Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 2020
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)
DELAWARE
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 offices)
(Zip Code)
Registrant’s telephone number, including area code: (414) 964-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
KOSS
NASDAQ
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☑
(Do not check if a smaller reporting company)
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ☐ No ☑
At May 4, 2020, there were 7,404,831 shares outstanding of the registrant’s common stock.
FORM 10-Q
March 31, 2020
INDEX
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
1
Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and June 30, 2019
3
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended March 31, 2020 and 2019
4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended March 31, 2020 and 2019
5
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
14
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Legal Proceedings
15
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
16
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2019*
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $8,758 and $2,617, respectively
Inventories, net
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Equipment and leasehold improvements, net
Other assets:
Operating lease right-of-use assets
Cash surrender value of life insurance
Total other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Operating lease liability
Total current liabilities
Long-term liabilities:
Deferred compensation
Total long-term liabilities
Total liabilities
Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 7,404,831
Paid in capital
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
*As adjusted for change in accounting principle (Note 2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
Nine Months Ended
March 31
2020
2019*
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
(Loss) income from operations
Interest income
(Loss) income before income tax provision
Net (loss) income
(Loss) income per common share:
Basic
Diluted
Weighted-average number of shares:
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Operating activities:
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
(Recovery of) provision for doubtful accounts
Depreciation of equipment and leasehold improvements
Stock-based compensation expense
Deferred income taxes
Change in cash surrender value of life insurance
Change in deferred compensation accrual
Deferred compensation paid
Net cash provided by operating activities
Investing activities:
Purchase of equipment and leasehold improvements
Life insurance premiums paid
Net cash (used in) investing activities
Financing activities:
Proceeds from exercise of stock options
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
Nine Months Ended March 31, 2020
Common Stock
Paid in
Retained
Shares
Amount
Capital
Earnings
Total
Balance, June 30, 2019, as previously reported
Net (loss)
Balance, March 31, 2020
Nine Months Ended March 31, 2019
Balance, June 30, 2018, as previously reported
Net income, as restated
Stock-based compensation expense, as restated
Balance, March 31, 2019
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 2020, the condensed consolidated statements of operations for the three and nine months ended March 31, 2020, the condensed consolidated statements of cash flows for the nine months ended March 31, 2020 and the condensed consolidated statements of stockholders' equity for the three and nine months ended March 31, 2020 and 2019, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and have not been audited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for any interim period are not necessarily indicative of the operating results that may be experienced for the full fiscal year.
Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.
The preparation of financial statements in conformity with U.S. GAAP requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, income tax valuation allowance, non-cash stock-based compensation and deferred compensation. Actual results could differ from the Company's estimates.
B) INCOME TAXES
A state tax provision of $6,104 and $6,125 was recorded during the three and nine months ended March 31, 2020, respectively. There was no state tax provision for the three and nine months ended March 31, 2019. Utilization of net operating tax carryforwards and a full valuation allowance against deferred tax assets reduced the federal income tax expense to zero for the three and nine months ended March 31, 2020 and 2019. For the three and nine months ended March 31, 2019, the Company recorded an income tax benefit of $23,020 and $22,995, respectively, due to refund of the AMT credits not recognized in prior years. This refund was allowed under the Tax Cuts and Jobs Act of 2017.
C) PATENT COSTS
The Company incurs on-going legal fees and filing costs related to the patent portfolio. These costs are expensed in the period they are incurred since no patent legal costs were probable to provide a future economic benefit.
2. CHANGE IN ACCOUNTING PRINCIPLE
During the first quarter of fiscal 2020, the Company changed its method of recording stock-based compensation expense. Under the new accounting principle, stock-based compensation expense is recorded on a straight-line basis over the vesting period and forfeitures are recognized when they occur. Under the previous method, the Company estimated future forfeitures and the expected number of awards that would vest and subsequently adjusted for forfeitures. The Company believes this method of recording stock-based compensation expense on a straight-line basis over the vesting period is preferable since it is more reflective of the stock options that will actually vest.
