SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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for the quarterly period ended March 31, 2009 |
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OR |
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o |
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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 |
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39-1168275 |
(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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4129 North Port Washington Avenue, Milwaukee, Wisconsin |
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53212 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants 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 Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yeso Nox
At May 01, 2009, there were 3,691,353 shares outstanding of the registrants common stock, $0.005 par value per share.
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2009
2
KOSS CORPORATION AND SUBSIDIARIES
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(Unaudited) |
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March 31, 2009 |
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June 30, 2008 |
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ASSETS |
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Current assets: |
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Cash |
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$ |
2,627,275 |
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$ |
3,322,873 |
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Accounts receivable |
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7,539,157 |
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10,148,646 |
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Inventories |
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10,571,212 |
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9,374,344 |
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Deferred income taxes |
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783,995 |
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783,995 |
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Other current assets |
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508,382 |
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504,806 |
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Total current assets |
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22,030,021 |
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24,134,664 |
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Property and equipment, net |
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3,899,537 |
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2,746,367 |
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Deferred income taxes |
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1,066,853 |
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1,066,853 |
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Other assets |
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1,954,124 |
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2,029,123 |
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Total Assets |
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$ |
28,950,535 |
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$ |
29,977,007 |
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LIABILITIES AND STOCKHOLDERS INVESTMENT |
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Current liabilities: |
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Accounts payable |
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$ |
2,801,506 |
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$ |
2,950,721 |
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Accrued liabilities |
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1,077,326 |
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1,808,467 |
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Dividends payable |
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479,876 |
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480,395 |
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Income tax payable |
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11,896 |
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347,507 |
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Total current liabilities |
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4,370,604 |
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5,587,090 |
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Deferred compensation |
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1,047,482 |
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1,047,482 |
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Derivative liability |
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125,000 |
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125,000 |
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Stockholders investment |
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23,407,449 |
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23,217,435 |
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Total Liabilities & Stockholders Investments |
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$ |
28,950,535 |
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$ |
29,977,007 |
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See accompanying notes to the condensed consolidated financial statements.
3
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months |
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Nine Months |
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Period Ended March 31 |
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2009 |
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2008 |
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2009 |
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2008 |
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Net sales |
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$ |
8,145,930 |
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$ |
10,003,648 |
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$ |
29,919,559 |
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$ |
34,740,651 |
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Cost of goods sold |
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5,531,938 |
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6,438,524 |
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19,422,223 |
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22,059,172 |
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Gross profit |
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2,613,992 |
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3,565,124 |
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10,497,336 |
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12,681,479 |
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Selling, general and administrative expense |
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2,388,169 |
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2,602,122 |
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8,342,795 |
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7,757,424 |
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Income from operations |
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225,823 |
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963,002 |
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2,154,541 |
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4,924,055 |
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Other income |
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Royalty income |
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87,501 |
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58,333 |
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262,501 |
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Interest income |
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2 |
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11,929 |
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15,501 |
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109,120 |
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Income before income tax provision |
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225,825 |
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1,062,432 |
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2,228,375 |
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5,295,676 |
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Provision for income taxes |
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88,058 |
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414,435 |
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854,390 |
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2,065,453 |
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Net income |
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$ |
137,767 |
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$ |
647,997 |
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$ |
1,373,985 |
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$ |
3,230,223 |
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Earnings per common share |
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Basic |
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$ |
0.04 |
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$ |
0.18 |
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$ |
0.37 |
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$ |
0.88 |
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Diluted |
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$ |
0.04 |
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$ |
0.18 |
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$ |
0.37 |
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$ |
0.87 |
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Dividends per common share |
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$ |
0.13 |
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$ |
0.13 |
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$ |
0.39 |
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$ |
1.39 |
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See accompanying notes to the condensed consolidated financial statements.
4
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31, |
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2009 |
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2008 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
1,373,895 |
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$ |
3,230,223 |
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Adjustments to reconcile net income to net cash by operating activities: |
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Depreciation and amortization |
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648,841 |
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843,289 |
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Stock compensation expense |
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299,997 |
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408,789 |
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Net changes in operating assets and liabilities |
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267,491 |
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113,359 |
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Net cash provided by operating activities |
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2,590,224 |
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4,595,660 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Acquisition of equipment |
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(1,802,011 |
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(762,194 |
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Net cash used in investing activities |
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(1,802,011 |
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(762,194 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Dividends paid |
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(1,440,191 |
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(5,115,390 |
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Purchase of common stock |
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(43,620 |
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(1,268,786 |
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Exercise of stock options |
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1,413,867 |
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Net cash used in financing activities |
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(1,483,811 |
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(4,970,309 |
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Net decrease in cash |
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(695,598 |
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(1,136,843 |
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Cash at beginning of period |
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3,322,873 |
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4,187,682 |
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Cash at end of period |
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$ |
2,627,275 |
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$ |
3,050,839 |
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See accompanying notes to the condensed consolidated financial statements.
