What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-05-13 · 64 added, 231 removed, 140 unchanged (68% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2021

September 30, 2021

June 30, 2021

4 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

4 unchanged sentences

Total other assets

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES AND STOCKHOLDERS'

Current liabilities:

3 unchanged sentences

Operating lease liability

Short-term debt

Income taxes payable

Total current liabilities

5 unchanged sentences

Total liabilities

Stockholders' equity:

Stockholders'

Common stock, $ 0.005 par value, authorized 20,000,000 shares;

2 unchanged sentences

Retained earnings

Total stockholders' equity

Total liabilities and stockholders' equity

Total stockholders'

Total liabilities and stockholders'

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of goods sold

1 unchanged sentence

(Loss) income from operations

Interest income

Interest income (expense)

(Loss) income before income tax provision

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended

Three Months Ended

Operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Recovery of doubtful accounts

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Provision for doubtful accounts of accounts receivable

Depreciation of equipment and leasehold improvements

Stock-based compensation expense

Deferred income taxes

Change in cash surrender value of life insurance

Change in deferred compensation accrual

Provision for deferred compensation

Deferred compensation paid

Other income - SBA loan forgiveness

Net changes in operating assets and liabilities:

Accounts receivable

( 1,390,691 )

Prepaid expenses and other current assets

Income taxes receivable

Income taxes payable

Accounts payable

1 unchanged sentence

Deferred revenue

Net cash (used in) provided by operating activities

Net cash (used in) operating activities

Investing activities:

10 unchanged sentences

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (Unaudited)

Nine Months Ended March 31, 2021

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Three Months Ended September 30, 2021

Balance, June 30, 2021

1 unchanged sentence

Stock option exercises

Balance, March 31, 2021

Nine Months Ended March 31, 2020

Balance, September 30, 2021

Three Months Ended September 30, 2020

Balance, June 30, 2020

Stock-based compensation expense

Balance, March 31, 2020

Three Months Ended March 31, 2021

Balance, December 31, 2020

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2021

Three Months Ended March 31, 2020

Balance, December 31, 2019

Stock-based compensation expense

Balance, March 31, 2020

Balance, September 30, 2020

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

September 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

The condensed consolidated balance sheet s as of March 31 , 2021 and June 30, 2020 , the condensed consolidated statements of op erations for the three and nine months ended March 31 , 2021 and 2020 , the condensed consolidated state m ents of cash flows for the nine months ended March 31 , 2021 and 2020 , and the condensed consolidated statements of stockholders ' equity for the three and nine months ended March 31 , 2021 and 2020 , have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) and have not been audited.

The condensed consolidated balance sheets as of September 30, 2021 and June 30, 2021, the condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020, the condensed consolidated statements of cash flows for the three months ended September 30, 2021 and 2020, and the condensed consolidated statements of stockholders'

equity for the three months ended September 30, 2021 and 2020, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) and have not been audited.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.

2 unchanged sentences

GAAP have been condensed or omitted.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 .

The preparation of financial statements in conformity with U.S.

1 unchanged sentence

Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, income tax valuation allowance , non-cash stock-based compensation and deferred compensation.

Actual results could differ from the Company's estimates.

B) INCOME TAXES

A state tax provision of $ 49 and $4,0 68 was recorded for the three and nine months ended March 31 , 2021 , respectively, for states where there is no net operating loss carryforward .

F or the three and nine months ended March 31 , 2020 , the state tax provision was $ 6,104 and $6,125 , respectively .

T he federal income tax expense was zero for the three and nine months ended March 31, 2021 and 2020 .

In the three months ended March 31, 2021, stock option exercises resulted in tax deductible compensation expense of approximately $2 9 , 3 00,000 .

A state tax provision of $ 1,031 and $ 1,477 was recorded for the three months ended September 30, 2021 and 2020, respectively.

The federal income tax expense was zero for the three months ended September 30, 2021 and 2020.

In the three months ended September 30, 2021, stock option exercises resulted in tax deductible compensation expense of approximately $ 7,800,000 .

The deduction of this stock option exercise compensation expense will cause a tax loss in the year ended June 30, 2022, which will be carried forward to future tax years.

The expected tax loss carryforward will create a deferred tax asset of approximately $7,400,000 .

The future realization of this deferred tax asset is uncertain.

The valuat ion allowance was increased to fully offset the deferred tax asset.

The expected tax loss carryforward, including the stock-based compensation expense deductions in the three months ended September 30, 2021, will be approximately $ 39,900,000 .

The additional estimated tax loss carryforward increased the deferred tax asset to approximately $ 12,100,000 as of September 30, 2021, and the future realization of this is uncertain.

