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What changed in KOSS CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of KOSS CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+157 added−165 removedSource: 10-K (2024-08-30) vs 10-K (2023-08-25)

Top changes in KOSS CORP's 2024 10-K

157 paragraphs added · 165 removed · 119 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

25 edited+1 added−11 removed21 unchanged
Biggest changeSales to Ukraine have also been impacted as a result of the humanitarian crisis there due to the ongoing hostilities. In the prior two fiscal years, neither Russia nor Ukraine represented a significant portion of the Company’s export business and, in the aggregate, was less than 3.4% of net sales for the year ended June 30, 2022.
Biggest changeSales to Ukraine have also been impacted as a result of the humanitarian crisis there due to the ongoing hostilities. In the years ended June 30, 2024 and 2023, there were no sales to Russia, however, Ukraine resumed ordering in fiscal year 2024 and represented approximately 9% of the Company’s export business during the year ended June 30, 2024.
The Company makes available free of charge through its internet website the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to those reports as soon as reasonably practicable after they are electronically filed with (or furnished to) the Securities and Exchange Commission.
The Company makes available free of charge through its internet website the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to those reports as soon as reasonably practicable after they are electronically filed with (or furnished to) the Securities and Exchange Commission (the “SEC”).
The Company is uncertain, however, how the conflict will impact future sales. OPERATIONS The Company has a manufacturing facility in Milwaukee, Wisconsin and uses contract manufacturing facilities in the People’s Republic of China and Taiwan. A contract employee is based in China to manage supplier quality and to assist with development of new products.
The Company is uncertain how the conflict will impact future sales. OPERATIONS The Company has a manufacturing facility in Milwaukee, Wisconsin and uses contract manufacturing facilities in the People’s Republic of China and Taiwan. A contract employee is based in China to manage supplier quality and to assist with development of new products.
The extent to which retailers and consumers view the Company as a pioneer in the creation of the personal listening industry, an innovative vendor of high-quality stereo headphone products, and a provider of excellent after-sales customer service, is the extent to which the Company offers a competitive advantage.
The extent to which retailers and consumers view the Company as a pioneer in the creation of the personal listening industry, an innovative vendor of high-quality stereo headphone products, and a provider of excellent after-sales customer service and direct sales, is the extent to which the Company offers a competitive advantage.
WORKING CAPITAL AND BACKLOG The Company’s working capital needs do not differ substantially from those of its competitors in the industry and generally reflect the need to carry sufficient amounts of inventory to meet delivery requirements of its customers.
WORKING CAPITAL The Company’s working capital needs do not differ substantially from those of its competitors in the industry and generally reflect the need to carry sufficient amounts of inventory to meet the delivery requirements of its customers.
The remaining approximately 20% of the Company’s sales were from headphones used in communications, education settings, and in conjunction with metal detectors, as well as sold to original equipment manufacturers (“OEM”). The products are not significantly differentiated by their retail sales channel or application with the exception of products sold to school systems, prisons, and OEM customers.
The remaining approximately 23% of the Company’s sales were from headphones used in communications, education settings, and in conjunction with metal detectors, as well as sold to original equipment manufacturers (“OEM”). The products are not significantly differentiated by their retail sales channel or application with the exception of products sold to school systems, prisons, and OEM customers.
These reports and other information regarding the Company are also available on the SEC’s internet website at https://www.sec.gov. The information on the Company’s website is not part of this or any other report the Company files with or furnishes to the Securities and Exchange Commission. ‎ 8 Table of Contents
These reports and other information regarding the Company are also available on the SEC’s internet website at https://www.sec.gov. The information on the Company’s website is not part of this or any other report the Company files with or furnishes to the SEC. ‎ 8 Table of Contents
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, in which case the Company believes that it could restore production of its top 10 selling models (which represent approximately 57% of the Company’s 2023 net sales) within 18-24 months.
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, in which case the Company believes that it could restore production of its top 10 selling models (which represent approximately 45% of the Company’s 2024 net sales) within 18-24 months.
International markets are served by domestic sales representatives and sales personnel in the Netherlands and the Caucasus region. The Company utilizes independent distributors in several foreign countries. Approximately 80% of the Company’s fiscal year 2023 sales were from stereo headphones used for listening to music.
International markets are served by domestic sales representatives and sales personnel in the Netherlands and the Caucasus region. The Company utilizes independent distributors in several foreign countries. Approximately 77% of the Company’s fiscal year 2024 sales were from stereo headphones used for listening to music.
In the years ended June 30, 2023 and 2022, the Company’s largest sales concentration was represented by its own DTC offerings via the Amazon portal and were approximately 20% and 16% of net sales in fiscal year 2023 and 2022, respectively. The Company’s products have broad distribution worldwide across many channels including distributors, specialty stores, mass merchants, and electronics stores.
In the years ended June 30, 2024 and 2023, the Company’s largest sales concentration was represented by its own DTC offerings via the Amazon portal and were approximately 17% and 20% of net sales in fiscal years 2024 and 2023, respectively. The Company’s products have broad distribution worldwide across many channels including distributors, specialty stores, mass merchants, and electronics stores.
The Company’s five largest customers accounted for approximately 51% and 45% of net sales in fiscal years 2023 and 2022, respectively. COMPETITION The Company focuses on the stereo headphone industry. In the stereo headphone market, the Company competes with all major competitors, many of which are large and diversified and have greater total assets and resources than the Company.
The Company’s five largest customers accounted for approximately 46% and 51% of net sales in fiscal years 2024 and 2023, respectively. COMPETITION The Company principally focuses on the stereo headphone industry. In the stereo headphone market, the Company competes with all major competitors, many of which are large and diversified and have greater total assets and resources than the Company.
As of June 30, 2023, the Company had over 400 trademarks registered in approximately 90 countries around the world and over 160 patents in approximately 25 countries. The Company has trademarks to protect the brand name, Koss, and its logo on its products.
As of June 30, 2024, the Company had over 400 trademarks registered in approximately 91 countries around the world and over 160 patents in approximately 25 countries. The Company has trademarks to protect the brand name, Koss, and its logo on its products.
These activities were conducted by both Company personnel and outside consultants. There was $285,244 in expenses for research and development activities during fiscal year 2022. The Company expects to incur on-going research and development costs related to its Bluetooth® and traditional wired headphones as it is planning to introduce new product offerings on a regular basis.
These activities were conducted by both Company personnel and outside consultants. There was $288,231 in expenses for research and development activities during fiscal year 2023. The Company expects to incur on-going research and development costs related to its Bluetooth® and traditional wired headphones as it is planning to introduce new product offerings on a regular basis.
The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills, and customer service, as well as its intellectual property portfolio, to support its competitive position. RESEARCH AND DEVELOPMENT The amount expensed on engineering and research activities relating to the development of new products or the improvement of existing products was $288,231 during fiscal year 2023.
The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills, and customer service, as well as its intellectual property portfolio, to support its competitive position. RESEARCH AND DEVELOPMENT The amount expensed on engineering and research activities relating to the development of new products or the improvement of existing products was $238,086 during fiscal year 2024.
It is unclear as to whether any emerging and evolving regulations will have a material impact on the Company's results of operations. EMPLOYEES As of June 30, 2023, the Company employed 31 non-union employees, 3 of which were part-time employees. The Company also engaged temporary personnel at times during the year ended June 30, 2023.
It is unclear as to whether any emerging and evolving regulations will have a material impact on the Company's results of operations. 6 Table of Contents EMPLOYEES As of June 30, 2024, the Company employed 30 non-union employees, 2 of which were part-time employees. The Company also engaged temporary personnel at times during the year ended June 30, 2024.
In addition, any fluctuations in currency exchange rates could affect the pricing of the Company’s products and divert customers who might choose to purchase lower-priced, less profitable products, and could affect overall demand for the Company’s products. For further information, see Part II, Item 7.
In addition, any fluctuations in currency exchange rates could affect the pricing of the Company’s products and divert customers who might choose to purchase lower-priced, less profitable products, and could affect overall demand for the Company’s products.
