SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

x                            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2006

OR

o                               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)

A DELAWARE CORPORATION

 

39-1168275

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

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

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         x                  NO       o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer      o                                     Accelerated filer     o                                    Non-accelerated filer     x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).

YES         o                  NO       x

 

At November 1, 2006, there were 3,684,939 shares outstanding of the registrant’s common stock, $0.005 par value per share.

 




KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2006

INDEX

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2006 and June 30, 2006

3

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited)
Three months ended September 30, 2006 and 2005

4

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 2006 and 2005

5

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2006

6

 

 

 

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

8

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

10

 

 

 

 

 

 

 

 

Item 4

 

Controls and Procedures

10

 

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

11

 

 

 

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

11

 

 

 

 

 

 

 

 

Item 4

 

Submission of Matters to a Vote of Security-Holders

12

 

 

 

 

 

 

 

 

Item 6

 

Exhibits

12

 

2




PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

KOSS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 

 

September 30, 2006

 

June 30, 2006

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

 

$

3,527,562

 

$

6,146,580

 

Accounts receivable

 

8,264,209

 

6,819,852

 

Inventories

 

9,350,221

 

10,522,605

 

Other current assets

 

2,472,364

 

1,784,365

 

Total current assets

 

23,614,356

 

25,273,402

 

Property and equipment, net

 

2,846,721

 

3,037,548

 

Deferred income taxes

 

672,823

 

672,823

 

Other assets

 

2,288,509

 

2,457,840

 

 

 

$

29,422,409

 

$

31,441,613

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' INVESTMENT

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

2,643,241

 

$

1,870,256

 

Accrued liabilities

 

2,189,921

 

2,149,102

 

Income taxes payable

 

717,379

 

927,528

 

Dividends payable

 

481,479

 

4,202,591

 

Total current liabilities

 

6,032,020

 

9,149,477

 

Deferred compensation

 

1,022,831

 

992,830

 

Derivative liability

 

125,000

 

125,000

 

Stockholders' investment

 

22,242,558

 

21,174,306

 

 

 

$

29,422,409

 

$

31,441,613

 

 

See accompanying notes.

3




KOSS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Three Months Ended September 30,

 

 

 

2006

 

2005

 

 

 

 

 

 

 

Net sales

 

$

13,325,099

 

$

11,949,841

 

Cost of goods sold

 

7,729,555

 

7,274,962

 

Gross profit

 

5,595,544

 

4,674,879

 

Selling, general and administrative expense

 

2,932,801

 

2,447,617

 

Income from operations

 

2,662,743

 

2,227,262

 

Other income (expense)

 

 

 

 

 

Royalty income

 

81,249

 

101,611

 

Interest income

 

32,538

 

34,645

 

Income before income tax provision

 

2,776,530

 

2,363,518

 

Provision for income taxes

 

1,082,850

 

922,300

 

Net income

 

$

1,693,680

 

$

1,441,218

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic earnings per common share

 

$

0.46

 

$

0.39

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.45

 

$

0.38

 

 

 

 

 

 

 

Dividends per common share

 

$

0.13

 

$

0.13

 

 

See accompanying notes.

4




KOSS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended September 30,

 

 

 

2006

 

2005

 

CASH FLOWS FROM OPERATINGACTIVITIES:

 

 

 

 

 

Net income

 

$

1,693,680

 

$

1,441,218

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

283,082

 

248,843

 

Net changes in operating assets and liabilities

 

(3,756,757

)

(116,383

)

Net cash (used) provided by operating activities

 

(1,779,995

)

1,573,678

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of equipment

 

(72,925

)

(259,919

)

Net cash used in investing activities

 

(72,925

)

(259,919

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Dividends declared

 

(481,479

)

(486,788

)

Purchase of common stock

 

(308,143

)

(239,820

)

Exercise of stock options

 

23,524

 

 

Net cash used in financing activities

 

(766,098

)

(726,608

)

Net increase (decrease) in cash

 

(2,619,018

)

587,151

 

Cash at beginning of period

 

6,146,580

 

5,218,698

 

Cash at end of period

 

$

3,527,562

 

$

5,805,849

 

 

See accompanying notes.

5




KOSS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)

1.             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The financial statements presented herein are based on interim amounts.  In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2006 and for all periods presented have been made.  The income from operations for the quarter ended September 30, 2006 is not necessarily indicative of the operating results for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Registrant’s June 30, 2006, Annual Report on Form 10-K.

