Koss (KOSS) 10-Q 28 Oct 16 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information Document - shares	3 Months Ended
	Sep. 30, 2016	Oct. 21, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	KOSS CORP
Entity Central Index Key	56,701
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		7,382,706
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Net sales	$ 6,348,706	$ 5,531,262
Cost of goods sold	4,406,447	3,884,927
Gross profit	1,942,259	1,646,335
Operating expenses:
Selling, general and administrative expenses	1,775,771	1,765,746
Unauthorized transaction related costs (recoveries), net	37,500	37,475
Interest expense	846	5,318
Income (loss) before income tax provision	128,142	(162,204)
Income tax provision (benefit)	43,931	(61,400)
Net income (loss)	$ 84,211	$ (100,804)
Income (loss) per common share:
Basic	$ 0.01	$ (0.01)
Diluted	$ 0.01	$ (0.01)

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Current assets:
Cash and cash equivalents	$ 459,921	$ 735,393
Accounts receivable, less allowance for doubtful accounts of $54,689 and $55,175, respectively	3,259,979	3,530,854
Inventories	7,387,693	8,595,485
Prepaid expenses and other current assets	507,414	281,099
Income taxes receivable	606,566	583,507
Total current assets	12,221,573	13,726,338
Equipment and leasehold improvements, net	1,596,944	1,514,472
Other assets:
Deferred income taxes	3,145,566	3,212,556
Cash surrender value of life insurance	5,979,889	5,667,105
Total other assets	9,125,455	8,879,661
Total assets	22,943,972	24,120,471
Current liabilities:
Accounts payable	634,245	1,966,656
Accrued liabilities	1,590,053	1,601,652
Total current liabilities	2,224,298	3,568,308
Long-term liabilities:
Deferred compensation	2,188,991	2,187,714
Other liabilities	171,755	178,255
Total long-term liabilities	2,360,746	2,365,969
Total liabilities	4,585,044	5,934,277
Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 7,382,706 shares	36,914	36,914
Paid in capital	5,159,479	5,070,956
Retained earnings	13,162,535	13,078,324
Total stockholders' equity	18,358,928	18,186,194
Total liabilities and stockholders' equity	$ 22,943,972	$ 24,120,471

CONDENSED CONSOLIDATED BALANCE4

CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Allowance for doubtful accounts	$ 54,689	$ 55,175
Common stock, par value	$ 0.005	$ 0.005
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	7,382,706	7,382,706
Common stock, shares outstanding	7,382,706	7,382,706

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating activities:
Net income (loss)	$ 84,211	$ (100,804)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts	705	(14,682)
(Gain) on disposal of equipment and leasehold improvements	0	150
Depreciation of equipment and leasehold improvements	123,837	123,505
Stock-based compensation expense	88,523	116,004
Deferred income taxes	66,990	60,122
Change in cash surrender value of life insurance	(181,176)	(133,306)
Change in deferred compensation accrual	38,777	9,453
Deferred compensation paid	(37,500)	(37,500)
Net changes in operating assets and liabilities (see note 9)	(121,922)	(1,066,264)
Cash provided by (used in) operating activities	62,445	(1,043,622)
Investing activities:
Life insurance premiums paid	(131,608)	(129,219)
Purchase of equipment and leasehold improvements	(206,309)	(46,635)
Cash (used in) investing activities	(337,917)	(175,854)
Financing activities:
Net proceeds from line of credit facility	0	400,000
Cash provided by financing activities	0	400,000
Net (decrease) in cash and cash equivalents	(275,472)	(819,476)
Cash and cash equivalents at beginning of period	735,393	1,000,266
Cash and cash equivalents at end of period	$ 459,921	$ 180,790

CONDENSED CONSOLIDATED FINANCIA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Notes)	3 Months Ended
	Sep. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Condensed Consolidated Financial Statements	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet of Koss Corporation (the "Company") as of June 30, 2016 , has been derived from audited financial statements. The unaudited condensed consolidated financial statements presented herein are based on interim amounts. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for the three months ended September 30, 2016 , are not necessarily indicative of the operating results that may be experienced for the full fiscal year ending June 30, 2017 . These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 .