CUSTOMERS The Company markets a line of products used by consumers to listen to music, to work and study from home, and to listen to other audio-related media. The Company distributes these products through distributors and retail channels in the U.S. and independent distributors throughout the rest of the world. Additionally, the Company fills direct-to-consumer (DTC) orders on its website.
CUSTOMERS The Company markets a line of products used by consumers to listen to music, to work and study from home, to communicate via telephone or internet, and to listen to other audio-related media. The Company distributes these products through distributors and retail channels in the U.S. and independent distributors throughout the rest of the world.
The Company sells its products to independent distributors in countries and regions outside the United States including Europe, the Middle East, Africa, Asia, Australia, South America, Latin America, the Caribbean, Canada and Mexico.
The loss of these personnel would result in a transfer of sales and marketing responsibility. The Company sells its products to independent distributors in countries and regions outside the United States including Europe, the Middle East, Africa, Asia, Australia, South America, Latin America, the Caribbean, Canada and Mexico.
The Company markets its products through many domestic retail outlets and numerous retailers worldwide. The Company also markets products directly to several original equipment manufacturers for use in their products.
Additionally, the Company fills direct-to-consumer (“DTC”) orders on its website. The Company markets its products through many domestic retail outlets and numerous retailers worldwide. The Company also markets products directly to several OEMs for use in their products.
During fiscal years 2023 and 2022, the amounts incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect the Company’s operating results or financial 6 Table of Contents condition.
During fiscal years 2024 and 2023, the amounts incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect the Company’s operating results or financial condition. The increased public awareness and concern regarding climate change has resulted in increased regulations which are rapidly evolving.
Management believes that the Company’s business is not seasonal as evidenced by the fact that the Company’s net sales for the last three years, including the year ended June 30, 2023, were almost equally split between the first and second halves of the year.
Management believes that the Company’s business is not seasonal as evidenced by the fact that the Company’s net sales for the last three years, including the year ended June 30, 2024, were fairly evenly dispersed throughout the year.
The increased public awareness and concern regarding climate change has resulted in increased regulations which are rapidly evolving. The Company continues to monitor the evolving regulations, as well as related required disclosures, to ensure that we will be conformant.
The Company continues to monitor the evolving regulations, as well as related required disclosures, to ensure that we will be conformant.
During the last two fiscal years, net sales of all Koss products were distributed as follows: 2023 2022 United States $ 9,848,521 $ 13,132,899 Czech Republic 1,328,476 1,195,768 Sweden 997,058 1,552,559 Canada 209,159 314,607 Korea, Republic of 190,149 81,264 Belgium 176,581 132,880 Malaysia 122,172 395,914 All other countries 227,535 899,628 Net sales $ 13,099,651 $ 17,705,519 As a result of the Russian-Ukraine conflict, the Company suspended all sales to Russia in accordance with Executive Order 14071 issued by President Biden on April 6, 2022.
During the last two fiscal years, net sales of all Koss products were distributed as follows: 2024 2023 United States $ 9,795,438 $ 9,848,521 Sweden 993,043 997,058 Czech Republic 418,004 1,328,476 Ukraine 214,010 (11,955) Korea, Republic of 185,143 176,581 Georgia 125,920 — Canada 101,056 209,159 All other countries 432,455 551,811 Net sales $ 12,265,069 $ 13,099,651 As a result of the Russian-Ukraine conflict, the Company suspended all sales to Russia in accordance with Executive Order 14071 issued by President Biden on April 6, 2022.
The Company is dependent upon its ability to retain a base of retailers and distributors to sell the Company’s line of products.
The Company is dependent upon its ability to retain a base of retailers and distributors to sell the Company’s line of products. A material loss or disruption of retailers and/or distributors could result in a loss of product placement and have an adverse effect on the Company’s financial results.
In addition, the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would directly affect profits. ‎ 7 Table of Contents CYBERSECURITY The Company depends on information technology as an enabler to improve the effectiveness of its operations and to interface with its customers, as well as to maintain financial accuracy and efficiency.
In addition, the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would directly affect profits. ‎ 7 Table of Contents AVAILABLE INFORMATION The Company’s internet website is https://www.koss.com.
Removed
As of June 30, 2023, the Company’s backlog of orders was approximately $320,000, which the Company considers minimal in relation to net sales during fiscal year 2023 or projected sales for fiscal year 2024 net sales.
Added
For further information, see Part II, Item 7, as well as additional description of risks related to our business in foreign markets described in Part I, Item 1A. under “ We may be subject to risks related to doing business in, and having counterparties based in, foreign countries. ” The Company has sales personnel currently located in the Netherlands and the Caucasus region to service the international export marketplace.
Removed
A material loss of retailers and/or distributors could result in a loss of product placement and have an adverse effect on the Company’s financial results, however, management believes that the impact of any such loss could be partially alleviated by a corresponding decrease, on a limited basis, in expenses.
Removed
The Company has sales personnel currently located in the Netherlands and the Caucasus region to service the international export marketplace. The loss of these personnel would result in a transfer of sales and marketing responsibility.
Removed
Information technology system failures, including suppliers’ or vendors’ system failures, could disrupt the Company’s operations by causing transaction errors, processing inefficiencies, delays or cancellation of customer orders, the loss of customers, impediments to the manufacture or shipment of products, other business disruptions, or the loss of or damage to intellectual property through a security breach.
Removed
The Company’s information systems, or those of its third-party service providers, could also be penetrated by outside parties’ intent on extracting information, corrupting information or disrupting business processes. Such unauthorized access could disrupt the Company’s business, increase costs and/or result in the loss of assets.
Removed
Cybersecurity attacks are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, corruption or destruction of data and other manipulation or improper use of systems or networks.
Removed
These events could negatively impact the Company’s customers and/or reputation and lead to financial losses from remediation actions, loss of business, production downtimes, operational delays or potential liability, penalties, fines or other increases in expense, all of which may have a material adverse effect on the Company’s business.
Removed
In addition, as security threats and cybersecurity and data privacy and protection laws and regulations continue to evolve and increase in terms of sophistication, we may invest additional resources in the security of our systems. Any such increased level of investment could adversely affect our financial condition or results of operations.
Removed
The Company has programs in place intended to address and mitigate the cybersecurity risks. These programs include regular monitoring of outside threats, continuous updating of software to mitigate risk, education of employees to the risks of external threats, and simplification of infrastructure to minimize servers.
Removed
Additionally, the Company seeks to minimize its risk by keeping the number of physical servers at the HQ location and its exposure to public systems to a minimum. Additional e-commerce improvements have further mitigated exposure and business critical systems, including the Company’s ERP system, have been migrated to Tier-1 cloud service providers, with more anticipated in the future.
Removed
While the Company devotes resources to security measures to protect its systems and data, these measures cannot provide absolute security. AVAILABLE INFORMATION The Company’s internet website is https://www.koss.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

53 edited+12 added−10 removed38 unchanged
Biggest changeIf we are unable to protect our brand image and authenticity, while carefully balancing our growth, we may be unable to effectively compete with these new market entrants or new products. The inability to compete effectively against new and existing competitors could have an adverse effect on our net sales and results of operations, preventing us from achieving future growth.
Biggest changeThe inability to compete effectively against new and existing competitors could have an adverse effect on our net sales and results of operations, preventing us from achieving future growth. 10 Table of Contents If we are unable to obtain intellectual property rights and/or enforce those rights against third parties who are violating those rights, our business could suffer.
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.
Our dependence on foreign suppliers for our products also 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.
Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures, as described above under “ The Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks.
Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures, as described above under “ The Company is dependent on the proper functioning of our contract manufacturers, our supply chain, and our distribution networks.