2.             EARNINGS PER COMMON SHARE

Basic earnings per common share are computed based on the weighted average number of common shares outstanding.  The weighted average number of common shares outstanding for the quarters ending September 30, 2006 and 2005 were 3,709,936 and 3,735,878, respectively.  When dilutive, stock options are included as share equivalents using the treasury stock method.  Common stock equivalents of 65,857 and 46,210 related to stock option grants were included in the computation of the average number of shares outstanding for diluted earnings per common share for the quarters ended September 30, 2006 and 2005, respectively.

3.             INVENTORIES

The classification of inventories is as follows:

 

September 30, 2006

 

June 30, 2006

 

Raw materials and work in process

 

$

4,405,410

 

$

4,388,680

 

Finished goods

 

6,320,054

 

7,509,168

 

 

 

10,725,464

 

11,897,848

 

LIFO reserve

 

(1,375,243

)

(1,375,243

)

 

 

$

9,350,221

 

$

10,522,605

 

 

4.             STOCK PURCHASE AGREEMENT

The Company has an agreement with its Chairman, John C. Koss, to, at the request of the executor of the estate, repurchase Company common stock from his estate (only upon the election of the estate) in the event of his death.  The Company does not have the right to require the estate to sell stock to the Company.  As such, this arrangement is accounted for as a written put option with the fair value of the put option recorded as a derivative liability.  The fair value of the option at September 30, 2006, was $125,000.  The repurchase price is 95% of the fair market value of the common stock on the date that notice, if the estate elects, to repurchase is provided to the Company.  Under the agreement, the total number of shares to be repurchased will be sufficient to provide proceeds which are the lesser of

6




$2,500,000 or the amount of estate taxes and administrative expenses incurred by the Chairman’s estate.  The Company may elect to pay the purchase price in cash or may elect to pay cash equal to 25% of the total amount due and to execute a promissory note for the balance, payable over four years, at the prime rate of interest.  The Company maintains a $1,150,000 life insurance policy to fund a substantial portion of this obligation.  At September 30, 2006, $125,000 has been classified as a derivative liability on the Company’s financial statements.

5.                                       DIVIDENDS DECLARED

On September 14, 2006, the Company declared a quarterly cash dividend of $0.13 per share for stockholders of record on September 29, 2006 to be paid October 13, 2006.  Such dividend payable has been recorded at September 30, 2006.

6.                                       STOCK-BASED COMPENSATION

In 1990, pursuant to the recommendation of the Board of Directors, the stockholders ratified the creation of the Company’s 1990 Flexible Incentive Plan (the “1990 Plan”).  The 1990 Plan is administered by a committee of the Board of Directors and provides for the granting of various stock-based awards including stock options to eligible participants, primarily officers and certain key employees.  A total of 225,000 shares of common stock were available in the first year of the Plan’s existence.  Each year thereafter additional shares equal to .25% of the shares outstanding as of the first day of the applicable fiscal year were reserved for issuance pursuant to the 1990 Plan.  On July 22, 1992, the Board of Directors authorized the reservation of an additional 250,000 shares for the 1990 Plan, which was approved by the stockholders.  In 1993, the Board of Directors authorized the reservation of an additional 300,000 shares for the 1990 Plan, which was approved by the stockholders.  In 1997, the Board of Directors authorized the reservation of an additional 300,000 shares for the 1990 Plan, which was approved by the stockholders.  In 2001, the Board of Directors authorized the reservation of an additional 300,000 shares for the 1990 Plan, which was also approved by the stockholders.  Options generally vest over four or five years, with a maximum term of five to ten years.

We account for stock options and restricted stock issued under the plan in accordance with Statement of Accounting Standards (‘SFAS’) No. 123 (R), “Share Based Payments”. The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a strait line basis over the vesting period for the entire award. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost is amortized on a strait line basis over the vesting period.

A summary of stock option activity under the plan for the three months ended September 30, 2006 is as follows:

 

 

Number of Shares
(in thousands)

 

Range of Exercise
Price Per Share

 

Average Exercise
Price

 

Balance, June 30, 2006

 

591,594

 

$

5.28-$28.8

0

$

20.60

 

Granted

 

 

 

 

Exercised

 

(1,404

)

$

16.76

 

$

16.76

 

Expired

 

 

 

 

Forfeited

 

 

 

 

Balance, September 30, 2006

 

590,190

 

$

5.28-$28.8

0

$

20.61

 

 

7




 

 

 

Number of Options
Outstanding/Exercisable

 

Weighted Average Exercise
Price Outstanding/Exercisable

 

Weighted Average
Remaining Contractual
Life (Years)

 

$5.28-$6.73

 

18,461 / 18,461

 

$6.11 / $6.11

 

3.5

 

$15.75-$19.12

 

289,729 / 209,979

 

$17.49 / $17.42

 

3.7

 

$22.01-$28.80

 

282,000 / 89,000

 

$24.76 / $23.62

 

5.2

 

 

 

590,190 / 317,440

 

$20.61 / $18.50

 

 

 

 

As of September 30, 2006, there was $1,394,566 of total unrecognized compensation cost related to stock options granted under the plan. This cost is expected to be recognized over a weighted average period of 2.25 years. Total unrecognized compensation cost will be adjusted for any future changes in estimated and actual forfeitures.

