DELAWARE
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39-1168275
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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4129 North Port Washington Avenue, Milwaukee, Wisconsin
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53212
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Emerging growth company
o
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Page
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1
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Item 1.
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Financial Statements
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(Unaudited)
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March 31, 2018
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June 30, 2017
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,569,909
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$
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432,283
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Accounts receivable, less allowance for doubtful accounts of $58,960 and
$55,872, respectively |
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3,008,988
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3,931,541
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Inventories
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6,356,456
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8,345,343
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Prepaid expenses and other current assets
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330,066
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206,395
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Income taxes receivable
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26,863
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32,814
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Total current assets
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11,292,282
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12,948,376
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Equipment and leasehold improvements, net
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1,273,145
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1,408,091
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Other assets:
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Deferred income taxes
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—
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3,042,257
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Cash surrender value of life insurance
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6,337,390
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6,024,929
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Total other assets
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6,337,390
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9,067,186
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Total assets
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$
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18,902,817
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$
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23,423,653
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$
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828,541
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$
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2,243,110
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Accrued liabilities
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1,507,422
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1,149,395
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Total current liabilities
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2,335,963
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3,392,505
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Long-term liabilities:
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Deferred compensation
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2,319,636
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2,294,418
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Other liabilities
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159,371
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164,418
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Total long-term liabilities
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2,479,007
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2,458,836
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Total liabilities
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4,814,970
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5,851,341
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Stockholders' equity:
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Common stock, $0.005 par value, authorized 20,000,000 shares; issued
and outstanding 7,382,706 shares |
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36,914
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36,914
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Paid in capital
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5,669,334
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5,420,710
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Retained earnings
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8,381,599
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12,114,688
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Total stockholders' equity
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14,087,847
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17,572,312
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Total liabilities and stockholders' equity
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$
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18,902,817
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$
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23,423,653
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Three Months Ended
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Nine Months Ended
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March 31
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March 31
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2018
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2017
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2018
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2017
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Net sales
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$
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4,326,674
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$
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4,773,915
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$
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16,277,181
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$
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17,810,418
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Cost of goods sold
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3,363,121
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3,823,613
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11,753,719
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12,711,146
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Gross profit
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963,553
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950,302
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4,523,462
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5,099,272
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Selling, general and administrative expenses
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1,772,560
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1,965,698
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5,220,570
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5,728,860
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Unauthorized transaction related (recoveries) costs, net
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(1,265
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)
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39,663
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(17,445
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)
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73,759
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Interest expense
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—
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—
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5,218
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964
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(Loss) before income tax provision
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(807,742
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)
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(1,055,059
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)
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(684,881
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(704,311
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Income tax provision
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5,126
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62,523
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3,048,208
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188,948
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Net (loss)
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$
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(812,868
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$
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(1,117,582
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)
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$
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(3,733,089
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)
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$
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(893,259
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(Loss) per common share:
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Basic
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$
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(0.11
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$
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(0.15
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$
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(0.51
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$
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(0.12
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Diluted
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$
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(0.11
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$
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(0.15
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$
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(0.51
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$
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(0.12
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Nine Months Ended
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March 31
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2018
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2017
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Operating activities:
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Net (loss)
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$
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(3,733,089
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)
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$
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(893,259
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Adjustments to reconcile net (loss) to net cash provided by
operating activities: |
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Provision for (recovery of) doubtful accounts
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2,626
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(4,843
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Loss on disposal of equipment and leasehold improvements
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343
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6,230
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Depreciation of equipment and leasehold improvements
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385,221
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375,786
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Stock-based compensation expense
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248,624
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265,568
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Deferred income taxes
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3,042,257
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190,016
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Change in cash surrender value of life insurance
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(181,403
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)
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(187,563
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)
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Change in deferred compensation accrual
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137,718
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116,331
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Deferred compensation paid
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(112,500
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)
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(112,500
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Net changes in operating assets and liabilities (see note 10)
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1,729,505
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761,846
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Cash provided by operating activities
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1,519,302
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517,612
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Investing activities:
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Purchase of equipment and leasehold improvements
