KOSS CORP
For the period ended Sep 30, 2024. Filed Nov 1, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 1, 2024
KOSS$3.16+4.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-10.
0000056701-24-000014
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-01.
0000056701-24-000043
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 48 previous paragraphs and 48 current paragraphs.
18 unchanged; 18 reworded; 12 added; 11 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 2 previous and 2 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (12)
Current report
Net sales for the three months ended September 30, 2024 were $3,201,868, down $172,070, or 5.1%, from $3,373,938 for the same three-month period in the prior year. A sizable custom order in the prior year’s first quarter did not repeat, causing a decline in the current quarter. Coupled with that, was an approximately 20% decline in sales to our U.S. distributors. Improved sales to our European markets and a near 18% increase in direct-to-consumer (“DTC”) sales did help to partially offset the decline.
Current report
In the domestic markets, net sales were down $435,794, or 16.7%, from $2,603,158 for the three months ended September 30, 2023 to $2,167,364 for the three months ended September 30, 2024. The decrease was driven by a non-recurring custom order from the prior year, a shortfall in U.S. distributor sales due to a missed shipment and timing of new orders. Sales to the Education and Music markets also dropped by 55% versus the prior year, contributing to the overall decline. The increase in DTC sales in the first quarter of fiscal year 2025 compared to the prior year moderately offset some of the domestic sales reduction.
Current report
Sales to the export markets were a highlight for the quarter as the Company’s two largest European distributors placed significant orders for a newly released product, resulting in an 86% increase over the sales to them in the first quarter of the prior year. Sales to a Georgian distributor were also up 100% versus the prior year and a Canadian retail account returned with a respectable new order after discontinuing the Company’s product line. As an offset to this favorability, the Ukrainian distributor has not yet reordered, thus resulting in a gap compared to the approximately $214,000 order received in the first quarter of fiscal year 2024.
Current report
Gross margins as a percentage of net sales of 36.6% for the three months ended September 30, 2024 was a 500-basis points improvement compared to 31.6% for the three months ended September 30, 2023. A favorable sales mix, made up of a higher percentage of higher margin DTC sales plus the sales of the newly released product to our European distributors, was only slightly offset by a lower percentage of higher margin U.S. distribution sales. Also contributing to the increased margin performance was the freight expense offset related to the capitalization of freight costs into inventory for the stock purchased to ensure appropriate levels for the new product launches. An increase to the excess and obsolete inventory reserve driven by inventory on some items in excess of two years’ sales had an adverse impact on the gross margins for the first quarter of fiscal year 2024.
Current report
Freight rates increased slightly throughout the quarter ended September 30, 2024, along with lead times, due to peak season and delays from the West Coast to the Midwest. Sixty percent of the Company’s shipments shipped under lower fixed rates that are accessible via the Company’s partnership with a dedicated freight forwarder. Market rates are expected to continue to rise into the next quarter due to increased U.S import demand during peak season and the significant challenges of shipping through the Red Sea and Suez Canal, causing major disruptions to global trade and increased costs. The Company also continues to monitor the sustained conflicts in Eastern Europe and the Middle East and is prepared to react as necessary if faced with supply chain disruptions.
Current report
Selling, general and administrative expenses for the three months ended September 30, 2024 increased by $273,780, or 17.8% from $1,536,279 to $1,810,059. The increase was almost entirely attributable to the increase in the deferred compensation liability as a result of the lower discount rates used in the calculation as well as an increase in expected payments due to an additional year of service. An increase in engineering expenses, mainly for new product testing and certification costs, was offset by a similar decline in legal expenses.
Current report
Interest income of $220,358 was recorded during the three months ended September 30, 2024 mainly due to interest earned on the U.S. Treasury investments held during the quarter in order to earn a return on the Company’s excess cash while maintaining a minimal risk profile. This compares to $212,859 of interest income earned in the same period in the prior fiscal year from these securities.
