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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
KOSS CORPORATION Commission file number 0-3295
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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
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 March 31, 1995, there were 3,293,757 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
March 31, 1995
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1995 (Unaudited) and June 30, 1994 3
Condensed Consolidated Statement
of Income (Unaudited)
Three months and Nine months
ended March 31, 1995 and 1994 4
Condensed Consolidated Statement of Cash
Flows (Unaudited)
Nine months ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) March 31, 1995 6-7
Item 2 Management Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II OTHER INFORMATION 10
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1995 June 30,1994
(Unaudited) (*)
-----------------------------------
ASSETS
Current Assets:
Cash $ 175,546 $ 37,355
Accounts receivable, net 8,214,881 7,396,902
Inventories 9,898,847 7,837,319
Prepaid expenses 230,263 544,353
Income tax receivable -- 426,236
Prepaid income tax 268,486 268,486
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Total current assets 18,788,023 16,510,651
Property and Equipment, net 2,200,140 2,168,335
Intangible and Other Assets 531,310 541,420
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$21,519,473 $19,220,406
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,283,580 $ 1,266,553
Accrued liabilities 625,429 734,076
Current maturities of long-term debt 6,152 12,376
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Total current liabilities 1,915,161 2,013,005
Long-Term Debt 2,375,000 2,068,741
Deferred Income Taxes 87,202 87,202
Deferred Compensation and Other Liabilities 985,987 902,830
Stockholders' Investment 16,156,123 14,148,628
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$21,519,473 $19,220,406
=========================================================================================================
* The balance sheet at June 30, 1994, 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 Nine Months
Period Ended March 31 1995 1994 1995 1994
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Net sales $ 7,671,860 $ 7,290,126 $25,850,714 $27,325,173
Cost of goods sold 5,721,390 4,939,506 17,648,142 18,235,117
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Gross profit 1,950,470 2,350,620 8,202,572 9,090,056
Selling, general and
administrative expense 1,789,492 1,627,809 6,135,031 5,866,396
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Income from operations 160,978 722,811 2,067,541 3,223,660
Other income (expense)
Royalty income 270,881 242,078 1,294,809 905,891
Interest income 26,755 16,537 68,780 42,713
Interest expense (89,757) (70,028) (268,780) (211,158)
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Income before income tax provision 368,857 911,398 3,162,350 3,961,106
Provision for income taxes 133,464 345,639 1,226,742 1,534,169
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Net income $ 235,393 $ 565,759 $ 1,935,608 $ 2,426,937
============================================================================================================
Number of common and common
equivalent shares used in
computing earnings per share 3,650,903 3,749,008 3,670,307 3,793,480
============================================================================================================
Earnings per common and common
equivalent share $0.06 $0.15 $0.53 $0.64
============================================================================================================
Dividends per common share None None None None
============================================================================================================
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31 1995 1994
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,935,608 $ 2,426,937
Adjustments to reconcile net
income to net cash provided (used)
by operating activities:
Depreciation and amortization 733,990 552,787
Deferred compensation and other liabilities (22,825) (123,964)
Income tax receivable 426,236 --
Net changes in operating assets and
liabilities (2,657,037) (1,671,630)
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Net cash provided by
operating activities: 415,972 1,184,130
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of equipment
and leasehold improvements (660,402) (308,683)
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Net cash used in
investing activities (660,402) (308,683)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayments under line of credit agreements (10,466,740) (9,245,000)
Borrowings under line of credit agreements 10,773,000 8,253,000
Principal payments on
long-term debt (9,336) (9,336)
Exercise of stock options 85,697 323,073
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Net cash provided
by financing activities 382,621 (678,263)
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Net increase in cash 138,191 197,184
Cash at beginning of year 37,355 190,448
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Cash at end of quarter $ 175,546 $ 387,632
==============================================================================================
See accompanying notes
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KOSS CORPORATION AND SUBSIDIARIES
March 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 condition, results of operations and cash flows at March 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, 1994, Annual Report on Form 10-K. The income
from operations for the period ended March 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 358,023 and 552,108 related to stock option grants
were included in the computation of the average number of shares
outstanding for the quarter ending March 31, 1995 and 1994 respectively.
3. INVENTORIES
The classification of inventories is as follows:
March 31, 1995 June 30, 1994
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Raw materials and
work in process $5,951,833 $4,294,347
Finished goods 4,525,328 4,121,286
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10,477,161 8,415,633
LIFO Reserve (578,314) (578,314)
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$9,898,847 $7,837,319
=====================================================================
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4. STOCK PURCHASE AGREEMENT
The Company has an agreement with its Chairman, John C. Koss, to purchase
stock from his estate in the event of his death. This purchase obligation
is optional in the part of the personal representation of Mr. Koss'
estate, and the option must be exercised within 12 months after Mr. Koss'
death. The purchase price is 95% of the fair market value of the common
stock on the date that notice to purchase is provided to the Company. The
total number of shares to be purchased 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 within 60 days of
demand and to execute a promissory note payable quarterly over four years
at the then-current prime rate of interest for the balance. The Company
maintains a $1,150,000 life insurance policy to assist in the funding of
this obligation.
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
this life, whether or not he becomes disabled. The Company is currently
recognizing an annual expense of $105,080 in connection with this
agreement, which represents the present value of anticipated future
payments. In connection with this expense, at March 31, 1995 and 1994,
respectively, the related liabilities in the amounts of $412,370 and
$297,290 have been included as "Deferred Compensation and other
Liabilities" on the accompanying balance sheets.
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KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Cash generated by operating activities during the nine months ended March 31,
1995 amounted to $415,972. The Company expects to generate adequate amounts of
cash from operations to meet current future operating needs, but maintains
sufficient borrowing capacity to fund any shortfall.
