What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-08-26 compared with 2021-08-20 · 118 added, 128 removed, 506 unchanged (33% of the section changed)

17 unchanged sentences

Not applicable

DISCL OSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

This information is incorporated by reference to the sections entitled "Information as to the Nominees,"

"Board Committees - Audit Committee,"

"Code of Ethics,"

"Executive Officers,"

and "Section 16(a) Beneficial Ownership Reporting Compliance"

from Koss Corporation’s Proxy Statement for its 2021 Annual Meeting of Stockholders to be filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K.

This information is incorporated by reference to Koss Corporation’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K.

The Company adopted a code of ethics, which is a "code of ethics"

3 unchanged sentences

EXECUTIVE COMPENSATION.

This information is incorporated by reference to the sections entitled "Board Committees - Compensation Committee,"

"Summary Compensation Table,"

"Outstanding Equity Awards at Fiscal Year End,"

and "Director Compensation Table"

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

This information is incorporated by reference to the sections entitled "Beneficial Ownership of Company Securities"

and "Outstanding Equity Awards at Fiscal Year End"

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

This information is incorporated by reference to the sections entitled "Board Committees,"

"Independence of the Board"

and "Related Party Transactions"

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

This information is incorporated by reference to the sections entitled "Fees and Services"

and "Audit Committee Pre-Approval Policies and Procedures"

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

3 unchanged sentences

Consolidated Balance Sheets as of June 30, 2022 and 2021

Consolidated Statements of Operations for the Years Ended June 30, 2021 and 2020

Consolidated Statements of Income for the Years Ended June 30, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended June 30, 2022 and 2021

10 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Koss Corporation and Subsidiaries (the “Company”) as of June 30, 2021 and 2020, and the related statements of operations, stockholders’ equity, and cash flows for the years ended June 30, 2021 and 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Koss Corporation and Subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related statements of income, stockholders’ equity, and cash flows for the years ended June 30, 2022 and 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material aspects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the years ended June 30, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

18 unchanged sentences

Deferred Compensation

As described in Note 9 to the consolidated financial statements, the Company has deferred compensation agreements with a former and current officer, which are measured at their estimated net present value.

The principal considerations for our determination that deferred compensation should be a critical audit matter was based on the subjective nature of the assumptions estimated and used by management to calculate the deferred compensation liability.

As described in Note 9 to the consolidated financial statements, the Company has a deferred compensation agreement with a current officer as of June 30, 2022 and 2021 and had a deferred compensation agreement with a former officer as of June 30, 2021, which are measured at their estimated net present value.

The principal consideration for our determination that deferred compensation should be a critical audit matter was based on the subjective nature of the assumptions estimated and used by management to calculate the deferred compensation liability.

Assumptions subject to estimate included discount rates, mortality rates, and a future retirement date.

16 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

11 unchanged sentences

Income taxes payable

Short-term debt

Total current liabilities

14 unchanged sentences

KOSS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

Years Ended June 30,

1 unchanged sentence

Selling, general and administrative expenses

(Loss) from operations

Income (loss) from operations

Interest income

Income (loss) before income tax provision

Income before income tax provision

Income tax provision

Net income (loss)

Income (loss) per common share:

Income per common share:

Weighted-average number of shares:

4 unchanged sentences

Operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

(Recovery of) provision for doubtful accounts of accounts receivable

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

(Recovery of) doubtful accounts of accounts receivable

Depreciation of equipment and leasehold improvements

Stock-based compensation expense

Deferred income taxes

Change in cash surrender value of life insurance

Provision for deferred compensation

Deferred compensation paid

(Benefit) provision for deferred compensation

Deferred compensation gain

Deferred compensation relieved

Other income - SBA loan forgiveness

Other income - Net gain from life insurance benefits

Loss on disposal of fixed assets

Net changes in operating assets and liabilities:

Accounts receivable

( 2,729,850 )

Prepaid expenses and other current assets

4 unchanged sentences

Deferred revenue

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing activities:

1 unchanged sentence

Life insurance premiums paid

Net cash (used in) investing activities

Proceeds from life insurance policy

Net cash provided by (used in) investing activities

Financing activities:

Proceeds from SBA loan

Proceeds from exercise of stock options

8 unchanged sentences

Stock-based compensation expense

Exercise of common stock options

Balance, June 30, 2021

10 unchanged sentences

representatives working directly with certain retailers, distributors, and original equipment manufacturers.

International markets are served by domestic sales representatives and sales personnel in the Netherlands and Russia which utilize independent distributors in several foreign countries.

International markets are served by domestic sales representatives and sales personnel in the Netherlands and the Caucasus region which utilize independent distributors in several foreign countries.

The Company has two subsidiaries, Koss Corp B.V.

34 unchanged sentences

RESEARCH AND DEVELOPMENT — Research and development is primarily comprised of product prototypes and testing.

These activities, charged to operations as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Operations, amounted to $ 410,602 and $ 397,360 in 2021 and 2020, respectively.

ADVERTISING COSTS — Advertising costs included within selling, general and administrative expenses in the accompanying Consolidated Statements of Operations were $ 33,976 in 2021 and $ 54,592 in 2020.

