What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2022-02-04 · 58 added, 55 removed, 179 unchanged (39% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

December 31, 2021

March 31, 2022

June 30, 2021

2 unchanged sentences

Accounts receivable, less allowance for doubtful accounts of $ 6,284 and $ 41,500 , respectively

Life insurance receivable

Inventories, net

29 unchanged sentences

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

Selling, general and administrative expenses

Income from operations

Income (loss) from operations

Interest income

Income before income tax provision

Income (loss) before income tax provision

Income tax provision

Income per common share:

Net income (loss)

Income (loss) per common share:

Weighted-average number of shares:

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended

Nine Months Ended

Operating activities:

9 unchanged sentences

Other income - Net gain from life insurance benefits

Loss on disposal of fixed assets

Net changes in operating assets and liabilities:

1 unchanged sentence

( 1,849,288 )

( 1,318,377 )

Prepaid expenses and other current assets

Income taxes receivable

Income taxes payable

2 unchanged sentences

Deferred revenue

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Investing activities:

1 unchanged sentence

Life insurance premiums paid

Net cash (used in) investing activities

Proceeds from life insurance policy

Net cash provided by (used in) investing activities

Financing activities:

4 unchanged sentences

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)

Six Months Ended December 31, 2021

Nine Months Ended March 31, 2022

Balance, June 30, 2021

1 unchanged sentence

Stock option exercises

Balance, December 31, 2021

Six Months Ended December 31, 2020

Balance, March 31, 2022

Nine Months Ended March 31, 2021

Balance, June 30, 2020

1 unchanged sentence

Stock option exercises

Balance, March 31, 2021

Three Months Ended March 31, 2022

Balance, December 31, 2021

Three Months Ended December 31, 2021

Balance, September 30, 2021

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2022

Three Months Ended March 31, 2021

Balance, December 31, 2020

Three Months Ended December 31, 2020

Balance, September 30, 2020

Stock-based compensation expense

Stock option exercises

Balance, December 31, 2020

Balance, March 31, 2021

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

March 31, 2022

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

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.

The condensed consolidated balance sheets as of March 31, 2022 and June 30, 2021, the condensed consolidated statements of operations for the three and nine months ended March 31, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended March 31, 2022 and 2021, and the condensed consolidated statements of stockholders'

equity for the three and nine months ended March 31, 2022 and 2021, 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.

6 unchanged sentences

GAAP requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses.

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.

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 , stock-based compensation and deferred compensation.

Actual results could differ from the Company's estimates.

B) INCOME TAXES

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 .

A state tax provision of $3,575 and $5,638 was recorded for the three and nine months ended March 31, 2022.

For the three and nine months ended March 31, 2021, the state tax provision was $ 49 and $ 4,068 , respectively.

The federal income tax expense was zero for the three and nine months ended March 31, 2022 and 2021.

In the nine months ended March 31, 2022, 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.

The tax loss carryforward as of June 30, 2022, including the stock-based compensation expense deductions in the nine months ended March 31, 2022, is expected to be approximately $ 39,000,000 .

The adjustment to the estimated tax loss carryforward decreased the deferred tax asset to approximately $ 11,800,000 as of March 31, 2022, and the future realization of this is uncertain.

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

C) OTHER INCOME

2 unchanged sentences

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.

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

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

1 unchanged sentence

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 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 statements 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.

2 unchanged sentences

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.

Payments of $ 71,250 were made under this arrangement until December 31, 2021 and were expensed as paid.

The remaining deferred compensation liability of $ 2,284,909 and $ 2,168,599 recorded at March 31, 2022 and June 30, 2021, respectively, relates to a current officer’s plan.

Deferred compensation expense of $ 20,000 and $ 116,310 was recognized under this arrangement in the three and nine months ended March 31, 2022.

The components of inventories were as follows:

December 31, 2021

March 31, 2022

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 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.

As of March 31, 2022, the Company was in material compliance with all covenants related to the Credit Agreement.

As of March 31, 2022, 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 accompanying condensed statements of income for the three and six months ended December 31, 2020.

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 statement of operations for the nine months ended March 31, 2021.

REVENUE RECOGNITION

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

United States

1 unchanged sentence

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

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.

In the nine months ended March 31, 2022 and 2021, the Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $ 394,963 and $ 271,179 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.

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,

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE

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

Diluted income (loss) 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 (loss) per share:

Three Months Ended March 31,

Nine Months Ended March 31,

Net income (loss)

Weighted average shares, basic

1 unchanged sentence

Diluted shares

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.

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

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

For the three and nine months ended March 31, 2022, and the nine months ended March 31, 2021, no stock options were anti-dilutive.

RELATED PARTY LEASE

4 unchanged sentences

ACCOUNTS RECEIVABLE CONCENTRATIONS

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

As of March 31, 2022, the Company’s top two accounts receivable customers represented approximately 28 % and 18 % of trade accounts receivables.

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

LEGAL MATTERS

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

As of March 31, 2022, 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.

4 unchanged sentences

Depending on the response to and the underlying results of the enforcement program, the Company may continue to litigate its claims, enter into licensing arrangements or reach some other outcome potentially advantageous to its competitive position.

A trial date for the suit against Apple Inc.

District Court in the Western District of Texas is currently set for July 25, 2022.

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

13 unchanged sentences

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, 2021 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, the impact of the Russian-Ukrainian conflict 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.

1 unchanged sentence

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