The cumulative effect of the changes in the June 30, 2019 Consolidated Balance Sheet for the change in principle related to stock-based compensation expense using the full retrospective method was as follows:
Stock-Based
Balance Sheet
As Previously
Compensation
As
June 30, 2019
Reported
Adjustment
Adjusted
Equity:
The impact of the change in principle on the Consolidated Statement of Operations for the three and nine months ended March 31, 2019 was as follows:
Statement of Operations
Income from operations
Net income
Income per common share
The impact of the change in principle on the Consolidated Statement of Cash Flows for the nine months ended March 31, 2019 was as follows:
Statement of Cash Flows
As of March 31, 2020, the unrecognized stock-based compensation expense, which is expected to be recognized over a weighted-average period of 3.03 years, was $1,366,897. The unrecognized stock-based compensation expense was $1,093,712 as of June 30, 2019, with an expected recognition weighted-average period of 3.01 years.
3. INVENTORIES
The components of inventories were as follows:
Raw materials
Finished goods
Reserve for obsolete inventory
4. CREDIT FACILITY
On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”) for a two-year term expiring on May 14, 2021. The Credit Agreement provides for a $5,000,000 revolving secured credit facility with interest rates of 1.50% over LIBOR. The Credit Agreement also provides for letters of credit for the benefit of the Company of up to a sublimit of $1,000,000. There are no unused line fees in the credit facility. The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 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 Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. The Company is currently in compliance with all covenants related to the Credit Agreement. As of March 31, 2020, and June 30, 2019, there were no outstanding borrowings on the facility.
5. REVENUE RECOGNITION
The Company disaggregates it's net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty of net sales and cash flows are affected by economic factors. The following table summarizes net sales by geographical location:
2019
United States
Export
Net Sales
Deferred revenue relates primarily to consumer and customer warranties. These constitute future performance obligations and the Company defers revenue related to these future performance obligations. The Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $367,198 and $424,574 in the nine months ended March 31, 2020 and 2019, respectively, for performance obligations related to consumer and customer warranties. The deferred revenue liability was $859,370 and $763,252 as of June 30, 2018 and March 31, 2019, respectively. The Company estimates that the deferred revenue performance obligations are satisfied within one to three years and therefore uses that same time frame for recognition of the deferred revenue.
6. (LOSS) INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE
Basic (loss) income per share is computed based on the weighted-average number of common shares outstanding. Diluted income per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive. The following table reconciles the numerator and denominator used to calculate basic and diluted income per share:
Three Months Ended March 31,
Nine Months Ended March 31,
Numerator
Denominator
Weighted average shares, basic
Dilutive effect of stock compensation awards
Diluted shares
Net (loss) income attributable to common shareholders per share:
7. LEASES
The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former Chairman. On January 5, 2017 the lease was renewed for a period of five years, ending June 30, 2023, and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $380,000 per year and included an option to renew at the same rate for an additional five years ending June 30, 2028. The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership.
8. SUBSEQUENT EVENTS
On April 13, 2020, the Company entered into an unsecured loan ("SBA Loan") under the Small Business Administration ("SBA") Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") through Town Bank (“Lender”). The SBA Loan funds that were disbursed on April 14, 2020, have a two-year term expiring on April 14, 2022. The SBA Loan has a principal amount of $506,700 with an interest rate of 1.0%. The Company may apply for forgiveness of the amount due under this SBA Loan in an amount equal to the sum of the following costs incurred by the Company during the eight week period following the disbursement of funds under the SBA Loan: (1) payroll costs; (2) any payment of a covered rent obligation and (3) any covered utility payment. The amount of the loan forgiveness will be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the CARES Act. Not more than 25% of the amount forgiven can be attributable to non-payroll costs.
On April 24, 2020, the Company formed a wholly owned subsidiary, Koss Corp BV, in The Netherlands. The Company formed Koss Corp BV to comply with certain European Union requirements. The new entity is non-operating and holds no assets.