Current report
Recent Trends
Current report
On Monday, October 1, 2024, the International Longshoremen’s Association (the “ILA”) called a coast-wide strike, temporarily closing the U.S. East Coast and Gulf Coast ports, affecting the movement of import and export containers. On Thursday, October 3rd, the ILA and the United States Maritime Alliance, Ltd. (USMX) reached a tentative agreement on wages and to extend the Master Contract until January 15, 2025, to return to the bargaining table to negotiate all other outstanding issues. Work resumed at most ports along the US East and US Gulf coasts on Friday, October 4th. While some residual delays may occur as port operations gradually return to full capacity, the Company is aware that a final agreement will not be concluded until the end of the second quarter of the fiscal year and could still have a significant impact on its operations in the second half of the fiscal year. The Company will, however, continue to monitor this situation and others that may arise as the changes in the current labor landscape, the settlement of recent labor disputes, coupled with rising energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.
Current report
The cash provided by operating activities during the three months ending September 30, 2024, was primarily a result of customer deposits for orders shipping in the next quarter. Also contributing to the positive cash flow was the refund of $362,000 by the Company’s payroll vendor relating to employee payroll taxes on the gains from the disqualifying dispositions of incentive stock options as the Company has now chosen to issue the checks directly to the employees. Cash outflow for the premium payments made for the annual renewal of the Company’s general insurance policies partially offset the cash that came in. During the three months ended September 30, 2023, the cash used in operating activities was due to payment of bonuses earned in the prior year, general insurance premiums and state income tax payments. The Company’s strict management of its inventory investment helped to retain some cash in the first quarter.
Current report
Critical Accounting Policies and Estimates
Current report
There have been no significant changes in our critical accounting policies and estimates from the information we provided in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Removed paragraphs (11)
Previous report
Net sales for the three months ended March 31, 2024 were $2,638,000 compared to $3,381,000 for the same three-month period in the prior year, a decrease of $743,000, or 22.0%. A reduction in sales to a significant customer in the educational space, due to timing of a recurring order versus the prior year, was the most significant contribution to the decline, coupled with a meaningful drop in direct-to-consumer (“DTC”) sales and sales to our largest domestic distributors. For the nine months ended March 31, 2024, sales of $9,372,000 were also unfavorable compared to $10,026,000 of sales for the first three quarters of the prior fiscal year with the driver being the nearly 30% fall in DTC sales followed by declines in all export market sales and sales to domestic distributors. The decreases were offset somewhat by increased sales of custom headphones.
Previous report
In the domestic markets, net sales of $2,056,000 for the three months ended March 31, 2024 reflected a decrease of $673,000, or 24.6%, when compared to sales of $2,729,000 for the three months ended March 31, 2023. The decrease was driven by the timing of the order from the education customer as noted above along with the step back in DTC sales and sales to domestic distributors. During the nine months ended March 31, 2024, domestic sales were off by $294,000, or 3.9%, versus sales to the domestic markets during the same period in the prior year. Nearly half of the 27.0% decline in DTC sales, plus the nearly 10% decline in sales to domestic distributors, were offset by sales of custom headphones to a new customer and an over 50% increase in sales to e-tailers.
Previous report
The export markets saw a slight decline in sales to our Europe and Asia partners for the three months ended March 31, 2024 compared to the same period in the prior year. Total export sales for the third quarter of fiscal year 2024 were $582,000 in comparison with sales of $652,000 in the third quarter of fiscal year 2023, a decrease of $70,000, or 10.7%. Sales for the nine months ended March 31, 2024 were down $361,000, or 15.0%, to $2,045,000 versus sales of $2,406,000 to the export markets during the same nine-month period in the prior year, most significantly in the European market. The current quarter did, however, include a rather sizable restock order from a distributor in Eastern Europe, along with smaller orders from a new customer in the region. There have been no sales to our Russian distributor since April 2022.
Previous report
Gross margins as a percentage of net sales for the three months ended March 31, 2024 were 31.9% as compared to 38.6% for the three months ended March 31, 2023, a drop of 670 basis points. While the mix of sales by market class was fairly consistent year over year and there was some favorability as a result of a decrease in the excess and obsolete inventory reserve, the adverse impact on margin from the continued sell through of Company inventory brought in from suppliers at higher freight rates, coupled with the increase in online marketplace seller fees due to some targeted marketing programs, drove the decline. Gross margin as a percentage of sales for the nine months ended March 31, 2024 was 32.2% compared with 36.3.% for the same nine months in the prior year. The 410 basis points drop in the current period’s margins was primarily driven by the aforementioned sell-through combined with an increase in the reserve for excess and obsolete inventory.