Risks associated with potential operations, commitments, and investments outside of the U.S. include but are not limited to risks of: global and local economic, social and political conditions and uncertainty; currency exchange restrictions and currency fluctuations; export and import duties; war, such as the invasion of Ukraine by Russia, or terrorist attack; local outbreak of disease, such as COVID-19; renegotiation or nullification of existing contracts or international trade arrangements; labor market conditions and workers’ rights affecting our manufacturing operations or those of our customers; macro-economic conditions impacting key markets and sources of supply; changing laws and policies affecting trade, taxation, financial regulation, immigration, and investment; compliance with laws and regulations that differ among jurisdictions, including those covering taxes, intellectual property ownership and infringement, imports and exports, anti-corruption, and anti-bribery, antitrust and competition, data privacy, and environment, health, and safety; and general hazards associated with the assertion of sovereignty over areas in which operations are conducted, transactions occur, or counterparties are located.
Risks associated with potential operations, commitments, and investments outside of the U.S. include but are not limited to risks of: global and local economic, social and political conditions and uncertainty; currency exchange restrictions and currency fluctuations; export and import duties; war, such as the invasion of Ukraine by Russia, military conflicts in the Middle East or terrorist attack; local outbreak of disease or pandemic; renegotiation or nullification of existing contracts or international trade arrangements; labor market conditions and workers’ rights affecting our manufacturing operations or those of our customers; macro-economic conditions impacting key markets and sources of supply; changing laws and policies affecting trade, taxation, financial regulation, immigration, and investment; compliance with laws and regulations that differ among jurisdictions, including those covering taxes, intellectual property ownership and infringement, imports and exports, anti-corruption, and anti-bribery, antitrust and competition, data privacy, and environment, health, and safety; and general hazards associated with the assertion of sovereignty over areas in which operations are conducted, transactions occur, or counterparties are located.
Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there 13 Table of Contents are declines in market prices driven by a return to earlier valuations.
Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations.
The Company continuously monitors its supply chain in order to modify business plans as may be necessary. This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical 9 Table of Contents components and utilizing alternative sources and/or air freight .
The Company continuously monitors its supply chain in order to modify business plans as may be necessary. This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight .
As a result of this volatility, investors may experience losses on their investment in our common stock. A “short squeeze” due to a sudden increase in demand for shares of our common stock that largely exceeds supply could lead to extreme price volatility in shares of our common stock.
As a result of this volatility, investors may experience losses on their investment in our common stock. 13 Table of Contents A “short squeeze” due to a sudden increase in demand for shares of our common stock that largely exceeds supply could lead to extreme price volatility in shares of our common stock.
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 12 Table of Contents further punitive actions in the future.
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.
Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability.
The Company uses contract manufacturing facilities in the People’s Republic of China. Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability.
Our business, financial condition and results of operations may be adversely impacted by the effects of inflation. Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.
Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.
Our largest concentration of sales in fiscal year 2023 came from our DTC sales via the Amazon portal and accounted for more than 20% and 16% of our net sales in fiscal years 2023 and 2022, respectively.
Our largest concentration of sales in fiscal year 2024 came from our DTC sales via the Amazon portal and accounted for more than 17% and 20% of our net sales in fiscal years 2024 and 2023, respectively.
The market price of our stock is subject to price volatility. Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies’ operating performance.
Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies’ operating performance.
Quality problems can also adversely affect the experience for users of the Company’s products, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales. 11 Table of Contents An information systems interruption or breach in security could adversely affect us.
Quality problems can also adversely affect the experience for users of the Company’s products, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales. An information systems interruption, cyberattack or breach in security could adversely affect our business.
In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia. Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine have been impacted.
In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia at that time. Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine were impacted.
In the past, we have experienced supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our suppliers, and disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other product components, transportation, work force, or force majeure events.
We have experienced and may again in the future experience supplier price increases, supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our suppliers, and disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other product components, transportation, work force, or force majeure events.
Michael Koss, our President and Chief Executive Officer, beneficially owned 4,153,410 shares of our common stock as of August 1, 2023, representing 43.7% of shares outstanding on such date, including shares held by a voting trust over which Mr. Koss holds sole voting and dispositive power.
Michael Koss, our President and Chief Executive Officer, beneficially owned 4,018,410 shares of our common stock as of August 1, 2024, representing 42.5% of shares outstanding on such date, including shares held by a voting trust over which Mr. Koss holds sole voting and dispositive power.
A retailer or distributor experiencing such difficulties generally will not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables.
Some of them may experience financial difficulties because of current or future adverse economic conditions. A retailer or distributor experiencing such difficulties generally will not purchase and sell as many of our products as it would under normal circumstances and may cancel orders. In addition, a retailer or distributor experiencing financial difficulties generally increases our exposure to uncollectible receivables.
As a result, these competitors may be better equipped to influence consumer preferences or otherwise increase their market share by: quickly adapting to changes in consumer preferences; readily taking advantage of acquisition and other opportunities; discounting excess inventory; devoting greater resources to the marketing and sale of their products, including significant advertising, media placement and product endorsement; adopting aggressive pricing policies; and engaging in length y and costly intellectual property and other legal disputes. 10 Table of Contents Additionally, the industry in which we compete generally has low barriers to entry that allow the introduction of new products or new competitors at a fast pace.
As a result, these competitors may be better equipped to influence consumer preferences or otherwise increase their market share by: quickly adapting to changes in consumer preferences; readily taking advantage of acquisition and other opportunities; discounting excess inventory; devoting greater resources to the marketing and sale of their products, including significant advertising, media placement and product endorsement; adopting aggressive pricing policies; and engaging in length y and costly intellectual property and other legal disputes.
Financial difficulties on the part of our retailers or distributors could have a material adverse effect on our results of operations and financial condition. Direct-to-Consumer sales through the Amazon marketplace account for a significant amount of our net sales and the loss of, or reduced purchases from, this sales channel could have a material adverse effect on our operating results.
Any loss, cancellation or reduction of purchases by these distributors or retailers may have a material adverse effect on our business. Direct-to-Consumer sales through the Amazon marketplace account for a significant amount of our net sales and the loss of, or reduced purchases from, this sales channel could have a material adverse effect on our operating results.
Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability. We are subject to income taxes in the United States. Our effective income tax rate could be adversely affected in the future by several factors, including changes in the valuation of deferred tax assets and liabilities and changes in tax laws.
We are subject to income taxes in the United States. Our effective income tax rate could be adversely affected in the future by several factors, including changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision.
Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to increase consumer demand, which could constrain our management, financial and operational resources. If new products we introduce do not experience broad market acceptance or demand for our existing products wanes, our net sales could decline.
Market acceptance for new products may also require substantial marketing efforts and expenditures to increase consumer demand, which could constrain our management, financial and operational resources. If new designs and products we introduce do not gain broad market acceptance or demand for our existing products wanes, our sales, brand image, business and financial condition could be adversely affected.
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.
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. 11 Table of Contents 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.
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.
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.
Similarly, if we settle such legal proceedings, it may negatively affect how we operate our business. I n connection with its ongoing intellectual property enforcement program, which includes lawsuits alleging infringement of patents relating to its wireless audio technology, the Company has granted licenses covering certain Company patents. Other similar complaints filed remain outstanding.
I n connection with its ongoing intellectual property enforcement program, which includes lawsuits alleging infringement of patents relating to its wireless audio technology, the Company has granted licenses covering certain Company patents. Other similar complaints filed remain outstanding.
The Company has broad distribution across many channels including specialty stores, mass merchants, electronics stores and computer retailers. The Company may not be able to maintain customers or model selections and therefore may experience a reduction in its sales revenue until a model is restored to the mix or a lost customer is replaced by a new customer.
The Company may not be able to maintain customers or model selections and therefore may experience a reduction in its sales revenue until a model is restored to the mix or a lost customer is replaced by a new customer.
As all litigation is uncertain, there can be no assurance that any of this remaining or future litigation will be decided in our favor. We may be adversely affected by the financial condition of our retailers and distributors. Some of our retailers and distributors are experiencing financial difficulties because of current adverse economic conditions.
As all litigation is uncertain, there can be no assurance that any of this remaining or future litigation will be decided in our favor. We may be adversely affected by the financial condition of our retailers and distributors. We depend on, and expect to continue to depend on, sales to several significant distributors and retailers.