Item 2.                          Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Condition, Liquidity and Capital Resources

Cash used by operating activities during the three months ended September 30, 2006 amounted to $1,779,995.  This was a result of net income for the period adjusted for changes in operating assets and current liabilities, which arose primarily as a result of a special cash dividend that the Company distributed during the quarter.  On July 14, 2006, the Company distributed a special cash dividend of $1.00 per share to shareholders of record June 30, 2006.  After the satisfaction of this commitment, the Company believes that its cash position remains strong.

Capital expenditures for new equipment (including production tooling) were $72,925 for the quarter.  Capital expenditures for fiscal year 2007 are expected to be approximately $1.9 million.  The Company expects to generate sufficient funds through operations to fund these expenditures.

Stockholders’ investment increased to $22,242,558 at September 30, 2006, from $21,174,306 at June 30, 2006.  The increase reflects net income offset by (i) the effect of the purchase and retirement of common stock and (ii) dividends declared.

The Company amended its existing credit facility in November 2005, extending the maturity date of the unsecured line of credit to November 1, 2006, and expects to extend it to November 1, 2007 in the current quarter.  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, with which the Company has complied.  The Company uses its credit facility from time to time, although there was no utilization of this credit facility during the quarter ended September 30, 2006.

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 $1,000,000 in July 2006, for a maximum of $43,500,000.  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.

8




For the three month period ended September 30, 2006, the Company purchased 15,290 shares of its common stock at an average net price of $20.15 per share, for a total net purchase price of $308,143.

From the commencement of the Company’s stock repurchase program through September 30, 2006, the Company has purchased a total of 5,338,231 shares for a total gross purchase price of $49,912,329 (representing an average gross purchase price of $9.35 per share) and a total net purchase price of $39,565,627 (representing an average net purchase price of $7.41 per share).  The difference between the total gross purchase price and the total net purchase price is the result of the Company purchasing from certain employees shares of the Company’s stock acquired by 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 paid 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 stock are purchased by the ESOP for allocation to the accounts of ESOP participants.  There were no ESOP purchases for the quarter ended September 30, 2006.

Results of Operations

Net sales for the first quarter ended September 30, 2006 increased by 12% to $13,325,099 compared with $11,949,841 for the same period in 2005, an increase of $1,375,258.  The increase is primarily due to strong European sales, which were consistent across all market classes.  Export sales, most notably to Europe, have been exceptionally strong in our first quarter.  The concern for the balance of the year remains with domestic U.S. retail, where we may see demand soften in comparison to last year, as well as in comparison to anticipated demand in Europe.

Gross profit as a percent of net sales was 42% for the quarter ended September 30, 2006 and 39% for the quarter ended September 30, 2005.  The increase is primarily due to the Company experiencing a more profitable model mix.

Selling, general and administrative expenses for the quarter ended September 30, 2006 were $2,932,801 or an improved 22% of net sales, compared to $2,447,617 or 20% of net sales for the same period in 2005, primarily as a result of strong sales during the recent quarter.

For the first quarter ended September 30, 2006, income from operations was $2,662,743 versus $2,227,262 for the same period in the prior year.  Net income for the three months rose by 18% to $1,693,680 from $1,441,218 for the same three month period one year ago.  The increases in income from operations and net income are primarily due to strong European sales, which were consistent across all market classes.

Royalty income for the quarter ended September 30, 2006 was $81,249, compared with $101,611 for the quarter ended September 30, 2005. The decrease in royalty income for the three month period was primarily a result of the terminated license agreement with Jiangsu Electronics Industries Limited (“Jiangsu”).  Effective November 23, 2004, the Company terminated the License Agreement dated November 15, 1991, as subsequently amended, between the Company and Jiangsu (the “Jiangsu License Agreement”).  As a result of the termination, other than Jiangsu’s post-termination right to sell Company-approved licensed products, as set forth in the Jiangsu License Agreement, Jiangsu no longer has the right to use certain Company trademarks in connection with the manufacture, marketing and distribution of Jiangsu’s products under the Jiangsu License Agreement.