5
KOSS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements presented herein are based on interim amounts. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2009 and for all periods presented have been made. All significant intercompany transactions have been eliminated. The income from operations for the quarter and nine months ended March 31, 2009 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 Registrants June 30, 2008 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 March 31, 2009 and 2008 were 3,691,359 and 3,690,371, respectively. For the nine months ended March 31, 2009 and 2008, weighted average number of common shares outstanding were 3,693,522 and 3,680,321, respectively. When dilutive, stock options are included as share equivalents using the treasury stock method. For the quarter ended March 31, 2009 there were no common stock equivalents related to stock option grants included in the computation of the average number of shares outstanding for diluted earnings per common share as inclusion would have been anti-dilutive. For the quarter ended March 31, 2008 there were 12,107 common stock equivalents. For the nine months ended March 31, 2009 there were no common stock equivalents related to stock option grants included in the computation of the average number of shares outstanding for diluted earnings per common share. For the nine months ended March 31, 2008 there were 18,065 common stock equivalents.
3. INCOME TAXES
We file income tax returns in the United States (Federal), Wisconsin (state) and various other state jurisdictions. We are not currently subject to income tax examinations in any of our significant tax jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2006 through 2008 for Federal and fiscal 2003 through 2008 for most states jurisdictions.
We adopted the provisions for FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, on July 1, 2007. As a result of the implementation of FIN 48, we did not recognize a significant change in the liability for unrecognized tax benefits. The total liability for unrecognized tax benefits was approximately $267,000 as of March 31, 2009. The liability does not include an amount for accrued penalties. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. We do not expect a significant increase or decrease to the total amounts of unrecognized tax benefits within the next 12 months.
6
There was no change in the amount of unrecognized tax benefits during the nine months ended March 31, 2009.
4. INVENTORIES
The classification of inventories is as follows:
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March 31, 2009 |
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June 30, 2008 |
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Raw materials and work in process |
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$ |
3,594,030 |
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$ |
4,212,089 |
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Finished goods |
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8,196,048 |
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6,381,121 |
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11,790,078 |
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10,593,210 |
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LIFO reserve |
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(1,218,866 |
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(1,218,866 |
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$ |
10,571,212 |
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$ |
9,374,344 |
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5. 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 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 March 31, 2009 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 $2,500,000 or the amount of estate taxes and administrative expenses incurred by the Chairmans 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 March 31, 2009 and June 30, 2008, $125,000 has been classified as a derivative liability on the Companys financial statements.
6. DIVIDENDS DECLARED
On March 17, 2009, the Company declared a quarterly cash dividend of $0.13 per share for the stockholders of record on March 31, 2009 to be paid April 15, 2009. Such dividend payable has been recorded at March 31, 2009.
7. STOCK-BASED COMPENSATION
In 1990, pursuant to the recommendation of the Board of Directors, the stockholders ratified the creation of the Companys 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 Plans 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
7
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 straight-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 straight-line basis over the vesting period.
A summary of stock option activity under the plan for the nine months ended March 31, 2009 is as follows:
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Number of Shares |
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Range of Exercise Price Per Share |
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Average |
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Balance, July 30, 2008 |
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561,654 |
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$15.51$28.80 |
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$ |
21.49 |
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Granted |
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Exercised |
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Forfeited |
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Balance, March 31, 2009 |
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561,654 |
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$15.51$28.80 |
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$ |
21.49 |
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The range of options as of March 31, 2009 is as follows:
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Number of Options |
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Weighted Average Exercise |
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Weighted Average |
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$15.51-$19.47 |
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219,654 / 76,904 |
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$17.37 / $17.57 |
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4.52 |
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$21.42-$24.11 |
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262,000 / 201,000 |
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$22.92 / $23.32 |
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2.15 |
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$26.18-$28.80 |
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80,000 / 38,000 |
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$28.15 / $28.25 |
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3.35 |
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561,654 / 315,904 |
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$21.49 / $26.79 |
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8. CREDIT FACILITY
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. This credit facility replaces the Companys previous credit facility, which has been terminated and contained substantially the same terms as the Companys new credit facility. 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 banks 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. The Company uses its credit facility from time to time, although there was no utilization of this credit facility at March 31, 2009 or June 30, 2008. The Company did not utilize the credit facility during the quarter or nine months ended March 31, 2009.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities during the nine months ended March 31, 2009 amounted to $2,590,224. 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, and decreases in accrued liabilities, and accounts payable.
Capital expenditures for new equipment (including production tooling) were $1,802,011 for the nine months ended March 31, 2009. Capital expenditures for fiscal year 2009 are expected to be approximately $2.6 million. The Company expects to generate sufficient funds through operations to fund these expenditures.
Stockholders investment increased to $23,407,449 at March 31, 2009, from $23,217,435 at June 30, 2008. The net increase reflects net income and exercise of stock options offset by the effect of the purchase and retirement of common stock and dividends declared.
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. This credit facility replaces the Companys previous credit facility, which has been terminated and contained substantially the same terms as the Companys new credit facility. 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 banks 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. The Company uses its credit facility from time to time, although there was no utilization of this credit facility at March 31, 2009 or June 30, 2008. The Company did not utilize the credit facility during the quarter or nine months ended March 31, 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 March 31, 2009, the Company purchased 168 shares of its common stock at an average net price of $9.30 per share, for a total net purchase price of $1,562. For the nine months ended March 31, 2009, the Company purchased 3,998 shares of its common stock at an average net price of $10.91 per share, for a total net purchase price of $43,620.
From the commencement of the Companys stock repurchase program through March 31, 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 Companys stock option program. In determining the dollar amount available for additional purchases under the stock repurchase program, the
9
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 Companys common stock are purchased by the ESOP for allocation to the accounts of ESOP participants. There were no ESOP purchases of the Companys common stock for the nine months ended March 31, 2009.
