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| KOSS > SEC Filings for KOSS > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Financial Condition, Liquidity and Capital Resources
Cash used in operating activities during the three months ended September 30, 2009 amounted to $544,617. This was a result of net income for the period adjusted for changes in operating assets and current liabilities.
Capital expenditures for new equipment (including production tooling) were $542,271 for the three months ended September 30, 2009. Capital expenditures for fiscal year 2010 are expected to be approximately $2 million. The Company expects to generate sufficient funds through operations to fund these expenditures.
Stockholders' investment increased to $23,800,091 at September 30, 2009, from $23,630,392 at June 30, 2009. The net increase reflects net income and is offset by the effect of dividends declared and stock compensation expense.
On February 16, 2009, the Company entered into a new credit facility for an unsecured line of credit for up to a maximum of $10,000,000 up to and including January 29, 2010. On October 9, 2009 this credit
facility was extended to December 31, 2010. The Company can use the new credit facility for working capital, to refinance existing indebtedness, for stock repurchase and for general corporate purposes. Borrowings under this credit facility bear interest at either the bank's most recently publicly announced prime rate or at a LIBOR-based rate determined in accordance with the loan agreement. This credit facility includes financial covenants that require the Company to maintain a minimum tangible net worth, liabilities to tangible net worth ratios and interest coverage ratios. Outstanding draws on this credit facility at September 30, 2009 amount to $2,750,000. There was no utilization of this credit facility at June 30, 2009.
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 September 30, 2009, the Company purchased no shares of its common stock.
From the commencement of the Company's stock repurchase program through September 30, 2009, the Company has purchased a total of 5,474,102 shares for a total gross purchase price of $52,768,873 (representing an average gross purchase price of $9.64 per share) and a total net purchase price of $41,945,130 (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. There were no ESOP purchases of the Company's common stock for the three months ended September 30, 2009.
Results of Operations
Net sales for the first quarter ended September 30, 2009 declined by 6% to $10,796,583 from $11,486,034 for the same period in 2008. The decrease is primarily the result of soft retail sales in the United States and Europe.
Gross profit as a percent of net sales was 38% for the quarter ended September 30, 2009 compared to 38% for the quarter ended September 30, 2008.
Selling, general and administrative expenses for the quarter ended September 30, 2009 were $3,188,800 or 30% of net sales, compared to $2,998,527 or 26% of net sales for the same period in 2008. This increase is due to extra costs incurred related to engineering, research development and marketing.
For the first quarter ended September 30, 2009, income from operations was $928,491 versus $1,401,933 for the same period in the prior year, a 37% decrease. Net income for the quarter fell by 38% to $566,379 from $913,764 for the same period in 2008. The decreases in income from operations and net income are primarily due to spending on new product development, soft retail sales worldwide and a less profitable product mix.
Royalty income for the quarter ended September 30, 2009 was zero compared to $58,333 for the quarter ended September 30, 2008. The decrease in royalty income was the result of the termination of the license for the Company's sole licensee.
Interest income for the quarter was zero compared to $14,053 for the same quarter in 2008. Interest income fluctuates in relation to cash balances on hand throughout the year and fluctuations in interest rates earned.
The provision for income taxes was $362,112 and $560,555 for the quarters ended September 30, 2009 and 2008, respectively. The effective tax rate was 39% for each quarter.
Recent Accounting Pronouncements
In August 2009, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Update No. 2009-05, Fair Value Measurements and Disclosures ("ASU 2009-05"), which is effective for financial statements issued for interim and annual periods ending after August 2009. ASU 2009-05 amends FASB Accounting Standards Codification ("FASB ASC") Topic 820-10 ("FASB ASC 820-10"). The update provides clarification on the techniques for measurement of fair value required of a reporting entity when a quoted price in an active market for an identical liability is not available. This update had no impact on the Company's financial position, results of operations or cash flows.
In May 2009, the FASB issued expanded guidance on disclosing subsequent events, codified within ASC Topic 855-10, which establishes accounting and disclosure standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It defines financial statements as available to be issued, requiring the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether it be the date the financial statements were issued or the date they were available to be issued. This standard had no impact on the Company's financial position, results of operations or cash flows.
Recent Developments
On September 10, 2009, Nasdaq notified the Company that it no longer met the 750,000 minimum publicly held shares requirement under Listing Rule 5450(b)(1)(B) for continued listing on The Nasdaq Global Market. On September 24, 2009, the Company submitted its compliance plan to Nasdaq proposing to implement a two-for-one forward stock split of the Company's Common Stock. The proposed stock split would cause the Company's total number of publicly held shares to exceed the 750,000 minimum threshold while maintaining the Company's compliance with Nasdaq's other continued listing requirements. On September 29, 2009, Nasdaq granted the Company an extension of time in order to allow the Company to regain compliance with Nasdaq's listing requirements. The Company must regain compliance by December 24, 2009.
At a meeting held on October 7, 2009, the Board of Directors conditionally approved a two-for-one forward stock split to be effected in the form of a stock dividend of one share of Common Stock for each share of Common Stock outstanding on or about November 20, 2009, the proposed record date for the stock split. The stock split is conditioned upon approval by the stockholders of an increase in the number of authorized shares of the Common Stock of the Company from 8,500,000 shares to 20,000,000 shares. A special meeting of stockholders to vote on the proposed increase is scheduled to be held on November 19, 2009. If approved, the stock split will be effected and the stock dividend will be distributed to the Company's stockholders on or about December 1, 2009.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
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