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and Koss U.K.
−Removed: Limited to comply with certain European Union ("EU") requirements.
+Added: Limited to comply with certain European Union (“EU”) requirements.
Limited is maintained to comply with certain U.K.
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As of June 30, 2022, the Company had approximately 90 domestic dealers and its products were carried in approximately 2,000 domestic retail outlets and numerous retailers worldwide.
−Removed: International markets are served by domestic sales representatives and sales personnel in the Netherlands and Russia.
+Added: 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 76% of the Company’s fiscal year 2022 sales were from stereo headphones used for listening to music.
−Removed: The remaining approximately 30% of the Company's sales were from headphones used in communications, education settings, and in conjunction with metal detectors, as well as to original equipment manufacturers ("OEM").
+Added: The remaining approximately 24% of the Company’s sales were from headphones used in communications, education settings, and in conjunction with metal detectors, as well as 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.
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however, the Company’s business is not, in the opinion of management, materially dependent upon any single trademark or patent.
+Added: Given the significance of the Company’s intellectual property to its business, in 2019 the Company launched a program to enforce its intellectual property rights and protects its patent portfolio.
+Added: As part of this enforcement program, the Company has filed and pursued lawsuits against a number of companies that the Company believes are infringing upon its patents, and may enter into licensing agreements or initiate additional lawsuits.
+Added: The Company considers protecting its intellectual property rights to be central to its business model and competitive position in the stereo headphone industry.
Although retail sales of consumer electronics have historically been higher during the holiday season, sales of stereo headphones have recently increased throughout the year.
−Removed: Management believes that the Company's business and industry segment are no longer seasonal as evidenced by the fact that the Company’s net sales for the last couple of years, including the year ended June 30, 2021, were almost equally split between the first and second halves of the year.
+Added: Management believes that the Company’s business is not seasonal as evidenced by the fact that the Company’s net sales for the last couple of years, including the year ended June 30, 2022, were almost equally split between the first and second halves of the year.
Management believes that the reason for this level performance of sales to retailers and distributors is related to the fact that consumers are increasingly purchasing stereo headphones throughout the year as replacements for older or lower quality headphones to improve the quality of their listening experience as it relates to portable electronic products.
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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 significant amounts of inventory to meet delivery requirements of its customers.
−Removed: From time to time, although rarely, the Company may extend payment terms to its customers for a special promotion.
−Removed: For instance, the Company has in the past offered a 90-120 day payment period for certain customers, such as computer retailers and office supply stores.
+Added: While limited, the Company does offer 90-120 day terms to certain customers such as Amazon Vendor Central, computer retailers and office supply stores.
+Added: From time to time, although rarely, the Company may also extend payment terms to its customers for a special promotion.
Based on historical trends, management does not expect these practices to have a material effect on net sales or net income.
−Removed: The Company’s backlog of orders as of June 30, 2021, is not significant in relation to net sales during fiscal year 2021 or projected fiscal year 2022 net sales.
+Added: The Company’s backlog of orders as of June 30, 2022, is minimal in relation to net sales during fiscal year 2022.
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.
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Sales to this customer base have been growing in recent years.
−Removed: In the year ended June 30, 2021, the Company’s largest customer was Ingram Micro.
−Removed: In the year ended June 30, 2020, the largest customer was Walmart.
−Removed: The Company’s sales to Ingram Micro, were approximately 18% and 10% of net sales in fiscal year 2021 and 2020, respectively.
−Removed: Walmart sales were approximately 6% and 18% of net sales in fiscal year 2021 and 2020, respectively.
+Added: In the year ended June 30, 2022, the Company’s largest customer was Amazon Seller Central .
+Added: In the year ended June 30, 2021, the largest customer was Ingram Micro.
+Added: The Company’s sales to Amazon Seller Central, were approximately 13% and 3% of net sales in fiscal year 2022 and 2021, respectively.
+Added: Ingram sales were approximately 10% and 18% of net sales in fiscal year 2022 and 2021, respectively.
The Company is dependent upon its ability to retain a base of retailers and distributors to sell the Company’s line of products.
−Removed: Loss of retailers and distributors means loss of product placement.
+Added: A material loss of retailers or distributors would result in a loss of product placement and have an adverse effect on the Company’s financial results.
