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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 for the quarterly period ended March 31, 2024

 

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)

 

DELAWARE

 

39-1168275

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

4129 North Port Washington Avenue, Milwaukee,

Wisconsin

 

53212

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (414) 964-5000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.005 per share

KOSS

Nasdaq Capital Market

 

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   No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

 

 

 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).  Yes No

 

At May 6, 2024, there were 9,254,795 shares outstanding of the registrant’s common stock. 

  


KOSS CORPORATION

FORM 10-Q

March 31, 2024

 

INDEX

 

 

 

 

Page

 

 

 

PART I

FINANCIAL INFORMATION

3

 

Item 1.

Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023

3

 

 

Condensed Consolidated Statements of Operations for the Three and Nine months ended March 31, 2024 and 2023

4

 

 

Condensed Consolidated Statements of Cash Flows for the Nine months ended March 31, 2024 and 2023

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine months ended March 31, 2024 and 2023

6

 

 

Notes to Condensed Consolidated Financial Statements

7

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

16

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

Item 4.

Controls and Procedures

22

PART II

OTHER INFORMATION

22

 

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

Item 6.

Exhibits

24

 

2


PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

 

KOSS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

March 31, 2024

June 30, 2023

ASSETS

Current assets:

Cash and cash equivalents

$

2,912,679

$

3,091,062

Short term investments

7,020,288

17,064,274

Accounts receivable, less allowance for credit losses of $1,922 and $6,027, respectively

1,197,055

1,379,517

Inventories

4,661,005

6,423,441

Prepaid expenses and other current assets

1,117,276

1,002,514

Interest receivable

116,575

51,150

Income taxes receivable

210,778

86,901

Total current assets

17,235,656

29,098,859

Equipment and leasehold improvements, net

1,272,817

953,903

Other assets:

Long term investments

10,012,611

Operating lease right-of-use asset

2,825,348

3,015,887

Cash surrender value of life insurance

6,258,436

6,020,048

Total other assets

19,096,395

9,035,935

Total assets

$

37,604,868

$

39,088,697

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

215,705

$

267,513

Accrued liabilities

901,297

1,342,039

Deferred revenue

292,795

450,312

Operating lease liability

236,570

236,225

Income taxes payable

5,281

87,237

Total current liabilities

1,651,648

2,383,326

Long-term liabilities:

Deferred compensation

2,110,507

1,997,120

Deferred revenue

117,402

113,003

Operating lease liability

2,602,838

2,787,970

Total long-term liabilities

4,830,747

4,898,093

Total liabilities

6,482,395

7,281,419

Stockholders' equity:

Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,254,795 and 9,234,795, respectively

46,274

46,174

Paid in capital

13,269,630

13,113,993

Retained earnings

17,806,569

18,647,111

Total stockholders' equity

31,122,473

31,807,278

Total liabilities and stockholders' equity

$

37,604,868

$

39,088,697

 

 The accompanying notes are an integral part of these condensed consolidated financial statements. 

3


KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

Three Months Ended

Nine Months Ended

March 31

March 31

2024

2023

2024

2023

Net sales

$

2,637,606

$

3,380,840

$

9,371,668

$

10,026,301

Cost of goods sold

1,796,083

2,076,482

6,354,015

6,390,557

Gross profit

841,523

1,304,358

3,017,653

3,635,744

Selling, general and administrative expenses

1,451,247

1,749,341

4,572,049

27,907,246

(Loss) from operations

(609,724)

(444,983)

(1,554,396)

(24,271,502)

Other income

33,000,000

Interest income

214,814

189,593

636,482

314,482

(Loss) income before income tax provision (benefit)

(394,910)

(255,390)

(917,914)

9,042,980

Income tax provision (benefit)

(81,130)

(30,910)

(77,372)

463,928

Net (loss) income

$

(313,780)

$

(224,480)

$

(840,542)

$

8,579,052

(Loss) income per common share:

Basic

$

(0.03)

$

(0.02)

$

(0.09)

$

0.93

Diluted

$

(0.03)

$

(0.02)

$

(0.09)

$

0.88

Weighted-average number of shares:

Basic

9,254,795

9,206,135

9,243,559

9,183,042

Diluted

9,254,795

9,206,135

9,243,559

9,791,627

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

4


KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

Nine Months Ended

March 31

2024

2023

Operating activities:

Net (loss) income

$

(840,542)

$

8,579,052

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

(Recovery of) Provision for credit losses

(4,105)

40,277

Depreciation of equipment and leasehold improvements

142,046

186,168

Accretion of discount on treasury securities

(313,704)

(110,632)

Noncash operating lease expense

5,752

6,391

Stock-based compensation expense

119,937

243,688

Change in cash surrender value of life insurance

(156,644)

(147,012)

Provision for deferred compensation

113,387

62,783

Loss on disposal of fixed assets

2,263

Net changes in operating assets and liabilities:

Accounts receivable

186,567

570,932

Inventories

1,762,436

1,552,103

Prepaid expenses and other current assets

(114,762)

(233,792)

Interest receivable

(65,425)

(56,014)

Income taxes receivable

(123,877)

Income taxes payable

(81,956)