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(250,618
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(365,081
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Life insurance premiums paid
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(131,058
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(133,767
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Cash (used in) investing activities
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(381,676
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(498,848
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Net increase in cash and cash equivalents
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1,137,626
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18,764
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Cash and cash equivalents at beginning of period
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432,283
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735,393
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Cash and cash equivalents at end of period
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$
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1,569,909
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$
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754,157
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Three Months Ended
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Nine Months Ended
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March 31
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March 31
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2018
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2017
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2018
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2017
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Legal fees incurred
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$
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—
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$
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40,000
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$
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—
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$
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77,500
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Proceeds from asset forfeitures
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(1,265
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)
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(337
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(17,445
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(3,741
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)
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Unauthorized transaction related (recoveries) costs, net
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$
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(1,265
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)
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$
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39,663
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$
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(17,445
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)
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$
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73,759
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March 31, 2018
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June 30, 2017
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Raw materials
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$
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2,741,338
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$
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2,900,499
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Work-in process
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5,644
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—
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Finished goods
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6,278,088
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7,895,561
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9,025,070
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10,796,060
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Allowance for obsolete inventory
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(2,668,614
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)
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(2,450,717
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)
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Total inventories
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$
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6,356,456
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$
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8,345,343
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March 31, 2018
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June 30, 2017
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Cooperative advertising and promotion allowances
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$
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462,082
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$
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415,050
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Product warranty obligations
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193,578
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220,541
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Customer credit balances
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344,663
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21,175
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Current deferred compensation
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150,000
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150,000
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Accrued returns
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48,508
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53,915
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Employee benefits
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60,272
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54,074
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Legal and professional fees
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66,000
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86,500
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Sales commissions and bonuses
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130,347
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83,654
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Other
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51,972
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64,486
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Total accrued liabilities
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$
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1,507,422
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$
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1,149,395
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Nine Months Ended
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March 31
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2018
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2017
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Accounts receivable
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$
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919,927
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$
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585,803
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Inventories
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1,988,887
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641,211
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Prepaid expenses and other current assets
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(123,671
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)
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(93,147
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)
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Income taxes receivable
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5,951
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529,378
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Accounts payable
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(1,414,569
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)
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(551,606
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)
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Accrued liabilities
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358,027
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(338,137
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)
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Other liabilities
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(5,047
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)
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(11,656
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)
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Net change
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$
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1,729,505
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$
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761,846
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Net cash paid (refunded) during the period for:
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Income taxes
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$
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3,182
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$
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(523,342
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)
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Interest
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$
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5,218
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$
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964
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Nine Months Ended
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March 31
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2018
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2017
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Net (loss)
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$
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(3,733,089
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)
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$
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(893,259
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)
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Stock-based compensation expense
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248,624
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265,568
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(Decrease) in stockholders' equity
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$
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(3,484,465
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)
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$
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(627,691
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)
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•
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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. Park Bank also filed a cross–appeal that appeals the Court's order that granted the motions to dismiss the contribution claims against Grant Thornton LLP and Michael Koss. On December 12, 2017, the Court of Appeals issued its decision that affirmed the Circuit Court’s judgment dismissing the Company’s claim against Park Bank. The Company filed a Petition for Review of that decision before the Supreme Court of Wisconsin. On March 14, 2018, the Court granted the Petition. The case is currently pending before the Wisconsin Supreme Court.
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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•
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Net sales for the quarter ended
March 31, 2018
, decreased
$447,241
to
$4,326,674
, compared to the same quarter last year. For the
nine months ended March 31, 2018
, net sales were
$16,277,181
compared to
$17,810,418
for the same period last year for a decrease of
8.6%
. A decline in sales to export distributors in general and an OEM customer in Asia, partially offset by an increase in sales to domestic customers, drove the decrease in net sales for the
three and nine months ended March 31, 2018
.
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•
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Gross profit as a percent of sales increased for the
three months ended March 31, 2018
compared to the same quarter last year. The lower margin in the prior year was driven by an inventory write-down of a certain product to net realizable value which was not repeated this year. A decrease in gross profit for the
nine months ended March 31, 2018
, compared to the same period last year was primarily driven by change in the mix of business by product, customer and sales channel.
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•
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Selling, general and administrative expenses for the
three and nine months ended March 31, 2018
, decreased compared to the same period in the prior year primarily due to decreases in sales commissions, incentive compensation and marketing expense.
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•
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Tax expense for the
three months ended March 31, 2018
, was minimal due to an offsetting change in the valuation allowance for deferred tax assets. The write-down of deferred tax assets to the new federal statutory rate as well as an increase in the valuation allowance to include all deferred tax assets caused the increase in tax expense for the
nine months ended March 31, 2018
, compared to the same period in the prior year.