The valuation allowance was increased to fully offset the deferred tax asset.

C) OTHER INCOME

On November 3 , 2020, the Company was notified that the full $506,700 of the SBA Loan (see Note 3) was forgiven.

The loan f orgiveness has been treated as other i ncome and shown as a separate line on the Condensed Consolidated Statement s of Operations.

The Company followed the debt and debt extinguishment accounting model for the SBA Loan forgiveness.

In the three months ended March 31, 2021, the Company received

$378,805 from a directo r in settlement of a short sale under Rule 144.

In July 2021, the Company entered into a license agreement with a headphone manufacturer (whereby the manufacturer licensed the use of certain patents in certain of their headphones).

The one-time license fee of $ 100,000 has been treated as other income and shown as a separate line on the condensed consolidated statement of operations.

There was a related payment of $ 100,000 to a third party that was charged to legal expense in the quarter.

The components of inventories were as follows:

March 31, 2021

September 30, 2021

June 30, 2021

3 unchanged sentences

Reserve for obsolete inventory

( 1,740,784 )

( 1,787,288 )

Inventories, net

CREDIT FACILITY AND SBA LOAN

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”) for a two -year term expiring on May 14, 2021.

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”).

The Credit Agreement provides for a $ 5,000,000 revolving secured credit facility with an interest rate of 1.50 % over LIBOR.

2 unchanged sentences

On January 28, 2021, the Credit Agreement was amended to extend the expiration to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50 %.

The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type.

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among ot her restrictions.

As of March 31, 2021 , the Company was in compliance with all covenants related to the Credit Agreement.

As of March 31, 2021 , and June 30, 2020, there were no outstanding borrowings on the facility.

On April 13, 2020, the Company received an unsecured loan (the "SBA Loan") for $506,700 under the Small Business Administration ("SBA") Paycheck Protection Program (the “PPP”) of the CARES Act through Town Bank.

On November 3, 2020, the Company was notified that the full principal amount of $506,700 has been forgiven and is recorded as other income in the Condensed Consolidated Statement of Operations .

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions.

As of September 30, 2021, the Company was in compliance with all covenants related to the Credit Agreement.

As of September 30, 2021, and June 30, 2021, there were no outstanding borrowings on the facility.

On April 13, 2020, the Company received an unsecured loan (the "SBA Loan") for $ 506,700 under the Small Business Administration ("SBA") Paycheck Protection Program (the “PPP”) of the CARES Act through Town Bank.

On November 3, 2020, the Company was notified that the full principal amount of $ 506,700 had been forgiven and was recorded as other income in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

REVENUE RECOGNITION

The Company disaggregates it's net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty of net sales and cash flows are affected by economic factors.

The following table summarizes net sales by geographical location:

Three Months Ended

Nine Months Ended

September 30,

United States

1 unchanged sentence

These constitute future performance obligations and the Company defers revenue related to these future performance obligations.

The Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $ 271,179 and $ 367,198 in the nine months ended March 31 , 2021 and 2020 , respectively, for performance obligations related to consumer and customer warranties.

The Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $ 153,221 and $ 111,030 in the three months ended September 30, 2021 and 2020, respectively, for performance obligations related to consumer and customer warranties.

The deferred revenue liability was $ 593,920 as of June 30, 2020.

The Company estimates that the deferred revenue performance obligations are satisfied within one to three years and therefore uses that same time frame for recognition of the deferred revenue.

The Company estimates that the deferred revenue performance obligations are satisfied within one year to three years and therefore uses that same time frame for recognition of the deferred revenue.

(LOSS) INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE

2 unchanged sentences

The following table reconciles the numerator and denominator used to calculate basic and diluted (loss) income per share:

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Net (loss) income

3 unchanged sentences

Net (loss) income attributable to common shareholders per share:

(1) Excludes approximately 2,226,184 and 2,802,765 weighted average stock options for the three months ended March 31, 2021 and 2020 , respectively, as the impact of such awards was anti-dilutive.

For the nine months ended March 31, 2021 and 2020, 0 and 2,807,002 weighted average stock options were excluded, respectively.

(1) Excludes approximately 1,500,528 and 2,750,176 weighted average stock options for the three months ended September 30, 2021 and 2020, respectively, as the impact of such awards was anti-dilutive.

RELATED PARTY LEASE

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former Chairman.

2 unchanged sentences

The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership.

ACCOUNTS RECEIVABLE CONCENTRATIONS

As of September 30, 2021 the Company’s top three accounts receivable customers represented approximately 28 %, 18 %, and 13 % of trade accounts receivables.