Working capital was $16,872,862 at March 31, 1995. The increase of $2,375,216
from the balance at June 30, 1994 represents primarily an increase in accounts
receivable of $817,979 as a result of higher sales volume, and an increase of
$2,061,528 in inventory in anticipation of higher sales.
For the nine months ended March 31, 1995, capital expenditures for new property
and equipment (including production tooling) were $660,402. Depreciation
charges aggregated $203,893 for the quarter. For the fiscal year ending June
30, 1995, the Company expects its capital expenditures to be approximately
$1,000,000. The Company expects to generate sufficient operating funds to
fulfill these expenditures.
Stockholders' investment increased to $16,156,123 at March 31, 1995, from
$14,148,628 at June 30, 1994. The increase reflects primarily the income for
the nine months. No cash dividends have been paid since the first quarter of
fiscal 1984.
The Company has an unsecured, revolving credit facility with a bank which runs
through March 15, 1997 and allows the Company to borrow up to a maximum of $8
million. Borrowings under the new credit facility will bear interest, as
selected by the Company from time to time, (1) at the banks prime rate, or (2)
at a rate equal to 225 basis points in excess of the per annum interest rate at
which U.S. dollar deposits, of an amount comparable to the amount of the
Company's loan and for a period equal to the relevant interest period selected
by the Company, are offered generally to the Company's bank. 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 the available line as of March 31, 1995
totaled $2,720,044, consisting of $2,375,000 in borrowings and $345,044 in
commitments for foreign letters of credit. Utilization of the Company's
previous line of credit with the same bank as of June 30, 1994 totaled
$2,477,700, consisting of $2,068,741 in borrowings and $408,959 in commitments
for foreign letters of credit.
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The Company's Canadian subsidiary has a line of credit of $550,000. The
interest rate is the prime rate plus 1-1/2%. The credit facility is subject to
the availability of qualifying receivables and inventories which serve as
collateral for the borrowings. Loan advances against the line were $0 at March
31, 1995, and $0 at June 30, 1994.
Results of Operations
Net sales for the quarter ended March 31, 1995, were $7,671,860 compared with
$7,290,126 for the same period in 1994, an increase of $381,734. Net sales for
the nine months ended March 31, 1995 were $25,850,714 compared with $27,325,173
for the same period in 1994, a decrease of $1,474,459. This decrease was
primarily a result of slow retail orders in July and August.
Gross profit as a percent of net sales was 25% for the quarter ended March 31,
1995 compared with 32% for the same period in 1994. For the nine month period
ended March 31, 1995, the gross profit percentage was 32% compared with 33% for
the period in 1994. The decreases relate to higher than expected labor costs
related to newer customized items and a less profitable mix of products sold.
Selling, general and administrative expenses for the quarter ended March 31,
1995 were $1,789,492 or 23%, as against $1,627,809 or 22%, for the same period
in 1994. For the nine month period ended March 31, 1995, such expenses were
$6,135,031 or 24%, as against $5,866,396 or 21%, for the same period in 1994.
The increase is attributed to an increase in promotional and marketing
expenses.
For the third quarter ended March 31, 1995, income from operations was $160,978
versus $722,811 for the same period in the prior year. Income from operations
for the nine months ended March 31, 1995 was $2,067,541 as compared to
$3,223,660 for the same period in 1994. The decrease is primarily related to
lower gross profits and a general increase in selling and administrative
expenses.
Net interest expense amounted to $89,757 for the quarter as compared to $70,028
for the same period in the prior year. For the nine month period, the interest
expense amounted to $268,780 compared with $211,158 for the same period in the
prior year. The increase is a result of the Company borrowing at higher levels
and higher interest rates as compared to the same period last year.
The Company has a license agreement with Hagemeyer, N.V., a diverse
international trading company based in the Netherlands. Hagemeyer, N.V. has
business interests in food, appliances, electromechanical and automobile
distribution as well as a solid base of consumer electronic distribution
business in Asia, Europe, and North America. Royalty income for the quarter
ended March 31, 1995 was $270,881 versus $242,078 in the quarter ended March
31, 1994. The Company recognizes royalty income when earned.
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PART II OTHER INFORMATION
Item 4 Submission of Matters to Vote of Security Holders
There were no matters submitted to a vote of security holders during
the quarter ended March 31, 1995. However, the following information
relates to the Company's annual meeting of stockholders which was
held on October 20, 1994:
There were 3,240,680 shares of common stock eligible to vote at the
Annual Meeting, of which 2,619,520 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
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Nominees for one-year
terms ending in 1995:
John C. Koss 2,616,136 3,384
Thomas L. Doerr 2,616,313 3,207
Victor L. Hunter 2,616,234 3,286
Michael J. Koss 2,616,039 3,481
Lawrence S. Mattson 2,615,463 4,057
Martin F. Stein 2,615,913 3,607
John J. Stollenwerk 2,616,313 3,207
Number of Votes
---------------
For Against Abstain
--- ------- -------
Appointment of Price
Waterhouse L.L.P. as
independent auditors
for the year ended June 30, 1995 2,614,986 2,640 1,894
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits Filed.
10 Loan Agreement dated February 17, 1995 by and between the
Company and LaSalle National Bank
27 Financial Data Schedule
(b) Reports on Form 8-K. Not applicable. 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: 5/11/95 /s/ Michael J. Koss
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Michael J. Koss, President,
Chief Executive Officer,
Chief Financial Officer
Dated: 5/11/95 /s/ Sue Sachdeva
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Sue Sachdeva
Vice President -- Finance
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EXHIBIT INDEX
Designation
of Exhibit Exhibit Title
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10 Loan Agreement dated
February 17, 1995
27 Financial Data Schedule