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 December 31, 1995
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
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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 December 31, 1995, there were 3,511,080 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
December 31, 1995
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 (Unaudited) and June 30, 1995 3
Condensed Consolidated Statements
of Income (Unaudited)
Quarter and six months ended
December 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Quarter and six months ended
December 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) December 31, 1995 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders 10
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 June 30, 1995
(Unaudited) (*)
--------------------------------
ASSETS
Current Assets:
Cash $ 64,908 $ 49,227
Accounts receivable, net 10,506,810 7,242,862
Inventories 9,252,293 9,395,915
Prepaid expenses 874,094 676,874
Income taxes receivable -- 376,147
Prepaid income taxes 378,946 378,946
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Total current assets 21,077,051 18,119,971
Property and Equipment, net 2,275,053 2,283,394
Intangible and Other Assets 553,956 569,558
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$23,906,060 $20,972,923
======================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 2,450,445 $ 1,726,711
Accrued liabilities 1,187,231 930,660
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Total current liabilities 3,637,676 2,657,371
Long-Term Debt 929,948 570,000
Deferred Income Taxes 6,862 6,862
Deferred Compensation and Other Liabilities 964,804 907,264
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 16,876,770 15,341,426
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$23,906,060 $20,972,923
======================================================================================
* The balance sheet at June 30, 1995, has been prepared from the audited
financial statements at that date.
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Six Months
Period Ended December 31 1995 1994 1995 1994
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Net sales $9,870,439 $9,805,952 $19,458,983 $18,178,854
Cost of goods sold 6,988,367 6,418,953 13,432,290 11,926,752
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Gross profit 2,882,072 3,386,999 6,026,693 6,252,102
Selling, general and
administrative expense 2,227,795 2,355,552 4,368,540 4,345,539
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Income from operations 654,277 1,031,447 1,658,153 1,906,563
Other income (expense)
Royalty income 679,737 680,687 1,068,729 1,023,928
Interest income 4,323 25,910 8,448 42,025
Interest expense (33,181) (109,175) (60,349) (179,023)
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Income before income taxes 1,305,156 1,628,869 2,674,981 2,793,493
Provision for income taxes 534,750 639,032 1,096,463 1,093,278
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Net income $ 770,406 $ 989,837 $ 1,578,518 $ 1,700,215
===================================================================================
Number of common and common
equivalent shares used in
computing earnings per share 3,575,094 3,688,832 3,570,142 3,678,177
===================================================================================
Earnings per common and common
equivalent share $0.22 $0.27 $0.44 $0.46
===================================================================================
Dividends per common share None None None None
===================================================================================
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31 1995 1994
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,578,518 $ 1,700,215
Adjustments to reconcile net
income to net cash provided (used)
by operating activities:
Depreciation and amortization 341,874 489,332
Deferred compensation and other liabilities 140,088 54,387
Net changes in operating assets and
liabilities (2,305,514) (3,798,438)
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Net cash used in operating activities: (245,034) (1,554,504)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (165,483) (499,941)
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Net cash used in
investing activities (165,483) (499,941)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayments under line of credit agreements (8,384,000) (5,022,000)
Borrowings under line of credit agreements 8,743,948 7,343,000
Principal payments on
long-term debt -- (6,224)
Exercise of stock options 66,250 66,947
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Net cash provided
by financing activities 426,198 2,381,723
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Net (decrease) increase in cash 15,681 327,278
Cash at beginning of year 49,227 37,355
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Cash at end of quarter $ 64,908 $ 364,633
================================================================================
See accompanying notes
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KOSS CORPORATION AND SUBSIDIARIES
December 31, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements presented herein are based on interim figures
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
December 31, 1995, and for all periods presented have been made.
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, 1995, Annual Report on Form 10-K. The income
from operations for the quarter and six months ended December 31, 1995 is
not necessarily indicative of the operating results for the full year.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share are computed based on the average number of common and
common share equivalents outstanding. When dilutive, stock options are
included as share equivalents using the treasury stock method. Common
stock equivalents of 64,014 and 438,112 related to stock option grants
were included in the computation of the average number of shares
outstanding for the quarter ended December 31, 1995 and 1994
respectively.
3. INVENTORIES
The classification of inventories is as follows:
December 31, 1995 June 30, 1995
---------------------------------------------------
Raw materials and
work in process $4,507,967 $3,888,903
Finished goods 5,430,005 6,192,691
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9,937,972 10,081,594
LIFO Reserve (685,679) (685,679)
---------------------------------------------------
$9,252,293 $9,395,915
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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 a 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
December 31, 1995 and June 30, 1995, $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 December 31, 1995 and June 30, 1995, respectively, the
related liabilities in the amounts of $498,680 and $326,060 have been
included in deferred compensation on the accompanying balance sheets.
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KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q - December 31, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash used in operating activities during the six months ended December 31, 1995
amounted to $245,034. The Company expects to generate adequate amounts of cash
to meet future needs but maintains sufficient borrowing capacity to fund any
shortfall.
Working capital was $17,439,375 at December 31, 1995. The increase of
$1,976,775 from the balance at June 30, 1995 consists primarily of an increase
in accounts receivable. This increase in accounts receivable is the result of
higher sales volume for the six month period.
Capital expenditures for new property and equipment (including production
tooling) were $165,483 for the six months ended December 31, 1995.
Depreciation aggregated $313,851 for the six months. For the fiscal year
ending June 30, 1996, the Company expects its capital expenditures to be
$1,600,000. The Company expects to generate sufficient operating funds to
fulfill these expenditures.
