What changed in this filing

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Item 1. Financial Statements

2022-02-04 compared with 2021-10-29 · 76 added, 46 removed, 158 unchanged (44% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

September 30, 2021

December 31, 2021

June 30, 2021

2 unchanged sentences

Accounts receivable, less allowance for doubtful accounts of $ 5,736 and $ 41,499 , respectively

Life insurance receivable

Inventories, net

3 unchanged sentences

Other assets:

Operating lease right-of-use assets

Operating lease right-of-use asset

Cash surrender value of life insurance

23 unchanged sentences

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Three Months Ended

Six Months Ended

Cost of goods sold

Selling, general and administrative expenses

(Loss) income from operations

Interest income (expense)

(Loss) income before income tax provision

Income from operations

Interest income

Income before income tax provision

Income tax provision

Net (loss) income

(Loss) income per common share:

Income per common share:

Weighted-average number of shares:

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended

Six Months Ended

Operating activities:

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

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

(Recovery of) provision for doubtful accounts of accounts receivable

Depreciation of equipment and leasehold improvements

3 unchanged sentences

Deferred compensation paid

Deferred compensation relieved

Other income - SBA loan forgiveness

Other income - Net gain from life insurance benefits

Net changes in operating assets and liabilities:

7 unchanged sentences

Deferred revenue

Net cash (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities:

5 unchanged sentences

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Non-cash financing and investing activity:

Reclassification of cash surrender value of life insurance to life insurance receivable

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Three Months Ended September 30, 2021

Six Months Ended December 31, 2021

Balance, June 30, 2021

1 unchanged sentence

Stock option exercises

Balance, September 30, 2021

Three Months Ended September 30, 2020

Balance, December 31, 2021

Six Months Ended December 31, 2020

Balance, June 30, 2020

Stock-based compensation expense

Stock option exercises

Balance, December 31, 2020

Three Months Ended December 31, 2021

Balance, September 30, 2021

Stock-based compensation expense

Stock option exercises

Balance, December 31, 2021

Three Months Ended December 31, 2020

Balance, September 30, 2020

Stock-based compensation expense

Stock option exercises

Balance, December 31, 2020

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

December 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

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.

The condensed consolidated balance sheets as of December 31, 2021 and June 30, 2021, the condensed consolidated statements of income for the three and six months ended December 31, 2021 and 2020, the condensed consolidated statements of cash flows for the six months ended December 31, 2021 and 2020, and the condensed consolidated statements of stockholders'

equity for the three and six months ended December 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.

9 unchanged sentences

B) INCOME TAXES

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, 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.

A state tax provision of $ 1,031 and $ 2,062 was recorded for the three and six months ended December 31, 2021.

For the three and six months ended December 31, 2020, the state tax provision was $ 2,543 and $ 4,019 , respectively.

The federal income tax expense was zero for the three and six months ended December 31, 2021 and the three and six months ended December 31, 2020.

In the six months ended December 31, 2021, stock option exercises resulted in tax deductible compensation expense of approximately $ 8,000,000 .

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

The tax loss carryforward for the year ending June 30, 2022, including the stock-based compensation expense deductions in the six months ended December 31, 2021, is expected to be approximately $ 39,800,000 .

The additional estimated tax loss carryforward increased the deferred tax asset to approximately $ 12,000,000 as of December 31, 2021, and the future realization of this is uncertain.

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

C) OTHER INCOME

In December 2021, the Company recognized approximately $ 256,000 of other income related to the proceeds from company-owned life insurance policies on its founder, who passed away on December 21, 2021.

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 one-time license fee of $ 100,000 was also treated as other income.

Other income is shown as a separate line on the condensed consolidated statement of income.

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

D) DEFERRED COMPENSATION

The Company’s deferred compensation liabilities are for a current and former officer and are calculated based on various assumptions which may include compensation, years of service, expected retirement date, discount rates, and mortality tables.

The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Condensed Consolidated Statement of Operations.

The Company’s current and non-current compensation obligations are included in accrued liabilities and deferred compensation, respectively, in the Condensed Consolidated Balance Sheets.

In December 2021, the Company’s founder and former officer passed away.

The Company had a total deferred compensation liability of $ 472,883 recorded at June 30, 2021 related to the former officer, which at his death was relieved.

Deferred compensation income of $ 472,883 was recognized in selling, general and administrative expenses as a result.

Payments of $ 71,250 made under this arrangement during the six months ended December 31, 2021 were expensed as paid.

The remaining deferred compensation liability of $ 2,264,909 and $ 2,168,599 recorded at December 31, 2021 and June 30, 2021, respectively, relates to the current officer’s plan.

Deferred compensation expense of $ 45,000 and $ 96,310 was recognized under this arrangement in the three and six months ended December 31, 2021.

The components of inventories were as follows:

September 30, 2021

December 31, 2021

June 30, 2021

15 unchanged sentences

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.

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

As of December 31, 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.

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 accompanying condensed statements of income for the three and six months ended December 31, 2020.

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 Company disaggregates its 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

September 30,

Six Months Ended

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 $ 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.

In the six months ended December 31, 2021 and 2020, the Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $ 335,578 and $ 200,424 , 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 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

Basic (loss) income per share is computed based on the weighted-average number of common shares outstanding.

Diluted (loss) income per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

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

Three Months Ended September 30,

Net (loss) income

INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income per share is computed based on the weighted-average number of common shares outstanding.

Diluted income per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

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

Three Months Ended December 31,

Six Months Ended December 31,

Weighted average shares, basic

1 unchanged sentence

Diluted shares

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

(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.

Net income attributable to common shareholders per share:

(1) Excludes approximately 2,490,061 and 2,564,584 weighted average stock options during the three and six months ended December 31, 2020, respectively, as the impact of such awards was anti-dilutive.

For the three and six months ended December 31, 2021, no stock options were 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.

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

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.

2 unchanged sentences

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.

As of December 31, 2021 the Company’s top three accounts receivable customers represented approximately 26 %, 23 %, and 13 % of trade accounts receivables.

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

LEGAL MATTERS

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

As of December 31, 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.

23 unchanged sentences

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