Results of Operations
Net sales for the third quarter ended March 31, 2009 declined by 19% to $8,145,930 from $10,003,648 for the same period in 2008. Net sales for the nine months ended March 31, 2009 declined by 14% to $29,919,559 from $34,740,651 for the same period in 2008. The decrease is primarily the result of soft U.S. retail sales.
Gross profit as a percent of net sales was 32% for the quarter ended March 31, 2009 compared to 36% for the same period in the prior year. For the nine months ended March 31, 2009 the gross profit percentage was 35% compared to 37% for the same period in the prior year. The decrease in gross profit for the nine months ended March 31, 2009 was primarily due to a less profitable model mix sold in that period.
Selling, general and administrative expenses for the quarter ended March 31, 2009 were $2,388,169 or 29% of net sales, compared to $2,602,122 or 26% of net sales for the same period in 2008. For the nine month period ended March 31, 2009, these expenses were $8,342,795 or 28% of net sales, compared to $7,757,424 or 22% 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 quarter ended March 31, 2009, income from operations was $225,825 compared to $963,002 for the same period in the prior year. Income from operations for the nine months ended March 31, 2009 was $2,154,541 compared to $4,924,055 for the same period in 2008, a 56% decrease. Income from operations decreased primarily as a result of decreased net sales for the quarter and nine months ended March 31, 2009.
For the quarter ended March 31, 2009, net income decreased 79% to $137,767 from $647,997 for the same period in 2008. Net income for the nine months ended March 31, 2009, decreased 57% from $3,230,223 in 2008 to $1,373,985 in 2009. Net income decreased primarily as a result of decreased net sales for the quarter and nine months ended March 31, 2009.
Royalty income for the quarter ended March 31, 2009 was zero compared to $87,501 for the quarter ended March 31, 2008. For the nine month period ended March 31, 2009, royalty income was $58,333 compared to $262,501 for the same period ended March 31, 2008.
Interest income for the quarter was $2 compared to $11,929 for the same quarter in 2008. For the nine month period ended March 31, 2009, interest income was $15,501, compared to $109,120, 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 March 31, 2009, was $88,058 compared to $414,435 for the same period last year. For the nine months ended March 31, 2009, the provision for income taxes was $854,390 compared with $2,065,453 for the same period last year. The effective tax rate was 39% for each of the quarters.
10
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
In managements opinion, the Company does not engage in any material risk sensitive activities and does not have any market risk sensitive instruments, other than the Companys commercial credit facility which may be used for working capital, to refinance existing indebtedness, for stock repurchase for general corporate purposes, as disclosed in the Financial Condition, Liquidity and Capital Resources section of the Managements 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 Companys management, including the Companys Chief Executive Officer/Chief Financial Officer, after evaluating the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-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 Companys 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 Companys management, including its principal executive officer and principal financial officer, as appropriate to allow timely 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 SECs rules and forms.
(b) Changes in Internal Controls. The Companys 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 Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys 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.
11
PART II
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, 2008, 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 quarter ended March 31, 2009, by the Company.
COMPANY REPURCHASES OF EQUITY SECURITIES
Period (2009) |
|
Total # of |
|
Average |
|
Total Number of |
|
Approximate Dollar Value of |
|
||
|
|
|
|
|
|
|
|
|
|
||
January 1 January 31 |
|
168 |
|
$ |
9.30 |
|
0 |
|
$ |
2,125,887 |
|
|
|
|
|
|
|
|
|
|
|
||
February 1 February 28 |
|
0 |
|
$ |
0.00 |
|
0 |
|
$ |
2,125,887 |
|
|
|
|
|
|
|
|
|
|
|
||
March 1 March 31 |
|
0 |
|
$ |
0.00 |
|
0 |
|
$ |
2,125,887 |
|
(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 program. The most recent increase was for an additional $2,000,000 in October 2006, for a maximum of $45,500,000 of which $43,374,113 had been expended through March 31, 2009.
Item 3 Submission of Matters to Vote of Security-Holders
None.