Inflation may impact customer demand for our products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items and dwindling savings. Other risk factors further exacerbated by inflation include supply chain disruptions, risks of international operations and the recruitment and retention of talent.
Inflation may impact customer demand for our products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items, availability of credit and dwindling savings.
During the fiscal year ended June 30, 2023, the sales price of our common stock fluctuated between a reported high sales price of $11.20 on July 25, 2022 and a reported low sales price of $3.56 on June 23, June 26, and June 27, 2023. The trading volume in shares of our common stock can also vary widely.
During the fiscal year ended June 30, 2024, the sales price of our common stock fluctuated between a reported high sales price of $6.95 on May 14, 2024 and a reported low sales price of $2.27 on April 17, 2024. The trading volume in shares of our common stock can also vary widely.
We regularly assess all of these matters to determine the adequacy of our tax provision. If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results, and cash flows could be adversely affected.
If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results, and cash flows could be adversely affected. Our business, financial condition and results of operations may be adversely impacted by the effects of inflation.
Any disruptions could adversely affect our business, financial condition or results of operations. The Company relies on our third-party supply chain and distribution networks and the availability of necessary components to produce a significant number of our products.
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.
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 cyber-attacks targeting businesses. Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm.
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.
The Company distributes these products through large domestic distributors and some retail channels in the U.S. and independent distributors throughout the rest of the world. The Company is dependent upon its ability to attract and retain a base of customers to sell the Company’s line of products.
Failure to attract and retain customers to sell the Company’s products could adversely affect sales volume and future profitability. The Company markets a line of products used by consumers to listen to music. The Company distributes these products through large domestic distributors and some retail channels in the U.S. and independent distributors throughout the rest of the world.
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.
A reduction or interruption in supply, including interruptions due to possible future 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. Many of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan.
The Company continues to experience inflationary cost increases in our commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting our ability to meet customer demand.
The Company continues to experience inflationary cost pressures in our commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting our ability to meet customer demand. We attempt to mitigate th ese increases through pricing strategies, as well as working with a dedicated freight forwarding partner to minimize freight rate increases.
For example, during the most recent fiscal year, daily trading volume ranged from a low of 3,200 shares on April 6, 2023 to a high of 7,202,400 on July 25, 2022.
For example, during the most recent fiscal year, daily trading volume ranged from a low of 2,000 shares on April 30, 2024 to a high of 19,694,200 on May 14, 2024.
We are uncertain, however, of the impact it will have on our results of operations for the future in the region. We are actively monitoring the conflict and will report on its impact on our business, financial condition, and results of operations as necessary as developments occur.
We are unable to predict the impact the above conflicts will have on our business, financial condition and results of operations for the future. We continue to actively monitor the conflicts and will report on any adverse effects as necessary as developments occur.
Regardless of the merits of the claims, litigation may be expensive, time-consuming, and disruptive to our operations and distracting to management. If resolved against us, such legal proceedings could result in excessive verdicts, injunctive relief or other equitable relief that may affect how we operate our business.
If resolved against us, such legal proceedings could result in excessive verdicts, injunctive relief or other equitable relief that may affect how we operate our business. Similarly, if we settle such legal proceedings, it may negatively affect how we operate our business.
If we are unable to obtain intellectual property rights and/or enforce those rights against third parties who are violating those rights, our business could suffer. We rely on various intellectual property rights, including patents, trademarks, trade secrets and trade dress to protect our brand name, reputation, product appearance and technology.
We rely on various intellectual property rights, including patents, trademarks, trade secrets and trade dress to protect our brand name, reputation, product appearance and technology. If we fail to obtain, maintain, or in some cases enforce our intellectual property rights, our competitors may be able to copy our designs, or use our brand name, trademarks, or technology.
While we have no operations in Russia or Ukraine, we are unable to sell to certain of our customers that have been negatively impacted by this event. The continuation of the military conflict could lead to increased supply chain disruptions, inflationary pressures and volatility in global markets that could negatively impact our operations.
The continuation of the military conflict in Eastern Europe, as well as the tension in the Middle East, could lead to increased supply chain disruptions, inflationary pressures and volatility in global markets that could negatively impact our operations.
Privacy, security, and compliance concerns have continued to increase as technology has evolved. 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.
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.
Risks Related to our International Operations Economic regulation, trade restrictions, and increasing manufacturing costs in China could adversely impact our business and results of operations. The Company uses contract manufacturing facilities in the People’s Republic of China.
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. Risks Related to our International Operations Economic regulation, trade restrictions, and increasing manufacturing costs in China could adversely impact our business and results of operations.
The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. Risks Related to Our Operations and Financial Results The Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks.
Risks Related to Our Operations and Financial Results The Company is dependent on the proper functioning of our contract manufacturers, our supply chain, and our distribution networks. Any disruptions could adversely affect our business, financial condition or results of operations.
We face competition from consumer electronics brands that have historically dominated the stereo headphone market, in addition to sport brands and lifestyle companies that also produce headphone products. These competitors may have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among certain groups of consumers, and greater economies of scale.
These competitors may have significant competitive advantages, including greater financial, engineering, distribution and marketing resources, longer operating histories, better brand recognition among certain groups of consumers, and greater economies of scale. In addition, these competitors often have long-term relationships with many larger retailers that are potentially more important to those retailers.
If we fail to obtain, maintain, or in some cases enforce our intellectual property rights, our competitors may be able to copy our designs, or use our brand name, trademarks, or technology. As a result, if we are unable to successfully protect our intellectual property rights, or resolve any conflicts effectively, our results of operations may be harmed.
As a result, if we are unable to successfully protect our intellectual property rights, or resolve any conflicts effectively, our results of operations may be harmed. Regardless of the merits of the claims, litigation may be expensive, time-consuming, and disruptive to our operations and distracting to management.
There have been no sales to Russia or Ukraine during the fiscal year ended June 30, 2023 and such sales consisted of approximately 3.4% of net sales for the year ended June 30, 2022.
There have been no sales to Russia during the fiscal years ended June 30, 2024 and 2023, however, sales to Ukraine resumed during the current fiscal year with more expected in the future.
ITEM 1A. RISK FACTORS We are subject to various risks that may materially harm our business, prospects, financial condition, and results of operations. This discussion highlights some of the risks that may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider.
ITEM 1A. RISK FACTORS We are subject to various risks that may adversely affect our business, prospects, financial condition, and results of operations, including, but not limited to, those set forth below.
Although the length, impact and outcome of the conflict is unpredictable, the war has already contributed to market and other disruptions, including volatility in commodity prices, supply and prices of energy, disrupted supply chains, political and social instability as well as an increase in cyberattacks.
The length, impact and outcome of the ongoing conflict is highly unpredictable and the conflict has caused, and has expected to continue to cause, global political, economic and social instability, volatility in commodity prices and energy prices, increased cyberattacks and disruptions to the global economy, international trade and global supply chain.
However, these measures may entail additional costs to the Company and cannot guarantee that the Company will not be adversely affected by supply chain disruptions. Failure to attract and retain customers to sell the Company’s products could adversely affect sales volume and future profitability. The Company markets a line of products used by consumers to listen to music.
However, these measures may entail additional costs to the Company and cannot guarantee that the Company will not be adversely affected by supply chain disruptions. Any disruption to any link in the Company’s supply or distribution chain can have a negative impact on results.
The ongoing war between Russia and Ukraine could adversely affect our business, financial condition, and results of operations. Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022.
Geopolitical conflicts including those between Russia and Ukraine, those occurring in the Middle East and other similar conflicts could adversely affect our business, financial condition, and results of operations. In February 2022, Russian military forces invaded Ukraine, resulting in an ongoing military conflict between the two countries.
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.
This information is entitled to protection under a number of regulatory regimes.
We cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer, and we may be unable to stay in business.
If any of the following risks, or those unidentified develop into actual events, our business may not grow, our stock price may suffer, and we may be unable to stay in business. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.