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Three Months Ended
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Nine Months Ended
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||||||||||||
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March 31
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March 31
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||||||||||||
Financial Performance Summary
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2018
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|
2017
|
|
2018
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|
2017
|
||||||||
Net sales
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$
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4,326,674
|
|
|
$
|
4,773,915
|
|
|
$
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16,277,181
|
|
|
$
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17,810,418
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|
Net sales (decrease) increase %
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(9.4
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)%
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(20.5
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)%
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(8.6
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)%
|
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(5.1
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)%
|
||||
Gross profit
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|
$
|
963,553
|
|
|
$
|
950,302
|
|
|
$
|
4,523,462
|
|
|
$
|
5,099,272
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|
Gross profit as % of net sales
|
|
22.3
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%
|
|
19.9
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%
|
|
27.8
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%
|
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28.6
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%
|
||||
Selling, general and administrative expenses
|
|
$
|
1,772,560
|
|
|
$
|
1,965,698
|
|
|
$
|
5,220,570
|
|
|
$
|
5,728,860
|
|
Selling, general and administrative expenses as % of net sales
|
|
41.0
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%
|
|
41.2
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%
|
|
32.1
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%
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|
32.2
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%
|
||||
Unauthorized transaction related (recoveries) costs, net
|
|
$
|
(1,265
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)
|
|
$
|
39,663
|
|
|
$
|
(17,445
|
)
|
|
$
|
73,759
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,218
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|
|
$
|
964
|
|
(Loss) before income tax provision
|
|
$
|
(807,742
|
)
|
|
$
|
(1,055,059
|
)
|
|
$
|
(684,881
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)
|
|
$
|
(704,311
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)
|
(Loss) before income tax as % of net sales
|
|
(18.7
|
)%
|
|
(22.1
|
)%
|
|
(4.2
|
)%
|
|
(4.0
|
)%
|
||||
Income tax provision
|
|
$
|
5,126
|
|
|
$
|
62,523
|
|
|
$
|
3,048,208
|
|
|
$
|
188,948
|
|
Income tax provision as % of (loss) before income tax
|
|
(0.6
|
)%
|
|
(5.9
|
)%
|
|
(445.1
|
)%
|
|
(26.8
|
)%
|
Total cash provided by (used in):
|
|
2018
|
|
2017
|
||||
Operating activities
|
|
$
|
1,519,302
|
|
|
$
|
517,612
|
|
Investing activities
|
|
(381,676
|
)
|
|
(498,848
|
)
|
||
Financing activities
|
|
—
|
|
|
—
|
|
||
Net increase in cash and cash equivalents
|
|
$
|
1,137,626
|
|
|
$
|
18,764
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period (2018)
|
|
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
|
||||||
January 1 - March 31
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
2,139,753
|
|
Item 3.
|
Defaults Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
Exhibit No.
|
Exhibit Description
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
32.2
|
|
|
|
10.16
|
|
|
|
101
|
The following financial information from Koss Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2018 and June 30, 2017, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended March 31, 2018 and 2017 (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2018 and 2017 and (iv) the Notes to Condensed Consolidated Financial Statements (Unaudited). *
|
*
|
Filed herewith
|
**
|
Furnished herewith
|
KOSS CORPORATION
|
|
|
|
|
|
|
|
|
/s/ Michael J. Koss
|
|
May 11, 2018
|
Michael J. Koss
|
|
|
Chairman
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
/s/ David D. Smith
|
|
May 11, 2018
|
David D. Smith
|
|
|
Chief Financial Officer
|
|
|
Principal Accounting Officer
|
|
|
|
|
|
|
|
(a)
|
All references to the Credit Agreement in the Credit Agreement or any of the Loan Documents shall refer to the Credit Agreement as amended hereby.
|
(b)
|
Section 1.01 (Defined Terms) shall be amended as follows:
|
a.
|
The definition of “Maturity Date” set forth therein shall be revised to read as follows:
|
b.
|
A new definition shall be added to Section 1.01 in appropriate alphabetical order as follows:
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
Dated: May 11, 2018
|
|
|
|
/s/ Michael J. Koss
|
|
Michael J. Koss
|
|
Chairman and Chief Executive Officer
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
Dated: May 11, 2018
|
|
|
|
/s/ David D. Smith
|
|
David D. Smith
|
|
Chief Financial Officer
|
|
|
/s/ Michael J. Koss
|
|
Michael J. Koss
|
|
Chairman and Chief Executive Officer
|
|
Dated: May 11, 2018
|
|
/s/ David D. Smith
|
|
David D. Smith
|
|
Chief Financial Officer
|
|
Dated: May 11, 2018
|