Effective June 30, 2003, the Company entered into a License Agreement (the “License Agreement”) with Sonigem Products, Inc. (“Sonigem”) of Ontario, Canada whereby the Company licensed to Sonigem the right to sell video and communications products under the Koss brand name.  This License Agreement

9




covers Canada, requiring royalty payments by Sonigem through June 30, 2010, subject to certain minimum annual royalty amounts.  To further enhance the relationship between the Company and Sonigem, on June 30, 2005, the Company announced the extension of its licensing agreement for electronics products with Sonigem.  The Amendment to the License Agreement with Sonigem was effective August 1, 2005 (the “Amendment”).  The Amendment provides Sonigem with the exclusive right and license to use certain Company trademarks in Canada in connection with the manufacture, production, distribution and sale of an increased number of licensed products, with the prior approval of the Company.  In consideration for these increased rights, the Amendment also provides for increased minimum royalty payments payable to the Company, which partially offset the previously discussed reductions in royalty income from the terminated Jiangsu License Agreement.

Interest income for the quarter was $32,538 as compared to $34,645 for the same quarter in 2005.  Interest income fluctuates in relation to cash balances on hand throughout the period and fluctuations in interest rates earned.

The provision for income taxes was $1,082,850 and $922,300 for the quarters ended September 30, 2006 and 2005, respectively.  The effective tax rate was 39% for each quarter.

Recently Issued Financial Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”  This interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return.  This Interpretation is effective for fiscal years beginning after December 15, 2006.  We are currently evaluating the impact FIN 48 will have on our financial position or results of operations.

Item 3.                          Quantitative and Qualitative Disclosures About Market Risk.

In management’s opinion, the Company does not engage in any material risk sensitive activities and does not have any market risk sensitive instruments, other than the Company’s commercial credit facility used for working capital purposes and stock repurchases, as disclosed in the “Financial Condition, Liquidity and Capital Resources” section of “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” above.

Item 4.                          Controls and Procedures.

(a)                                                Evaluation of Disclosure Controls and Procedures.  The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer/Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act)) as of the end of the period covered by this report, has concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely

10




decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

(b)                                               Changes in Internal Controls.  The Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  There were no changes in the Company’s internal control over financial reporting 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.  However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

PART II
OTHER INFORMATION

Item 1A                    Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K for the year ended June 30, 2006, which could materially affect our business, financial condition or future results.  The risks described in our Annual Report on Form 10-K are not the only risks facing our Company.  Additional risk and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2                             Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases of common stock of the Company made during the three months ended September 30, 2006, by the Company.

COMPANY REPURCHASES OF EQUITY SECURITIES

Period (2006)

 

 

 

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 — July 31

 

7,425

 

$

19.57

 

7,425

 

$

1,258,239

 

August 1 — August 31

 

4,711

 

$

20.77

 

4,711

 

$

1,160,402

 

September 1 — September 30

 

3,154

 

$

20.61

 

3,154

 

$

1,095,393

 


(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

11




program.  The most recently approved increase was for additional purchases of $1,000,000, which occurred in July 2006, for an aggregate maximum of $43,500,000, of which $42,404,607 had been expended through September 30, 2006.

Item 4                                 Submission of Matters to Vote of Security-Holders

(a)                          On October 11, 2006 an Annual Meeting of Stockholders was held.

(b)                         Proxies for the election of directors were solicited pursuant to Regulation 14.  There was no solicitation in opposition to management’s nominees, and all such nominees were elected.

(c)                          There were 3,706,842 shares of common stock eligible to vote at the Annual Meeting, of which 3,222,395 shares were present at the Annual Meeting in person or by proxy, which constituted a quorum.  The following is a summary of the results of the voting:

Nominees for 1-year

 

Number of Votes

 

Broker

 

terms ending in 2007

 

For

 

Withheld

 

Non-Votes

 

 

 

 

 

 

 

 

 

John C. Koss

 

3,213,808

 

8,587

 

0

 

Thomas L. Doerr

 

3,214,192

 

8,203

 

0

 

Michael J. Koss

 

3,201,354

 

21,041

 

0

 

Lawrence S. Mattson

 

3,201,228

 

21,167

 

0

 

Theodore H. Nixon

 

3,213,315

 

9,080

 

0

 

John J. Stollenwerk

 

3,212,695

 

9,700

 

0

 

 

 

 

Number of Votes

 

 

 

Broker

 

 

 

For

 

Against

 

Abstain

 

Non-Votes

 

Appointment of Grant Thornton LLP as independent auditors for the year ending June 30, 2007

 

3,219,098

 

1,373

 

1,924

 

0

 

 

Item 6                                 Exhibits

                                                                   See Exhibit Index attached hereto.