Previous report
The Company was able to preserve consistent freight rates through the quarter ended March 31, 2024, as the Company’s partnership with a dedicated freight forwarder provided access to lower fixed freight rates. Market rates and transit times continue to stabilize as carriers have adjusted to ongoing environmental and geopolitical issues in the Panama and Suez Canals. The market remains oversupplied but will become more vulnerable to disruption as the year progresses and lower demand due to declining consumer confidence and rising prices could result in overcapacity in the market. The Company continues to monitor the ongoing tension in Eastern Europe and the Middle East and is prepared to react as necessary if faced with supply chain disruptions. While the Red Sea shipping crisis is disrupting global supply chains, the Company rarely utilizes this route so no adverse impacts are expected.
Previous report
Selling, general and administrative expenses were $1,451,000 for the three months ended March 31, 2024, a decrease of $298,000, or 17.0%, compared to the same three months in the prior year. The decrease in the quarter was driven by a number of reasons: 1) personnel departures for which work was reallocated with no replacement hired, 2) a reduction in bad debt expense as a result of continued strong collections and low past due accounts, 3) a decrease in deferred compensation expense driven by lower discount rates used to calculate the deferred compensation liability in the prior year, and 4) a reduction in stock based compensation expense as options became fully vested. For the nine months ended March 31, 2024, selling, general and administrative expenses of $4,572,000 were reduced by $23,335,000 from $27,907,000 of expenses incurred for the nine months ended March 31, 2023. The decrease was predominantly driven by the $22,141,000 of legal fees and related expenses incurred during the prior nine-month period in support of the Company’s patent defense litigation. Also, expenses related to bonus and profit-sharing accruals of $381,000 and $576,000, respectively, were recorded during the nine months ended March 31, 2023 as a result of the increased net income before income taxes due to the licensing proceeds received in that year. A decrease in payroll expense as a result of personnel departures in the prior fiscal year, coupled with a reduction in stock based compensation expense as options became fully vested, also contributed to the decline.
Previous report
No other income was recorded for the three and nine months ended March 31, 2024. Other income for the nine months in the prior period consisted entirely of $33,000,000 in licensing proceeds received during the first quarter.
Previous report
Recent Events
Previous report
Our dependence on foreign suppliers for our products necessitates ordering products further in advance than we would if manufactured domestically, thus increasing investments in inventory. Delays in receiving and shipping products due to interruptions in its supply chain would pose a risk of lower sales to the Company and the potential for price volatility, negatively impacting profits. Recovery of a single facility through replacement of a supplier in the event of a disaster or suspension of supply could take an estimated six to twelve months.
Previous report
On July 25, 2023, United Parcel Service (“UPS”) and the International Brotherhood of Teamsters Union reached a tentative five-year contract deal that averted a nationwide strike. Also, in December 2022, the U.S. government abated a threatened railroad strike and implemented a labor agreement that prohibited the workers from striking and negotiations continue between union leaders and railroad executives of each of the remaining railroads. While Yellow freight lines announced their insolvency earlier in the year, the Company has had no material direct exposure to Yellow. The Company continues to monitor these situations as the changes in the current labor landscape, the settlement of recent labor disputes, coupled with rising energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.
Previous report
The cash used in operating activities during the nine months ending March 31, 2024, was primarily a result of the payment of bonuses earned in the prior year mostly offset by improvements in cash flow related to working capital, namely the reduction of inventory levels. During the nine months ended March 31, 2023, the majority of the cash provided by operating activities resulted from the licensing proceeds received, partially offset by the payment of related legal fees and expenses and profit sharing.
Reworded paragraphs (18)
Previous wording
The following table presents selected financial data for the three and nine months ended March 31, 2024 and 2023:
Current wording
The following table presents selected financial data for the three months ended September 30, 2024 and 2023:
Previous wording
(comments refer to the three and nine-month periods ended March 31 unless otherwise noted)
Current wording
(comments refer to the three-month periods ended September 30 unless otherwise noted)
Previous wording
As a result of a taxable loss for the three- and nine-month periods ended March 31, 2024, no federal income tax expense was recorded. Instead, a federal income tax benefit of $82,653 was recorded for both periods as a result of the RTP adjustment recorded during the third quarter of fiscal 2024. State income tax expense of $1,522 and $5,281 was recorded for the three and nine months ended March 31, 2024, respectively, reflecting the minimum required tax due. For the nine months ended March 31, 2023, the utilization of net operating loss carryforwards significantly reduced the taxable income for that period, resulting in federal and state tax provisions of $374,714 and $89,214, respectively. The effective tax rate was 20.5% and 8.4%, respectively, in the three and nine months ended March 31, 2024 and was 12.1% and 5.1%, respectively, for those same periods in the prior year. It is anticipated that the effective rate in the current year and future years will be reduced by utilization of a portion or all of the federal net operating loss carryforwards that existed as of June 30, 2023.
