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| KOSS > SEC Filings for KOSS > Form 10-Q on 12-Feb-2009 | All Recent SEC Filings |
12-Feb-2009
Quarterly Report
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities during the six months ended December 31, 2008 amounted to $2,892,444. This was a result of net income for the period adjusted for changes in operating assets and current liabilities, which arose primarily out of increases in other current assets, accrued liabilities, and accounts payable.
Capital expenditures for new equipment (including production tooling) were $1,322,810 for the six months ended December 31, 2008. Capital expenditures for fiscal year 2009 are expected to be approximately $3.8 million. The Company expects to generate sufficient funds through operations to fund these expenditures.
Stockholders' investment decreased to $23,651,121 at December 31, 2008, from $23,217,435 at June 30, 2008. The net decrease reflects net income and exercise of stock options offset by the effect of the purchase and retirement of common stock and dividends declared.
The Company amended its existing credit facility in November 2008, extending the maturity date of the unsecured line of credit to November 1, 2009. This credit facility provides for borrowings up to a maximum of $10,000,000. The Company can use this credit facility for working capital purposes or for the purchase of its own common stock pursuant to the Company's common stock repurchase program. Borrowings under this credit facility bear interest at the bank's prime rate, or LIBOR plus 1.75%. This credit facility includes financial covenants that require the Company to maintain a minimum tangible net worth and specified current, interest coverage and leverage ratios. The Company uses its credit facility from time to time, although there was no utilization of this credit facility at December 31, 2008 or June 30, 2008. The Company did not utilize the credit facility during the quarter or six months ended December 31, 2008.
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. The Company intends to effectuate all stock purchases either on the open market or through privately negotiated transactions, and intends to finance all stock purchases through its own cash flow or by borrowing for such purchases.
For the quarter ended December 31, 2008, the Company purchased 3,830 shares of its common stock at an average net price of $10.98 per share, for a total net purchase price of $42,057. For the six months ended December 31, 2008, the Company purchased 3,830 shares of its common stock at an average net price of $10.98 per share, for a total net purchase price of $42,057.
From the commencement of the Company's stock repurchase program through December 31, 2008, the Company has purchased a total of 5,473,934 shares for a total gross purchase price of $52,767,311 (representing an average gross purchase price of $9.64 per share) and a total net purchase price of $41,943,568 (representing an average net purchase price of $7.66 per share). The difference between the total gross purchase price and the total net purchase price is the result of the Company receiving from employees cash acquired from such employees pursuant to the Company's stock option program. In determining the dollar amount available for additional purchases under the stock repurchase program, the Company uses the total net purchase price by the Company for all stock purchases, as authorized by the Board of Directors.
The Company also has an Employee Stock Ownership Plan and Trust ("ESOP") pursuant to which shares of the Company's common stock are purchased by the ESOP for allocation to the accounts of ESOP participants. On November 3, 2008, the Company contributed $30,000 to ESOP.
Results of Operations
Net sales for the second quarter ended December 31, 2008 declined by 15% to $10,287,595 from $12,099,397 for the same period in 2007. Net sales for the six months ended December 31, 2008 declined by 12% to $21,773,629 from $24,797,003 for the same period in 2007. The decrease is primarily the result of soft U.S. retail sales.
Gross profit as a percent of net sales was 34% for the quarter ended December 31, 2008 compared to 36% for the same period in the prior year. For the six months ended December 31, 2008 the gross profit percentage was 36% compared to 37% for the same period in the prior year. The decrease in gross profit for the six months ended December 31, 2008 was primarily due to a less profitable model mix sold in that period.
Selling, general and administrative expenses for the quarter ended December 31, 2008 were $2,956,099 or 29% of net sales, compared to $2,371,276 or 20% of net sales for the same period in 2007. For the six month period ended December 31, 2008, these expenses were $5,954,626 or 27% of net sales, compared to $5,155,302 or 21% of net sales, for the same period in 2007. This increase is due to extra costs incurred related to engineering, research development and marketing.
For the quarter ended December 31, 2008, income from operations was $526,785 compared to $1,953,099 for the same period in the prior year. Income from operations for the six months ended December 31, 2008 was $1,928,718 compared to $3,961,053 for the same period in 2007, a 51% decrease. Income from operations decreased primarily as a result of decreased net sales for the quarter and six months ended December 31, 2008.
For the quarter ended December 31, 2008, net income decreased 74% to $322,454 from $1,246,552 for the same period in 2007. Net income for the six months ended December 31, 2008, decreased 52% from $2,582,226 in 2007 to $1,236,218 in 2008. Net income decreased primarily as a result of decreased net sales for the quarter and six months ended December 31, 2008.
Royalty income for the quarter ended December 31, 2008 was zero compared to $43,750 for the quarter ended December 31, 2007. For the six month period ended December 31, 2008, royalty income was $58,333 compared to $175,000 for the period ended December 31, 2007.
Interest income for the quarter was $1,446 compared to $46,751 for the same quarter in 2007. For the six month period ended December 31, 2008, interest income was $15,499, compared to $97,191, for the same period in the prior year. Interest income fluctuates in relation to cash balances on hand throughout the year and fluctuations in interest rates earned.
The provision for income taxes for the quarter ended December 31, 2008, was $205,777 compared to $797,048 for the same period last year. For the six months ended December 31, 2008, the provision for income taxes was $766,332 compared with $1,651,018 for the same period last year. The effective tax rate was 39% for each of the quarters.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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