247,170

Accounts payable

(51,808)

(442,850)

Accrued liabilities

(440,742)

324,507

Deferred revenue

(153,118)

(208,308)

Net cash (used in) provided by operating activities

(16,558)

10,616,726

Investing activities:

Purchase of equipment and leasehold improvements

(460,960)

(68,242)

Life insurance premiums paid

(81,744)

(87,994)

Proceeds from the maturity of treasury securities

14,331,000

Purchases of treasury securities

(13,985,921)

(16,884,358)

Net cash used in investing activities

(197,625)

(17,040,594)

Financing activities:

Proceeds from exercise of stock options

35,800

137,330

Net cash provided by financing activities

35,800

137,330

Net (decrease) in cash and cash equivalents

(178,383)

(6,286,538)

Cash and cash equivalents at beginning of period

3,091,062

9,208,170

Cash and cash equivalents at end of period

$

2,912,679

$

2,921,632

Supplemental cash flow information:

Cash paid for income taxes

$

128,463

$

216,759

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

5


KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

 

Nine Months Ended March 31, 2024

Common Stock

Paid in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, June 30, 2023

9,234,795

$

46,174

$

13,113,993

$

18,647,111

$

31,807,278

Net (loss)

(840,542)

(840,542)

Stock-based compensation expense

119,937

119,937

Stock option exercises

20,000

100

35,700

35,800

Balance, March 31, 2024

9,254,795

$

46,274

$

13,269,630

$

17,806,569

$

31,122,473

Nine Months Ended March 31, 2023

Common Stock

Paid in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, June 30, 2022

9,147,795

$

45,739

$

12,653,402

$

10,327,899

$

23,027,040

Net income

8,579,052

8,579,052

Stock-based compensation expense

243,688

243,688

Stock option exercises

69,000

345

136,985

137,330

Balance, March 31, 2023

9,216,795

$

46,084

$

13,034,075

$

18,906,951

$

31,987,110

Three Months Ended March 31, 2024

Common Stock

Paid in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, December 31, 2023

9,254,795

$

46,274

$

13,233,733

$

18,120,349

$

31,400,356

Net (loss)

(313,780)

(313,780)

Stock-based compensation expense

35,897

35,897

Balance, March 31, 2024

9,254,795

$

46,274

$

13,269,630

$

17,806,569

$

31,122,473

Three Months Ended March 31, 2023

Common Stock

Paid in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, December 31, 2022

9,189,795

$

45,949

$

12,908,840

$

19,131,431

$

32,086,220

Net (loss)

(224,480)

(224,480)

Stock-based compensation expense

76,980

76,980

Stock option exercises

27,000

135

48,255

48,390

Balance, March 31, 2023

9,216,795

$

46,084

$

13,034,075

$

18,906,951

$

31,987,110

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


KOSS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

 

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A)    BASIS OF PRESENTATION

 

The condensed consolidated balance sheets as of March 31, 2024 and June 30, 2023, the condensed consolidated statements of operations for the three and nine months ended March 31, 2024 and 2023, the condensed consolidated statements of cash flows for the nine months ended March 31, 2024 and 2023, and the condensed consolidated statements of stockholders' equity for the three and nine months ended March 31, 2024 and 2023, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and have not been audited.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for any interim period are not necessarily indicative of the operating results that may be experienced for the full fiscal year.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

 

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for credit losses, reserves for excess and obsolete inventories, long-lived and intangible assets, income tax valuation allowance, stock-based compensation and deferred compensation. Actual results could differ from the Company's estimates.

B)    REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the second quarter of fiscal year 2024, the Company learned that due to misinterpretation of the required tax treatment for certain disqualifying dispositions of Incentive Stock Options (ISO), the Company improperly withheld amounts for Social Security and Medicare (“FICA”) taxes on the taxable gains resulting from those dispositions and remitted such amounts to the Internal Revenue Service (“IRS”). Thus, for such disqualifying dispositions of ISOs beginning in fiscal year 2021, certain employees are owed a refund from the Company for the overpayment of the FICA taxes, with a similar refund due to the Company from the IRS for the employer portion of the taxes which were also remitted to the IRS and expensed by the Company. The Company intends to reimburse the over withheld taxes to the impacted employees and to file amended 941-X forms with the IRS to claim a refund for both the Company overpayment of FICA taxes as well as the amounts refunded to employees. As of March 31, 2024 the over withheld taxes due to the impacted employees was $354,971 and is recorded in accrued liabilities on the condensed consolidated balance sheet as of that date. The refund expected from the IRS is $722,498 and is included in prepaid expenses and other current assets on the condensed consolidated balance sheet at March 31, 2024.

Based on an analysis of Accounting Standards Codification ASC 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company determined that these errors did not result in the previously issued consolidated financial statements being materially misstated, and as such no restatement was necessary.

7


The following tables present the effect of the revision on the condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations for the three and nine months ended March 31, 2023, and the condensed consolidated statement of cash flows for the nine months ended March 31, 2023.

As of June 30, 2023

As Previously Reported

Revision

As Revised

Condensed consolidated balance sheet:

Prepaid expenses and other current assets