To the extent that increased prices arising from currency fluctuations decrease the overall demand for the Company’s products or motivate customers to purchase lower-priced, lower profit products, the Company’s sales, profits, and cash flows could be adversely affected. Risks Related to our Stock Our stock price has been, and may in the future, be subject to significant fluctuations and volatility.
Risks Related to our Stock Our stock price has been, and may in the future, be subject to significant fluctuations and volatility. The market price of our stock is subject to price volatility.
The Company also believes that the recent loss of Yellow freight lines to insolvency could impact carrier availability and increase freight costs. The Company had no material direct exposure to Yellow in 2023. The current hostilities in Eastern Europe and the resulting economic sanctions imposed by the government have impacted the global economy.
Our inability to mitigate any of these disruptions may lead to a material adverse impact on our business, financial condition and results of operations. The current hostilities in Eastern Europe and the resulting economic sanctions imposed by the government have impacted the global economy.
Removed
Additional risks and uncertainties not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business, prospects, results of operations and financial condition.
Added
These are the risks and uncertainties we believe are most important for you to consider, however, there may be other risks that are currently deemed immaterial or not currently known to us that could materially impact the business.
Removed
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-based suppliers.
Added
There has also been increasing geopolitical tension between China and the United States.
Removed
In April 2023, United Parcel Service (“UPS”) and the International Brotherhood of Teamsters Union (the “Teamsters”) started labor contract talks to negotiate better pay, no forced overtime and the elimination of a two tier pay system. On July 25, 2023, UPS and the Teamsters reached a tentative five-year contract deal that would avert a nationwide strike.
Added
While we have no operations in Russia or Ukraine, we are unable to sell to certain of our customers in Russia as a result of this event.
Removed
Also, since December 2022, when the U.S. government abated a threatened railroad strike and implemented a labor agreement that prohibited the workers from striking, some union leaders and railroad executives have voluntarily reopened the conversation around paid sick leave in hopes of negotiating an improvement.
Added
The economies of Europe have also been impacted by these conflicts as a direct result of disruptions in transportation and the supply of energy, high food prices and tight credit. These factors can have a direct impact on the consumer’s ability to access and purchase the Company’s products.
Removed
The Company continues to monitor both situations as ether strike in the U.S. could potentially exacerbate disruptions in the supply chain and impact product shipments from suppliers and to customers, resulting in increased operating costs and delays in product shipments.
Added
The Company is dependent upon its ability to attract and retain a base of customers to sell the Company’s line of products. The Company has broad 9 Table of Contents distribution across many channels including specialty stores, mass merchants, electronics stores and computer retailers.
Removed
The inability of new product designs or new product lines to gain market acceptance, or our current products losing traction in the market, could adversely affect our brand image, our business and financial condition.
Added
We face competition from consumer electronics brands that have historically dominated the stereo headphone market, in addition to sport brands, lifestyle companies and consumer electronics giants that also source or produce headphone products.
Removed
In addition, these competitors have long-term relationships with many larger retailers that are potentially more important to those retailers.
Added
Additionally, the industry in which we compete generally has low barriers to entry that allow the introduction of new products or new competitors at a fast pace. If we are unable to protect our brand image and authenticity, while carefully balancing our growth, we may be unable to effectively compete with these new market entrants or new products.
Removed
Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security.
Added
While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security. The investor must also recognize the risk that these types of attacks might have on the entire supply and distribution chain for the Company’s product line.
Removed
These increases have been partially mitigated by pricing actions implemented in the third quarter of the current fiscal year, as well as working with a dedicated freight forwarding partner to minimize freight rate increases.
Added
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. Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
Removed
An increase in the cost of labor or taxes on wages in China may lead to an increase in the cost of goods manufactured in China.
Added
Prior to the imposition of the sanctions against Russia, sales to Russia approximated 2% of the Company’s total sales. 12 Table of Contents On October 7, 2023, Hamas launched attacks on civilian and military targets in Southern and Central Israel, to which the Israel Defense Forces responded.
Added
In addition, Hezbollah has launched attacks on Northern Israel, to which Israel also responded. The conflict has negatively impacted transportation in the region and the supply of energy. The length and severity of the conflict is unknown at this time and any continuation of the clash may escalate in the future into a greater regional conflict.
Added
Volatility in the exchange rates between the foreign currencies and the U.S. dollar could result in increased prices, a decrease in the overall demand for the Company’s products or lead customers to purchase lower-priced, lower profit products and, as such, could have an adverse effect on the Company’s business, financial condition and results of operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe remaining lawsuits are pending in U.S. District Courts in District of Massachusetts (Bose Corporation), Southern District of California (PEAG, LLC), and District of Utah (Skullcandy, Inc.). ITEM 4. MINE SAFETY D ISCLOSURES Not applicable. ‎ 15 Table of Contents PART II
Biggest changeThe remaining lawsuits are pending in U.S. District Courts in District of Massachusetts (Bose Corporation), Southern District of California (PEAG, LLC), and District of Utah (Skullcandy, Inc.). 15 Table of Contents ITEM 4. MINE SAFETY D ISCLOSURES Not applicable. ‎ 16 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed1 unchanged
Biggest changeCOMPANY REPURCHASES OF EQUITY SECURITIES Total Total Number of Approximate Dollar Number Average Shares Purchased as Value of Shares of Shares Price Paid Part of Publicly Available under Period (2023) Purchased per Share Announced Plan (1) Repurchase Plan April 1 - April 30 — $ — — $ 2,139,753 May 1 - May 31 — $ — — $ 2,139,753 June 1 - June 30 — $ — — $ 2,139,753 (1) In April 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase from time to time up to $2,000,000 of its common stock for its own account.
Biggest changeCOMPANY REPURCHASES OF EQUITY SECURITIES Total Total Number of Approximate Dollar Number Average Shares Purchased as Value of Shares of Shares Price Paid Part of Publicly Available under Period (2024) Purchased per Share Announced Plan (1) Repurchase Plan April 1 - April 30, 2024 — $ — — $ 2,139,753 May 1 - May 31, 2024 — $ — — $ 2,139,753 June 1 - June 30, 2024 — $ — — $ 2,139,753 (1) In April 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase from time to time up to $2,000,000 of its common stock for its own account.
Subsequently, the Board of Directors periodically approved increases in the amount authorized for repurchase under the program. As of June 30, 2023, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended. No purchases were made during the years ended June 30, 2023 or 2022.
Subsequently, the Board of Directors periodically approved increases in the amount authorized for repurchase under the program. As of June 30, 2024, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended. No purchases were made during the years ended June 30, 2024 or 2023.
Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. ‎ 16 Table of Contents
Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. ‎ 17 Table of Contents
This number does not include individual participants in security position listings. There were no dividends declared during the fiscal years ended June 30, 2023 and 2022.
This number does not include individual participants in security position listings. There were no dividends declared during the fiscal years ended June 30, 2024 and 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION ON COMMON STOCK The Company’s common stock is traded on The Nasdaq Capital Market under the trading symbol KOSS. There were 494 record holders of the Company’s common stock as of August 22, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET INFORMATION ON COMMON STOCK The Company’s common stock is traded on The Nasdaq Capital Market under the trading symbol KOSS. There were 560 record holders of the Company’s common stock as of August 26, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

35 edited+25 added−25 removed43 unchanged
Biggest changeBonus and profit-sharing expense as a consequence of the net income from licensing proceeds during the year also contributed to the increase. Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of the year. Tax expense for the year ended June 30, 2023 was $317,377 as a direct impact of the licensing income earned during the year. ‎ 17 Table of Contents Consolidated Results The following table presents selected consolidated financial data for each of the past two fiscal years: Consolidated Performance Summary 2023 2022 Net sales $ 13,099,651 $ 17,705,519 Net sales decrease (26.0)% (9.4)% Gross profit $ 4,457,414 $ 6,715,630 Gross profit as % of net sales 34.0% 37.9% Selling, general and administrative expenses $ 29,358,466 $ 5,813,607 Selling, general and administrative expenses as % of net sales 224.1% 32.8% Interest income $ 520,809 $ 11,513 Other income $ 33,000,000 $ 362,390 Income before income tax provision $ 8,619,757 $ 1,275,926 Income before income tax provision as % of net sales 65.8% 7.2% Income tax provision $ 317,377 $ 7,517 Income tax provision as % of income before taxes 3.7% 0.6% 2023 Results of Operations Compared with 2022 Net sales for the fiscal year 2023 declined by 26.0% mainly as a result of lower sales to U.S. distributors coupled with a 28.9% drop in sales to the Company’s export markets.