UNAUTHORIZED TRANSACTION RELATE

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Notes)	3 Months Ended
	Sep. 30, 2016
Unauthorized Transaction Related Costs and Recoveries [Abstract]
Unauthorized Transaction Related Costs and Recoveries [Text Block]	UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES In December 2009, the Company learned of significant unauthorized transactions as previously reported. The Company has ongoing costs and recoveries associated with the unauthorized transactions. For the three months ended September 30, 2016 and 2015 , unauthorized transaction related costs, net, of $37,500 and $37,475 , respectively, were incurred for legal fees related to claims initiated against third parties (see Note 11).

INVENTORIES (Notes)

INVENTORIES (Notes)	3 Months Ended
	Sep. 30, 2016
Inventory Disclosure [Abstract]
Inventories	INVENTORIES The components of inventories were as follows: September 30, 2016 June 30, 2016 Raw materials $ 3,000,320 $ 3,466,907 Work-in process 33,221 — Finished goods 6,801,906 7,570,026 9,835,447 11,036,933 Allowance for obsolete inventory (2,447,754 ) (2,441,448 ) Total inventories $ 7,387,693 $ 8,595,485

INCOME TAXES (Notes)

INCOME TAXES (Notes)	3 Months Ended
	Sep. 30, 2016
Income Tax Disclosure [Abstract]
Income Taxes	INCOME TAXES The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company’s federal tax returns for tax years beginning July 1, 2012 or later are open. For states in which the Company files state income tax returns, the statute of limitations is generally open for tax years ended June 30, 2012 and forward. For the three months ended September 30, 2016 , the Company recorded an income tax expense of $43,931 , compared to an income tax benefit of $61,400 for the three months ended September 30, 2015 . The Company does not believe it has any unrecognized tax benefits as of September 30, 2016 and as of June 30, 2016 . Any changes to the Company’s unrecognized tax benefits as of September 30, 2016 , if recognized, would impact the effective tax rate.

CREDIT FACILITY (Notes)

CREDIT FACILITY (Notes)	3 Months Ended
	Sep. 30, 2016
Debt Disclosure [Abstract]
Credit Facility	CREDIT FACILITY On May 12, 2010, the Company entered into a secured credit facility (“Credit Agreement”) with JPMorgan Chase Bank, N.A. (“Lender”). The Credit Agreement provided for an $8,000,000 revolving secured credit facility with interest rates either ranging from 0.0% to 0.75% over the Lender’s most recently publicly announced prime rate or 2.0% to 3.0% over LIBOR, depending on the Company’s leverage ratio. The Company pays a fee of 0.3% to 0.45% for unused amounts committed in the credit facility. On July 23, 2014, the Credit Agreement was amended to reduce the facility to $5,000,000 , subject to a borrowing base calculation as defined in the Credit Agreement, and to amend certain financial covenants. On May 31, 2016, the Credit Agreement was amended to extend the expiration to July 31, 2018, and to amend certain financial covenants. In addition to the revolving loans, the Credit Agreement also provides that the Company may, from time to time, request the Lender to issue letters of credit for the benefit of the Company of up to a sublimit of $2,000,000 and subject to certain other limitations. The loan may be used only for general corporate purposes of the Company. The Credit Agreement contains certain affirmative, negative and financial covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, asset sales, sale and leaseback transactions and transactions with affiliates, among other restrictions. The financial covenants include minimum debt service coverage ratio requirements. The Company and the Lender also entered into the Pledge and Security Agreement dated May 12, 2010, under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Company is currently in compliance with all covenants related to the Credit Facility. As of September 30, 2016 and June 30, 2016 , there were no outstanding borrowings on the facility. The Company incurs interest expense primarily related to its secured credit facility. Interest expense was $846 and $5,318 for the three months ended September 30, 2016 and 2015 , respectively.