These activities, charged to operations as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Income, amounted to $ 285,244 and $ 410,602 in 2022 and 2021, respectively.

ADVERTISING COSTS — Advertising costs included within selling, general and administrative expenses in the accompanying Consolidated Statements of Income were $ 50,513 in 2022 and $ 33,976 in 2021.

Such costs are expensed as incurred.

INCOME TAXES — The Company operates as a C Corporation under the Internal Revenue Code (the "Code").

INCOME TAXES — The Company operates as a C Corporation under the Internal Revenue Code (the “Code").

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws.

2 unchanged sentences

The differences relate principally to different methods used for depreciation and amortization for income tax purposes, net operating loss carryforwards, capitalization requirements of the Code, allowances for doubtful accounts, provisions for excess and obsolete inventory, stock-based compensation, warranty reserves, and other income tax related carryforwards.

Valuation allowances are established when necessary to reduce deferred income tax assets to the amount that is more likely than not to be realized.

A valuation allowance is established when necessary to reduce deferred income tax assets to the amount that is more likely than not to be realized.

PATENT COSTS — The Company incurs on-going legal fees and filing costs related to the patent portfolio.

21 unchanged sentences

LEASES — The Company determines if a contract is a lease at the date of inception.

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the Company’s former chairman, and is an operating lease.

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the 5 beneficiaries of the former chairman’s revocable trust and is an operating lease.

Operating leases are reported on the Company's Consolidated Balance Sheets as operating lease right-of-use ("ROU") assets and operating lease liabilities.

Operating lease ROU assets and liabilities are valued at the present value of the future lease payment obligations.

Operating lease expense is recorded on a straightline basis over the life of the lease taking into account expected renewal periods.

Operating lease expense is recorded on a straight-line basis over the life of the lease taking into account expected renewal periods.

LIFE INSURANCE POLICIES — Life insurance policies are stated at cash surrender value or at the amount the Company would receive in the case of split-dollar arrangements.

Increases in cash surrender value are included in selling, general and administrative expenses in the Consolidated Statements of Operations, net of annual premiums paid.

DEFERRED COMPENSATION — The Company’s deferred compensation liabilities are for a current and former officer and are calculated based on various assumptions which may include compensation, years of service, expected retirement date, discount rates, and mortality tables.

The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Operations.

Increases in cash surrender value, net of annual premiums paid, and the proceeds from company-owned life insurance policies are included in selling, general and administrative expenses and other income, respectively, in the Consolidated Statements of Income.

DEFERRED COMPENSATION —At June 30, 2022, the Company’s deferred compensation liability is for a current officer and at June 30, 2021 is for a current and former office and is calculated based on various assumptions which may include compensation, years of service, expected retirement date, discount rates, and mortality tables.

The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Income.

The selling, general and administrative expenses recorded during the year end June 20, 2022, also include the gain recorded as a result of the reversal of the deferred compensation current and noncurrent liabilities recorded for the Company’s founder who passed away on December 21, 2021.

See Note 9 for additional information on deferred compensation.

FAIR VALUE OF FINANCIAL INSTRUMENTS — Cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value based on the short maturity of these instruments.

FAIR VALUE OF FINANCIAL INSTRUMENTS — Cash equivalents, accounts receivable, and accounts payable approximate fair value based on the short maturity of these instruments.

IMPAIRMENT OF LONG-LIVED ASSETS — The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

10 unchanged sentences

Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.

OTHER INCOME — On November 3, 2020, the Company was notified that the full $ 506,700 of the SBA Loan (see Note 7) was forgiven.

The loan forgiveness has been treated as other income and shown as a separate line on the Consolidated Statements of Operations.

OTHER INCOME — In December 2021, the Company recognized approximately $ 262,000 of other income related to the proceeds from company-owned life insurance policies on its founder, who passed away on December 21, 2021.

In July 2021, the Company entered into a license agreement with a headphone manufacturer (whereby the manufacturer licensed the use of certain patents in certain of their headphones).

The one-time license fee of $ 100,000 was also treated as other income.

Other income is shown as a separate line on the condensed Consolidated Statements of Income.

There was a related payment of $ 100,000 to a third party that was charged to legal expense.

On November 3, 2020, the Company was notified that the full $ 506,700 of the SBA Loan (see Note 7) was forgiven.

The loan forgiveness was treated as other income and shown as a separate line on the Consolidated Statements of Operations for the year ended June 30, 2021.

The Company followed the debt and debt extinguishment accounting model for the SBA Loan forgiveness.

2 unchanged sentences

Actual results could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)", which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This guidance also clarifies and simplifies other areas of ASC 740.

This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2020 with early adoption permitted.

This guidance was effective for the Company July 1, 2021.

Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings in the period of adoption.

The Company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements.

The adoption of the new standard did not have a material impact to income taxes reported in the financial statements for the year ended June 30, 2022.

REVENUE RECOGNITION

The Company disaggregates it's net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty of net sales and cash flows are affected by economic factors.

The Company disaggregates its net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty of net sales and cash flows are affected by economic factors.

