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, 1996
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
- --------------------------------------------------------------------------------
(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, 1996, there were 3,363,633 shares outstanding of the Registrant's
common stock, $0.01 par value per share.
1 of 11
2
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1996
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1996 (Unaudited) and June 30, 1995 3
Condensed Consolidated Statements
of Income (Unaudited)
Quarter and nine months ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Nine months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) March 31, 1996 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
2 of 11
3
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1996 June 30, 1995
(Unaudited) (*)
------------------------------
ASSETS
Current Assets:
Cash $ 21,792 $ 49,227
Accounts receivable, net 9,372,778 7,242,862
Inventories 8,509,433 9,395,915
Prepaid expenses 720,274 676,874
Income taxes receivable -- 376,147
Prepaid income taxes 626,559 378,946
- --------------------------------------------------------------------------------
Total current assets 19,250,836 18,119,971
Property and Equipment, net 2,186,365 2,283,394
Intangible and Other Assets 524,259 569,558
- --------------------------------------------------------------------------------
$21,961,460 $20,972,923
================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,670,135 $ 1,726,711
Accrued liabilities 519,462 930,660
- --------------------------------------------------------------------------------
Total current liabilities 2,189,597 2,657,371
Long-Term Debt 1,000,000 570,000
Deferred Income Taxes 6,862 6,862
Deferred Compensation and Other Liabilities 993,574 907,264
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 16,281,427 15,341,426
- --------------------------------------------------------------------------------
$21,961,460 $20,972,923
================================================================================
* The balance sheet at June 30, 1995, has been prepared from the audited
financial statements at that date.
See accompanying notes.
3 of 11
4
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Nine Months
Period Ended March 31 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------
Net sales $8,482,620 $7,671,860 $27,941,603 $25,850,714
Cost of goods sold 6,018,141 5,721,390 19,450,431 17,648,142
- ---------------------------------------------------------------------------------------
Gross profit 2,464,479 1,950,470 8,491,172 8,202,572
Selling, general and
administrative expense 2,160,599 1,789,492 6,529,139 6,135,031
- ---------------------------------------------------------------------------------------
Income from operations 303,880 160,978 1,962,033 2,067,541
Other income (expense)
Royalty income 43,769 270,881 1,112,498 1,294,809
Interest income 4,063 26,755 12,511 68,780
Interest expense (12,109) (89,757) (72,458) (268,780)
- ---------------------------------------------------------------------------------------
Income before income tax provision 339,603 368,857 3,014,584 3,162,350
Provision for income taxes 140,501 133,464 1,236,964 1,226,742
- ---------------------------------------------------------------------------------------
Net income $ 199,102 $ 235,393 $ 1,777,620 $ 1,935,608
=======================================================================================
Number of common and common
equivalent shares used in
computing earnings per share 3,478,695 3,650,903 3,536,361 3,670,307
=======================================================================================
Earnings per common and common
equivalent share $0.06 $0.06 $0.50 $0.53
=======================================================================================
Dividends per common share None None None None
=======================================================================================
4 of 11
5
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31 1996 1995
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,777,620 $ 1,935,608
Adjustments to reconcile net
income to net cash (used) provided
by operating activities:
Depreciation and amortization 434,167 733,990
Deferred compensation and other liabilities 86,310 (22,825)
Net changes in operating assets and
liabilities (2,585,989) (2,230,801)
- -------------------------------------------------------------------------------
Net cash (used) provided by operating
activities: (287,892) 415,972
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (242,043) (660,402)
- -------------------------------------------------------------------------------
Net cash used in
investing activities (242,043) (660,402)
- -------------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings under line of credit agreements 11,971,000 10,773,000
Repayments under line of credit agreements (11,541,000) (10,466,740)
Principal payments on
long-term debt -- (9,336)
Exercise of stock options 72,500 85,697
- -------------------------------------------------------------------------------
Net cash provided
by financing activities 502,500 382,621
- -------------------------------------------------------------------------------
Net (decrease) increase in cash (27,435) 138,191
Cash at beginning of year 49,227 37,355
- -------------------------------------------------------------------------------
Cash at end of quarter $ 21,792 $ 175,546
===============================================================================
See accompanying notes
5 of 11
6
KOSS CORPORATION AND SUBSIDIARIES
March 31, 1996
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 condition, results of operations and cash flows at
March 31, 1996, 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 period ended March 31, 1996 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 54,070 and 358,023 related to stock option grants
were included in the computation of the average number of shares
outstanding for the quarter ending March 31, 1996 and 1995 respectively.
3. INVENTORIES
The classification of inventories is as follows:
March 31, 1996 June 30, 1995
--------------------------------------------------
Raw materials and
work in process $4,392,551 $ 3,888,903
Finished goods 4,802,561 6,192,691
--------------------------------------------------
9,195,112 10,081,594
LIFO Reserve (685,679) (685,679)
--------------------------------------------------
$8,509,433 $ 9,395,915
==================================================
6 of 11
7
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
March 31, 1996 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 March 31, 1996 and June 30, 1995, respectively, the related
liabilities in the amounts of $498,680 and $326,060 have been included in
deferred compensation in the accompanying balance sheets.