ACCRUED LIABILITIES (Notes)

ACCRUED LIABILITIES (Notes)	3 Months Ended
	Sep. 30, 2016
Accrued Liabilities [Abstract]
Accrued Liabilities [Text Block]	ACCRUED LIABILITIES Accrued liabilities were as follows: September 30, 2016 June 30, 2016 Cooperative advertising and promotion allowances $ 464,925 $ 479,645 Product warranty obligations 294,072 305,275 Customer credit balances 222,868 47,753 Current deferred compensation 150,000 150,000 Accrued returns 120,763 140,918 Employee benefits 77,553 83,113 Legal and professional fees 77,800 127,329 Management bonuses and profit-sharing 42,404 147,450 Sales commissions and bonuses 62,274 70,050 Other 77,394 50,119 Total accrued liabilities $ 1,590,053 $ 1,601,652

INCOME (LOSS) PER COMMON AND CO

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE (Notes)	3 Months Ended
	Sep. 30, 2016
Earnings Per Share, Basic and Diluted [Abstract]
Income (Loss) Per Common and Common Stock Equivalent Share	INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding. The weighted-average number of common shares outstanding was 7,382,706 for the periods ended September 30, 2016 and 2015 . When dilutive, stock options are included in income (loss) per share as share equivalents using the treasury stock method. For the periods ended September 30, 2016 and 2015 , there were no common stock equivalents related to stock option grants that were included in the computation of the weighted-average number of shares outstanding for diluted income (loss) per share. Shares issuable upon the exercise of outstanding options of 2,365,000 and 2,335,000 were excluded from the diluted weighted-average common shares outstanding for the periods ended September 30, 2016 and 2015 , respectively, as they would be anti-dilutive.

STOCK OPTIONS (Notes)

STOCK OPTIONS (Notes)	3 Months Ended
	Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock Options	STOCK OPTIONS The Company recognizes stock-based compensation expense for options granted under both the 1990 Flexible Incentive Plan and the 2012 Omnibus Incentive Plan. The stock-based compensation relates to stock options granted to employees, non-employee directors and non-employee consultants. In the three months ended September 30, 2016 , options to purchase 485,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.33 . In the three months ended September 30, 2015 , options to purchase 390,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.76 . Stock-based compensation expense during the three months ended September 30, 2016 and 2015 was $88,523 and $116,004 , respectively.

ADDITIONAL CASH FLOW INFORMATIO

ADDITIONAL CASH FLOW INFORMATION (Notes)	3 Months Ended
	Sep. 30, 2016
Supplemental Cash Flow Elements [Abstract]
Additional Cash Flow Information	ADDITIONAL CASH FLOW INFORMATION The net changes in cash as a result of changes in operating assets and liabilities consist of the following: Three Months Ended September 30 2016 2015 Accounts receivable $ 270,170 $ (73,023 ) Inventories 1,207,792 264,644 Income taxes receivable (23,059 ) (121,521 ) Prepaid expenses and other current assets (226,315 ) (72,554 ) Accounts payable (1,332,411 ) (939,523 ) Accrued liabilities (11,599 ) (116,932 ) Other liabilities (6,500 ) (7,355 ) Net change $ (121,922 ) $ (1,066,264 ) Net cash paid during the period for: Income taxes $ 10 $ 800 Interest $ 846 $ 3,478

STOCKHOLDERS' EQUITY (Notes)

STOCKHOLDERS' EQUITY (Notes)	3 Months Ended
	Sep. 30, 2016
Stockholders' Equity Attributable to Parent [Abstract]
Stockholders' Equity	STOCKHOLDERS' EQUITY The following table summarizes the changes in stockholders’ equity: Three Months Ended September 30 2016 2015 Net income (loss) $ 84,211 $ (100,804 ) Stock-based compensation expense 88,523 116,004 Increase in stockholders' equity $ 172,734 $ 15,200

LEGAL MATTERS (Notes)