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, forecasts 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, and other risk factors which may be detailed from time to time in the Companys 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: May 08, 2009 |
/s/ Michael J. Koss |
|
Michael J. Koss |
|
Vice Chairman, President, |
|
Chief Executive Officer, |
|
Chief Financial Officer |
|
|
|
|
Date: May 08, 2009 |
/s/ Sue Sachdeva |
|
Sue Sachdeva |
|
Vice PresidentFinance, |
|
Secretary |
14
EXHIBIT INDEX
Exhibit No. |
|
Exhibit Description |
|
|
|
3.1 |
|
Certificate of Incorporation of Koss Corporation. Filed as Exhibit 3.1 to the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. |
15
10.12 |
|
Loan Agreement, effective as of February 17, 1995. Filed as Exhibit 10 to the Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys Annual Report on Form 10-K for the year ended June 30, 2005 and incorporated herein by reference. |
|
|
|
10.21 |
|
Loan Agreement dated February 16, 2009, between Koss Corporation and Harris N.A., a national banking association* |
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief Financial Officer * |
|
|
|
32.1 |
|
Section 1350 Certification of Chief Executive Officer/Chief Financial Officer ** |
* |
|
Filed herewith |
** |
|
Furnished herewith |
16
Exhibit 10.21
LOAN AGREEMENT
BETWEEN
KOSS CORPORATION,
a Delaware corporation
AND
HARRIS N.A.,
a national banking association
FEBRUARY 16, 2009
TABLE OF CONTENTS
Section 1 DEFINITIONS |
1 |
|
1.1 |
Defined Terms |
1 |
1.2 |
Accounting Terms |
10 |
1.3 |
Other Terms Defined in UCC |
10 |
1.4 |
Other Interpretive Provisions |
10 |
Section 2 COMMITMENT OF THE BANK; BORROWING PROCEDURES; PAYMENTS |
11 |
|
2.1 |
Commitments |
11 |
2.2 |
Borrowing Procedures |
12 |
2.3 |
Loan Account |
15 |
2.4 |
Discretionary Disbursements |
15 |
2.5 |
Notes |
15 |
2.6 |
Revolving Loan Principal Payments |
15 |
2.7 |
Taxes |
16 |
2.8 |
Compliance with Bank Regulatory Requirements; Increased Costs |
17 |
Section 3 INTEREST RATE, FEES AND EXPENSES |
17 |
|
3.1 |
Interest Rates |
17 |
3.2 |
Default Rate |
17 |
3.3 |
Interest Payment Dates |
17 |
3.4 |
Computations |
18 |
3.5 |
Letter of Credit Fees |
18 |
3.6 |
Non-Use Fee |
18 |
3.7 |
Costs, Fees and Expenses |
18 |
Section 4 CONDITIONS OF BORROWING |
19 |
|
4.1 |
Loan Documents |
19 |
4.2 |
Event of Default |
20 |
4.3 |
Banking Relationship |
20 |
4.4 |
Reimbursement of Expenses |
20 |
4.5 |
Material Adverse Effect |
20 |
4.6 |
Litigation |
20 |
4.7 |
Representations and Warranties |
20 |
Section 5 REPRESENTATIONS AND WARRANTIES |
20 |
|
5.1 |
Borrower Organization and Name |
20 |
5.2 |
Authorization |
21 |
5.3 |
Validity and Binding Nature |
21 |
5.4 |
Ownership of Properties; Liens |
21 |
5.5 |
Equity Ownership |
21 |
5.6 |
Intellectual Property |
21 |
5.7 |
Financial Statements |
21 |
5.8 |
Litigation and Contingent Liabilities |
21 |
5.9 |
Event of Default |
22 |
5.10 |
Adverse Circumstances |
22 |
5.11 |
Environmental Laws and Hazardous Substances |
22 |
5.12 |
Solvency, etc. |
22 |
5.13 |
ERISA Obligations |
22 |
5.14 |
Labor Relations |
23 |
5.15 |
Lending Relationship |
23 |
5.16 |
Business Loan |
23 |
5.17 |
Taxes |
23 |
5.18 |
Compliance with Regulation U |
23 |
5.19 |
Governmental Regulation |
23 |
5.20 |
Place of Business |
24 |
5.21 |
Complete Information |
24 |
Section 6 AFFIRMATIVE COVENANTS |
24 |
|
6.1 |
Borrower Existence |
24 |
6.2 |
Compliance With Laws |
24 |
6.3 |
Payment of Taxes and Liabilities |
25 |
6.4 |
Maintain Property |
25 |
6.5 |
Maintain Insurance |
25 |
6.6 |
ERISA Liabilities; Employee Plans |
25 |
6.7 |
Intellectual Property |
26 |
6.8 |
Notice of Proceedings |
26 |
6.9 |
Notice of Event of Default or Material Adverse Effect |
26 |
6.10 |
Environmental Matters |
26 |
6.11 |
Further Assurances |
27 |
6.12 |
Banking Relationship |
27 |
6.13 |
Financial Statements and Books and Records |
27 |
6.14 |
Reporting Requirements |
27 |
6.15 |
Use of Proceeds |
28 |
6.16 |
Other Reports |
28 |
Section 7 NEGATIVE COVENANTS |
28 |
|
7.1 |
Debt |
28 |
7.2 |
Encumbrances |
28 |
7.3 |
Transfer; Merger; Sales |
29 |
7.4 |
Investments, Acquisitions, Loans and Advances |
29 |
7.5 |
Intentionally Omitted |
29 |
7.6 |
Transactions with Affiliates |
29 |
7.7 |
Unconditional Purchase Obligations |
29 |
7.8 |
Cancellation of Debt |
29 |
7.9 |
Inconsistent Agreements |
30 |
7.10 |
Use of Proceeds |
30 |
7.11 |
Business Activities; Change of Legal Status and Organizational Documents |
30 |
Section 8 FINANCIAL COVENANTS |
30 |
|
8.1 |
Tangible Net Worth |
30 |
8.2 |
Liabilities to Tangible Net Worth |
30 |
8.3 |
Interest Coverage Ratio |
30 |
Section 9 EVENTS OF DEFAULT |
30 |
|
9.1 |
Nonpayment of Obligations |
30 |
9.2 |
Misrepresentation |
31 |
9.3 |
Nonperformance |
31 |
9.4 |
Default under Loan Documents |
31 |
9.5 |
Default under Other Debt |
31 |
ii
9.6 |
Other Material Obligations |
31 |
9.7 |
Bankruptcy, Insolvency, etc. |
31 |
9.8 |
Judgments |
32 |
9.9 |
Change in Control |
32 |
9.10 |
Material Adverse Effect |
32 |
Section 10 REMEDIES |
32 |
|
10.1 |
Rights and Remedies |
32 |
10.2 |
No Waiver |
32 |
Section 11 MISCELLANEOUS |
33 |
|
11.1 |
Entire Agreement |
33 |
11.2 |
Amendments |
33 |
11.3 |
Waiver of Defenses |
33 |
11.4 |
Forum Selection and Consent to Jurisdiction |
33 |
11.5 |
Waiver of Jury Trial |
34 |
11.6 |
Assignability |
34 |
11.7 |
Confidentiality |
34 |
11.8 |
Binding Effect |
35 |
11.9 |
Governing Law |
35 |
11.10 |
Enforceability |
35 |
11.11 |
Survival of Borrower Representations |
35 |
11.12 |
Extensions of Banks Commitment |
35 |
11.13 |
Time of Essence |
36 |
11.14 |
Counterparts; Facsimile Signatures |
36 |
11.15 |
Notices |
36 |
11.16 |
Release of Claims Against Bank |
37 |
11.17 |
Costs, Fees and Expenses |
37 |
11.18 |
Indemnification |
38 |
11.19 |
Revival and Reinstatement of Obligations |
39 |
11.20 |
Customer Identification USA PATRIOT Act Notice |
39 |
iii
LOAN AGREEMENT
This LOAN AGREEMENT dated as of February 16, 2009 (the Agreement), is executed by and between KOSS CORPORATION, a Delaware corporation (the Borrower) which has its chief executive office located at 4129 North Port Washington Avenue, Milwaukee, Wisconsin 53212, and HARRIS N.A., a national banking association (the Bank), whose address is 111 West Monroe Street, Chicago, Illinois 60603.