9. SUPPLIER CONCENTRATION
The Company uses contract manufacturing facilities in the People’s Republic of China. The majority of the contract manufacturing is done by four vendors with one vendor representing approximately 75% of the manufacturing costs. The Company has a long-term relationship with this vendor. However, increased costs from the vendor or an interruption of supply from this vendor could have a material adverse effect on the Company's profit margins and profitability.
10. LEGAL MATTERS
The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course of business. Although management currently believes that resolving these claims against us, individually or in the aggregate, will not have a material adverse impact on the Consolidated Financial Statements, these matters are subject to inherent uncertainties and management's view of these matters may change in the future.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (the “Act”) (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to the foregoing. In addition, when used in this Form 10-Q, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may,” “will,” “should,” “forecasts,” “predicts,” “potential,” “continue” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this Form 10-Q, or in other Company filings, press releases, or otherwise. In addition to the factors discussed in this Form 10-Q, other factors that could contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: future fluctuations in economic conditions, the receptivity of consumers to new consumer electronics technologies, the rate and consumer acceptance of new product introductions, competition, pricing, the number and nature of customers and their product orders, production by third party vendors, foreign manufacturing, sourcing, and sales (including foreign government regulation, trade and importation concerns), borrowing costs, changes in tax rates, pending or threatened litigation and investigations, and other risk factors which may be detailed from time to time in the Company’s Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect new information.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company developed stereo headphones in 1958 and has been a leader in the industry. Koss markets a complete line of high-fidelity headphones, wireless Bluetooth® headphones, wireless Bluetooth® speakers, computer headsets, telecommunications headsets, and active noise canceling headphones. The Company operates as one business segment.
Results of Operations Summary
•
Tax expense for the three and nine months ended March 31, 2020 was minimal due to an offsetting change in the valuation allowance for deferred tax assets. The Company is not recording a tax benefit on the pretax loss because of the uncertainty in realizing the benefits of deferred tax assets.
Financial Results
The following table presents selected financial data for the third quarter:
Financial Performance Summary
Net sales (decrease) increase %
Gross profit as % of net sales
Selling, general and administrative expenses as % of net sales
(Loss) income before income tax as % of net sales
Income tax provision as % of (loss) income before income tax
2020 Results Compared with 2019
(comments refer to both the three and nine month periods unless otherwise noted)
For the three and nine months ended March 31, 2020, net sales declined 1.5% and 10.5%, respectively, due to a decrease in the export markets. Sales in the domestic markets for the three and nine months ended March 31, 2020, increased 16.3% and 10.6%, respectively.
Net sales in the domestic market were approximately $4,201,000 in the three months ended March 31, 2020, compared to approximately $3,612,000 last year. For the nine months ended March 31, 2020, domestic net sales increased from approximately $10,653,000 to approximately $11,786,000. Sales to mass retail customers increased in the nine months ended March 31, 2020 with a significant increase in the three months ended March 31, 2020. Mass retail net sales included a large back-to-school promotion in the early part of the nine months ended March 31, 2020. Sales through online channels increased significantly in the three and nine months ended March 31, 2020. The online sales activity was driven by the COVID-19 directives, which have caused many people to work and study remotely and have resulted in sales of communication headsets to facilitate that work and study. Education related customers showed strong sales increases year to date. Certain domestic distributors and consumer direct customers had lower sales, but had higher activity late in the three months ended March 31, 2020 due to COVID-19 related customer demand.
Export net sales decreased 52.8% to approximately $589,000 for the three months ended March 31, 2020, compared to approximately $1,249,000 for the same period last year. For the nine months ended March 31, 2020, sales decreased 52.3% to approximately $2,577,000 from $5,403,000 last year. Sales to an export OEM customer, for which the contract ended in December 2018, were approximately $973,000 in the first six months last year and accounted for a significant portion of the decrease in net sales. Sales to distributors in Europe were the primary drivers for the remainder of the decrease. Management believes these declines were due to distributor efforts to optimize their investment in inventory, the negative impact the US dollar strength and timing of sales related to introduction of new products.