LEGAL MATTERS (Notes)	3 Months Ended
	Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]
Legal Matters	LEGAL MATTERS As of September 30, 2016 , the Company is party to the following matter related to the unauthorized transactions described below: • On December 17, 2010, the Company filed an action against Park Bank in Circuit Court of Milwaukee County, Wisconsin alleging a claim of breach of the Uniform Fiduciaries Act relating to the unauthorized transactions, as previously reported. In 2015, Park Bank filed third party claims based on contribution and subrogation against Grant Thornton LLP and Michael Koss. The Court granted motions to dismiss the contribution claims against Grant Thornton LLP and Michael Koss, but determined that it was premature to decide the subrogation claims at this stage of the proceedings. On or around March 11, 2016, the Court entered an order granting Park Bank's motion for summary judgment that dismissed the case. On March 22, 2016, the Company filed a Notice of Appeal that appeals the order granting Park Bank's motion for summary judgment and the Court's denial of the motion to dismiss the subrogation claims. The ultimate resolution of this matter is not determinable unless otherwise noted.

UNAUTHORIZED TRANSACTION RELA17

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Tables)	3 Months Ended
	Sep. 30, 2016
Unauthorized Transaction Related Costs and Recoveries [Abstract]
Unauthorized Transactions, Related Costs and Recoveries, net [Table Text Block]

INVENTORIES (Tables)

INVENTORIES (Tables)	3 Months Ended
	Sep. 30, 2016
Inventory Disclosure [Abstract]
Inventories	The components of inventories were as follows: September 30, 2016 June 30, 2016 Raw materials $ 3,000,320 $ 3,466,907 Work-in process 33,221 — Finished goods 6,801,906 7,570,026 9,835,447 11,036,933 Allowance for obsolete inventory (2,447,754 ) (2,441,448 ) Total inventories $ 7,387,693 $ 8,595,485

ACCRUED LIABILITIES (Tables)

ACCRUED LIABILITIES (Tables)	3 Months Ended
	Sep. 30, 2016
Accrued Liabilities [Abstract]
Schedule of Accrued Liabilities [Table Text Block]	Accrued liabilities were as follows: September 30, 2016 June 30, 2016 Cooperative advertising and promotion allowances $ 464,925 $ 479,645 Product warranty obligations 294,072 305,275 Customer credit balances 222,868 47,753 Current deferred compensation 150,000 150,000 Accrued returns 120,763 140,918 Employee benefits 77,553 83,113 Legal and professional fees 77,800 127,329 Management bonuses and profit-sharing 42,404 147,450 Sales commissions and bonuses 62,274 70,050 Other 77,394 50,119 Total accrued liabilities $ 1,590,053 $ 1,601,652

ADDITIONAL CASH FLOW INFORMAT20

ADDITIONAL CASH FLOW INFORMATION (Tables)	3 Months Ended
	Sep. 30, 2016
Supplemental Cash Flow Elements [Abstract]
Additional Cash Flow Information	The net changes in cash as a result of changes in operating assets and liabilities consist of the following: Three Months Ended September 30 2016 2015 Accounts receivable $ 270,170 $ (73,023 ) Inventories 1,207,792 264,644 Income taxes receivable (23,059 ) (121,521 ) Prepaid expenses and other current assets (226,315 ) (72,554 ) Accounts payable (1,332,411 ) (939,523 ) Accrued liabilities (11,599 ) (116,932 ) Other liabilities (6,500 ) (7,355 ) Net change $ (121,922 ) $ (1,066,264 ) Net cash paid during the period for: Income taxes $ 10 $ 800 Interest $ 846 $ 3,478

STOCKHOLDERS' EQUITY (Tables)

STOCKHOLDERS' EQUITY (Tables)	3 Months Ended
	Sep. 30, 2016
Stockholders' Equity Attributable to Parent [Abstract]
Stockholders' Equity	The following table summarizes the changes in stockholders’ equity: Three Months Ended September 30 2016 2015 Net income (loss) $ 84,211 $ (100,804 ) Stock-based compensation expense 88,523 116,004 Increase in stockholders' equity $ 172,734 $ 15,200

