KOSS CORP [KOSS] Filings

10-Q 1 koss-20230331x10q.htm 10-Q koss-20230331x10q

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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, 2023

☐ 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
Common Stock, par value $0.005 per share	KOSS	Nasdaq Capital Market

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 every Interactive Data File required to be submitted 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 ☑

		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 8, 2023, there were 9,216,795 shares outstanding of the registrant’s common stock.

Table of Contents

KOSS CORPORATION

FORM 10-Q

March 31, 2023

INDEX


			Page

PART I	FINANCIAL INFORMATION		3
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets as of March 31, 2023 and June 30, 2022	3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2023 and 2022	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022	5
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2023 and 2022	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19
PART II	OTHER INFORMATION		19
	Item 1.	Legal Proceedings	19
	Item 1A.	Risk Factors	19
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
	Item 6.	Exhibits	21

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

KOSS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)



	March 31, 2023		June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,921,632	$	9,208,170
Short term investments, amortized cost basis		12,045,520		—
Accounts receivable, less allowance for doubtful accounts of $36,262 and $2,027, respectively		1,235,411		1,846,620
Inventories, net		7,079,259		8,631,362
Prepaid expenses and other current assets		394,188		188,478
Interest receivable		56,014		—
Total current assets		23,732,024		19,874,630

Equipment and leasehold improvements, net		967,828		1,088,017

Other assets:
Long term investments, amortized cost basis		4,949,470		—
Operating lease right-of-use asset		3,074,952		3,247,725
Cash surrender value of life insurance		5,979,730		5,744,724
Total other assets		14,004,152		8,992,449

Total assets	$	38,704,004	$	29,955,096

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	353,313	$	796,163
Accrued liabilities		870,822		560,356
Deferred revenue		379,061		543,891
Operating lease liability		233,152		223,530
Income taxes payable		250,203		3,033
Total current liabilities		2,086,551		2,126,973

Long-term liabilities:
Deferred compensation		2,000,012		1,937,229
Deferred revenue		125,732		169,210
Operating lease liability		2,848,191		3,024,195
Total long-term liabilities		4,973,935		5,130,634

Total liabilities		7,060,486		7,257,607

Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,216,795 and 9,147,795, respectively		46,084		45,739
Paid in capital		13,034,075		12,653,402
Retained earnings		18,563,359		9,998,348
Total stockholders' equity		31,643,518		22,697,489

Total liabilities and stockholders' equity	$	38,704,004	$	29,955,096

The accompanying notes are an integral part of these condensed consolidated financial statements.
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KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended				Nine Months Ended
	March 31				March 31
	2023		2022		2023		2022
Net sales	$	3,369,160	$	4,634,552	$	9,995,620	$	13,415,506
Cost of goods sold		2,076,482		2,671,336		6,390,557		8,320,759
Gross profit		1,292,678		1,963,216		3,605,063		5,094,747

Selling, general and administrative expenses		1,746,034		1,566,430		27,890,606		4,576,521

(Loss) income from operations		(453,356)		396,786		(24,285,543)		518,226

Other income		—		6,415		33,000,000		362,389
Interest income		189,593		3,578		314,482		7,837

(Loss) income before income tax provision		(263,763)		406,779		9,028,939		888,452

Income tax (benefit) provision		(30,910)		3,575		463,928		5,638

Net (loss) income	$	(232,853)	$	403,204	$	8,565,011	$	882,814

(Loss) income per common share:
Basic	$	(0.03)	$	0.04	$	0.93	$	0.10
Diluted	$	(0.03)	$	0.04	$	0.87	$	0.09

Weighted-average number of shares:
Basic		9,206,135		9,147,795		9,183,042		9,044,532
Diluted		9,206,135		9,888,083		9,791,627		10,024,473