These same customers represented approximately 19 %, 0 %, and 24 % of trade accounts receivable at June 30, 2021.

LEGAL MATTERS

As of March 31 , 2021 , the Company is involved in the following matters described below:

In July 2020, the Company filed complaints in United States District Court against each of Apple Inc.

, Bose Corporation, PEAG, LLC d/b/a JLab Audio, Plantronics, Inc.

As of September 30, 2021, the Company is involved in the matters described below:

• In July 2020, the Company filed complaints in United States District Court against each of Apple Inc., Bose Corporation, PEAG, LLC d/b/a JLab Audio, Plantronics, Inc.

and Polycom, Inc., and Skullcandy, Inc.

The complaints allege infringement on the Company’s patents relating to its wireless audio technology.

In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts may be due to third parties.

The complaints allege infringement on the Company’s patents relating to its wireless audio technology.

In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts will be due to third parties.

The Company does not expect to incur additional fees and costs related to these lawsuits that will have a material impact to its financial statements.

1 unchanged sentence

• Early in fiscal year 2020, the Company was notified by One E-Way, Inc.

that some of the Company's wireless products may infringe on certain One E-Way patents.

No lawsuits involving these allegations have yet been filed and served on the Company.

1 unchanged sentence

We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business.

Although management currently believes that resolving these claims against us, individually or in aggregate, will not have a material adverse impact on our Condensed Consolidated Financial Statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

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.

1 unchanged sentence

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 “aims,”

“anticipates,”

“believes,”

“estimates,”

“expects,”

“intends,”

“plans,”

“thinks,”

“may,”

“will,”

“shall,”

“should,”

“could,”

“would,”

“forecasts,”

“predicts,”

“potential,”

“continue”

and variations thereof and similar expressions are intended to identify forward-looking statements.

In addition, when used in this Form 10-Q, the words “aims,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “thinks,” “may,” “will,” “shall,” “should,” “could,” “would,” “forecasts,” “predicts,” “potential,” “continue” 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.

1 unchanged sentence

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), the effects of the COVID-19 pandemic on the economy and the Company’s operations, borrowing costs, changes in tax rates, pending or threatened litigation and investigations, and other risk factors described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and subsequently filed Quarterly Reports on Form 10-Q

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), the effects of the COVID-19 pandemic on the economy and the Company’s operations, borrowing costs, changes in tax rates, pending or threatened litigation and investigations, and other risk factors described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 and subsequently filed Quarterly Reports on Form 10-Q

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 new information.

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

The Company developed stereo headphones in 1958 and has been recognized as a leader in the industry ever since.

Koss markets a complete line of high-fidelity headphones, wireless Bluetooth®

headphones, wireless Bluetooth®

speakers, computer headsets, telecommunications headsets, and active noise canceling headphones.

The Company operates as one business segment, as its principal business line is the design, manufacture and sale of stereo headphones and related accessories.

Financial Results

The following table presents selected financial data for the three and nine months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

Financial Performance Summary

Net sales (decrease) %

Gross profit as % of net sales

Selling, general and administrative expenses

Selling, general and administrative expenses as % of net sales

Interest income

(Loss) income before income tax provision

(Loss) income before income tax as % of net sales

Income tax provision

Income tax provision as % of (loss) income before income tax

2021 Results Compared with 2020

For the three and nine months ended March 31, 2021, net sales decreased 16.7% and 1.7%, respectively.

The decrease in net sales was driven by decreased sales to mass retail customers in the US.

Improved sales to export distrbutors offset a portion of the US mass retail declines.

Net sales in the domestic market were approximately $2,693,000 in the three months ended March 31, 2021, compared to approximately $4,227,000 in the prior year period.

Sales to mass retail customers decreased due to reduced product placement.

Net sales to certain distrbutors were negatively impacted in the quarter ended March 31, 2021 due to timing of shipments and sales recognition that was delayed until the fiscal fourth quarter.

In March 2020, there was a surge in demand as pandemic related shutdowns took place causing many people to work and study remotely.

Current year comparisons to the three months ended March 31, 2020, show declines in several channels due to the strength in last year’s numbers.

The Company made the final shipment of a non Koss branded product to a mass retailer in the US during the quarter ended March 31, 2021.

The loss of net sales for this product will likely increase margins since it had very low margins compared to other products.

Domestic net sales were approximately $10,292,000 in the nine months ended March 31, 2021 compared to $11,870,000 in the prior year period.

Sales to mass retail customers decreased due to reduced product placement.

