Koss(KOSS) - 2021 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's analysis for the period Financial Statements Unaudited condensed consolidated financial statements for the three months ended September 30, 2020, are presented Condensed Consolidated Balance Sheets Total assets and liabilities increased to $23.3 million and $7.8 million respectively as of September 30, 2020 Condensed Consolidated Balance Sheets (Unaudited) | | September 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $12,457,131 | $12,137,536 | | Total assets | $23,283,433 | $22,580,406 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $3,119,240 | $2,615,090 | | Total liabilities | $7,847,413 | $7,424,308 | | Total stockholders' equity | $15,436,020 | $15,156,098 | | Total liabilities and stockholders' equity | $23,283,433 | $22,580,406 | Condensed Consolidated Statements of Operations The company reported a net income of $126,928 for the quarter, a significant improvement from a prior-year loss Condensed Consolidated Statements of Operations (Unaudited) | | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--- | :--- | :--- | | Net sales | $5,208,295 | $5,410,762 | | Gross profit | $1,636,228 | $1,347,454 | | Income (loss) from operations | $130,456 | $(317,146) | | Net income (loss) | $126,928 | $(310,749) | | Basic EPS | $0.02 | $(0.04) | | Diluted EPS | $0.02 | $(0.04) | Condensed Consolidated Statements of Cash Flows Net cash used in operations improved, though overall cash and cash equivalents decreased by $549,464 during the quarter Condensed Consolidated Statements of Cash Flows (Unaudited) | | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--- | :--- | :--- | | Net cash (used in) operating activities | $(180,900) | $(622,281) | | Net cash (used in) investing activities | $(368,564) | $(276,514) | | Net (decrease) in cash and cash equivalents | $(549,464) | $(898,795) | | Cash and cash equivalents at end of period | $3,449,945 | $1,329,487 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased by approximately $280,000, driven by net income and stock-based compensation - Total stockholders' equity increased by approximately $280,000 during the quarter, driven by net income and stock-based compensation[14] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, credit facilities, sales geography, legal matters, and a subsequently forgiven SBA loan Inventories, net | | September 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Raw materials | $1,886,060 | $1,953,031 | | Finished goods | $5,029,164 | $5,149,200 | | Inventories, net | $5,297,253 | $5,538,794 | - The company has a $5 million revolving secured credit facility expiring in May 2021, with no outstanding borrowings as of September 30, 2020[21] Net Sales by Geographical Location | | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--- | :--- | :--- | | United States | $3,951,545 | $4,501,312 | | Export | $1,256,750 | $909,450 | | Net Sales | $5,208,295 | $5,410,762 | - In July 2020, the company filed patent infringement complaints against Apple, Bose, JLab, Plantronics, and Skullcandy related to its wireless audio technology[27] - Subsequent to the quarter end, on November 3, 2020, the company was notified that its $506,700 SBA Paycheck Protection Program loan was fully forgiven[22][30] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved profitability despite lower sales, driven by higher margins and the impact of COVID-19 Results of Operations Net sales decreased 3.7%, but gross margin improved significantly to 31.4% due to a favorable product and market mix Financial Performance Summary (Q1 FY2021 vs Q1 FY2020) | Financial Performance Summary | 2020 | 2019 | | :--- | :--- | :--- | | Net sales | $5,208,295 | $5,410,762 | | Net sales (decrease) % | (3.7)% | (6.5)% | | Gross profit | $1,636,228 | $1,347,454 | | Gross profit as % of net sales | 31.4% | 24.9% | | Selling, general and administrative expenses | $1,505,772 | $1,664,600 | | Income (loss) before income tax provision | $128,405 | $(310,749) | - The decline in domestic sales was driven by a decrease of approximately $809,000 to mass retail customers, while online sales increased significantly due to remote work and study trends[42] - Export sales grew 38% to $1.26 million, primarily driven by distributors in Europe and the introduction of new products[43] COVID-19 Impact The pandemic positively impacted demand for communication headphones while disrupting other retail channels - Financial results were positively impacted by demand for communication headphones as more people worked from home and studied online[52] - Disruptions in the supply chain, primarily in southern China, occurred early in the March 2020 quarter but are now having little ongoing impact[54] Liquidity and Capital Resources The company maintains a strong liquidity position with $3.4 million in cash and a $5.0 million available credit facility - The company's financial position is considered strong, with $3.4 million of cash and an available $5.0 million credit facility as of September 30, 2020[48] Summary of Cash Flows | Total cash (used in): | 2020 | 2019 | | :--- | :--- | :--- | | Operating activities | $(180,900) | $(622,281) | | Investing activities | $(368,564) | $(276,514) | | Net (decrease) in cash and cash equivalents | $(549,464) | $(898,795) | - The company's $506,700 SBA loan under the Paycheck Protection Program was fully forgiven on November 3, 2020[65] Quantitative and Qualitative Disclosures About Market Risk Disclosures regarding market risk are not applicable for this reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[69] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no significant changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[71] - No significant changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter[72] PART II OTHER INFORMATION This part details other required information including legal proceedings, risk factors, and stock repurchases Legal Proceedings No material changes to legal proceedings occurred during the reporting period - During the reporting period, there were no material changes to the description of legal proceedings previously disclosed in the Annual Report on Form 10-K[74] Risk Factors The report refers to the Annual Report on Form 10-K for a detailed discussion of risk factors - The report refers to the Risk Factors section in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020, for a detailed discussion of potential risks[75] Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased during the quarter, with $2.14 million remaining available under the program - No shares of common stock were repurchased by the company during the quarter ended September 30, 2020[77][78] - As of September 30, 2020, $2,139,753 remained available for repurchase under the company's authorized stock repurchase program[78] Exhibits This section lists filed exhibits, including CEO/CFO certifications and financial data in XBRL format - The exhibits include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as financial data in XBRL format[79]