RECITALS:
The Borrower desires to borrow funds and obtain other financial accommodations from the Bank.
Pursuant to the Borrowers request, the Bank is willing to extend such financial accommodations to the Borrower under the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises, and the mutual covenants and agreements set forth herein, the Borrower agrees to borrow from the Bank, and the Bank agrees to lend to the Borrower, subject to and upon the following terms and conditions:
AGREEMENTS:
Affiliate of any person or entity shall mean (a) any other person or entity which, directly or indirectly, controls or is controlled by or is under common control with such person or entity, (b) any officer or director of such entity, and (c) with respect to the Bank, any entity administered or managed by the Bank, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans. A person or entity shall be deemed to be controlled by any other person or entity if such person or entity possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such person or entity whether by contract, ownership of voting securities, membership interests or otherwise.
Applicable Interest Rate shall mean, as to the Revolving Loans, a per annum rate of interest equal to the Prime Rate (and with respect to each LIBOR Loan, such LIBOR Rate for the applicable Interest Period).
Applicable L/C Fee shall mean, one and one quarter percent (1.25%).
Applicable Non-Use Fee shall mean 0.15% per annum.
Bank Product Agreements shall mean those certain agreements entered into from time to time by the Borrower or any Subsidiary with the Bank or any Affiliate of the Bank concerning Bank Products.
Bank Product Obligations shall mean all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Borrower or any Subsidiary to the Bank or any Affiliate of the Bank pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.
Bank Products shall mean any service or facility extended to the Borrower or any Subsidiary by the Bank or any Affiliate of the Bank, including but not limited to: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedging Agreements.
Bankruptcy Code shall mean the United States Bankruptcy Code, as now existing or hereafter amended.
Business Day shall mean any day other than a Saturday, Sunday or a legal holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Chicago, Illinois.
Capital Lease shall mean a lease of any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, by a lessee that is, or should be, in accordance with Financial Accounting Standards Board Statement No. 13, as amended from time to time, or, if such statement is not then in effect, such statement of GAAP as may be applicable, recorded as a capital lease on the financial statements of the lessee prepared in accordance with GAAP.
Capital Securities shall mean all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital, whether now outstanding or issued or acquired after the date hereof, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent of such ownership interest.
Capitalized Lease Obligations shall mean all rental obligations as lessee under a Capital Lease which are or will be required to be capitalized on the books of the lessee.
Change in Control Change in Control shall mean the occurrence of any of the following events: (a) the Control Group ceases to collectively own, directly or indirectly, legally and beneficially, at least 51% of the outstanding Capital Securities of the Borrower having voting rights in the election of directors under normal circumstances or (b) a majority of the members of the Board of Directors of the Borrower shall cease to be Continuing Members.
2
Confidential Information shall mean all information provided by the Borrower or any of its Affiliates to the Bank including, without limitation, any and all financial information prepared on a pro forma basis, but excluding all information that is available to the Bank on a non-confidential basis prior to disclosure by the Borrower or any of its Affiliates or from any other natural or legal person on behalf of the Borrower.
Continuing Member shall mean a member of the Board of Directors of the Borrower who either (i) was member of the Borrowers Board of Directors on the day before the date hereof and has been such continuously thereafter or (ii) became a member of such Board of Directors on or after the date hereof and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Borrowers Board of Directors.
Control Group shall mean (a) the Current Ownership; (b) spouses (including surviving spouses), lineal descendants and spouses (including surviving spouses) of lineal descendents of Current Ownership; (c) the estates or legal representatives of the natural or legal persons named in clauses (a) or (b); (d) any trust, custodianship or other fiduciary arrangement in respect of which one or more members of Current Ownership (i) are the principal beneficiaries and (ii) constitute a majority of the trustees, custodians or other fiduciaries with voting power over such trust, custodianship or other fiduciary arrangement; and (e) a voting trust, a majority of whose trustee(s) is (are) member(s) of the Current Ownership, if a majority of the holders of voting trust certificates are members of the Current Ownership. For purposes of this definition, lineal descendents shall include adopted persons who are twelve years of age or under at the time of adoption.