7 of 11
8
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q - March 31, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash used in operating activities during the nine months ended March 31, 1996
amounted to $287,892. 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 $17,061,239 at March 31, 1996. The increase of $1,598,639
from the balance at June 30, 1995 consists primarily of an increase in accounts
receivable and a decrease in inventory. Both the increase in accounts
receivable and the decrease in inventory are the result of higher sales volume
for the nine month period.
Capital expenditures for new property and equipment (including production
tooling) were $242,043 for the nine months ended March 31, 1996. Depreciation
aggregated $339,072 for the nine months. For the fiscal year ending June 30,
1996, the Company expects its capital expenditures to be $800,000. The Company
expects to generate sufficient operating funds to fulfill these expenditures.
Stockholders' investment increased to $16,281,427 at March 31, 1996, from
$15,341,426 at June 30, 1995. The increase reflects primarily the income for
the nine month period ending March 31, 1996. 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 March 31, 1996 totaled
$1,135,420, consisting of $1,000,000 in borrowings and $135,420 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. In January of 1996, the Board of
Directors approved an increase in the total amount of potential stock purchases
for the Company's own account from $2,000,000 to $3,000,000. The Company is
reviewing with its bank appropriate financing arrangements for the additional
$1,000,000 of possible stock purchases. 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. From April of 1995 through March 31,
1996, the Company purchased 189,947 shares of its common stock at an average
of $5.905 per share, and held such shares as treasury stock. Of the 189,947
shares purchased, 139,947 shares were purchased during the quarter ended March
31, 1996, and 149,947 shares were purchased for the nine month period ended
March 31, 1996. All 189,947 treasury shares were retired as of March 31, 1996.
8 of 11
9
During the quarter ended March 31, 1996, the Company also purchased
8,353 shares of its common stock for the Company's Employee Stock Ownership
Plan and Trust ("ESOP"), at a price of $5.986 per share. For the nine month
period ended March 31, 1996, the Company purchased 35,353 shares of common
stock for the ESOP at an average price of $7.142 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 $0 at March
31, 1996 and June 30, 1995.
Results of Operations
Net sales for the quarter ended March 31, 1996 were $8,482,620 compared with
$7,671,860 for the same period in 1995, which represents an increase of
$810,760 in sales compared with the same period in 1995. Net sales for the
nine months ended March 31, 1996 were $27,941,603 compared with $25,850,714 for
the same period in 1995, an increase of $2,090,889. This increase was
primarily the result of strong orders in March.
Gross profit as a percent of net sales was 29% for the quarter ended March 31,
1996 compared with 25% for the same period in the prior year. For the nine
month period ended March 31, 1996, the gross profit percentage was 30% compared
with 32% for the same period in 1995. Shifts in product mix resulted in the
increase in gross profit, for the quarter, as compared to last year.
Selling, general and administrative expenses for the quarter ended March 31,
1996 were $2,160,599 or 25%, as against $1,789,492 or 23% for the same period
in 1995. For the nine month period ended March 31, 1996, such expenses were
$6,529,139 or 23%, as against $6,135,031 or 24% for the same period in 1995.
The increase is primarily due to provisions to increase the bad debt reserve
compared to the previous year.
For the third quarter ended March 31, 1996, income from operations was $303,880
versus $160,978 for the same period in the prior year. The increase for the
quarter is primarily related to the increase in gross margins resulting from
shifts in product mix. Income from operations for the nine months ended March
31, 1996 was $1,962,033 as compared to $2,067,541 for the same period in 1995.
Net interest expense amounted to $12,109 for the quarter as compared to $89,757
for the same period in the prior year. For the nine month period, the interest
expense amounted to $72,458 compared with $268,780 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
9 of 11
10
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 March 31, 1996 was $43,769 as compared
to $270,881 for the same period in 1995. For the nine month period, royalty
income was $1,112,498 at March 31, 1996 compared to $1,294,809 at March 31,
1995. 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 March 31, 1996.
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.
10 of 11
11
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: 5/14/96 /s/ Michael J. Koss
------- ----------------------------
Michael J. Koss, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 5/14/96 /s/ Sue Sachdeva
------- ----------------------------
Sue Sachdeva
Vice President -- Finance
11 of 11
5
3-MOS
JUN-30-1996
JUL-1-1995
MAR-31-1996
21,792
0
9,372,778
0
8,509,433
19,250,836
2,186,365
0
21,961,460
2,189,597
0
35,261
0
0
0
21,961,460
8,482,620
8,482,620
6,018,141
2,160,599
0
0
12,109
339,603
140,501
0
0
0
0
199,102
.06
0