Stockholders' investment increased to $16,876,770 at December 31, 1995, from
$15,341,426 at June 30, 1995. The increase reflects primarily the income for
the six month period ending December 31, 1995. No cash dividends have been
paid since the first quarter of fiscal 1984.
The Company has an unsecured working capital credit facility with a bank which
runs through March 15, 1997. This credit facility provides for borrowings up
to a maximum of $8,000,000. Borrowings under this credit facility bear
interest at the bank's prime rate, or LIBOR plus 2.25%. This credit facility
includes certain covenants that require the Company to maintain a minimum
tangible net worth and specified current, interest coverage and leverage
ratios. Utilization of this credit facility as of December 31, 1995 totaled
$1,073,697, consisting of $811,000 in borrowings and $262,697 in commitments
for foreign letters of credit. The Company also has a $2,000,000 credit
facility which can be used by the Company in the event the Company desires to
purchase shares of its own stock. The Company is currently in the process of
extending the expiration date of both credit facilities to March 15, 1998.
In April, 1995 the Board of Directors authorized the Company's purchase from
time to time of its common stock for its own account utilizing the
aforementioned $2,000,000 line of credit. From April of 1995 through December
31, 1995, the Company purchased 50,000 shares of its common stock in the open
market at an average of $5.775 per share. The Company intends to retire all
50,000 shares in the near future. During calendar year 1995, the Company also
purchased 35,193 shares of its common stock in the open market for the
Company's Employee Stock Ownership Plan and Trust, at an average price of
$7.763 per share.
The Company's Canadian subsidiary has a line of credit of $550,000. The
interest rate is the prime rate plus 1.5%. The credit facility is subject to
the availability of qualifying receivables and inventories which serve as
security for the borrowings. Loan advances against the line were $118,948 at
December 31, 1995 as compared to $0 at June 30, 1995.
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Results of Operations
Net sales for the quarter ended December 31, 1995 were $9,870,439 compared with
$9,805,952 for the same period in 1994, which represents a slight increase in
sales compared with the same period in 1994. Net sales for the six months
ended December 31, 1995 were $19,458,983 compared with $18,178,854 for the same
period in 1994, an increase of $1,280,129. This increase was primarily a
result of strong orders in August and September.
Gross profit as a percent of net sales was 29% for the quarter ended December
31, 1995 compared with 35% for the same period in the prior year. For the six
month period ended December 31, 1995, the gross profit percentage was 31%
compared with 34% for the same period in 1994. Shifts in product mix resulted
in the decrease in gross profit as compared to last year.
Selling, general and administrative expenses for the quarter ended December 31,
1995 were $2,227,795 or 23%, as against $2,355,552 or 24% for the same period
in 1994. For the six month period ended December 31, 1995, such expenses were
$4,368,540 or 22%, as against $4,345,539 or 24% for the same period in 1994.
The decrease is due to a rigorous control of expenses by the Company this
fiscal year.
For the second quarter ended December 31, 1995, income from operations was
$654,277 versus $1,031,447 for the same period in the prior year. Income from
operations for the six months ended December 31, 1995 was $1,658,153 as
compared to $1,906,563 for the same period in 1994. The decrease is primarily
related to the decrease in gross margin resulting from shifts in product mix.
Net interest expense amounted to $33,181 for the quarter as compared to
$109,175 for the same period in the prior year. For the six month period, the
interest expense amounted to $60,349 compared with $179,023 for the same period
in the prior year. The decrease is a result of the Company borrowing at much
lower levels as compared to the same periods last year.
The Company has a License Agreement with Trabelco N.V., a Netherlands, Antilles
company and a subsidiary of Hagemeyer, N.V., covering North America and most of
South America and Central America. Hagemeyer N.V., a diverse international
trading company based in the Netherlands, has business interests in food,
appliances, electromechanical and automobile distribution as well as a solid
base of consumer electronic distribution in Asia, Europe, North America, South
America and Central America. This License Agreement expires December 31, 1997;
however, said agreement contains renewal options for additional three year
periods. Royalty income earned in connection with this License Agreement for
the quarter ended December 31, 1995 was $679,737 as compared to $680,687 for
the same period in 1994. For the six month period, royalty income was
$1,068,729 at December 31, 1995 compared to $1,023,928 at December 31, 1994.
The Company recognizes royalty income when earned.
On September 29, 1995, the Company entered into a second License Agreement with
Trabelco N.V. covering most European countries. No sales have been reported
under this License Agreement for the quarter ending December 31, 1995.
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PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
a) On October 19, 1995 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 3,322,507 shares of common stock eligible to vote at
the Annual Meeting, of which 2,784,830 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:
Number of Votes
---------------
For Withheld
--- --------
Nominees for 1-year
terms ending in 1996:
John C. Koss 2,745,854 38,976
Thomas L. Doerr 2,744,900 39,930
Victor L. Hunter 2,746,654 38,176
Michael J. Koss 2,745,054 39,776
Lawrence S. Mattson 2,744,400 40,430
Martin F. Stein 2,746,654 38,176
John J. Stollenwerk 2,746,854 37,976
Number of Votes
---------------
For Against Abstain
--- ------- -------
Appointment of Price
Waterhouse L.L.P.
as independent auditors
for the year ended
June 30, 1996 2,770,007 6,669 8,154
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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: 2/13/96 /s/ Michael J. Koss
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Michael J. Koss, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 2/13/96 /s/ Sue Sachdeva
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Sue Sachdeva
Vice President -- Finance
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3-MOS
DEC-31-1995
OCT-01-1995
DEC-31-1995
64908
0
10506810
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9252293
21077051
0
0
23906060
3637676
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0
0
0
0
23906060
9870439
10554499
6988367
9216162
0
0
33187
1305156
534750
0
0
0
0
770406
.22
0