Current Ownership shall mean the Person or Persons who, as of the date of this Agreement, collectively own and control, directly or indirectly, legally and beneficially, at least 50% of the outstanding Capital Securities of the Borrower having voting rights in the election of directors in normal circumstances.
Debt shall mean, as to any Person, without duplication, (a) all indebtedness of such Person; (b) all borrowed money of such Person (including principal, interest, fees and charges), whether or not evidenced by bonds, debentures, notes or similar instruments; (c) all obligations to pay the deferred purchase price of property or services; (d) all obligations, contingent or otherwise, with respect to the maximum face amount of all letters of credit (whether or not drawn), bankers acceptances and similar obligations issued for the account of such Person, and all unpaid drawings in respect of bankers acceptances and similar obligations; (e) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person (provided, however, if such Person has not assumed or otherwise become liable in respect of such indebtedness, such indebtedness shall be deemed to be in an amount equal to the fair market value of the property subject to such Lien at the time of determination); (f) the aggregate amount of all Capitalized Lease Obligations of such Person; (g) all Contingent Liabilities of such Person, whether or not reflected on its balance sheet; (h) all Hedging Obligations of such Person; (i) all Debt of any partnership of which such Person is a general partner; and (j) all monetary obligations of such Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but
3
which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). Notwithstanding the foregoing, Debt shall not include trade payables and accrued expenses incurred by such Person in accordance with customary practices and in the ordinary course of business of such Person.
Default Rate shall mean a per annum rate of interest equal to the Prime Rate plus two percent (2%).
Depreciation shall mean the total amounts added to depreciation, amortization, obsolescence, valuation and other proper reserves, as reflected on the Borrowers financial statements and determined in accordance with GAAP.
EBITDA shall mean, for any period, (a) the sum for such period of: (i) Net Income, plus (ii) Interest Charges, plus (iii) federal and state income taxes, plus (iv) Depreciation, plus (v) non-cash management compensation expense, plus (vi) all other non-cash charges, minus (b) income or loss attributable to equity in any Subsidiary, in each case to the extent included in determining Net Income for such period.
Employee Plan includes any pension, stock bonus, employee stock ownership plan, retirement, profit sharing, deferred compensation, stock option, bonus or other incentive plan, whether qualified or nonqualified, or any disability, medical, dental or other health plan, life insurance or other death benefit plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including, without limitation, those pension, profit-sharing and retirement plans of the Borrower described from time to time in the financial statements of the Borrower and any pension plan, welfare plan, Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or administered by the Borrower or to which the Borrower is a party or may have any liability or by which the Borrower is bound.
Environmental Laws shall mean all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
Event of Default shall mean any of the events or conditions which are set forth in Section 9 hereof.
GAAP shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial
4
Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.
Hazardous Substances shall mean (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of hazardous substances, hazardous waste, hazardous materials, extremely hazardous substances, restricted hazardous waste, toxic substances, toxic pollutants, contaminants, pollutants or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law.
Hedging Agreements shall mean any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect against fluctuations in interest rates, currency exchange rates or commodity prices.
Hedging Obligation shall mean any liability under any Hedging Agreement.
Indemnified Party and Indemnified Parties shall mean, respectively, each of the Bank and any parent corporations, Affiliate or Subsidiary of the Bank, and each of their respective officers, directors, employees, attorneys and agents, and all of such parties and entities.
Intellectual Property shall mean the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, patents, service marks and trademarks, and all registrations and applications for registration therefor and all licensees thereof, trade names, domain names, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.
Interest Charges shall mean, for any period, the sum of: (a) all interest, charges and related expenses payable with respect to that fiscal period to a lender in connection with borrowed money or the deferred purchase price of assets that are treated as interest in accordance with GAAP, plus (b) the portion of Capitalized Lease Obligations with respect to that fiscal period that should be treated as interest in accordance with GAAP.
Interest Period shall mean successive one, two or three month periods, beginning and ending on the dates specified in the Revolving Note.
Letter of Credit and Letters of Credit shall mean, respectively, a letter of credit and all such letters of credit issued by the Bank, in its sole discretion, upon the execution and
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delivery by the Borrower and the acceptance by the Bank of a Master Letter of Credit Agreement and a Letter of Credit Application, as set forth in Section 2.1(b) of this Agreement.
Letter of Credit Application shall mean, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the Bank at the time of such request for the type of Letter of Credit requested.
Letter of Credit Commitment shall mean, at any time, an amount equal to the Revolving Loan Commitment minus the aggregate amount of all Revolving Loans outstanding.
Letter of Credit Maturity Date shall mean December 31, 2010.
Letter of Credit Obligations shall mean, at any time, an amount equal to the aggregate of the original face amounts of all Letters of Credit minus the sum of (i) the amount of any reductions in the original face amount of any Letter of Credit which did not result from a draw thereunder, (ii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit for which the Borrower has reimbursed the Bank, (iii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit which have been converted to a Revolving Loan as set forth in Section 2.1(b), and (iv) the portion of any issued but expired Letter of Credit which has not been drawn by the beneficiary thereunder. For purposes of determining the outstanding Letter of Credit Obligations at any time, the Banks acceptance of a draft drawn on the Bank pursuant to a Letter of Credit shall constitute a draw on the applicable Letter of Credit at the time of such acceptance.