Biggest changeIncome tax expense of $317,377 was incurred during the previous fiscal year as a direct result of the licensing income earned during the year. ‎ 18 Table of Contents Consolidated Results The following table presents selected consolidated financial data for each of the past two fiscal years: Consolidated Performance Summary 2024 2023 Net sales $ 12,265,069 $ 13,099,651 Net sales (decrease) % from prior year period (6.4)% (26.0)% Gross profit $ 4,185,447 $ 4,457,414 Gross profit as % of net sales 34.1% 34.0% Selling, general and administrative expenses $ 6,057,606 $ 29,341,634 Selling, general and administrative expenses as % of net sales 49.4% 224.0% Interest income $ 847,644 $ 520,809 Other income $ — $ 33,000,000 (Loss) income before income tax (benefit) provision $ (1,024,515) $ 8,636,589 (Loss) income before income tax (benefit) provision as % of net sales (8.4)% 65.9% Income tax (benefit) provision $ (73,604) $ 317,377 Income tax (benefit) provision as % of (loss) income before income tax (benefit) provision 7.2% 3.7% 2024 Results of Operations Compared with 2023 Net sales for the year ending June 30, 2024 declined by 6.4% to $12,265,069 primarily due to a 24.0% drop in sales to the Company’s export markets as well as a 19.7% decrease in DTC sales.
In addition, management estimates the expected retirement date for the current officer as that impacts the timing for expected future payments. See Note 10 for additional information on deferred compensation. Stock-Based Compensation The Company has a stock-based employee compensation plan, which is described more fully in Note 12 to the Consolidated Financial Statements.
In addition, management estimates the expected retirement date for the current officer as that impacts the timing for expected future payments. See Note 10 to the Consolidated Financial Statements for additional information on deferred compensation. Stock-Based Compensation The Company has a stock-based employee compensation plan, which is described more fully in Note 12 to the Consolidated Financial Statements.
New Accounting Pronouncements Applicable new accounting pronouncements are set forth under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference. ‎ 23 Table of Contents ITEM 7A. QUANTITATIVE AND QU ALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable . ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Consolidated Financial Statements included herewith. ITEM 9.
New Accounting Pronouncements Applicable new accounting pronouncements are set forth under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference. ‎ 24 Table of Contents ITEM 7A. QUANTITATIVE AND QU ALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable . ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Consolidated Financial Statements included herewith. ITEM 9.
This deferred revenue reflects the Company’s best estimates of the amount of warranty returns and repairs it will experience during those future periods. If 22 Table of Contents future warranty activity varies from the estimates, the Company will adjust the estimated deferred revenue, which would affect net sales and operating results in the period that such adjustment becomes known.
This deferred revenue reflects the Company’s best estimates of the amount of warranty returns and repairs it will experience during those future periods. If 23 Table of Contents future warranty activity varies from the estimates, the Company will adjust the estimated deferred revenue, which would affect net sales and operating results in the period that such adjustment becomes known.
The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes. ‎ 21 Table of Contents Critical Accounting Policies Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes. ‎ 22 Table of Contents Critical Accounting Policies Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. The Company is currently in compliance with all covenants related to the Credit Agreement. As of June 30, 2023, and June 30, 2022, there were no outstanding borrowings on the facility.
The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. The Company is currently in compliance with all covenants related to the Credit Agreement. As of June 30, 2024 and 2023, there were no outstanding borrowings on the facility.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The purpose of this discussion and analysis is to enhance the understanding and evaluation of the financial position, results of operations, cash flows, indebtedness, and other key financial information of the Company for fiscal years 2023 and 2022.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The purpose of this discussion and analysis is to enhance the understanding and evaluation of the financial position, results of operations, cash flows, indebtedness, and other key financial information of the Company for fiscal years 2024 and 2023.
The valuation allowance was also increased to fully offset the 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.
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.
Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are 20 Table of Contents insufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below).
Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are insufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below).
As such, as of June 30, 2023, the amount of common stock subject to repurchase by the Company under the Board of Director’s prior authorization remained $2,139,753 at the discretion of the Chief Executive Officer of the Company.
As of June 30, 2024, the amount of common stock subject to repurchase by the Company under the Board of Director’s prior authorization remained $2,139,753 at the discretion of the Chief Executive Officer of the Company.
Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties. The Company believes that its financial position remains strong. The Company had $3.1 million of cash and cash equivalents, $17.1 million of short-term investments and available credit facilities of $5.0 million on June 30, 2023.
Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties. The Company believes that its financial position remains strong. The Company had $2.8 million of cash and cash equivalents, $12.1 million of short-term investments and available credit facilities of $5.0 million on June 30, 2024.
Part of the litigation related to this enforcement has been recently dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 from the granting of licenses to certain of its patents.
Part of the litigation related to this enforcement has been dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 in the 2023 fiscal year from the granting of licenses to certain of its patents.
As of June 30, 2023, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended. No purchases were made during the years ended June 30, 2023 or 2022. There were no stock repurchases under the program in fiscal year 2023 or 2022.
As of June 30, 2024, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended. No stock repurchases were made under the program during the years ended June 30, 2024 or 2023.
There were no purchases of common stock in 2023 or 2022 under the stock repurchase program. In the year ended June 30, 2023, there were stock option exercises of 87,000 shares generating $171,350 of cash. This compares to the exercise of 539,089 options during the year ended June 30, 2022, which generated cash of $1,390,346.
This compares to the exercise of 87,000 options during the year ended June 30, 2023, which generated cash of $171,350. There were no purchases of common stock in 2024 or 2023 under the stock repurchase program.
The current fiscal year adjustment to the estimated tax loss carryforward decreased the deferred tax asset to approximately $8,200,000 as of June 30, 2023, and the future realization of this continues to be uncertain.
The current fiscal year adjustment to the net operating loss carryforward increased the deferred tax asset to approximately $8,500,000 as of June 30, 2024, and the future realization of this continues to be uncertain.
We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflict between Russia and Ukraine, and any changes to the global economic situation as a consequence of the COVID-19 pandemic.
We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflicts in Eastern Europe and the Middle East, and any changes to the global economic situation as a consequence of future pandemics.
Short Term Liquidity The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, and any potential interest payments, if it utilizes its line of credit facility, through existing working capital and funds provided by operating activities. The majority of the Company’s purchase obligations are pursuant to funded contractual arrangements with its customers.
Short Term Liquidity The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, inventory purchases and any potential interest payments, if it utilizes its line of credit facility, through existing working capital, funds provided by operating activities and interest earned on investments.
There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels. If the Company is unable to generate sufficient cash flow from operations, then it may be required to sell assets, reduce capital expenditure, or draw on its credit facilities.
If the Company is unable to generate sufficient cash flow from operations, then it may be required to sell assets, reduce capital expenditure, or draw on its credit facilities.
The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively. For the year ended June 30, 2022, there was no federal tax provision and a state tax provision of $7,517 was recorded.
The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively. The effective tax rate was 7.2% for the fiscal year ended June 30, 2024 compared to 3.7% for the previous fiscal year.
Long Term Liquidity The Company’s future capital requirements, to a certain extent, are also subject to general conditions in or affecting the electronics industry and are subject to general economic, political, financial, competitive, legislative, and regulatory factors that are beyond its control.