Current wording
As a result of minimal or no taxable income after utilization of net loss carryforwards, no federal income tax expense was recorded for either of the three-month periods ended September 30, 2024 and 2023. State income tax expense of $2,760 was recorded for the three months ended September 30, 2024, reflecting the minimum required tax due plus a negligible net taxable income after considering NOLs. A state income tax expense of $1,879 was recorded in the first quarter of fiscal year 2024, which represented only the minimum required tax amounts due given no taxable net income. The effective tax rate was less than 1% for both three-month periods ending September 30, 2024 and 2023. It is anticipated that the effective rate in the current year and future years will be reduced by utilization of a portion or all of the federal and state net operating loss carryforwards that existed as of June 30, 2024.
Previous wording
The Company’s remaining expected federal tax loss carryforward is expected to approximate $32,800,000 by the end of the fiscal year. The taxable loss for the first nine months of fiscal year 2024 increased the net operating loss carryforward deferred tax asset to approximately $8,500,000 as of March 31, 2024, and the future realization of this continues to be uncertain. The valuation allowance was increased to fully offset the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred.
Current wording
The Company’s remaining expected federal tax loss carryforward approximates $32,800,000 at the end of the first quarter of fiscal 2025. The small state taxable income after considering net operating losses decreased the net operating loss carryforward deferred tax asset to approximately $8,500,000 as of September 30, 2024. The valuation allowance was adjusted accordingly and still fully offsets the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred.
Previous wording
As previously mentioned, the Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has enforced its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless headphone technology. If efforts are successful, the Company may receive royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position from time to time. However, there is no guarantee of a positive outcome from these efforts in the future, which could ultimately be time-consuming and unsuccessful. Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties.
Current wording
The Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has enforced its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless headphone technology. If efforts are successful, the Company may receive royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position from time to time. However, there is no guarantee of a positive outcome from these efforts in the future, which could ultimately be time-consuming and unsuccessful. Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties.
Previous wording
The Company believes that its financial position remains strong. The Company had $2.9 million of cash and cash equivalents, $7.0 million of short-term investments and available credit facilities of $5.0 million on March 31, 2024.
Current wording
The Company believes that its financial position remains strong. The Company had $2.8 million of cash and cash equivalents, $9.1 million of short-term investments and available credit facilities of $5.0 million on September 30, 2024.
Previous wording
Recent and ongoing macroeconomic and geopolitical conditions have impacted, and will continue to impact, our business. These include economic uncertainty from elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain and trade tensions with China, the ongoing crises in Eastern Europe, the ongoing instability in the Middle East and increased risk of cyberattacks.
Current wording
Recent and ongoing macroeconomic and geopolitical conditions have impacted, and will continue to impact, our business. These include economic uncertainty from elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain and trade tensions with China, the ongoing crises in Eastern Europe, the continued conflict in the Middle East and increased risk of cyberattacks.
Previous wording
Inflationary Cost Environment and Reduced Consumer Confidence -The Company continues to experience inflationary cost increases in our commodities, packaging materials, wages and higher energy and transportation costs, potentially impacting our ability to meet customer demand. These increases have been partially mitigated by pricing actions implemented in the third quarter of the prior fiscal year, as well as working with a dedicated freight forwarding partner to minimize freight rate increases. Inflation may impact customer demand for our products resulting from a slowdown in consumers’ willingness to spend as disposable income decreases due to rising prices of essential items, spend through of excess savings from earlier in the pandemic and leading indicators pointing to a softening in the labor market. Other risk factors further exacerbated by inflation include supply chain disruptions, increased oil and energy costs, risks of international operations and the recruitment and retention of talent.