Letter of Credit Sublimit shall mean, at any time, an amount equal to Ten Million Dollars ($10,000,000).
Liabilities shall mean at all times all liabilities of the Borrower that would be shown as such on a balance sheet of the Borrower prepared in accordance with GAAP.
LIBOR Loan or LIBOR Loans shall mean that portion, and collectively those portions, of the aggregate outstanding principal balance of the Loans that bear interest at the LIBOR Rate.
LIBOR Rate shall mean a rate of interest equal to (a) the per annum rate of interest at which United States dollar deposits for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period (or three Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day), as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by the Bank in its sole discretion), divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), or as LIBOR is otherwise determined by the Bank in its sole and absolute discretion. The Banks determination of the LIBOR Rate shall be conclusive, absent manifest error and shall remain fixed during such Interest Period.
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Loan Documents shall mean each of the agreements, documents, instruments and certificates set forth in Section 4.1 hereof, and any and all such other instruments, documents, certificates and agreements from time to time executed and delivered by the Borrower or any of its Subsidiaries for the benefit of the Bank pursuant to any of the foregoing, and all amendments, restatements, supplements and other modifications thereto.
Loans shall mean, collectively, all Revolving Loans made by the Bank to the Borrower and all Letter of Credit Obligations under and pursuant to this Agreement.
LIBOR Rate shall mean a per annum rate of interest equal to LIBOR for the relevant Interest Period, plus one and one quarter percent (1.25%), which LIBOR Rate shall remain fixed during such Interest Period.
Master Letter of Credit Agreement shall mean, at any time, with respect to the issuance of Letters of Credit, a Master Letter of Credit Agreement in the form being used by the Bank at such time.
Material Adverse Effect shall mean (a) a material adverse change in, or a material adverse effect upon, the assets, business, properties, prospects, condition (financial or otherwise) or results of operations of the Borrower taken as a whole, (b) a material impairment of the ability of the Borrower to perform any of the Obligations under any of the Loan Documents, or (c) a material adverse effect on (i) the legality, validity, binding effect or enforceability against the Borrower of any of the Loan Documents, (ii) under any Loan Document, or (iii) the rights or remedies of the Bank under any Loan Document.
Net Income shall mean, with respect to the Borrower and its Subsidiaries for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries for such period as determined in accordance with GAAP, excluding any gains from the disposition of assets, any extraordinary gains and any gains from discontinued operations.
Non-Excluded Taxes shall mean income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Bank as a result of a present or former connection between the Bank and the jurisdiction of the governmental authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document).
Non-Use Fee shall have the meaning set forth in Section 3.6 hereto.
Obligations shall mean the Loans, all interest accrued thereon (including interest which would be payable as post-petition in connection with any bankruptcy or similar proceeding, whether or not permitted as a claim thereunder), any fees due the Bank hereunder, any expenses incurred by the Bank hereunder and any and all other liabilities and obligations of the Borrower to the Bank whether under this Agreement, under any other Loan Document or under any other document or instrument executed and delivered to the Bank by the Borrower, including, without
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limitation, all obligations of the Borrower with respect to any and loans or other extensions of the credit by the Bank to the Borrower, any reimbursement obligations of the Borrower in respect of Letters of Credit and surety bonds, all Hedging Obligations of the Borrower which are owed to the Bank or any Affiliate of the Bank, all Bank Product Obligations of the Borrower and all obligations of the Borrower under any guaranties in respect of obligations owed by any other party to the Bank, all in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, together with any and all renewals or extensions thereof.
Obligor shall mean the Borrower, any accommodation endorser, third party pledgor, or any other party liable with respect to the Obligations.
Other Taxes shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Loan Documents.
Permitted Liens shall mean (a) liens for taxes, assessments or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no lien has been filed; (c) liens and security interests granted from time to time in favor of the Bank; (d) purchase money liens on equipment securing Liabilities permitted under Section 7.1 of this Agreement; and (e) liens arising in the ordinary course of business (such as (i) liens of carriers, warehousemen, mechanics and materialmen and other similar liens imposed by law, and (ii) liens in the form of deposits or pledges incurred in connection with workers compensation, unemployment compensation and other types of social security (excluding liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property or assets of the Borrower or materially impair the use thereof in the operation of the Borrowers business and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no lien has been filed.
Person shall means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof.
Prime Loan or Prime Loans shall mean that portion, and collectively, those portions of the aggregate outstanding principal balance of the Loans that bear interest at the Prime Rate.
Prime Rate shall mean the floating per annum rate of interest which at any time, and from time to time, shall be most recently publicly announced by the Bank as its Prime Rate, which is not intended to be the Banks lowest or most favorable rate of interest at any one time. The effective date of any change in the Prime Rate shall for purposes hereof be the date the Prime Rate is changed by the Bank. The Bank shall not be obligated to give notice of any change in the Prime Rate.
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Revolving Interest Rate shall mean the Borrowers from time to time option of (i) the Prime-Based Rate, or (ii) the LIBOR Rate.
Revolving Loan and Revolving Loans shall mean, respectively, each direct advance and the aggregate of all such direct advances made by the Bank to the Borrower under and pursuant to this Agreement, as set forth in Section 2.2(a) of this Agreement.
Revolving Loan Availability shall mean, at any time, an amount equal to the Revolving Loan Commitment minus the Letter of Credit Obligations.
Revolving Loan Commitment shall mean Ten Million and 00/100 Dollars ($10,000,000.00), which amount may be reduced from time to time in increments of One Million and 00/100 Dollars ($1,000,000.00) at the request of the Borrower with five (5) days written notice to Bank.
