Tableof Contents

 

 

 

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**Form 10-Q**

 

| **x**                                                   | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
|                                                    |       |                                                                                               |
| **for the  quarterly period ended March 31, 2009** |
|                                                    |       |                                                                                               |
| **OR**                                                  |
|                                                    |       |                                                                                               |
| **o**                                                   | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile Number 0-3295**

 

**KOSSCORPORATION**

(Exact Name ofRegistrant as Specified in its Charter)

 

| **A  DELAWARE CORPORATION**      | ** ** | **39-1168275**                        |
|----------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |       |                                  |

 

| **4129  North Port Washington Avenue, Milwaukee, Wisconsin** | ** ** | **53212**  |
|--------------------------------------------------------------|------------|------------|
| (Address of  principal executive offices)                    |       | (Zip Code) |

 

Registrant’s telephone number, including area code:  **(414) 964-5000**

 

Indicateby check mark whether the registrant:  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x  Noo

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes x No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                                            |   | Accelerated filer o         |
|----------------------------------------------------------------------|--------|-----------------------------|
|                                                                 |   |                        |
| Non-accelerated filer o(Do not check if a smaller reporting company) |   | Smaller reporting company x |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.).   YesoNox

 

At May 01, 2009, there were 3,691,353 shares outstanding of theregistrant’s common stock, $0.005 par value per share.

 

 

 

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KOSS CORPORATION AND SUBSIDIARIES

FORM 10-Q

March 31, 2009

 

INDEX

 
| ** **   | ** **            | ** **                                                                                                                | **Page** |
|--------------|-----------------------|---------------------------------------------------------------------------------------------------------------------------|----------|
| PART I  | FINANCIAL INFORMATION |                                                                                                                      |
|         |                  |                                                                                                                      |
|         | Item 1                | Financial Statements                                                                                                      |     |
|         |                  |                                                                                                                      |     |
|         |                  | Condensed Consolidated  Balance Sheets March 31, 2009 (Unaudited) and June 30, 2008                             | 3        |
|         |                  |                                                                                                                      |     |
|         |                  | Condensed Consolidated  Statements of Income (Unaudited) Three months and nine months ended  March 31, 2009 and 2008 | 4        |
|         |                  |                                                                                                                      |     |
|         |                  | Condensed Consolidated  Statements of Cash Flows (Unaudited) Nine months ended March 31, 2009  and 2008              | 5        |
|         |                  |                                                                                                                      |     |
|         |                  | Notes to Condensed  Consolidated Financial Statements (Unaudited) March 31, 2009                                     | 6-8      |
|         |                  |                                                                                                                      |     |
|         | Item 2                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                               | 9-11     |
|         |                  |                                                                                                                      |     |
|         | Item 3                | Quantitative  and Qualitative Disclosures About Market Risk                                                               | 11       |
|         |                  |                                                                                                                      |     |
|         | Item 4                | Controls and  Procedures                                                                                                  | 11       |
|         |                  |                                                                                                                      |     |
| PART II | OTHER INFORMATION     |                                                                                                                      |
|         |                  |                                                                                                                      |
|         | Item 1A               | Risk Factors                                                                                                              | 12       |
|         |                  |                                                                                                                      |     |
|         | Item 2                | Unregistered  Sales of Equity Securities and Use of Proceeds                                                              | 12       |
|         |                  |                                                                                                                      |     |
|         | Item 3                | Submission  of Matters to Vote of Security-Holders                                                                        | 12       |
|         |                  |                                                                                                                      |     |
|         | Item 4                | Exhibits                                                                                                                  | 12       |
|              |                       |                                                                                                                           |          |  |

 

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**PART I**

**FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

KOSS CORPORATION AND SUBSIDIARIES

 

##### CONDENSED CONSOLIDATED BALANCE SHEETS

#####  

 
| ** **                                                  | ** ** | **(Unaudited)**         | ** ** | ** **             | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 31, 2009** | ** ** | **June 30, 2008** | ** ** |
| ASSETS                                                      |       |                    |       |                   |       |
| Current assets:                                             |       |                    |       |                   |       |
| Cash                                                        |       | $                       | 2,627,275  |                   | $          | 3,322,873 |   |
| Accounts receivable                                         |       | 7,539,157               |       | 10,148,646             |       |
| Inventories                                                 |       | 10,571,212              |       | 9,374,344              |       |
| Deferred income taxes                                       |       | 783,995                 |       | 783,995                |       |
| Other current assets                                        |       | 508,382                 |       | 504,806                |       |
| Total current assets                                        |       | 22,030,021              |       | 24,134,664             |       |
| Property and equipment, net                                 |       | 3,899,537               |       | 2,746,367              |       |
| Deferred income taxes                                       |       | 1,066,853               |       | 1,066,853              |       |
| Other assets                                                |       | 1,954,124               |       | 2,029,123              |       |
| Total Assets                                                |       | $                       | 28,950,535 |                   | $          | 29,977,007 |   |
|                                                        |       |                    |       |                   |       |
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT               |       |                    |       |                   |       |
| Current liabilities:                                        |       |                    |       |                   |       |
| Accounts payable                                            |       | $                       | 2,801,506  |                   | $          | 2,950,721 |   |
| Accrued liabilities                                         |       | 1,077,326               |       | 1,808,467              |       |
| Dividends payable                                           |       | 479,876                 |       | 480,395                |       |
| Income tax payable                                          |       | 11,896                  |       | 347,507                |       |
| Total current liabilities                                   |       | 4,370,604               |       | 5,587,090              |       |
| Deferred compensation                                       |       | 1,047,482               |       | 1,047,482              |       |
| Derivative liability                                        |       | 125,000                 |       | 125,000                |       |
| Stockholders’ investment                               |       | 23,407,449              |       | 23,217,435             |       |
| Total Liabilities & Stockholders’ Investments |       | $                       | 28,950,535 |                   | $          | 29,977,007 |   |

 

Seeaccompanying notes to the condensed consolidated financial statements.

 

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KOSS CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME

(Unaudited)

 
| ** **                                 | ** ** | **Three Months** | ** ** | **Nine Months** | ** ** |
|--------------------------------------------|------------|------------------|------------|-----------------|------------|
| **Period Ended March 31**             | ** ** | **2009**         | ** ** | **2008**        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net sales                                  |       | $                | 8,145,930  |            | $          | 10,003,648 |   | $ | 29,919,559 |   | $ | 34,740,651 |   |
| Cost of goods sold                         |       | 5,531,938        |       | 6,438,524       |       | 19,422,223 |   | 22,059,172 |   |
| Gross profit                               |       | 2,613,992        |       | 3,565,124       |       | 10,497,336 |   | 12,681,479 |   |
| Selling, general andadministrative expense |       | 2,388,169        |       | 2,602,122       |       | 8,342,795 |   | 7,757,424 |   |
| Income from operations                     |       | 225,823          |       | 963,002         |       | 2,154,541 |   | 4,924,055 |   |
| Other income                               |       |             |       |            |       |   |   |   |   |
| Royalty income                             |       | —           |       | 87,501          |       | 58,333 |   | 262,501 |   |
| Interest income                            |       | 2                |       | 11,929          |       | 15,501 |   | 109,120 |   |
| Income before income tax provision         |       | 225,825          |       | 1,062,432       |       | 2,228,375 |   | 5,295,676 |   |
| Provision for income taxes                 |       | 88,058           |       | 414,435         |       | 854,390 |   | 2,065,453 |   |
| Net income                                 |       | $                | 137,767    |            | $          | 647,997 |   | $ | 1,373,985 |   | $ | 3,230,223 |   |
| Earnings per common share                  |       |             |       |            |       |   |   |   |   |
| Basic                                      |       | $                | 0.04       |            | $          | 0.18 |   | $ | 0.37 |   | $ | 0.88 |   |
| Diluted                                    |       | $                | 0.04       |            | $          | 0.18 |   | $ | 0.37 |   | $ | 0.87 |   |
| Dividends per common share                 |       | $                | 0.13       |            | $          | 0.13 |   | $ | 0.39 |   | $ | 1.39 |   |

 

Seeaccompanying notes to the condensed consolidated financial statements.

 

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KOSS CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(Unaudited)

 
| **Nine Months Ended March 31,**                                      | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                      |       |       |       |       |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                     |       |       |       |       |       |
|                                                                      |       |       |       |       |       |
| Net income                                                                |       | $          | 1,373,895  |       | $          | 3,230,223 |   |
| Adjustments to reconcile net income to net cash by operating  activities: |       |       |       |       |       |
| Depreciation and amortization                                             |       | 648,841    |       | 843,289    |       |
| Stock compensation expense                                                |       | 299,997    |       | 408,789    |       |
| Net changes in operating assets and liabilities                           |       | 267,491    |       | 113,359    |       |
| Net cash provided by operating activities                                 |       | 2,590,224  |       | 4,595,660  |       |
|                                                                      |       |       |       |       |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                     |       |       |       |       |       |
|                                                                      |       |       |       |       |       |
| Acquisition of equipment                                                  |       | (1,802,011 | )          | (762,194   | )          |
| Net cash used in investing activities                                     |       | (1,802,011 | )          | (762,194   | )          |
|                                                                      |       |       |       |       |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                     |       |       |       |       |       |
|                                                                      |       |       |       |       |       |
| Dividends paid                                                            |       | (1,440,191 | )          | (5,115,390 | )          |
| Purchase of common stock                                                  |       | (43,620    | )          | (1,268,786 | )          |
| Exercise of stock options                                                 |       | —     |       | 1,413,867  |       |
| Net cash used in financing activities                                     |       | (1,483,811 | )          | (4,970,309 | )          |
|                                                                      |       |       |       |       |       |
| Net decrease in cash                                                      |       | (695,598   | )          | (1,136,843 | )          |
| Cash at beginning of period                                               |       | 3,322,873  |       | 4,187,682  |       |
| Cash at end of period                                                     |       | $          | 2,627,275  |       | $          | 3,050,839 |   |

 

Seeaccompanying notes to the condensed consolidated financial statements.

 

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KOSS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

 

1.                                       CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

The financial statements presented herein are based on interimamounts.  In the opinion of management,all adjustments (consisting of normal recurring accruals) necessary to presentfairly the financial position, results of operations and cash flows at March 31,2009 and for all periods presented have been made. All significant intercompanytransactions have been eliminated. The income from operations for the quarterand nine months ended March 31, 2009 is not necessarily indicative of theoperating results for the full year.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted.  It is suggested that these condensedconsolidated financial statements be read in conjunction with the financialstatements and notes thereto included in the Registrant’s June 30, 2008Annual Report on Form 10-K.

 

2.                                       EARNINGS PERCOMMON SHARE

 

Basicearnings per common share are computed based on the weighted average number ofcommon shares outstanding.  The weightedaverage 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, 2009and 2008, weighted average number of common shares outstanding were 3,693,522and 3,680,321, respectively.  Whendilutive, stock options are included as share equivalents using the treasurystock method.  For the quarter ended March 31,2009 there were no common stock equivalents related to stock option grantsincluded in the computation of the average number of shares outstanding fordiluted earnings per common share as inclusion would have beenanti-dilutive.  For the quarter ended March 31,2008 there were 12,107 common stock equivalents.  For the nine months ended March 31, 2009there were no common stock equivalents related to stock option grants includedin the computation of the average number of shares outstanding for dilutedearnings per common share.  For the ninemonths ended March 31, 2008 there were 18,065 common stock equivalents.

 

3.                                       INCOME TAXES

 

Wefile income tax returns in the United States (Federal), Wisconsin (state) andvarious other state jurisdictions.  Weare not currently subject to income tax examinations in any of our significanttax jurisdictions.  Tax years open toexamination by tax authorities under the statute of limitations include fiscal2006 through 2008 for Federal and fiscal 2003 through 2008 for most statesjurisdictions.

 

Weadopted the provisions for FASB Interpretation No. 48 (FIN 48), Accountingfor 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 taxbenefits.  The total liability forunrecognized tax benefits was approximately $267,000 as of March 31,2009.  The liability does not include anamount for accrued penalties.   Werecognize interest and penalties related to unrecognized tax benefits in theprovision for income taxes.  We do notexpect a significant increase or decrease to the total amounts of unrecognizedtax benefits within the next 12 months.  

 

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Therewas no change in the amount of unrecognized tax benefits during the nine monthsended March 31, 2009.

 

4.                                       INVENTORIES

 

                                                Theclassification of inventories is as follows:

 
| ** **                        | ** ** | **March 31, 2009** | ** ** | **June 30, 2008** | ** ** |
|-----------------------------------|------------|-------------------------|------------|------------------------|------------|
| Raw materials and work in process |       | $                       | 3,594,030  |                   | $          | 4,212,089 |   |
| Finished goods                    |       | 8,196,048               |       | 6,381,121              |       |
|                              |       | 11,790,078              |       | 10,593,210             |       |
| LIFO reserve                      |       | (1,218,866              | )          | (1,218,866             | )          |
|                              |       | $                       | 10,571,212 |                   | $          | 9,374,344 |   |

 

5.                                       STOCK PURCHASEAGREEMENT

 

The Company has an agreement with itsChairman, 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 torequire the estate to sell stock to the Company.  As such, this arrangement is accounted for asa written put option with the fair value of the put option recorded as aderivative liability.  The fair value ofthe option at March 31, 2009 was $125,000. The repurchase price is 95% of the fair market value of the common stockon the date that notice, if the estate elects, to repurchase is provided to theCompany.  Under the agreement, the total numberof shares to be repurchased will be sufficient to provide proceeds which arethe lesser of $2,500,000 or the amount of estate taxes and administrativeexpenses incurred by the Chairman’s estate. The Company may elect to pay thepurchase price in cash or may elect to pay cash equal to 25% of the totalamount due and to execute a promissory note for the balance, payable over fouryears, at the prime rate of interest. The Company maintains a $1,150,000 life insurance policy to fund asubstantial portion of this obligation. At March 31, 2009 and June 30, 2008, $125,000 has beenclassified as a derivative liability on the Company’s financial statements.

 

6.                                       DIVIDENDSDECLARED

 

OnMarch 17, 2009, the Company declared a quarterly cash dividend of $0.13per share for the stockholders of record on March 31, 2009 to be paid April 15,2009.  Such dividend payable has beenrecorded at March 31, 2009.

 

7.                                       STOCK-BASED COMPENSATION

 

In 1990, pursuant to therecommendation of the Board of Directors, the stockholders ratified thecreation of the Company’s 1990 Flexible Incentive Plan (the “1990 Plan”).  The 1990 Plan is administered by a committeeof the Board of Directors and provides for the granting of various stock-basedawards including stock options to eligible participants, primarily officers andcertain key employees.  A total of225,000 shares of common stock were available in the first year of the Plan’sexistence.  Each year thereafteradditional shares equal to 25% of the shares outstanding as of the first day ofthe applicable fiscal year were reserved for issuance pursuant to the 1990Plan.  On July 22, 1992, the Boardof Directors authorized the reservation of an additional 250,000 shares for the1990 Plan, which was approved by the stockholders.  In 1993, the Board of Directors authorizedthe reservation of an additional 300,000 shares for the 1990 Plan, which wasapproved by the stockholders.  In 1997,the Board of Directors authorized the reservation of an 

 

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additional 300,000 shares for the 1990 Plan, which wasapproved by the stockholders.  In 2001,the Board of Directors authorized the reservation of an additional 300,000shares for the 1990 Plan, which was also approved by the stockholders.  Options generally vest over four or fiveyears, with a maximum term of five to ten years.

 

We account for stock options and restricted stock issuedunder the plan in accordance with Statement of Accounting Standards (‘SFAS’) No. 123(R), “Share Based Payments”. The fair value of each stock option grant wasestimated as of the date of grant using the Black-Scholes pricing model. Theresulting compensation cost for fixed awards with graded vesting schedules isamortized on a straight-line basis over the vesting period for the entireaward. The fair value of each restricted stock grant was based on the marketprice of the underlying common stock as of the date of grant. The resultingcompensation cost is amortized on a straight-line basis over the vestingperiod.

 

A summary of stock option activity under the plan for thenine****months ended March 31,2009 is as follows:

 
| ** **                   | ** ** | **Number of Shares  (in thousands)** | ** ** | **Range of Exercise Price Per Share** | ** ** | **Average  Exercise Price** | ** ** |
|------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
|                         |       |                                 |       |                                  |       |                        |       |
| Balance,  July 30, 2008 |       | 561,654                              |       | $15.51–$28.80                    |       | $                           | 21.49      |   |
| Granted                      |       | —                               |       | —                                |       | —                      |       |
| Exercised                    |       | —                               |       | —                                |       | —                      |       |
| Forfeited                    |       | —                               |       | —                                |       | —                      |       |
| Balance, March 31, 2009 |       | 561,654                              |       | $15.51–$28.80                    |       | $                           | 21.49      |   |

 

Therange of options as of March 31, 2009 is as follows:

 
| ** **    | ** ** | **Number of Options  Outstanding/Exercisable** | ** ** | **Weighted Average Exercise  Price Outstanding/Exercisable** | ** ** | **Weighted Average  Remaining Contractual  Life (Years)** | ** ** |
|---------------|------------|------------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| $15.51-$19.47 |       | 219,654  / 76,904                              |       | $17.37  / $17.57                                             |       | 4.52                                                      |       |
| $21.42-$24.11 |       | 262,000  / 201,000                             |       | $22.92  / $23.32                                             |       | 2.15                                                      |       |
| $26.18-$28.80 |       | 80,000  / 38,000                               |       | $28.15  / $28.25                                             |       | 3.35                                                      |       |
|          |       | 561,654  / 315,904                             |       | $21.49  / $26.79                                             |       |                                                      |       |

 

8.             CREDIT FACILITY

 

On February 16, 2009,the Company entered into a new credit facility for an unsecured line of creditfor up to a maximum of $10,000,000 up to and including January 29,2010.  This credit facility replaces theCompany’s previous credit facility, which has been terminated and containedsubstantially the same terms as the Company’s new credit facility.  The Company can use the new credit facilityfor working capital, to refinance existing indebtedness, for stock repurchaseand for general corporate purposes. Borrowings under this credit facility bear interest at either the bank’smost recently publicly announced prime rate or at a LIBOR-based rate determinedin accordance with the loan agreement. This credit facility includes financialcovenants 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 fromtime to time, although there was no utilization of this credit facility at March 31,2009 or June 30, 2008.  The Companydid not utilize the credit facility during the quarter or nine months ended March 31,2009.

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

FinancialCondition, Liquidity and Capital Resources

 

Cash provided by operating activities duringthe nine months ended March 31, 2009 amounted to $2,590,224. This was aresult of net income for the period adjusted for changes in operating assetsand current liabilities, which arose primarily out of increases in other currentassets, 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 fiscalyear 2009 are expected to be approximately $2.6 million.  The Company expects to generate sufficientfunds 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 netincome and exercise of stock options offset by the effect of the purchase andretirement of common stock and dividends declared.

 

On February 16, 2009,the Company entered into a new credit facility for an unsecured line of creditfor up to a maximum of $10,000,000 up to and including January 29,2010.  This credit facility replaces theCompany’s previous credit facility, which has been terminated and containedsubstantially the same terms as the Company’s new credit facility.  The Company can use the new credit facilityfor working capital, to refinance existing indebtedness, for stock repurchaseand for general corporate purposes. Borrowings under this credit facility bear interest at either the bank’smost recently publicly announced prime rate or at a LIBOR-based rate determinedin accordance with the loan agreement. This credit facility includes financialcovenants 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 fromtime to time, although there was no utilization of this credit facility at March 31,2009 or June 30, 2008.  The Companydid not utilize the credit facility during the quarter or nine months ended March 31,2009.

 

In April of 1995, the Board of Directorsapproved a stock repurchase program authorizing the Company to purchase fromtime to time up to $2,000,000 of its common stock for its own account.  Subsequently, the Board of directorsperiodically has approved increases in the stock repurchase program.  The most recent increase was for anadditional $2,000,000 in October 2006, for a maximum of $45,500,000.  The Company intends to effectuate all stockpurchases either on the open market or through privately negotiatedtransactions, and intends to finance all stock purchases through its own cashflow 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 monthsended March 31, 2009, the Company purchased 3,998 shares of its commonstock at an average net price of $10.91 per share, for a total net purchaseprice of $43,620.

 

From the commencement of the Company’s stockrepurchase program through March 31, 2009, the Company has purchased atotal 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 totalnet purchase price of $41,945,130 (representing an average net purchase priceof $7.66 per share).  The differencebetween the total gross purchase price and the total net purchase price is theresult of the Company receiving from employees cash acquired from suchemployees pursuant to the Company’s stock option program.  In determining the dollar amount availablefor additional purchases under the stock repurchase program, the 

 

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Company uses the total net purchase price bythe Company for all stock purchases, as authorized by the Board of Directors.

 

The Company also has an Employee StockOwnership Plan and Trust (“ESOP”) pursuant to which shares of the Company’scommon stock are purchased by the ESOP for allocation to the accounts of ESOPparticipants.  There were no ESOPpurchases of the Company’s 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 in2008.  Net sales for the nine monthsended March 31, 2009 declined by 14% to $29,919,559 from $34,740,651 forthe same period in 2008.  The decrease isprimarily the result of soft U.S. retail sales.

 

Gross profit as a percent of net sales was32% for the quarter ended March 31, 2009 compared to 36% for the sameperiod in the prior year.  For the ninemonths ended March 31, 2009 the gross profit percentage was 35% comparedto 37% for the same period in the prior year. The decrease in gross profit forthe nine months ended March 31, 2009 was primarily due to a lessprofitable model mix sold in that period.

 

Selling, general and administrative expensesfor 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 incurredrelated 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 inthe prior year.  Income from operationsfor 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 asa 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 aresult of decreased net sales for the quarter and nine months ended March 31,2009.

 

Royalty income forthe quarter ended March 31, 2009 was zero compared to $87,501 for thequarter ended March 31, 2008.  Forthe nine month period ended March 31, 2009, royalty income was $58,333compared to $262,501 for the same period ended March 31, 2008.

 

Interest income for the quarter was $2compared 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 inthe prior year.  Interest incomefluctuates in relation to cash balances on hand throughout the year andfluctuations in interest rates earned.

 

The provision forincome 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 incometaxes was $854,390 compared with $2,065,453 for the same period last year.  The effective tax rate was 39% for each ofthe quarters.

 

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Off-Balance SheetArrangements

 

The Company has nooff-balance sheet arrangements.

 

**Item3.  Quantitative and QualitativeDisclosures About Market Risk.**

 

In management’s opinion, the Company does not engagein any material risk sensitive activities and does not have any market risksensitive instruments, other than the Company’s commercial credit facilitywhich may be used for working capital, to refinance existing indebtedness, forstock repurchase for general corporate purposes, as disclosed in the “FinancialCondition, Liquidity and Capital Resources” section of the “Management’sDiscussion and Analysis of Financial Conditions and Results of Operations,”above.

 

**Item4.  Controls and Procedures.**

######  

(a)           *Evaluation of DisclosureControls and Procedures*.  The Company maintains a system of disclosurecontrols and procedures that are designed to provide reasonable assurance thatinformation, which is required to be timely disclosed, is accumulated andcommunicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met.  The Company, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer/Chief Financial Officer, after evaluatingthe effectiveness of the Company’s disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of theperiod covered by this report, has concluded that the Company’s disclosurecontrols and procedures are effective to provide reasonable assurance thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its principal executive officer and principalfinancial officer, as appropriate to allow timely decisions regarding required disclosureand are effective to provide reasonable assurance that such information isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

 

(b)           *Changes in InternalControls*.  The Company’s internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))is designed to provide reasonable assurances regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  There were no changes in the Company’sinternal control over financial reporting that occurred during the Company’smost recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.  However, because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, if any,within the Company have been detected.

 

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**PART II**

**OTHERINFORMATION**

 

**Item 1A**                                                     RiskFactors

** **

Inaddition to the other information set forth in this report, you shouldcarefully consider the risk factors discussed in our Annual Report on Form 10-Kfor the year ended June 30, 2008, which could materially affect ourbusiness, financial condition or future results.  The risks described in our Annual Report on Form 10-Kare not the only risks facing our Company. Additional risk and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

 

**Item 2****                                                              UnregisteredSales of Equity Securities and Use of Proceeds**

 

The following table presentsinformation with respect to purchases of common stock of the Company madeduring the quarter ended March 31, 2009, by the Company.

 

**COMPANY REPURCHASES OF EQUITY SECURITIES**

** **
| **Period (2009)**                  | ** ** | **Total # of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plan (1)** | ** ** | **Approximate Dollar Value of  Shares Available under  Repurchase Plan** | ** ** |
|-----------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
|                                    |       |                                        |       |                                         |       |                                                                                                                   |       |                                                                                                   |       |
| 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 |   |

 

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**(1)   In April of 1995, the Board of Directors approved a stockrepurchase 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 periodicallyhas approved increases in the stock repurchase program.  The most recent increase was for anadditional $2,000,000 in October 2006, for a maximum of $45,500,000 ofwhich $43,374,113 had been expended through March 31, 2009.**

 

**Item 3**                                                              Submissionof Matters to Vote of Security-Holders

** **

None.

 

**Item4**                                                              Exhibits

** **

See Exhibit Index attached hereto.

 

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**CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING STATEMENTS**

** **

This Form 10-Q contains forward-looking statements within themeaning of that term in the Private Securities Litigation Reform Act of 1995(the “Act”) (Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by theCompany from time to time in filings with the Securities Exchange Commission,press releases, or otherwise.  Statementscontained in this Form 10-Q that are not historical facts are forward-lookingstatements made pursuant to the safe harbor provisions of the Act.  Forward-looking statements may include, butare not limited to, projections of revenue, income or loss and capitalexpenditures, statements regarding future operations, anticipated financingneeds, compliance with financial covenants in loan agreements, plans foracquisitions or sales of assets or businesses, plans relating to products orservices of the Company, assessments of materiality, predictions of futureevents, the effects of pending and possible litigation, and assumptionsrelating 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 similarexpressions are intended to identify forward-looking statements.

 

Forward-looking statements are inherently subject to risks anduncertainties, some of which cannot be predicted or quantified based on currentexpectations.  Consequently, futureevents and actual results could differ materially from those set forth in,contemplated by, or underlying the forward-looking statements contained in thisForm 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, butare not limited to, developments in any one or more of the following areas:future fluctuations in economic conditions, the receptivity of consumers to newconsumer electronics technologies, the rate and consumer acceptance of newproduct introductions, competition, pricing, the number and nature of customersand their product orders, production by third party vendors, foreignmanufacturing, sourcing and sales (including foreign government regulation,trade and importation concerns), borrowing costs, changes in tax rates, pendingor threatened litigation and investigations, and other risk factors which maybe detailed from time to time in the Company’s Securities and ExchangeCommission filings.

 

Readers are cautioned not to place undue reliance on any forward-lookingstatements contained herein, which speak only as of the date hereof.  The Company undertakes no obligation topublicly release the result of any revisions to these forward-lookingstatements that may be made to reflect events or circumstances after the datehereof or to reflect the occurrence of unexpected events.

 

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Signatures

 

Pursuant to the requirements of theSecurities and Exchange Act of 1934, the registrant has duly caused this reportto 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 President—Finance, |
|                    | Secretary                    |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                        |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                |
| 3.1                  |       | Certificate  of Incorporation of Koss Corporation. Filed as Exhibit 3.1 to the  Company’s 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 Company’s 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  Company’s 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  Company’s 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  Company’s 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 Company’s  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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 1997  and incorporated herein by reference. |

 

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| 10.12  |   | Loan Agreement, effective as of February 17, 1995. Filed as  Exhibit 10 to the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s  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 Company’s 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 Company’s  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 **                                                                                                                                                                                                                                                   |

 

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| *  |   | Filed  herewith     |
|----|--------|---------------------|
| ** |   | Furnished  herewith |

 

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