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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 December 31, 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
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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
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At December 31, 2000, there were 2,111,619 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, 2000
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 2000 and June 30, 2000 3
Condensed Consolidated Statements
of Income (Unaudited)
Three months and six months ended
December 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Six months ended December 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) December 31, 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
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 2000 June 30, 2000
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ASSETS
Current Assets:
Cash $ 427,135 $ 3,164,401
Accounts receivable 9,069,810 8,228,185
Inventories 9,296,273 9,414,036
Income taxes receivable 669,706 244,755
Other current assets 1,131,786 1,201,001
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Total current assets 20,594,710 22,252,378
Property and Equipment, net 1,684,530 1,564,302
Intangible and Other Assets 1,216,622 1,227,627
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$23,495,862 $25,044,307
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 735,767 $ 570,567
Accrued liabilities 1,394,916 1,007,443
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Total current liabilities 2,130,683 1,578,010
Deferred Compensation and Other Liabilities 1,540,204 1,482,664
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 18,334,975 20,493,633
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$23,495,862 $25,044,307
=====================================================================================================================
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Period Ended December 31 2000 1999 2000 1999
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Net sales $10,268,218 $ 8,582,606 $19,982,157 $16,975,859
Cost of goods sold 6,190,076 5,286,557 11,951,768 10,199,834
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Gross profit 4,078,142 3,296,049 8,030,389 6,776,025
Selling, general and
administrative expense 2,238,820 1,927,023 4,288,607 3,757,610
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Income from operations 1,839,322 1,369,026 3,741,782 3,018,415
Other income (expense)
Royalty income 379,804 456,747 673,692 731,379
Interest income 13,495 18,573 58,882 35,372
Interest expense (3,381) 0 (11,197) 0
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Income before income tax provision 2,229,240 1,844,346 4,463,159 3,785,166
Provision for income taxes 854,289 705,137 1,704,217 1,462,340
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Net income $ 1,374,951 $ 1,139,209 $ 2,758,942 $ 2,322,826
================================================================================================================
Earnings per common share:
Basic $0.64 $0.43 $1.26 $0.87
Diluted $0.61 $0.42 $1.20 $0.85
================================================================================================================
Dividends per common share None None None None
================================================================================================================
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31 2000 1999
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 2,758,942 $ 2,322,826
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 361,208 426,740
Deferred compensation 57,540 57,540
Net changes in operating assets and
liabilities (516,598) (132,950)
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Net cash provided by operating
activities 2,661,092 2,674,156
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (480,758) (226,603)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Purchase and retirement of common stock (5,046,913) (2,648,580)
Exercise of stock options 129,313 228,124
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Net cash used in financing
activities (4,917,600) (2,420,456)
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Net (decrease) increase in cash (2,737,266) 27,097
Cash at beginning of period 3,164,401 1,171,504
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Cash at end of period $ 427,135 $ 1,198,601
======================================================================================================
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
December 31, 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
December 31, 2000 and for all periods presented have been made. The
income from operations for the quarter ended December 31, 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 December 31, 2000 and
1999 were 2,131,147 and 2,636,092, respectively. For the six months
ended December 31, 2000 and 1999, weighted average number of common
shares outstanding were 2,183,597 and 2,661,442, respectively. When
dilutive, stock options are included as share equivalents using the
treasury stock method. Common stock equivalents of 118,468 and 57,639
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 December 31, 2000 and 1999, respectively. Common
stock equivalents of 106,673 and 58,375 related to stock option grants
were included in the computation of the average number of shares
outstanding for diluted earnings per share for the six months ended
December 31, 2000 and 1999, respectively.
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3. INVENTORIES
The classification of inventories is as follows:
December 31, 2000 June 30, 2000
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Raw materials and
work in process $ 4,022,206 $ 4,355,016
Finished goods 6,350,178 6,135,131
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10,372,384 10,490,147
LIFO Reserve (1,076,111) (1,076,111)
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$ 9,296,273 $ 9,414,036
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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
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 December 31, 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 has turned 70 and the Company is currently recognizing
an annual expense of $150,000 in connection with this agreement. At
December 31, 2000 and June 30, 2000, respectively, the related
liabilities in the amounts of $1,102,850 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
December 31, 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 December 31,
2000 amounted to $2,661,092. The decrease in working capital of $2,210,341 from
the balance at June 30, 2000 represents primarily the net effect of a decrease
in cash and inventories, and increases in accounts payable, accounts receivable
and accrued liabilities.
Capital expenditures for new property and equipment (including production
tooling) were $480,758 for the six months. 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 $18,334,975 at December 31, 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 December 31, 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. In January of 2001, the
Board of Directors approved an additional $3,000,000 for the stock repurchase
program, increasing the maximum amount of repurchases under the entire
repurchase program to $28,000,000, calculated on a net purchase price basis. 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. All
shares repurchased by the Company are retired and returned to the status of
authorized but unissued shares.
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For the quarter ended December 31, 2000, the Company purchased 47,000 shares of
its common stock in multiple transactions for a total purchase price of
$1,059,788, representing an average price of $22.55 per share.
From the commencement of the Company's stock repurchase program through December
31, 2000, the Company has purchased and retired a total of 2,069,498 shares for
a total gross purchase price of $26,584,620 (representing an average gross
purchase price of $12.85 per share) and a total net purchase price of
$23,687,898 (representing an average net purchase price of $11.45 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 December 31, 2000, the
ESOP did not purchase any shares of the Company's stock.
Results of Operations
Net sales for the second quarter ended December 31, 2000 rose 20% to $10,268,218
from $8,582,606 for the same period in 1999. Net sales for the six months ended
December 31, 2000 were $19,982,157 up 18% compared with $16,975,859 during the
same six months one year ago.
Gross profit as a percent of net sales was 40% for the quarter ended December
31, 2000 compared with 38% for the same period in the prior year. For the six
month period ended December 31, 2000, the gross profit percentage was 40%
compared with 40% for the same period in 1999.
Selling, general and administrative expenses for the quarter ended December 31,
2000 were $2,238,820 or 22% of net sales, as against $1,927,023 or 22% of net
sales for the same period in 1999. For the six month period ended December 31,
2000, such expenses were $4,288,607 or 21% of net sales, as against $3,757,610
or 22% of net sales, for the same period in 1999.
For the second quarter ended December 31, 2000, income from operations was
$1,839,322 versus $1,369,026 for the same period in the prior year. Income from
operations for the six months ended December 31, 2000 was $3,741,782 as compared
to $3,018,415 for the same period in 1999.
Interest expense amounted to $3,381 for the quarter as compared to $0 for the
same period in the prior year. For the six month period, the interest expense
amounted to $11,197 compared with $0 for the same period in the prior year.
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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. The products covered by this License Agreement include various
consumer electronics products. Pursuant to this License Agreement, Jiangsu
agreed to make royalty payments through December 31, 2000, subject to certain
minimum royalty amounts due each year. The Company is currently in final
negotiations with Jiangsu to extend the term of this License Agreement.
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:
Number of Votes Broker
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For Withheld Non-Votes
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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
Number of Votes Broker
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For Against Abstain Non-Votes
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Appointment of
PricewaterhouseCoopers LLP
as independent auditors
for the year ended
June 30, 2001 1,979,599 449 1,031 0
Item 6 Exhibits and Reports on Form 8-K
(a) 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: 2/13/01 /s/ Michael J. Koss
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Michael J. Koss
Vice Chairman, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 2/13/01 /s/ Sue Sachdeva
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Sue Sachdeva
Vice President--Finance
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