Author Topic: KOSS - Koss Corp  (Read 5160 times)

enoch01

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KOSS - Koss Corp
« on: January 28, 2011, 10:00:40 AM »
Koss is a retailer specializing in stereo headphones, run by the Koss family.

Over a period of 4 years (2005-2009), the vice president of finance managed to steal $34 million from the company.  This is 80% of today's market cap.

This has "ick" written all over it: criminal behavior on the part of the embezzler, likely incompetence on the part of her superiors - what's to like here?
http://www.msnbc.msn.com/id/40245372/ns/us_news-crime_and_courts/

The thesis is that, going forward, if the company could run the business as they have historically, you are looking at 34 / 4 = $8.5 million per year.  That is against a market cap of $42 million.  Debt is negligible.

Today comes news that there will be an auction of goods purchased by the former executive, with proceeds going back to the company:
http://www.jsonline.com/business/114727814.html

Any proceeds from the auction would be icing on the cake.  I don't think one needs to rely on it to make a case for going long.

Insiders were buying in late 2010 at less than today's prices.

Disclosure: long


Baoxiaodao

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Re: KOSS - Koss Corp
« Reply #1 on: January 31, 2011, 09:14:56 AM »
Koss is a retailer specializing in stereo headphones, run by the Koss family.

Over a period of 4 years (2005-2009), the vice president of finance managed to steal $34 million from the company.  This is 80% of today's market cap.

This has "ick" written all over it: criminal behavior on the part of the embezzler, likely incompetence on the part of her superiors - what's to like here?
http://www.msnbc.msn.com/id/40245372/ns/us_news-crime_and_courts/

The thesis is that, going forward, if the company could run the business as they have historically, you are looking at 34 / 4 = $8.5 million per year.  That is against a market cap of $42 million.  Debt is negligible.

Today comes news that there will be an auction of goods purchased by the former executive, with proceeds going back to the company:
http://www.jsonline.com/business/114727814.html

Any proceeds from the auction would be icing on the cake.  I don't think one needs to rely on it to make a case for going long.

Insiders were buying in late 2010 at less than today's prices.

Disclosure: long

I only spent 10 mins on the story so do not take my comments very seriously. One thing I read in the story is that the money was stolen over a period of 12 years, not 4 years. And please let us know what the rationale is to sugget Koss will earn 8.5 million after tax a year. Another is that I was shocked that the internal control was so awful. I just cannot imagine how this mentally-ill woman can do what she did over a decade without the detection. Mr. Michael blamed a lot of things. But isn't he supposed to be responsible ultimately for what happened?

What a sad story!

enoch01

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Re: KOSS - Koss Corp
« Reply #2 on: January 31, 2011, 09:44:44 AM »
I only spent 10 mins on the story so do not take my comments very seriously.
No worries.

Quote
One thing I read in the story is that the money was stolen over a period of 12 years, not 4 years.
"In December 2009, the Company learned of significant unauthorized transactions, which totaled approximately $31,500,000 from fiscal 2005 through December 2009".  The remaining $2.5 million (7%) was outside this period.
http://sec.gov/Archives/edgar/data/56701/000110465911003721/a11-4697_110q.htm

Quote
And please let us know what the rationale is to sugget Koss will earn 8.5 million after tax a year.
What if all that money hadn't been stolen?  They didn't have to take on debt to fund her actions.  Of course this does assume that they can run the business as they have in the past: no growth, no loss of business.

Quote
Another is that I was shocked that the internal control was so awful.
Me too.

Quote
I just cannot imagine how this mentally-ill woman can do what she did over a decade without the detection.
Me too.

Quote
Mr. Michael blamed a lot of things. But isn't he supposed to be responsible ultimately for what happened?
Probably.  I think the important question is, going forward, do you think they will be more or less careful with internal controls, and hiring the right people?

Quote
What a sad story!
You can say that again.

ragnarisapirate

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Re: KOSS - Koss Corp
« Reply #3 on: January 31, 2011, 10:52:45 AM »
After something of this magnitude, it does seem unlikely that it could ever happen again...

I do wonder what the odds of them getting some of the cash back is. I would imagine that a huge company like American Express would be more than willing to settle the case, just so they don't have to fool with it.

ericd1

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Re: KOSS - Koss Corp
« Reply #4 on: January 31, 2011, 05:49:34 PM »
Seems to me the firm's auditors might be a target for reimbursement too!

enoch01

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Re: KOSS - Koss Corp
« Reply #5 on: February 01, 2011, 06:01:49 AM »
Seems to me the firm's auditors might be a target for reimbursement too!

Don't worry, they're covering that base as well:

http://media.journalinteractive.com/documents/KOSSCOMPLAINT.pdf

enoch01

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Re: KOSS - Koss Corp
« Reply #6 on: March 03, 2011, 04:49:57 PM »
It looks like the auction begins March 19:
http://www.bizjournals.com/milwaukee/news/2011/03/03/sachdeva-auction-to-start-march-19.html?ana=yfcpc

Here's a link to the merchandise (some 22,000 items):
http://media.journalinteractive.com/documents/sachdeva_list_091510.pdf

I have absolutely no idea what the auction proceeds could garner for the company.  Pulling a number out of the air I would say between $3 - $6 million, or somewhere around 10% to 20% of what she stole and spent.

Insiders have continued their purchases all the way up to $7/share.


Disclosure: still long

A_Hamilton

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Re: KOSS - Koss Corp
« Reply #7 on: March 03, 2011, 05:00:02 PM »
How much are current shareholders going to owe individuals who were shareholders in the class period marked in the derivative suits the company is facing? I imagine 100% of the recovery from the auditor and the auction...
I owned this briefly after the fraud was announced but got out after thinking about how non-involved the Koss family and the board must be to piss away this much money...

enoch01

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Re: KOSS - Koss Corp
« Reply #8 on: March 03, 2011, 05:58:11 PM »
How much are current shareholders going to owe individuals who were shareholders in the class period marked in the derivative suits the company is facing? I imagine 100% of the recovery from the auditor and the auction...

Exactly, that's the huge question mark, and why I find it hard to assign any value to the auction proceeds.  I just look at it as a catalyst for recognition of the company, which is worth probably $8-$9 per share without netting anything from the auction and lawsuits.  Anything more than that is icing.