In addition, mass retail net sales included a large back-to-school promotion in the nine months ended March 31, 2020 that did not take place in 2021.

The other declines were in the educational markets and sales to online retailers.

Net sales in the educational markets, which primarily are driven by the need for headphones in testing services, declined as a result of timing of shipments, as there were large shipmen ts at the end of o ur fiscal quarter ended June 30 , 2020.

Sales in educational markets also decreased during the nine months ended March 31, 2021 compared to the prior year period due to many schools closing as a result of the pandemic.

Sales through online retailers declined as the Company shifts to more Amazon Seller Central.

These were partially offset by growth in the Company Direct to Consumer (“DTC”) online sales channels and certain US-based distributors.

Sales through DTC online channels increased by approximately 2.5 times compared to the prior year period.

The online sales activity was driven by COVID-19 directives, which have caused many people to work and study remotely and have resulted in sales of communication headsets to facilitate that work and study.

Certain domestic distributors had higher sales due to COVID-19 related customer demand.

Export net sales more than doubled to approximately $1,294,000 for the three months ended March 31, 2021, compared to approximately $562,000 for the same period last year.

Net sales to export markets were approximately $3,834,000 in the nine months ended March 31, 2021 compared to $2,493,000 in the prior year period.

Sales to distributors in Europe were the primary drivers for the increase.

A significant portion of the increase was related to introduction of new products as well as increased sales of headphones used for working and studying remotely.

Gross profit increased to 33.1% for the nine months ended March 31 , 2021, compared to 29.9 % for the nine months ended March 31, 20 20.

Sales in the current year reflect more favorable mix by markets and products.

The higher gross profit in the current year was partially due to the promotional back-to-school sale to a domestic mass retail customer at very low margin s in the nine months ended March 31, 2020 that was recognized in the current year.

Selling, general and administrative expenses for the three months ended March 31, 2021, increased 34.6% or approximately $584,000 to approximately $2,272,000.

For the nine months ended March 31, 2021, selling, general and administrative expenses increased 9.2% or approximately $454,000 compared to the same period last year.

The primary factor was employer taxes on stock option exercises of approximately $544,000 in the three months ended March 31, 2021.

There was also increased deferred compensation expenses.

These costs were partially offset by lower legal expenses and a reduction in the 401k company match.

Income tax expense for the three and nine months ended March 31, 2021, was comprised of the U.S.

federal statutory rate of 21% and the effect of state income taxes offset by an adjustment to the valuation allowance for deferred tax assets.

The effective tax rate was less than 1% in the three and nine months ended March 31, 2021 and 2020.

It is anticipated that the effective rate in the current year and future years will be reduced by utilization of a portion or all of the federal net operating loss carryforwards that existed as of June 30, 2020, plus the additional federal net operating loss carryforward of approximately $7,400,000 generated by the deductible compensation expense on stock option exercises .

In the three months ended March 31, 2021, stock option exercises resulted in tax deductible compensatio n expense of approximately $29,3 00,000.

The deduction of this stock option exercise compensation expense will cause a tax loss in the year ended June 30, 2021, which will be carried forward to future tax years.

The expected tax loss carryforward will create a deferred tax asset of approximately $7,400,000.

The future realization of this deferred tax asset is uncertain.

The valuation allowance was increased to fully offset the deferred tax asset.

As previously reported, the Company has launched a program focused on enforcing its intellectual property and, in particular, certa in of its patent portfolio.

The Company has continued to enforce its intellectual property by filing complaints against certain parties alleging infringement on the Co mpany’s patents relating to its wireless headphone technology.

If the program is successful, the Company may receive royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position;

however, there is no guarantee of a positive outcome from these efforts, which could ultimately be time consuming and unsuccessful.

Additionally, in the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts will be due to third parties.

The Company believes that its financial position remains strong.

The Company had $6.0 million of cash and cash equivalents and available cred it facilities of $5.0 million at March 31, 2021.

COVID-19 Impact

The Company has been closely monitoring the COVID-19 situation to protect the health and safety of its employees and customers.

Business plans are being continuously updated and executed to maintain supply of the Company’s products to our customers throughout the world.

The Company continued to see strong demand in the quarter ended March 31, 2021 f or specific communication h eadphones as people continued to work from home and studied online due to COVID-19 related directives.

However, certain retail businesses throughout the Company’s markets , particularly in certain European markets, have seen continued disruption.

This has resulted in a decline in business across our markets with the exception of online retail.

The Company expects these negative sales impacts to continue until markets re-open and consumer spending returns to normal.