Gross profit decreased to 29.9% for the nine months ended March 31, 2020, compared to 32.1% for the nine months ended March 31, 2019. The lower gross profit in the current year was largely due to the promotional back-to-school sale to a domestic mass retail customer at very low margin. For the three months ended March 31, 2020, gross profit decreased to 33.2% from 34.1% due to a less favorable mix of sales by market and product.
Selling, general and administrative expenses for the three months ended March 31, 2020, increased approximately $148,000 or 9.6% compared to the prior year. For the nine months ended March 31, 2020, there was an increase of approximately $50,000 or 1.0% in selling general and administrative expenses. For the three months ended March 31, 2020, the primary factors were an increase in legal and professional fees of approximately $55,000, an increase in employee benefit costs of approximately $24,000 and an increase in testing of new products of approximately $69,000. For the nine months ended March 31, 2020, the increase was caused by higher legal and professional fees of approximately $134,000 for strengthening the Company's intellectual property portfolio, an increase in testing of new products for approximately $82,000 and an increase in employee benefit costs of approximately $73,000. The employee benefit costs were higher due to an increase in the Company match for the 401(k) plan. These impacts were largely offset by a decrease of approximately $95,000 in deferred compensation expense and an increase of approximately $121,000 cash surrender value income.
Income tax provision for the three and nine months ended March 31, 2020 was generally comprised of the U.S. federal statutory rate of 21% and the effect of state income taxes fully offset by an adjustment to the valuation allowance for deferred tax assets. The Company is not recording a tax benefit on the pretax loss because of the uncertainty in realizing the benefits of deferred tax assets.
The Company has launched a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has incurred costs and will continue to incur costs related to enforcing this program. These costs primarily relate to legal fees and other costs involved with the underlying efforts to enforce this portfolio. Depending on the response to and the underlying results of the enforcement program, the Company may enter into licensing arrangements or initiate lawsuits as part of the Company’s efforts to enforce this program. If successful, the Company may receive royalties, offers to purchase its intellectual property, or other proceeds in amounts that could have a material effect on its financial statements.
The Company has been closely monitoring the COVID-19 situation to protect the health and safety of its employees and customers. Business plans are being executed to maintain supply of the Company’s products to our customers throughout the world.
The Company’s financial results for the quarter ended March 31, 2020 were positively impacted by the demand for specific communication headphones as more people were working from home and studying online. Despite these sales, the Company recorded a loss for the quarter due to the drag on demand which was largely due to the COVID-19 impact as it spread across the world. The increased domestic sales in the quarter ended March 31, 2020 resulted in shortages of certain products, which will take a couple months to replenish. The retail businesses throughout the Company’s markets have seen severe curtailment of hours and complete closures. This has resulted in a decline in business across our markets with the exception of on-line retail. The Company expects these negative sales impacts to continue until markets re-open and consumer spending returns to normal.
The magnitude of the COVID-19 pandemic, including the extent of any impact on the Company’s business, financial position, results of operations or liquidity, which could be material, cannot be reasonably estimated at this time due to the rapid development and fluidity of the situation. The Company's future results will be heavily determined by the duration of the pandemic, its geographic spread, further business disruptions and the overall impact on the global economy.
The Company’s supply chain is primarily in southern China. This portion of the Company's supply chain was disrupted early in the quarter ended March 31, 2020. These disruptions are now having little on-going impact. The remaining impacts relate to the movement of new product introductions and costs. The Company is monitoring the situation closely and the supply chain team has been executing business plans, which include, but are not limited to: (1) being alert to potential short supply situations; (2) accelerating delivery times from key suppliers; and, (3) utilizing alternative sources and/or air freight. The Company is committed to continuing to execute these plans and will remain in close contact with its supply chain to monitor future possible implications, especially on production facilities.