The Company regularly evaluates new product offerings, inventory levels, and capital expenditure to ensure that it is effectively allocating resources in line with current market conditions. 21 Table of Contents Long Term Liquidity The Company’s future capital requirements, to a certain extent, are also subject to general conditions in or affecting the electronics industry and are subject to general economic, political, financial, competitive, legislative, and regulatory factors that are beyond its control.
Financing Activities The cash generated from financing activities in the years ended June 30, 2023 and 2022 was solely driven by stock option exercises. As of June 30, 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility").
As of June 30, 2024 and 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility").
The Company believes its existing cash, cash equivalents, investments in short-term U.S. Treasury securities, cash provided by operating activities and borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months.
Treasury securities, cash provided by operating activities and borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months. There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels.
Investing Activities Cash used by investing activities for year ended June 30, 2023 was almost entirely related to the purchase of approximately $18,860,000 of U.S. Treasury securities at a discount.
Proceeds of $14,331,000 were received during the year ended June 30, 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. In the prior year, cash used for investing activities was almost entirely related to the purchase of $19,334,000 of U.S.
Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin. While the mix of higher margin DTC sales was favorable compared to the prior fiscal year, fixed manufacturing overhead expenses that don’t flex with sales negatively impacted the margins for the year.
Gross profit as a percentage of net sales for the year ended June 30, 2024 was 34.1% versus 34.0% for the prior fiscal year. Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin.
Also, a bonus accrual of $334,000 and a second quarter profit-sharing payout of $576,000 were recorded as a result of the increased net income before income taxes for the fiscal year 2023 due mainly to the licensing proceeds received during the first quarter of 2023, partially offset by the aforementioned legal fees and expenses.
In addition to the legal fees and expenses of $22,141,000 incurred during the prior fiscal year to support the Company’s patent defense and litigation resolution, a bonus accrual of $334,000 and a profit-sharing payout of $576,000 were recorded in expense as a result of the increased net income for the year ended June 30, 2023.
This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight. The invasion of Ukraine by Russia in February 2022 and the broad economic sanctions imposed in response to this conflict have increased global economic and political uncertainty.
The Company continues to monitor ongoing tensions in Eastern Europe and the Middle East and the supply chain team will react as necessary should supply chain disruptions occur. This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight.
Purchases of equipment and leasehold improvements by the Company during the year ended June 30, 2023 was $98,441 compared to $108,158 spent for tooling and leasehold improvements in the prior year.
Purchases of equipment and leasehold improvements by the Company of $98,441 and the payment of premiums on Company-owned life insurance policies for two of its executives also contributed to the overall use of cash during the year ended June 30, 2023.
Employer taxes on stock option exercises of approximately $28,000 were recorded in the current year compared to $134,000 in the prior year, a decrease of $106,000. 18 Table of Contents Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter.
There was no other income reported for the year ended June 30, 2024. Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of that year. Interest income of $847,644 was recorded during the year ended June 30, 2024 mainly due to interest earned on the U.S.
Pricing actions implemented in the third quarter of fiscal year 2023 partially mitigated these increases and working with a dedicated freight forwarding partner has helped to minimize freight rate increases. The Company’s supply chain is primarily in southern China.
Inflationary cost increases have resulted in higher costs of commodities, packaging materials, and wages, along with higher energy and transportation costs. These increases have been partially mitigated by pricing actions implemented in the prior fiscal year and the Company continues to work with a dedicated freight forwarding partner to minimize freight rate increases.
We are uncertain, however, of the impact it will have on future operating results. 19 Table of Contents Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows from operating, investing and financing activities for each of the past two fiscal years: Total cash provided by (used in): 2023 2022 Operating activities $ 10,735,649 $ (942,530) Investing activities (17,024,107) 1,810,139 Financing activities 171,350 1,390,346 Net (decrease) increase in cash and cash equivalents $ (6,117,108) $ 2,257,955 Operating Activities Cash provided by operating activities of the Company during the year ended June 30, 2023 was the result of the licensing proceeds received, partially offset by the payment of related legal fees and expenses, along with a second quarter profit-sharing payout.
During the years ended June 30, 2024 and 2023, there were no sales to Russia. 20 Table of Contents Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows from operating, investing and financing activities for each of the past two fiscal years: Total cash provided by (used in): 2024 2023 Operating activities $ (190,531) $ 10,735,649 Investing activities (198,425) (17,024,107) Financing activities 134,975 171,350 Net (decrease) in cash and cash equivalents $ (253,981) $ (6,117,108) Operating Activities Cash used in operating activities of the Company during the year ended June 30, 2024 included bonus payouts of $403,000 and funding of $362,000 relating to employee payroll taxes on the gains from the disqualifying dispositions of incentive stock options.
During fiscal 2023, inflation, rising interest rates and higher energy costs have impacted consumers’ discretionary spending and, as a result, the Company’s sales volumes. Inflationary cost increases have also had an impact on our commodities, packaging materials, labor costs, and transportation costs.
During fiscal year 2024, inflation, increased interest rates and higher energy costs continue to impact consumers’ discretionary spending, and in turn, the Company’s sales volumes.
In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.
The Company may also record a specific reserve for individual accounts if they become aware of specific customer circumstances such as bankruptcy or deterioration in operation results or financial position. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.
Cash provided by investing activities for the year ended June 30, 2022 was the result of proceeds of a company-owned life insurance policy on the Company’s founder upon his passing on December 21, 2021, slightly offset by the fixed asset purchases. Capital expenditures for fiscal year 2024 are expected to be approximately $400,000 related to leasehold improvements.
Investing Activities Net cash used by investing activities for year ended June 30, 2024 was related to capital expenditures, including the replacement of a roof section of the building and HVAC upgrades for approximately $330,000 and premiums on company-owned life insurance policies for two of its executives.
The favorable mix of higher margin direct-to-consumer (“DTC”) sales offset the year over year decline in higher margin domestic distributors. Selling, general and administrative expenses increased significantly as a result of legal fees and expenses incurred in support of the Company’s patent defense litigation.
The favorable mix of higher margin domestic distributor sales and lower volume of lower margin export sales were offset by the adverse impact of the continued sell-through of inventory brought in at higher freight rates. Selling, general and administrative expenses decreased significantly from the prior fiscal year due primarily to legal fees and expenses incurred in support of the Company’s patent defense litigation, coupled with bonus and profit-sharing expense related to the net income from licensing proceeds in the prior year.
Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3 million, or 24.9%.
Excluding the effect of these legal fees and related expenses, selling, general and administrative expenses still decreased by approximately $233,000, or 3.1%. The decrease is predominantly driven by a decrease in payroll expense due to personnel departures in the prior fiscal year whose job responsibilities were absorbed internally.
Removed
The impacts of COVID-19 have moderated since it was declared a global pandemic by the World Health Organization in March 2020. The Company continues to monitor any changes regarding the pandemic and any future impacts of COVID-19 on our business, operations, and financial results.
Added
Fiscal Year 2024 Summary  Net sales declined 6.4% to $12,265,069 due predominantly to the timing of inventory replenishment by the Company’s largest European distributor in addition to a slowdown in Direct-to-Consumer (DTC) sales.
Removed
Fiscal Year 2023 Summary  Net sales declined 26.0% to $13,099,651 due predominantly to weaker consumer demand led by constraints on consumer spending brought on by higher inflation and, as a result, lower disposable income. Over inventory positions at some U.S. distributors also contributed to the decline.
Added
Export sales fell 24% while domestic sales fell minimally at less than 1%.  Gross profit as a percentage of sales increased slightly by 0.1 percentage points to 34.1%.
Removed
Export sales fell 29% while domestic sales fell 25%.  Gross profit as a percentage of sales decreased 3.9 percentage points to 34.0%. The decrease was primarily due to fixed manufacturing expenses that do not flex with the lower sales volume.
Added
Excluding the effect of these fees and expenses, selling, general and administrative expenses decreased by approximately 3.7%, mainly attributable to lower payroll expense as a result of personnel attrition.  No other income was reported for the year ended June 30, 2024, however, $33,000,000 in licensing proceeds received in the first quarter of the prior year was recorded as other income during the year ended June 30, 2023.  A tax benefit of $73,604 was recorded for the year ended June 30, 2024 as a result of the return-to-provision adjustment identified during the third quarter.