The Company has broad distribution across many channels including specialty stores, mass merchants, and electronics stores.
Management believes that any loss of revenues would be partially offset by a corresponding decrease, on a percentage basis, in expenses, thereby partially reducing the impact on the Company’s income from operations.
−Removed: The Company’s five largest customers (including Ingram Micro in both years) accounted for approximately 48% of net sales in both fiscal years 2021 and 2020.
+Added: The Company’s five largest customers accounted for approximately 45% and 48% of net sales in fiscal years 2022 and 2021, respectively.
The Company focuses on the stereo headphone industry.
−Removed: In the stereo headphone market, the Company competes directly primarily with approximately six major competitors, several of which are large and diversified and have greater total assets and resources than the Company.
+Added: 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 extent to which retailers and consumers view the Company as 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 maintains a competitive advantage.
−Removed: The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills, and customer service to maintain its competitive position.
+Added: The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills, and customer service, as well as its intellectual property portfolio, to maintain its competitive position.
RESEARCH AND DEVELOPMENT
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The Company believes that it has materially complied with all currently existing federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which it is subject.
−Removed: During fiscal years 2021 and 2020, 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.
+Added: During fiscal years 2022 and 2021, the amounts incurred in complying with federal, state and local statutes and regulations pertaining to environmental standards
+Added: and occupational safety and health laws and regulations did not materially affect the Company’s operating results or financial condition.
As of June 30, 2022, the Company employed 34 non-union employees, 3 of which were part-time employees.
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For further information, see Part II, Item 7.
−Removed: The Company has sales personnel in the Netherlands and Russia to service the international export marketplace.
+Added: The Company has sales personnel currently located in the Netherlands and the Caucasus region to service the international export marketplace.
Loss of these personnel would result in a transfer of sales and marketing responsibility.
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All other countries
−Removed: The Company has a manufacturing facility in Milwaukee, Wisconsin and uses contract manufacturing facilities in the People's Republic of China and Taiwan.
+Added: 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.
+Added: Sales to Ukraine have also been impacted as a result of the humanitarian crisis there due to the ongoing hostilities.
+Added: Neither Russia nor Ukraine represents a significant portion of the Company’s business;
+Added: in the aggregate, less than 3.4% of net sales for the year ended June 30, 2022.
+Added: The Company is uncertain, however, how the conflict will impact future sales.
+Added: 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.
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The Company’s goal is to stock finished goods inventory at an average of approximately 90 days demand per item.
−Removed: 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.
−Removed: The Company believes that it could restore production of its top 10 selling models (which represent approximately 51% of the Company’s 2021 net sales) within 12-18 months.
−Removed: Recent changes to compliance testing have impacted the time it takes to bring a product to market and would also impact the time necessary to retool a product and re-enter the marketplace.
+Added: 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 62% of the Company’s 2022 net sales) within 12-18 months.
+Added: Required compliance testing impacts the time it takes to bring a product to market as well as the time necessary to retool a product and re-enter the marketplace.
The Company is also at risk if trade restrictions are introduced on its products based upon country of origin.
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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.
−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 security breach.
+Added: 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.
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.
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Any such increased level of investment could adversely affect our financial condition or results of operations.
−Removed: The Company has programs in place to address and mitigate the cybersecurity risks.
−Removed: 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: The Company continues to minimize its risk by reducing the number of physical servers at the HQ location and further reducing the exposure of public systems.
−Removed: Planned e-commerce improvements will also reduce exposure.
−Removed: Operating systems are being updated to eliminate risks.
−Removed: More business critical systems are being moved to the cloud including email and its ERP system.
+Added: The Company has programs in place intended to address and mitigate the cybersecurity risks.
+Added: These programs include regular monitoring of outside threats, continuous updating of software to mitigate risk and education of employees to the risks of external threats, and simplification of infrastructure to minimize servers.
+Added: 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.
+Added: 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.
+Added: While the Company devotes resources to security measures to protect its systems and data, these measures cannot provide absolute security.
AVAILABLE INFORMATION
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These reports and other information regarding the Company are also available on the SEC’s internet website at https://www.sec.gov.
−Removed: 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.
+Added: 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.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.