The accompanying notes are an integral part of these condensed consolidated financial statements.
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KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Nine Months Ended
	March 31
	2023		2022
Operating activities:
Net income	$	8,565,011	$	882,814
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts of accounts receivable		40,277		(35,216)
Depreciation of equipment and leasehold improvements		186,168		225,130
Amortization of discount on treasury securities		(110,632)		—
Noncash operating lease expense		6,391		—
Stock-based compensation expense		243,688		382,010
Change in cash surrender value of life insurance		(147,012)		(171,688)
Provision for deferred compensation		62,783		187,560
Deferred compensation paid		—		(71,250)
Deferred compensation relieved		—		(472,883)
Other income - Net gain from life insurance benefits		—		(262,391)
Loss on disposal of fixed assets		2,263		7,856
Net changes in operating assets and liabilities:
Accounts receivable		570,932		(40,328)
Inventories		1,552,103		(1,849,288)
Prepaid expenses and other current assets		(205,710)		(4,945)
Interest receivable		(56,014)		—
Income taxes payable		247,170		(163)
Accounts payable		(442,850)		376,050
Accrued liabilities		310,466		290,977
Deferred revenue		(208,308)		(117,140)
Net cash provided by (used in) operating activities		10,616,726		(672,895)

Investing activities:
Purchase of equipment and leasehold improvements		(68,242)		(98,028)
Life insurance premiums paid		(87,994)		(95,887)
Proceeds from life insurance policy		—		2,014,184
Purchases of investments		(16,884,358)		—
Net cash (used in) provided by investing activities		(17,040,594)		1,820,269

Financing activities:
Proceeds from exercise of stock options		137,330		1,390,346
Net cash provided by financing activities		137,330		1,390,346

Net (decrease) increase in cash and cash equivalents		(6,286,538)		2,537,720
Cash and cash equivalents at beginning of period		9,208,170		6,950,215
Cash and cash equivalents at end of period	$	2,921,632	$	9,487,935

Supplemental cash flow information:
Cash paid for income taxes	$	216,759	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.
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KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)



	Nine Months Ended March 31, 2023
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, June 30, 2022	9,147,795	$	45,739	$	12,653,402	$	9,998,348	$	22,697,489
Net income	—		—		—		8,565,011		8,565,011
Stock-based compensation expense	—		—		243,688		—		243,688
Stock option exercises	69,000		345		136,985		—		137,330
Balance, March 31, 2023	9,216,795	$	46,084	$	13,034,075	$	18,563,359	$	31,643,518


	Nine Months Ended March 31, 2022
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, June 30, 2021	8,608,706	$	43,044	$	10,802,118	$	8,729,939	$	19,575,101
Net income	—		—		—		882,814		882,814
Stock-based compensation expense	—		—		382,010		—		382,010
Stock option exercises	539,089		2,695		1,387,651		—		1,390,346
Balance, March 31, 2022	9,147,795	$	45,739	$	12,571,779	$	9,612,753	$	22,230,271


	Three Months Ended March 31, 2023
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, December 31, 2022	9,189,795	$	45,949	$	12,908,840	$	18,796,212	$	31,751,001
Net (loss)	—		—		—		(232,853)		(232,853)
Stock-based compensation expense	—		—		76,980		—		76,980
Stock option exercises	27,000		135		48,255		—		48,390
Balance, March 31, 2023	9,216,795	$	46,084	$	13,034,075	$	18,563,359	$	31,643,518


	Three Months Ended March 31, 2022
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, December 31, 2021	9,147,795	$	45,739	$	12,452,554	$	9,209,549	$	21,707,842
Net income	—		—		—		403,204		403,204
Stock-based compensation expense	—		—		119,225		—		119,225
Stock option exercises	—		—		—		—		—
Balance, March 31, 2022	9,147,795	$	45,739	$	12,571,779	$	9,612,753	$	22,230,271

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KOSS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

The condensed consolidated balance sheets as of March 31, 2023 and June 30, 2022, the condensed consolidated statements of operations for the three and nine months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the nine months ended March 31, 2023 and 2022, and the condensed consolidated statements of stockholders' equity for the three and nine months ended March 31, 2023 and 2022, 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 disclosures 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, 2022.

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,