Current wording
Inflationary Cost Environment and Reduced Consumer Confidence -Inflation, higher interest rates and higher energy costs continue to impact consumers’ discretionary spending and, in turn, the Company’s sales volumes. Inflation may impact customer demand for our products resulting from a slowdown in consumers’ willingness to spend as disposable income decreases due to rising prices of essential items, spend through of excess savings from earlier in the pandemic and leading indicators pointing to a softening in the labor market. While inflation rates have come down since the prior year, the Company is still experiencing higher costs of commodities, packaging materials, and wages, along with higher energy and transportation costs. The Company continues to monitor costs and will react with pricing actions as it deems necessary. The Company continues to work with a dedicated freight forwarding partner to minimize freight rate increases. Other risk factors further exacerbated by inflation include supply chain disruptions, increased oil and energy costs, risks of international operations and the recruitment and retention of talent.
Previous wording
Supply Chain Disruption and Trade Tensions with China -The Company relies on our third-party supply chain and distribution networks and the availability of necessary components to produce a considerable number of our products. A reduction or interruption in supply, including interruptions due to a reoccurrence of the COVID-19 pandemic, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.
Current wording
Supply Chain Disruption and Trade Tensions with China -The Company relies on our third-party supply chain, primarily in southern China, and distribution networks and the availability of necessary components to produce a considerable number of our products. A reduction or interruption in supply, including interruptions due to pandemic related restrictions, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.
Previous wording
The Company uses contract manufacturing facilities in the People’s Republic of China and Taiwan to produce a significant amount of our products. There has been increasing geopolitical tension between China and Taiwan that may affect future shipments from Taiwan and China-based suppliers. Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy or delay shipments. There has also been increasing geopolitical tension between China and the United States. Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country. Any alterationsto our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would also directly affect profits.
Current wording
Many of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan. There has been increasing geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers. Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy from our foreign suppliers or delay shipments of products. There has also been increasing geopolitical tension between China and the United States. Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country. Any alterationsto our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would also directly affect profits.
Previous wording
Russia’s Invasion of Ukraine -Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia. While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive a sizable order from their Ukrainian distributor in the first quarter of fiscal year 2024 with potential for another before the end of this fiscal year. During the three and nine months ended March 31, 2024 and 2023, there were no sales to Russia.
Current wording
Russia’s Invasion of Ukraine -Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia. While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive a sizable order from their Ukrainian distributor in the first quarter of fiscal year 2024 with potential for more orders in the current year. During the three months ended September 30, 2024 and 2023, there were no sales to Russia.
Previous wording
Cyberattacks - Cyberattacks are a growing geopolitical risk, becoming larger, more frequent, more intricate and more relentless. They are a significant threat to individual organizations and national security. We rely on accounting, financial, and operational management information systems to conduct our operations. Any disruption in these systems could adversely affect our ability to conduct our business. Furthermore, as part of our normal business activities, we collect and store common confidential information about customers, employees, vendors, and suppliers. This information is entitled to protection under a number of regulatory regimes. Any failure to maintain the security of the data, including the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in customers confidence in us and other competitive disadvantages, and thus could have a material adverse impact on our financial condition and results of operations. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security and the insurance coverage we maintain may be inadequate to cover claims, costs, and liabilities relating to cybersecurity incidents.
Current wording
Cyberattacks - Cyberattacks are a growing geopolitical risk, becoming larger, more frequent, more sophisticated and more relentless as technology has evolved, resulting in privacy, security, and compliance concerns. They are a significant threat to individual organizations and national security. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting businesses. We rely on accounting, financial, and operational management information systems to conduct our operations. Any disruption in these systems could adversely affect our ability to conduct our business. Furthermore, as part of our normal business activities, we collect and store common confidential information about customers, employees, vendors, and suppliers. This information is entitled to protection under a number of regulatory regimes. Any failure to maintain the security of the data, including the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in customers confidence in us and other competitive disadvantages, and thus could have a material adverse impact on our financial condition and results of operations. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security and there is a risk that these types of attacks could impact the entire supply and distribution chain for the Company’s product line. In a world that runs on the internet, the Company can only be as strong as its weakest link, whether as a financial service provider, third party distributor, reseller, transportation service provider, contract manufacturer, customer or consumer.