Revolving Loan Exposure shall mean, at any time, an amount equal to the aggregate principal balance of all Revolving Loans outstanding at any time plus the Letter of Credit Obligations.
Revolving Loan Maturity Date means January 29, 2010, unless extended by Bank pursuant to any modification, extension or renewal note executed by Borrower and accepted by Bank in its sole and absolute discretion in substitution for the Revolving Note.
Revolving Note shall mean a revolving note in the form attached as Exhibit A hereto, dated as of the date hereof, in the amount of the Revolving Loan Commitment and maturing on the Revolving Loan Maturity Date, duly executed by the Borrower and payable to the order of the Bank, together with any and all renewal, extension, modification or replacement notes executed by the Borrower and delivered to the Bank and given in substitution therefor.
Subsidiary and Subsidiaries shall mean each and all such corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, joint ventures or other entities of which or in which the Borrower owns, directly or indirectly, such number of outstanding Capital Securities as have more than fifty percent (50.00%) of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity.
Tangible Net Worth shall mean, at any time the same is to be determined, the total shareholders equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock) which would appear on the balance sheet of the Borrower determined in accordance with generally accepted accounting principles, less the sum of (a) all notes receivable from officers and employees of the Borrower, (b) the aggregate book value of all assets which would be classified as intangible assets under GAAP, including, without limitation, goodwill, patents, trademarks, trade names, copyrights, franchises and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs and deferred research and development expense) and similar assets, and (c) the write-up of assets above cost.
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UCC shall mean the Uniform Commercial Code in effect in the state of Illinois from time to time.
Unmatured Event of Default shall mean any event which, with the giving of notice, the passage of time or both, would constitute an Event of Default.
Voidable Transfer shall have the meaning set forth in Section 11.18 hereof.
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Notwithstanding any other provision of this Agreement, the Bank shall not be required to disburse, make or continue all or any portion of the Loans, if any of the following conditions shall have occurred.
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To induce the Bank to make the Loans, the Borrower makes the following representations and warranties to the Bank, each of which shall survive the execution and delivery of this Agreement. Such representations and warranties shall be true as of the date of this Agreement and as of the date of any Loan.
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In the event the Borrower either fails to provide the Bank with evidence of the insurance coverage required by this Section or at any time hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay any premium in whole or in part relating thereto, then the Bank, without waiving or releasing any obligation or default by the Borrower hereunder, may at any time (but shall be under no obligation to so act), obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto, which the Bank deems advisable. This insurance coverage (a) may, but need not, protect the Borrowers interests in such property, and (b) may not pay any claim made by, or against, the Borrower in connection with such property. The Borrower may later cancel any such insurance purchased by the Bank, but only after providing the Bank with evidence that the Borrower has obtained the insurance coverage required by this Section. If the Bank purchases such insurance, the Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the principal amount of the Loans owing hereunder. The costs of the insurance may be more than the cost of the insurance the Borrower may be able to obtain on its own.
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The Borrower, without notice or demand of any kind, shall be in default under this Agreement upon the occurrence of any of the following events (each an Event of Default).
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If to the Bank, to:
Harris N.A.
111 West Monroe Street
Chicago, Illinois 60603
Attention: James Hess, Senior Vice President
Telephone: (312) 461-5026
Facsimile: (312) 461-6190
with a copy to:
Janet A. Stiven, Esq.
Dykema Gossett PLLC
10 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Telephone: (312) 627-2153
Facsimile: (866) 547-9401
if to the Borrower, to:
KOSS Corporation
4129 North Port Washington Avenue
Milwaukee, Wisconsin 53212
Telephone: [·]
Facsimile: [·]
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with a copy to:
John E. Garda
K&L Gates LLP
1717 Main Street
Suite 2800
Dallas, TX 75043
Telephone: (214) 939-5563
Facsimile: (214) 939-5849
All notices addressed as above shall be deemed to have been properly given (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and a confirmation of such facsimile has been received by the sender; (ii) if mailed by certified or registered mail, return receipt requested, postage prepaid, on the fifth (5th) day following the day such notice is deposited in any post office station or letter box; or (iii) if served in person or sent by recognized overnight courier, when delivered at the addresses specified in this Section. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.
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IN WITNESS WHEREOF, the Borrower and the Bank have executed this Loan Agreement as of the date first above written.
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KOSS
CORPORATION, a Delaware |
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HARRIS
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EXHIBIT A
FORM OF REVOLVING NOTE
See attached.
EXHIBIT B
INTENTIONALLY DELETED
EXHIBIT C
COVENANT COMPLIANCE CERTIFICATE
See attached.
Exhibit 31
KOSS CORPORATION
Certification of Chief Executive Officer and Chief
Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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 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 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:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report my 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; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: May 08, 2009
/s/ Michael J. Koss |
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Michael J. Koss |
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Chief Executive Officer, President and |
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Chief Financial Officer |
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* 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 of Chief Executive Officer
and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Michael J. Koss, Chief Executive Officer and Chief Financial Officer of Koss Corporation (the Company) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that:
(i) the Quarterly Report on Form 10Q of the Company for the quarter ended March 31, 2009 (the Report) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
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/s/ Michael J. Koss |
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Michael J. Koss |
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Chief Executive Officer and |
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Chief Financial Officer |
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Date: May 08, 2009 |
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.