12




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” 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, fluctuations in currency exchange rates 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 the occurrence of unexpected events.

13




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.

 

 

 

KOSS CORPORATION

Date:

November 13, 2006

 

 

/s/ Michael J. Koss

 

 

 

 

Michael J. Koss

 

 

 

 

Vice Chairman, President,

 

 

 

 

Chief Executive Officer,

 

 

 

 

Chief Financial Officer

Date:

November 13, 2006

 

 

/s/ Sue Sachdeva

 

 

 

 

Sue Sachdeva

 

 

 

 

Vice President—Finance

 

 

 

 

Secretary

 

14




EXHIBIT INDEX

Exhibit No.

 

 

 

Exhibit Description

 

 

 

3.1

 

Certificate of Incorporation of Koss Corporation. Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

3.2

 

By-Laws of Koss Corporation, as in effect on September 25, 1996. Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

10.1

 

Death Benefit Agreement with John C. Koss. Filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

10.2

 

Stock Purchase Agreement with John C. Koss. Filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

10.3

 

Salary Continuation Resolution for John C . Koss. Filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

10.4

 

1983 Incentive Stock Option Plan. Filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.

 

 

 

10.5

 

Assignment of Lease to John C. Koss. Filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1988 and incorporated herein by reference.

 

 

 

10.6

 

Addendum to Lease. Filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1988 and incorporated herein by reference.

 

 

 

10.7

 

Amendment to Lease. Filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2000 and incorporated herein by reference.

 

 

 

10.8

 

Partial Assignment, Termination and Modification of Lease. Filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2001 and incorporated herein by reference.

 

 

 

10.9

 

Restated Lease. Filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2001 and incorporated herein by reference.

 

 

 

10.10

 

1990 Flexible Incentive Plan. Filed as Exhibit 25 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1990 and incorporated herein by reference.

 

 

 

10.11

 

Consent of Directors (Supplemental Executive Retirement Plan for Michael J. Koss dated March 7, 1997). Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference.

 




 

 

 

10.12

 

Loan Agreement, effective as of February 17, 1995. Filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference.

 

 

 

10.13

 

Amendment to Loan Agreement dated June 15, 1995, effective as of February 17, 1995. Filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1995 and incorporated herein by reference.

 

 

 

10.14

 

Amendment to Loan Agreement dated April 29, 1999. Filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1999 and incorporated herein by reference.

 

 

 

10.15

 

Amendment to Loan Agreement dated December 15, 1999. Filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2000 and incorporated herein by reference.

 

 

 

10.16

 

Amendment to Loan Agreement dated October 10, 2001. Filed as Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 and incorporated herein by reference.

 

 

 

10.17

 

License Agreement dated June 30, 1998 between Koss Corporation and Logitech Electronics Inc. (including Addendum to License Agreement dated June 30, 1998). Filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1998 and incorporated herein by reference.

 

 

 

10.18

 

Amendment and Extension Agreement between Koss Corporation and Logitech Electronics Inc. dated May 1, 2001. Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by reference.

 

 

 

10.19

 

License Agreement dated June 30, 2003 between Koss Corporation and Sonigem Products, Inc. Filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2005 and incorporated herein by reference.

 

 

 

10.20

 

Amendment to License Agreement dated August 1, 2005, between Koss Corporation and Sonigem Products, Inc. Filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2005 and incorporated herein by reference.

 

 

 

31

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief Financial Officer *

 

 

 

32

 

Section 1350 Certification of Chief Executive Officer/Chief Financial Officer **


*                    Filed herewith

**             Furnished herewith



Exhibit 31

KOSS CORPORATION

CERTIFICATION*

I, Michael J. Koss, certify that:

1.                                       I have reviewed this quarterly report on Form 10-Q of Koss Corporation;

2.                                       Based on my knowledge, this quarterly 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 quarterly report;

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.                                       The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a)                                      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)                                     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

c)                                      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.                                       The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)                                      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)                                     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

November 13, 2006

 

 

/s/ Michael J. Koss

 

 

Michael J. Koss

 

 

Chief Executive Officer, President and

 

 

Chief Financial Officer

 

 


*                    Since Michael J. Koss is both the principal executive officer and the principal financial officer of the registrant, only one certification is provided.

 



Exhibit 32

Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of Koss Corporation (the “Company”) for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Koss, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael J. Koss

 

 

Michael J. Koss

 

 

Chief Executive Officer and

 

 

Chief Financial Officer

 

 

Date:

November 13, 2006

 

 

Note:  This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.