The Company’s financial position remains strong. The Company had $2.1 million of cash and available credit facilities of $5.0 million on March 31, 2020. The Company also received funding under an SBA loan for $0.5 million to help mitigate the remaining impacts of the COVID-19 pandemic.
To protect the safety, health and well-being of employees, customers, and suppliers the Company continues to implement several preventive measures while also meeting the needs of global customers. They include increased frequency of cleaning and disinfecting of facilities, social distancing practices, remote working when possible, restrictions on business travel, cancellation of certain events and limitations on visitor access to facilities.
Liquidity and Capital Resources
Cash Flows
The following table summarizes cash flows from operating, investing and financing activities for the nine months ended March 31, 2020 and 2019:
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
The decrease in accounts payable and the loss from operations were the driving factors for the decrease in cash provided by operating activities during the nine months ended March 31, 2020. There was significant inventory inbound to the U.S. from China as of June 30, 2019 that was paid for during the quarter ended September 30, 2019. The impact of these factors was partially offset by a decrease in inventories.
Investing Activities
Cash used in investing activities was higher for the nine months ended March 31, 2020, as the Company had increased expenditures for leasehold improvements and for tooling related to new product introductions. During the fiscal year ending June 30, 2020, the Company anticipates it will incur total expenditures for tooling, leasehold improvements and capital expenditures of approximately $600,000 to $800,000. The Company expects to generate sufficient cash flow through operations or through the use of its available cash and its credit facility to fund these expenditures.
Financing Activities
As of March 31, 2020, the Company had no outstanding borrowings on its bank line of credit facility.
There were no purchases of common stock in 2020 or 2019 under the stock repurchase program. Cash provided in 2019 was from stock options exercised which resulted in the issuance of 22,125 shares of common stock. No stock options were exercised in 2020.
Liquidity
The Company's capital expenditures are primarily for leasehold improvements and tooling. In addition, it has interest payments on its borrowings when it uses its line of credit facility. The Company believes that cash generated from operations, together with cash reserves and available borrowings, provide it with adequate liquidity to meet operating requirements, debt service requirements and planned capital expenditures for the next twelve months and thereafter for the foreseeable future. The Company regularly evaluates new product offerings, inventory levels and capital expenditures to ensure that it is effectively allocating resources in line with current market conditions.
Credit Facility
Contractual Obligation
Not applicable.
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) such information is accumulated and communicated to management, including the chief executive officer and principal financial officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2020. The Company’s management has concluded that the Company’s disclosure controls and procedures as of March 31, 2020 were effective.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
As of March 31, 2020, the Company is currently involved in legal matters that are described in Note 10 to the condensed consolidated financial statements, which description is incorporated herein by reference.
The following table presents information with respect to purchases of common stock of the Company made during the nine months ended March 31, 2020, by the Company.
COMPANY REPURCHASES OF EQUITY SECURITIES
Period (2020)
Total # of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan (1)
Approximate Dollar Value of Shares Available under Repurchase Plan
July 1 - March 31
(1)
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. Subsequently, the Board of Directors periodically has approved increases in the stock repurchase program. The most recent increase was for an additional $2,000,000 in October 2006, for a maximum of $45,500,000 of which $43,360,247 had been expended through March 31, 2020.
Exhibit No.
Exhibit Description
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer *
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer *
32.1
Section 1350 Certification of Chief Executive Officer **
32.2
Section 1350 Certification of Chief Financial Officer **
101
The following financial information from Koss Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2020 and June 30, 2019, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended March 31, 2020 and 2019 (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2020 and 2019, (iv) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and nine months ended March 31, 2020 and 2019 and (v) the Notes to Condensed Consolidated Financial Statements (Unaudited). *
__________________________
*
Filed herewith
**
Furnished herewith
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 duly authorized.
/s/ Michael J. Koss
May 8, 2020
Michael J. Koss
Chairman
Chief Executive Officer
/s/ David D. Smith
David D. Smith
Chief Financial Officer
Principal Accounting Officer