 2,163,369 shares of common stock eligible to
vote at the Annual Meeting, of which 1,981,079 shares were
present at the Annual Meeting in person or by proxy, which
constituted a quorum. The following is a summary of the
results of the voting:
<TABLE>
<CAPTION>
Number of Votes Broker
--------------- ------
For Withheld Non-Votes
--- -------- ---------
<S> <C> <C> <C>
Nominees for 1-year terms
ending in 2001:
John C. Koss 1,973,744 7,135 0
Thomas L. Doerr 1,976,106 4,773 0
Victor L. Hunter 1,977,204 3,675 0
Michael J. Koss 1,977,950 2,929 0
Lawrence S. Mattson 1,977,657 3,222 0
Martin F. Stein 1,976,504 4,375 0
John J. Stollenwerk 1,977,704 3,175 0
</TABLE>
<TABLE>
<CAPTION>
Number of Votes Broker
--------------- ------
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Appointment of
PricewaterhouseCoopers LLP
as independent auditors
for the year ended
June 30, 2001 1,979,599 449 1,031 0
</TABLE>
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.
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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: 11/10/00 /s/ Michael J. Koss
-------- ------------------------------------
Michael J. Koss
Vice Chairman, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 11/10/00 /s/ Sue Sachdeva
-------- ------------------------------------
Sue Sachdeva
Vice President--Finance
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