UNAUTHORIZED TRANSACTION RELA22

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Unauthorized Transaction Related Costs and Recoveries [Abstract]
Unauthorized transaction related costs (recoveries), net	$ 37,500	$ 37,475

INVENTORIES (Details)

INVENTORIES (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 3,000,320	$ 3,466,907
Work-in process	33,221	0
Finished goods	6,801,906	7,570,026
Gross inventory	9,835,447	11,036,933
Allowance for obsolete inventory	(2,447,754)	(2,441,448)
Total inventories	$ 7,387,693	$ 8,595,485

INCOME TAXES (Details)

INCOME TAXES (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Income tax provision (benefit)	$ 43,931	$ (61,400)
Unrecognized tax benefits	0		$ 0
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 0

CREDIT FACILITY (Details)

CREDIT FACILITY (Details) - USD ($)	May 12, 2010	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016	Jul. 23, 2014
Line of Credit Facility [Line Items]
Revolving secured credit facility, maximum borrowing available	$ 8,000,000				$ 5,000,000
Line of credit sublimit	$ 2,000,000
Line of credit facility		$ 0		$ 0
Interest Expense, Debt		$ 846	$ 5,318
Minimum [Member]
Line of Credit Facility [Line Items]
Unused capacity, commitment fee percentage	0.30%
Minimum [Member] | Prime Rate [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	0.00%
Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	2.00%
Maximum [Member]
Line of Credit Facility [Line Items]
Unused capacity, commitment fee percentage	0.45%
Maximum [Member] | Prime Rate [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	0.75%
Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	3.00%

ACCRUED LIABILITIES (Details)

ACCRUED LIABILITIES (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Accrued Liabilities [Abstract]
Cooperative advertising and promotion allowances	$ 464,925	$ 479,645
Product warranty obligations	294,072	305,275
Customer credit balances	222,868	47,753
Current deferred compensation	150,000	150,000
Accrued returns	120,763	140,918
Employee benefits	77,553	83,113
Legal and professional fees	77,800	127,329
Management bonuses and profit-sharing	42,404	147,450
Sales commissions and bonuses	62,274	70,050
Other	77,394	50,119
Total accrued liabilities	$ 1,590,053	$ 1,601,652

INCOME (LOSS) PER COMMON AND 27

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE (Details) - shares	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share, Basic and Diluted [Abstract]
Weighted average number of shares outstanding	7,382,706	7,382,706
Common stock equivalents related to stock option grants that were included in the computation of the weighted-average number of shares outstanding	0	0
Shares issuable upon the exercise of outstanding options, excluded from the diluted weighted-average common shares outstanding as they would be anti-dilutive	2,365,000	2,335,000

STOCK OPTIONS (Details)

STOCK OPTIONS (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Granted (in shares)	485,000	390,000
Weighted average exercise price of shares granted in period	$ 2.33	$ 2.76
Stock-based compensation expense	$ 88,523	$ 116,004

ADDITIONAL CASH FLOW INFORMAT29

ADDITIONAL CASH FLOW INFORMATION (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Supplemental Cash Flow Elements [Abstract]
Accounts receivable	$ 270,170	$ (73,023)
Inventories	1,207,792	264,644
Income taxes receivable	(23,059)	(121,521)
Prepaid expenses and other current assets	(226,315)	(72,554)
Accounts payable	(1,332,411)	(939,523)
Accrued liabilities	(11,599)	(116,932)
Other liabilities	(6,500)	(7,355)
Net change	121,922	1,066,264
Net cash (refunded) paid during the period for:
Income taxes	10	800
Interest	$ 846	$ 3,478

STOCKHOLDERS' EQUITY (Details)

STOCKHOLDERS' EQUITY (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Stockholders' Equity Attributable to Parent [Abstract]
Net income (loss)	$ 84,211	$ (100,804)
Stock-based compensation expense	88,523	116,004
Increase in stockholders' equity	$ 172,734	$ 15,200