The ultimate magnitude of the COVID-19 pandemic, including the extent of its impact on the Company’s business, financial position, results of operations or liquidity, cannot be reasonably estimated at this time due to the rapid development and fluidity of the situation.

The Company's future results will be heavily determined by timely rollout of the vaccines, effectiveness of the vaccines, the duration of the pandemic, its geographic spread, further business disruptions and the overall impact on the global economy.

Many European countries continued to have lockdowns in the three months ended March 31, 2021, which negatively impacted sales into those countries.

The Company’s supply chain is primarily in southern China.

This portion of the Company's supply chain was disrupted early in the quarter ended March 31, 2020.

Until recently, these disruptions had little on-going impact.

In the past six months, the Company began experiencing issues related to the availability of containers and routing to move products in a time efficient manner.

There have also been impacts to the movement of new product introductions and costs.

The Company is monitoring the situation closely and the supply chain team has modified business plans, which include, but are not limited to:

(1) increasing the investment in inventory;

(2) being alert to potential short supply situations;

(3) assisting suppliers with acquisition of critical components;

and (4) utilizing alternative sources and/or air freight.

To protect the safety, health and well-being of employees, customers, and suppliers , the Company continues to implement several preventive measures while also meeting the needs of global customers.

They include increased frequency of cleaning and disinfecting of facilities, social distancing practices, remote working when possible, restrictions on business travel, holding certain events virtually and limitations on visitor access to facilities.

The Company is committed to continuing to execute these plans and will remain in close contact with its supply chain to monitor future possible implications, especially on production facilities.

Liquidity and Capital Resources

The following table summarizes cash flows from operating, investing and financing activities for the nine months ended March 31, 2021 and 2020:

Total cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash and cash equivalents

Operating Activities

The investment in inventories was the driving factor for the de crease in cash provided by operating activities during the nine months ended March 31, 2021.

This inventory investment was made to ensure availability of communication headphones and to provide better inventory positions on key products to mitigate the im pacts of supply chain disruptions.

Investing Activities

Cash used in investing activities was higher for the nine months ended March 31, 2021, as the Company had increased expenditures for a new operating system, leasehold improvements and for tooling related to new product introductions.

During the fiscal year ending June 30, 2021, the Company anticipates it will incur total expenditures for tooling, leasehold improvements and capital expenditures of approximately $700,000.

The Company expects to gener ate sufficient cash flow from operations or from the use of its available cash and its credit facility to fund these expenditures.

Financing Activities

In the nine months ended March 31, 2021, an aggregate of 1,111,992 shares of common stock were issued as a result of employee stock option exercises under the Company’s 2012 Omnibus Incentive Plan and the 1990 Flexible Incentive Plan.

The cash provided from these stock option exercises was approximately $3 .1 million .

No stock options were exercised in 2020.

As of March 31, 2021, the Company had no outstanding borrowings on its bank line of credit facility.

There were no purchases of common stoc k in the quarters ended March 31, 2021 or 2020 under the stock repurchase p rogram.

The Company's capital expenditures are primarily for leasehold improvements and tooling.

Additionally, in the nine months ended March 31, 2021, the Company implemented and capitalized a new integrated cloud-based operating system .

In addition, it has interest payments on its borrowings when it uses its line of credit facility.

The Company believes that cash generated from operations, together with cash reserves and available borrowings, provide it with adequate liquidity to meet operating requirements, debt service requirements and planned capital expenditures for the next twelve months following the date of this Quarterly Report on Form 10-Q and thereafter for the foreseeable future.

The Company regularly evaluates new product offerings, inventory levels and capital expenditures to ensure that it is effectively allocating resources in line with current market conditions.

Credit Facility

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”) for a two-year term expiring on May 14, 2021.

The Credit Agreement provides for a $5,000,000 revolving secured credit facility with an interest rate of 1.50% over LIBOR.

The Credit Agreement also provides for letters of credit for the benefit of the Company of up to a sublimit of $1,000,000.

There are no unused line fees in the credit facility.

On January 28, 2021, the Credit Agreement was amended to extend the expiration to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50%.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type.

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions.

The Company is currently in compliance with all covenants related to the Credit Agreement.

As of March 31, 2021, and June 30, 2020, there were no outstanding borrowings on the facility.

Contractual Obligation

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former Chairman.

On January 5, 2017, the lease was renewed for a period of five years, ending June 30, 2023, and is being accounted for as an operating lease.

The lease extension maintained the rent at a fixed rate of $380,000 per year and included an option to renew at the same rate for an additional five years ending June 30, 2028.

The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership.

Off-Balance Sheet Transactions

At March 31, 2021, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements