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**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**x****                             ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

**for thequarterly period ended September 30, 2008**

 

**OR**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

| **Commission File Number 0-3295**                                            |
|------------------------------------------------------------------------------|
| ** **                                                                   |
| **KOSS CORPORATION**                                                         |
| (Exact Name of  Registrant as Specified in its Charter)                      |
|                                                                         |
| **A  DELAWARE CORPORATION**                                                  |   | **39-1168275** |
| (State or other  jurisdiction of  incorporation or organization)             |   | (I.R.S. Employer  Identification No.) |
|                                                                         |
| **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** |

 

Indicate by check markwhether 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  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of 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 |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act.).   Yes o No x

 

At November 3, 2008, there were 3,695,351 sharesoutstanding of the registrant’s common stock, $0.005 par value per share.

 

 

 

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KOSS CORPORATION AND SUBSIDIARIESFORM 10-Q

September 30,2008

 

INDEX

 
| ** **   | ** **            | ** **                                                                                                        | **Page** |
|--------------|-----------------------|-------------------------------------------------------------------------------------------------------------------|----------|
|         |                  |                                                                                                              |
| PART I  | FINANCIAL INFORMATION |                                                                                                              |
|         |                  |                                                                                                              |     |
|         | Item 1                | Financial  Statements                                                                                             |     |
|         |                  |                                                                                                              |     |
|         |                  | Condensed Consolidated  Balance Sheets September 30, 2008 (Unaudited) and June 30, 2008                 | 3        |
|         |                  |                                                                                                              |     |
|         |                  | Condensed  Consolidated Statements of Income (Unaudited) Three months ended  September 30, 2008 and 2007     | 4        |
|         |                  |                                                                                                              |     |
|         |                  | Condensed  Consolidated Statements of Cash Flows (Unaudited) Three months ended  September 30, 2008 and 2007 | 5        |
|         |                  |                                                                                                              |     |
|         |                  | Notes to  Condensed Consolidated Financial Statements (Unaudited) September 30,  2008                        | 6-8      |
|         |                  |                                                                                                              |     |
|         | Item 2                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                       | 9-10     |
|         |                  |                                                                                                              |     |
|         | Item 3                | Quantitative  and Qualitative Disclosures About Market Risk                                                       | 10       |
|         |                  |                                                                                                              |     |
|         | Item 4T               | Controls and  Procedures                                                                                          | 10-11    |
|         |                  |                                                                                                              |     |
| PART II | OTHER  INFORMATION    |                                                                                                              |
|         |                  |                                                                                                              |     |
|         | Item  1A              | Risk  Factors                                                                                                     | 11       |
|         |                  |                                                                                                              |     |
|         | Item 2                | Unregistered  Sales of Equity Securities and Use of Proceeds                                                      | 11-12    |
|         |                  |                                                                                                              |     |
|         | Item 4                | Submission of  Matters to a Vote of Security Holders                                                              | 12-13    |
|         |                  |                                                                                                              |     |
|         | Item  6               | Exhibits                                                                                                          | 13       |
|              |                       |                                                                                                                   |          |  |

 

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PART I

FINANCIAL INFORMATION

 

**Item 1. Financial Statements.**

** **

KOSSCORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
| ** **                                     | ** ** | **September 30, 2008** | ** ** | **June 30, 2008** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ASSETS                                         |       |                             |       |                        |       |
| Current Assets:                                |       |                             |       |                        |       |
| Cash                                           |       | $                                | 4,085,018  |                        | $          | 3,322,873 |   |
| Accounts receivable                            |       | 7,933,148                        |       | 10,148,646                  |       |
| Inventories                                    |       | 9,496,223                        |       | 9,374,344                   |       |
| Deferred income  taxes                         |       | 783,995                          |       | 783,995                     |       |
| Other current  assets                          |       | 981,472                          |       | 504,806                     |       |
| Total current  assets                          |       | 23,279,856                       |       | 24,134,664                  |       |
|                                           |       |                             |       |                        |       |
| Property and  equipment, net                   |       | 3,397,960                        |       | 2,746,367                   |       |
| Deferred income  taxes                         |       | 1,066,853                        |       | 1,066,853                   |       |
| Other assets                                   |       | 2,029,123                        |       | 2,029,123                   |       |
|                                           |       | $                                | 29,773,792 |                        | $          | 29,977,007 |   |
|                                           |       |                             |       |                        |       |
| LIABILITIES AND  STOCKHOLDERS’ INVESTMENT |       |                             |       |                        |       |
| Current  liabilities:                          |       |                             |       |                        |       |
| Accounts payable                               |       | $                                | 2,652,131  |                        | $          | 2,950,721 |   |
| Accrued  liabilities                           |       | 1,718,139                        |       | 1,808,467                   |       |
| Dividends  payable                             |       | 480,395                          |       | 480,395                     |       |
| Income tax  payable                            |       | —                           |       | 347,507                     |       |
| Total current  liabilities                     |       | 4,850,665                        |       | 5,587,090                   |       |
|                                           |       |                             |       |                        |       |
| Deferred  compensation                         |       | 1,047,482                        |       | 1,047,482                   |       |
| Derivative liability                           |       | 125,000                          |       | 125,000                     |       |
| Stockholders’  investment                 |       | 23,750,645                       |       | 23,217,435                  |       |
|                                           |       | $                                | 29,773,792 |                        | $          | 29,977,007 |   |

 

See accompanying notes.

 

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KOSSCORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
| **Three Months Ended September 30,** | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|----------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                     |       |      |       |      |       |
| Net sales                                                |       | $         | 11,486,034 |      | $          | 12,637,606 |   |
| Cost of goods  sold                                      |       | 7,085,574 |       | 7,845,626 |       |
| Gross profit                                             |       | 4,400,460 |       | 4,791,980 |       |
| Selling, general  and administrative expense             |       | 2,998,527 |       | 2,784,026 |       |
| Income from  operations                                  |       | 1,401,933 |       | 2,007,954 |       |
| Other income  (expense)                                  |       |      |       |      |       |
| Royalty income                                           |       | 58,333    |       | 131,250   |       |
| Interest income                                          |       | 14,053    |       | 50,440    |       |
| Income before  income tax provision                      |       | 1,474,319 |       | 2,189,644 |       |
| Provision for  income taxes                              |       | 560,555   |       | 853,970   |       |
| Net income                                               |       | $         | 913,764    |      | $          | 1,335,674 |   |
|                                                     |       |      |       |      |       |
| Earnings per  common share:                              |       |      |       |      |       |
| Basic earnings  per common share                         |       | $         | 0.25       |      | $          | 0.36 |   |
| Diluted earnings  per common share                       |       | $         | 0.25       |      | $          | 0.36 |   |
|                                                     |       |      |       |      |       |
| Dividends per  common share                              |       | $         | 0.13       |      | $          | 0.13 |   |

 

See accompanying notes.

 

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KOSSCORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
| **Three Months Ended September 30,**                            | ** ** | **2008**  | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                              |       |      |       |       |       |
| Net income                                                                          |       | $         | 913,764    |       | $          | 1,335,674 |   |
| Adjustments to  reconcile net income to  net cash provided by operating activities: |       |      |       |       |       |
| Depreciation and  amortization                                                      |       | 289,899   |       | 281,096    |       |
| Net changes in  operating assets and liabilities                                    |       | 980,370   |       | 793,722    |       |
|                                                                                |       |      |       |       |       |
| Net cash  provided by operating activities                                          |       | 2,184,033 |       | 2,410,492  |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                              |       |      |       |       |       |
| Acquisition of  equipment                                                           |       | (941,493  | )          | (244,342   | )          |
| Net cash used in  investing activities                                              |       | (941,493  | )          | (244,342   | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                              |       |      |       |       |       |
| Dividends paid                                                                      |       | (480,395  | )          | (476,459   | )          |
| Purchase of  common stock                                                           |       | —    |       | (1,039,204 | )          |
| Exercise of  stock options                                                          |       | —    |       | 1,113,335  |       |
| Net cash used in  financing activities                                              |       | (480,395  | )          | (402,328   | )          |
| Net increase in  cash                                                               |       | 762,145   |       | 1,763,822  |       |
| Cash at  beginning of period                                                        |       | 3,322,873 |       | 4,187,682  |       |
| Cash at end of  period                                                              |       | $         | 4,085,018  |       | $          | 5,951,504 |   |

 

See accompanying notes.

 

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KOSS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30,2008(Unaudited)

 

1.                                       CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

 

The financial statements presented herein are based oninterim amounts.  The condensed balancesheet as of June 30, 2008 has been derived from audited financialstatements and the unaudited interim condensed financial statements have beenprepared in a consistent manner.  In theopinion of management, all adjustments (consisting only of normal recurringaccruals) necessary to present fairly the financial position, results ofoperations and cash flows at September 30, 2008 and for all periodspresented have been made.  The incomefrom operations for the quarter ended September 30, 2008 is notnecessarily indicative of the operating results for the full year.

 

Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted.  It is suggestedthat these condensed consolidated financial statements be read in conjunctionwith the financial statements and notes thereto included in the Registrant’s June 30,2008 Annual Report on Form 10-K.

 

2.                                       EARNINGSPER COMMON SHARE

 

Basic earnings per common share are computed based onthe weighted average number of common shares outstanding.  The weighted average number of common sharesoutstanding for the quarters ending September 30, 2008 and 2007 were3,695,351 and 3,670,782, respectively. When dilutive, stock options are included as share equivalents using thetreasury stock method. For the quarter ended September 30, 2008 there wereno common stock equivalents related to stock option grants included in thecomputation of the average number of shares outstanding for diluted earning percommon share.  For the quarter ended September 30,2007 there were 29,191 common stock equivalents.

 

3.                                       INCOMETAXES

 

We file income tax returns in the United States(Federal), Wisconsin (state) and various other state jurisdictions.  We are not currently subject to income taxexaminations in any of our significant tax jurisdictions.  Tax years open to examination by taxauthorities under the statute of limitations include fiscal 2006 through 2007for Federal and fiscal 2003 through 2007 for most states jurisdictions.

 

We adopted the provisionsfor FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty inIncome Taxes, on July 1, 2007.  As aresult of the implementation of FIN 48, we did not recognize a significantchange in the liability for unrecognized tax benefits.  The total liability for unrecognized taxbenefits was approximately $267,000 as of September 30, 2008.  The liability does not include an amount foraccrued penalties.   We recognizeinterest and penalties related to unrecognized tax benefits in the provisionfor income taxes.  We do not expect asignificant increase or decrease to the total amounts of unrecognized taxbenefits within the next 12 months.  Therewas no material

 

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change in the amount ofunrecognized tax benefits during the first three months ended September 30,2008.

 

4.                                       INVENTORIES

 

The classification of inventories is as follows:

 
| ** **                         | ** ** | **September 30, 2008** | ** ** | **June 30, 2008** | ** ** |
|------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
|                               |       |                             |       |                        |       |
| Raw materials  and work in process |       | $                                | 3,810,438  |                        | $          | 2,131,352 |   |
| Finished goods                     |       | 6,904,651                        |       | 8,461,858                   |       |
|                               |       | 10,715,089                       |       | 10,593,210                  |       |
| LIFO reserve                       |       | (1,218,866                       | )          | (1,218,866                  | )          |
|                               |       | $                                | 9,496,223  |                        | $          | 9,374,344 |   |

 

5.                                       STOCKPURCHASE AGREEMENT

 

The Company has an agreement with its Chairman, JohnC. Koss, to, at the request of the executor of the estate, repurchase Companycommon stock from his estate (only upon the election of the estate) in theevent of his death.  The Company does nothave the right to require 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 September 30, 2008, was $125,000.  The repurchase price is 95% of the fairmarket value of the common stock on the date that notice, if the estate elects,to repurchase is provided to the Company. Under the agreement, the total number of shares to be repurchased willbe sufficient to provide proceeds which are the lesser of $2,500,000 or theamount of estate taxes and administrative expenses incurred by the Chairman’sestate.  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 September 30, 2008, $125,000 has been classified as a derivativeliability on the Company’s financial statements.

 

6.                                       DIVIDENDSDECLARED

 

On September 15, 2008, the Company declared aquarterly cash dividend of $0.13 per share for stockholders of record on September 30,2008 to be paid October 15, 2008. Such dividend payable has been recorded at September 30, 2008.

 

7.                                       STOCK-BASEDCOMPENSATION

 

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 dayof the applicable fiscal year were reserved for issuance pursuant to the 1990Plan.  On July 22, 1992, the Boardof Directors authorized the reservation of an additional

 

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250,000 shares for the 1990Plan, which was approved by the stockholders. In 1993, the Board of Directors authorized the reservation of anadditional 300,000 shares for the 1990 Plan, which was approved by thestockholders.  In 1997, the Board ofDirectors authorized the reservation of an additional 300,000 shares for the1990 Plan, which was approved by the stockholders.  In 2001, the Board of Directors authorizedthe reservation of an additional 300,000 shares for the 1990 Plan, which wasalso approved by the stockholders. Options generally vest over four of five years, with a maximum term offive to ten years.

 

We account for stock optionsand restricted stock issued under the plan in accordance with Statement ofFinancial 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.  The resulting compensation cost for fixedawards with graded vesting schedules is amortized on a straight-line basis overthe vesting period for the entire award. 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 resulting compensation cost is amortizedon a straight-line basis over the vesting period.

 

A summary of stock optionactivity under the plan for the three months ended September 30, 2008 isas follows:

 
| ** **                                      | ** ** | ** **         | ** ** | **Range of Exercise** | ** **   | **Weighted**            | ** ** |
|-------------------------------------------------|------------|--------------------|------------|---------------------------------|--------------|-------------------------|------------|
| ** **                                      | ** ** | **Number of** | ** ** | **Prices per**             | ** **   | **Average**             | ** ** |
| ** **                                      | ** ** | **Shares**         | ** ** | **Share**                       | ** **   | **Exercise Price** | ** ** |
| Shares under  option at June 30, 2008      |       | 561,654            |       | $                               | 15.51-$28.80 |                    | $          | 21.49 |   |
| Granted                                         |       | —             |       | —                          |         | —                  |       |
| Forfeited                                       |       | —             |       | —                          |         | —                  |       |
| Exercised                                       |       | —             |       | —                          |         | —                  |       |
| Shares under  option at September 30, 2008 |       | 561,654            |       | $                               | 15.51-$28.80 |                    | $          | 21.49 |   |

 

Therange of options as of September 30, 2008 is as follows:

 
| ** **               | ** ** | ** **                      | ** ** | ** **                  | ** ** | **Weighted Average**          | ** ** |
|--------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------------------------|------------|
| ** **               | ** ** | ** **                      | ** ** | **Weighted Average**   | ** ** | **Remaining**                      | ** ** |
| **Range of**        | ** ** | **Number of Options** | ** ** | **Exercise Price**     | ** ** | **Contractual Life (In** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding/Exercisable**     | ** ** | **Outstanding/Exercisable** | ** ** | **Years)**                         | ** ** |
| $15.51- $19.47           |       | 219,654 / 76,904                |       | $17.37 / $17.57             |       | 1.6                                |       |
| $21.42 - $24.11          |       | 262,000 / 201,000               |       | $22.92 / $23.32             |       | 2.0                                |       |
| $26.18 - $28.80          |       | 80,000 / 38,000                 |       | $28.15 / $28.25             |       | 4.1                                |       |
|                     |       | 561,654 / 315,904               |       | $21.49 / $26.79             |       |                               |       |

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

Financial Condition, Liquidity and Capital Resources

 

Cash provided by operating activities during thequarter ended September 30, 2008 amounted to $2,184,033.  This was a result of net income for theperiod adjusted for changes in operating assets and current liabilities.

 

Capital expenditures for new equipment (includingproduction tooling) were $941,493 for the quarter.  Capital expenditures for fiscal year 2009 areexpected to be approximately $3.8 million. The Company expects to generate sufficient funds through operations tofund these expenditures.

 

Stockholders’ investment increased to $23,915,766 at September 30,2008, from $223,217,435 at June 30, 2008. The increase reflects net income offset by dividends declared.

 

The Company amended its existing credit facility in November 2008,extending the maturity date of the unsecured line of credit to November 1,2009, and expects to extend it to November 1, 2009 in the currentquarter.  This credit facility providesfor borrowings up to a maximum of $10,000,000. The Company can use this credit facility for working capital purposes orfor the purchase of its own common stock pursuant to the Company’s common stockrepurchase program.  Borrowings underthis credit facility bear interest at the bank’s prime rate, or LIBOR plus1.75%.  This credit facility includesfinancial covenants that require the Company to maintain a minimum tangible networth and specified current interest coverage, and leverage ratios, with whichthe Company is currently in compliance. The Company uses its credit facility from time to time, although there wasno utilization of this credit facility during the quarter ended September 30,2008.

 

In April of 1995, the Board of Directors approveda stock repurchase program authorizing the Company to purchase from time totime 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.

 

The Company did not repurchase any shares of itscommon stock during the quarter ended September 30, 2008.

 

From the commencement of the Company’s stockrepurchase program through September 30, 2008, the Company has purchased atotal of 5,470,104shares for a total gross purchase price of $52,725,254 (representing an averagegross purchase price of $9.64 per share) and a total net purchase price of $41,901,511(representing an average net purchase price of $7.66 per share).  The difference between the total grosspurchase price and the total net purchase price is the result of the Company purchasingfrom certain employees shares of the Company’s stock acquired by such employeespursuant to the Company’s stock option program. In determining the dollar amount available for additional purchasesunder the stock repurchase program, the Company uses the total net purchaseprice paid by the Company for all stock purchases, as authorized by the Boardof Directors.

 

The Company also has an Employee Stock Ownership Planand Trust (“ESOP”) pursuant to which shares of the Company’s stock arepurchased by the ESOP for allocation to the accounts of ESOP participants.  There were no ESOP purchases for the quarterended September 30, 2008.

 

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Results of Operations

 

Net sales for the first quarter ended September 30,2008 decreased by 9% to $11,486,034 compared with $12,637,606 for the sameperiod in 2007.  The decrease isprimarily attributable to the result of soft U.S. retail sales.

 

Gross profit as a percent of net sales was 38% for thequarter ended September 30, 2008 and 38% for the quarter ended September 30,2007.

 

Selling, general and administrative expenses for thequarter ended September 30, 2008 were $2,998,527 or 26% of net sales,compared to $2,784,026 or 22% of net sales for the same period in 2007.  This is a result of the Company’s increasedspending in research and development.

 

For the first quarter ended September 30,2008, income from operations was $1,401,933 versus $2,007,954 for the sameperiod in the prior year, a 30% decrease. Net income for the quarter fell by 32% to $913,764 from $1,335,674 forthe same period in 2007.  The decreasesin income from operations and net income are primarily due to the resultof soft U.S. retail sales.

 

Royalty income for the quarter ended September 30,2008 was $58,333, compared with $131,250 for the quarter ended September 30,2007.

 

Interest income for thequarter was $14,053 as compared to $50,440 for the same quarter in 2007.  Interest income fluctuates in relation tocash balances on hand throughout the year and fluctuations in interest ratesearned.

 

The provision for income taxes was $560,555 and$853,970 for the quarters ended September 30, 2008 and 2007, respectively.  The effective tax rate was 39% for eachquarter.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Recently Issued Financial Accounting Pronouncements

 

There are no new accountingpronouncements which would have a material impact on the Company.

 

**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 facility usedfor working capital purposes and stock repurchases, as disclosed in the “FinancialCondition, Liquidity and Capital Resources” section of “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” above.

 

**Item4T.  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 that information,which is required to be timely disclosed, is accumulated and communicated tomanagement in a timely fashion.  Acontrol system, no matter how well conceived and operated,

 

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canprovide only reasonable, not absolute, assurance that the objectives of thecontrol system are met.  The Company,under the supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer/Chief Financial Officer, afterevaluating the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the endof the period covered by this report, has concluded that the Company’sdisclosure controls and procedures are effective to provide reasonableassurance that information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act is accumulated andcommunicated to the Company’s management, including its principal executiveofficer and principal financial officer, as appropriate to allow timelydecisions regarding required disclosure and are effective to provide reasonableassurance that such information is recorded, processed, summarized, andreported within the time periods specified in 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 reasonably likelyto 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, ifany, within the Company have been detected.

 

**PART IIOTHER INFORMATION**

 

**Item1A.**                                                  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.

 

**Item2.**                                                           UnregisteredSales of Equity Securities and Use of Proceeds

** **

Thefollowing table presents information with respect to purchases of common stockof the Company made during the quarter ended September 30, 2008, by theCompany.

 

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**COMPANYREPURCHASES OF EQUITY SECURITIES**

 
| **Period (2008)**                     | ** ** | **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** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| July 1 –  July 31           |       | —                                      |       | $                                            | 0.00       |                                                                                                                   | —     |                                                                                                   | $          | 2,169,506 |   |
|                                       |       |                                        |       |                                         |       |                                                                                                                   |       |                                                                                                   |       |
| August 1 – August 31        |       | —                                      |       | $                                            | 0.00       |                                                                                                                   | —     |                                                                                                   | $          | 2,169,506 |   |
|                                       |       |                                        |       |                                         |       |                                                                                                                   |       |                                                                                                   |       |
| September 1  – September 30 |       | —                                      |       | $                                            | 0.00       |                                                                                                                   | —     |                                                                                                   | $          | 2,169,506 |   |

 

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(1) In April of 1995, the Board of Directors approved a stock repurchaseprogram authorizing the Company to purchase from time to time up to $2,000,000of its common stock for its own account. Subsequently, the Board of Directors periodically has approved increasesin the stock repurchase program.  Themost recently approved increase was for additional purchases of $2,000,000,which occurred in October 2006, for an aggregate maximum of $45,500,000,of which $43,330,494 had been expended through September 30, 2008.

 

**Item 4.**                                                         Submissionof Matters to a Vote of Security Holders

** **

(a)           On October 8,2008, an Annual Meeting of Stockholders was held.

 

(b)           Proxiesfor the election of directors were solicited pursuant toRegulation 14.  There was nosolicitation in opposition to management’s nominees, and all such nominees wereelected.

 

(c)           There were3,695,351 shares of common stock eligible to vote at the Annual Meeting, ofwhich 3,554,191 shares were present at the Annual Meeting in person or byproxy, which constituted a quorum.  Thefollowing is a summary of the results of the voting:

 

| ** **                                 | ** ** | **Number of Votes** | ** ** | **Broker**   | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|--------------|------------|
| ** **                                 | ** ** | **For**                       | ** ** | **Withheld** | ** ** | **Non-Votes** | ** ** |
| Nominees for  1-year terms ending in 2009: |       |                          |       |         |       |   |   |
|                                       |       |                          |       |         |       |   |   |
| John C. Koss                               |       | 3,541,461                     |       | 12,730       |       | 0 |   |
| Thomas L. Doerr                            |       | 3,541,203                     |       | 12,988       |       | 0 |   |
| Michael J. Koss                            |       | 3,539,987                     |       | 14,204       |       | 0 |   |
| Lawrence S.  Mattson                       |       | 3,540,081                     |       | 14,110       |       | 0 |   |
| Theodore H.  Nixon                         |       | 3,541,206                     |       | 12,985       |       | 0 |   |
| John J.  Stollenwerk                       |       | 3,539,381                     |       | 14,810       |       | 0 |   |

 

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| ** **                                                                                         | ** ** | **Number of Votes** | ** ** | ** **  | ** ** | **Broker**  | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                         | ** ** | **For**                       | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Votes** | ** ** |
| Appointment of  Grant Thornton LLP as independent auditors for the year ending June 30,  2009 |       | 3,550,587                     |       | 2,156       |       | 1,448       |       | 0 |   |

 

**Item 6.**                                                         Exhibits

** **

See Exhibit Index attached hereto.

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

** **

This Form 10-Q contains forward-lookingstatements within the meaning of that term in the Private Securities LitigationReform Act of 1995 (the “Act”) (Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934).  Additional written or oral forward-lookingstatements may be made by the Company from time to time in filings with theSecurities Exchange Commission, press releases, or otherwise.  Statements contained in this Form 10-Qthat are not historical facts are forward-looking statements made pursuant tothe safe harbor provisions of the Act. Forward-looking statements may include, but are not limited to,projections of revenue, income or loss and capital expenditures, statementsregarding future operations, anticipated financing needs, compliance withfinancial covenants in loan agreements, plans for acquisitions or sales ofassets or businesses, plans relating to products or services of the Company,assessments of materiality, predictions of future events, the effects ofpending and possible litigation, and assumptions relating to the foregoing.  In addition, when used in this Form 10-Q,the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans”and variations thereof and similar expressions are intended to identifyforward-looking statements.

 

Forward-looking statements are inherently subject torisks and uncertainties, some of which cannot be predicted or quantified basedon current expectations.  Consequently,future events and actual results could differ materially from those set forthin, contemplated by, or underlying the forward-looking statements contained inthis Form 10-Q, or in other Company filings, press releases, orotherwise.  In addition to the factorsdiscussed in this Form 10-Q, other factors that could contribute to orcause such differences include, but are not limited to, developments in any oneor more of the following areas:  futurefluctuations 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, fluctuations in currency exchangerates and other risk factors which may be detailed from time to time in theCompany’s Securities and Exchange Commission filings.

 

Readers are cautioned not to place undue reliance onany forward-looking statements contained herein, which speak only as of thedate hereof.  The Company undertakes noobligation to publicly release the result of any revisions to theseforward-looking statements that may be made to reflect events or circumstancesafter the date hereof or to reflect the occurrence of unexpected events.

 

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Signatures

 

Pursuant to the requirements of the Securities andExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 

KOSSCORPORATION

 

 
| Date:  | November 14, 2008 |                             | /s/ Michael J. Koss |
|--------|------------------------|----------------------------------|---------------------|
|   |                   | Michael J. Koss                  |
|   |                   | Vice Chairman,  President,       |
|   |                   | Chief Executive Officer  and     |
|   |                   | Chief Financial Officer          |
|   |                   |                             |
|   |                   |                             |
| Date:  | November 14, 2008 |                             | /s/ Sujata Sachdeva |
|   |                   | Sujata Sachdeva                  |
|   |                   | Vice President—Finance  and |
|   |                   | 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.                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 31     |   | Rule 13a-14(a)/15d-14(a) Certification  of Chief Executive Officer/Chief Financial Officer *                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                     |
| 32     |   | Section 1350  Certification of Chief Executive Officer/Chief Financial Officer **                                                                                                                                                                                                                                                   |

 

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

 

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