Removed
For the year ended June 30, 2023, domestic net sales decreased $3,284,378, or 25.0% to $9,848,521. Sales to U.S. distributors were impacted by an oversupply of inventory as a consequence of higher-level purchases during the pandemic followed by recent weakened consumer demand for our product due to inflation.
Added
The downturn in export net sales of $781,499 for the fiscal year 2024 is almost entirely due to a shortfall in sales to the Company’s largest European distributor as they delayed replenishment of their inventory, as well as a 19.6% decline in sales to Asia behind lower sales to an original equipment manufacturer of metal detectors.
Removed
While DTC sales, believed to be a significant approach to driving growth, remained stable year over year, it continued to represent the Company’s largest market class, growing from approximately 19% of total net sales during the twelve months ended June 30, 2022 to approximately 25% during the current fiscal year.
Added
A revival of orders from the Ukrainian distributor slightly offset the decline. Domestic sales for the year ended June 30, 2024 decreased by less than 1%, or $53,083, to $9,795,438. DTC sales, which represent nearly 30% of the Company’s total sales, were down almost 20%.
Removed
Export net sales also saw a downturn during the current fiscal year, decreasing $1,321,490 or 28.9% to $3,251,130. The adverse impacts from the war between Russia and Ukraine, along with increasing inflation and higher energy costs, drove an approximately 27% decline in sales to export distributors in Europe by nearly $1,000,000 versus fiscal year 2022.
Added
We believe this decline is driven by softer discretionary spending as consumers react to higher inflation and other spending commitments. A near 50% increase in sales to E-tailers, a sizable custom headphone order during the current fiscal year and a slight improvement in sales to certain of the Company’s U.S. distributors mostly offset the decline in DTC sales.
Removed
Lost sales of approximately $600,000 to Russia and Ukraine made up the majority of the drop. A decrease in sales to distributors in Asia also contributed to the decline mainly behind a lack of sales to one of the Company’s non-retail original equipment manufacturers that utilizes Koss headphones in one of their products.
Added
While the mix of higher margin U.S. distributor sales coupled with fewer lower margin export sales was favorable compared to the prior fiscal year, the impact of an increase in the reserve for excess and obsolete inventory and continued sell-off of inventory received at higher freight costs in prior years continued to adversely impact gross margins.
Removed
Sales to this market were over $350,000 during the year ended June 30, 2022. Gross profit as a percentage of net sales decreased to 34.0% for the year ended June 30, 2023, compared to 37.9% for the prior fiscal year.
Added
The Company was able to maintain fairly consistent freight rates throughout the fiscal year 2024 because of the renewal of their partnership agreement with a dedicated freight forwarder, which provided access to lower freight rates even though market rates increased near the end of the fiscal year.
Removed
And while freight costs improved during the first half of the year and then stabilized in the back half, the movement of inventory received at the higher freight costs will continue to offset the reduced shipping costs. The Company renewed its contract with the freight forwarder, stabilizing contract rates and bringing them in line with market rates.
Added
The impact of broader economic factors such as inflation and shifts in consumer behavior could result in overcapacity in the market and rising freight costs. The Company continues to monitor the situation. Selling, general and administrative expenses for the fiscal year ended June 30, 2024 declined approximately 80% from $29,342,000 to $6,058,000.
Removed
UPS reached a tentative agreement for a new five-year national contract with the Teamsters on July 25, 2023, averting a potential crisis in small package shipping. The new agreement is likely to increase the Company’s future freight costs.
Added
Treasury investments held during the year in order to earn a return on the Company’s excess cash while maintaining a low risk profile.
Removed
Selling, general and administrative expenses for the year ended June 30, 2023 increased by approximately $23,545,000 to $29,358,000 compared to the prior year period. The significant change was predominantly a result of the increase of approximately $22,276,000 in legal fees and expenses incurred in support of the Company’s patent defense litigation.
Added
This compares to $520,809 of interest income earned in the prior fiscal year from these securities. 19 Table of Contents A net income tax benefit of $73,604 was reported for the year ended June 30, 2024 and included a federal income tax benefit of $81,278 recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified.
Removed
Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3 million, or 24.9%.
Added
The RTP adjustments were identified as part of the preparation and submission of the fiscal year 2023 tax returns during the third quarter. State income tax expense of $7,674, which represented only the required minimum estimated tax payments due, partially offset the benefit.
Removed
During the year ended June 30, 2023, deferred compensation expense of $60,000 was recorded related to the change in the net present value of the future expected payments to a current officer as a result of an additional vesting year, which increased the future annual payments.
Added
The Company’s taxable loss for the year ended June 30, 2024 increased the federal tax loss carryforward by $1,270,000, resulting in an expected carryforward of approximately $32,800,000 by the end of the fiscal year.
Removed
This compares to $633,000 of income recorded in the prior fiscal year as a result of income of $473,000 recognized with the reversal of the deferred compensation liability for the Company’s founder who passed away in December 2021, offset by $71,250 of payments accrued and made to the former officer prior to his passing, and deferred compensation income of $231,000 recognized under the arrangement for the current officer as a result of increasing interest rates.
Added
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.
Removed
The Company received licensing proceeds of $100,000, which was also recorded as other income, in the first quarter of the prior year. Also, in December 2021, the Company recognized other income on the proceeds from a company-owned life insurance policy on its founder, who passed away on December 21, 2021. Total other income for the fiscal year 2022 was $362,390.
Added
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. 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.
Removed
Interest income of $520,809 was recorded during the year ended June 30, 2023 for interest earned on U.S. Treasury securities that were purchased midyear to better secure the Company’s excess cash while earning a return. Interest income of $11,513 was earned on a money market account in the prior fiscal year.
Added
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. The global supply chain remains fragile, even while there is some stabilization and improved predictability.
Removed
The effective tax rate was 3.7% for the fiscal year ended June 30, 2023 compared to less than 1% for the previous fiscal year. During the twelve months ended June 30, 2023, stock option exercises resulted in tax deductible compensation expense of approximately $368,000 and will offset some of the taxable income generated by the net licensing proceeds.
Added
Freight rates continue to rise based on strong U.S. import demand and ongoing challenges shipping through the Red Sea and Suez Canal. The Company rarely uses this route so no material adverse impacts are expected, but the conflict has impacted freight traffic for the Company’s resellers.
Removed
Net operating loss carryforwards were also utilized to reduce the taxable income and, as such, th e remaining expected federal tax loss carryforward is expected to approximate $31,800,000 by the end of the fiscal year.
Added
Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022.
Removed
While some issues related to the availability of containers and routings have subsided, the Company continues to monitor the situation closely and the supply chain team will modify business plans as necessary.
Added
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.
Removed
In accordance with Executive Order 14071 declared on April 6, 2022, the Company suspended sales into Russia. Given the humanitarian crisis in Ukraine and the population seeking refuge in other countries as a result of the ongoing conflict, sales to Ukraine were also impacted.
Added
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 new year.
Removed
Prior to the war, neither Russia nor Ukraine constituted a significant portion of the business, making up less than 3.4% of total net sales of the Company for the year ended June 30, 2022. There were no sales to Russia or Ukraine in the current fiscal year.
Added
Cash outflow was partially offset by tighter inventory buying practices and interest received on investments. During the previous year, cash provided by operating activities of the Company included the licensing proceeds received, partially offset by the payment of related legal fees and expenses and the profit-sharing payout.
Removed
Additionally, the Company’s discipline around and the management of inventory purchases has led to a continued decline in inventory balances during the year.
Added
Treasury securities at a discount of $474,000, offset slightly by proceeds of $2,022,000 from the maturity of one of the Company’s U.S. Treasury notes.
Removed
For the year ended June 30, 2022, the Company used cash of $942,530 for operating activities related to the deliberate investment in inventory to ensure adequate stock levels of critical products were available in case of potential supply chain disruption and delays.

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