Previous wording
The following table summarizes cash flows from operating, investing and financing activities for the nine months ended March 31, 2024 and 2023:
Current wording
The following table summarizes cash flows from operating, investing and financing activities for the three months ended September 30, 2024 and 2023:
Previous wording
Cash used by investing activities for the nine months ended March 31, 2024 was related to fixed asset expenditures, predominantly the replacement of a roof section of the building for approximately $300,000, and the payment of the premiums on the company-owned life insurance policies on two of its executives. Proceeds of $14,331,000 were received during the nine months ended March 31, 2024 from the maturity of U.S. Treasury securities and were mostly reinvested to purchase $14,286,000 of similar securities at a $300,000 discount. Cash used by investing activities for the nine months ended March 31, 2023 was almost entirely related to the purchase of $17,334,000 of U.S. Treasury securities at a discount of $450,000. The Company believes that its available cash and its credit facility is sufficient to fund any necessary tooling, leasehold improvement and capital expenditures.
Current wording
Cash used by investing activities for the three months ended September 30, 2024 was related mostly to fixed asset expenditures, namely the replacement of a second roof section of the building, and the payment of the premiums on the company-owned life insurance policies on two of its executives. Proceeds of $5,034,000 received during the three months ended September 30, 2024 from the maturity of U.S. Treasury securities were mostly reinvested to purchase $5,057,000 of similar securities at a $58,000 discount. Cash used by investing activities for the three months ended September 30, 2023 was also related to fixed asset expenditures, predominantly the replacement of a roof section of the building for approximately $300,000. The Company also paid the premiums on the company-owned life insurance policies on two of its executives.
Previous wording
Cash from the exercise of stock options during the nine months ended March 31, 2024 and 2023 provided the cash from financing activities. An aggregate of 20,000 and 69,000 shares of common stock, respectively, were issued as a result of employee stock option exercises under the Company’s 2012 Omnibus Incentive Plan for those periods.
Current wording
Cash from the exercise of stock options during the three months ended September 30, 2024 provided the only cash from financing activities. An aggregate of 51,000 shares of common stock were issued as a result of employee stock option exercises under grants still outstanding from the Company’s 2012 Omnibus Incentive Plan. There were no stock option exercises in the first quarter of the prior fiscal year.
Previous wording
As of March 31, 2024, the Company had no outstanding borrowings on its bank line of credit facility.
Current wording
As of September 30, 2024 and June 30, 2024, the Company had no outstanding borrowings on its bank line of credit facility.
Previous wording
There were no purchases of common stock in the three and nine months ended March 31, 2024 or March 31, 2023 under the stock repurchase program.
Current wording
There were no purchases of common stock in the three months ended September 30, 2024 or 2023 under the stock repurchase program.
Previous wording
On May 14, 2019, the Company entered into a secured credit facility (“Credit Agreement”) with Town Bank (“Lender”). The Credit Agreement provides for a $5,000,000 revolving secured credit facility for letters of credit for the benefit of the Company of up to a sublimit of $1,000,000. There are no unused line fees in the credit facility. On January 28, 2021, the Credit Agreement was amended to extend the expiration date to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50%. A Third Amendment to the Credit Agreement effective October 30, 2022, extended the expiration date to October 31, 2024. The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit
Current wording
On May 14, 2019, the Company entered into a secured credit facility (“Credit Agreement”) with Town Bank (“Lender”). The Credit Agreement provides for a $5,000,000 revolving secured credit facility for letters of credit for the benefit of the Company of up to a sublimit of $1,000,000. There are no unused line fees in the credit facility. On January 28, 2021, the Credit Agreement was amended to extend the expiration date to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50%. A Third Amendment to the Credit Agreement effective October 30, 2022, extended the expiration date to October 31, 2024. A Fourth Amendment to the Credit Agreement effective October 30, 2024, extends the maturity date to October 31, 2026, and removes one of the covenants requiring submission of annual financial performance projections to the Lender. The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. As of September 30, 2024, the Company was in compliance with all covenants related to the Credit Agreement. As of September 30, 2024 and June 30, 2024, there were no outstanding borrowings on the facility.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Agreement. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. As of March 31, 2024, the Company was in compliance with all covenants related to the Credit Agreement. As of March 31, 2024 and June 30, 2023, there were no outstanding borrowings on the facility.