The following table summarizes net sales by geographical location:

30 unchanged sentences

Year Ended June 30,

Federal income tax liability (benefit) at statutory rate

Federal income tax liability at statutory rate

State income tax liability, net of federal income tax effect

Increase in valuation allowance

Stock option (deduction) addback

Stock option (deduction)

( 1,966,822 )

Non-deductible offier's compensation

( 8,326,662 )

Non-deductible officers'

All other permanent items

23 unchanged sentences

The Company has federal net operating loss carryforwards of approximately $ 352,000 which expire in fiscal year 2037 and approximately $ 38,202,000 which can be carried forward indefinitely.

The Company has state net operating loss carryforwards totaling approximately $ 15,153,000 in Wisconsin, which expire in fiscal years 2025 through 2040, and approximately $ 13,499,000 in other states.

The Company has state net operating loss carryforwards totaling approximately $ 12,323,000 in Wisconsin, which expire in tax years 2029 through 2041, and approximately $ 17,961,000 in other states.

In the year ended June 30, 2022, the Company generated federal net operating losses of approximately $ 7,199,000 .

At the state level, the fiscal 2022 net operating loss generated in Wisconsin was approximately $ 1,144,000 and approximately $ 3,536,000 in all other states combined.

The need for a valuation allowance is evaluated each accounting period based on the Company’s evaluation of positive and negative evidence concerning the usage of their deferred tax assets.

As of the end of the period, the Company has evaluated all evidence concerning the usage of their deferred tax assets and the determination has been made to maintain a full valuation allowance on the Company’s net deferred tax asset.

The need for a valuation allowance is an estimate at period-end, which is subject to change once additional evidence is obtained in future periods.

Future evidence includes, but is not limited to, license agreement proceeds which are expected to be recorded into earnings in the subsequent period.

This is a subsequent event that was not known or knowable at June 30, 2022.

When the license proceeds are recognized in a future period, the evidence will be considered in determining the Company's expected usage of their deferred tax assets, and may have a material impact on the Company's financial statements.

Generally accepted accounting principles in the United States (“GAAP”) prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

6 unchanged sentences

The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions.

The Company’s federal tax returns for tax years and state income tax returns are open for the standard regulatory period.

The Company’s federal tax returns for tax years and state income tax returns are open for the standard statutory period.

The following are the changes in the valuation allowance:

6 unchanged sentences

( 7,741,570 )

( 10,185,605 )

CREDIT FACILITY AND SBA LOAN

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”) for a two year term expiring on May 14, 2021.

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”).

The Credit Agreement provides for a $ 5,000,000 revolving secured credit facility with an interest rate of 1.50 % over LIBOR.

5 unchanged sentences

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions.

As of June 30, 2021, the Company was in compliance with all covenants related to the Credit Agreement.

As of June 30, 2021, and June 30, 2020, there were no outstanding borrowings on the facility.

On April 13, 2020, the Company received an unsecured loan (the "SBA Loan") for $ 506,700 under the Small Business Administration ("SBA") Paycheck Protection Program (the “PPP”) of the CARES Act through Town Bank.

On November 3, 2020, the Company was notified that the full principal amount of $ 506,700 has been forgiven and is recorded as other income in the 2021 Consolidated Statement of Operations.

As of June 30, 2022, the Company was in material compliance with all covenants related to the Credit Agreement.

As of June 30, 2022 and 2021, there were no outstanding borrowings on the facility.

On November 3, 2020, the Company was notified that the full principal amount of the SBA Loan received under the Small Business Administration ("SBA") Paycheck Protection Program (the “PPP”) of the CARES Act through Town Bank had been forgiven and $ 506,700 was recorded as other income in the 2021 Consolidated Statement of Income.

The Company incurs interest expense primarily related to its secured credit facility.

11 unchanged sentences

DEFERRED COMPENSATION

The Company has deferred compensation agreements with a former and current officer.

The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Operations.

As of June 30, 2022 and 2021, the Company has a deferred compensation agreement with a current officer.

As of June 30, 2021 the Company also had a deferred compensation agreement with a former officer, who has since passed away.

The related expense is calculated using the net present value of the expected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Income.

The Company's current and non-current deferred compensation obligations are included in accrued liabilities and deferred compensation, respectively, in the Consolidated Balance Sheets.

The net present value was calculated for the former officer using a discount factor of 0.92 % as of June 30, 2021 and 1.00 % as of June 30, 2020.

The net present value was calculated for the current officer using a discount factor of 3.29 % at June 30, 2021 and 3.10 % as of June 30, 2020.

The life expectancies used in the calculation of net present value for the former officer were 3.25 and 2.83 years for fiscal years ended June 30, 2021 and 2020, respectively.

The Board of Directors entered into an agreement to continue the 1991 base salary of the Company’s former chairman for the remainder of his life.

These payments began in the fiscal year ended June 30, 2015, and payments of $ 150,000 were made under this arrangement for the years ended June 30, 2021 and 2020.

The Company has a deferred compensation liability of $ 472,883 and $ 416,883 recorded as of June 30, 2021 and 2020, respectively.

Deferred compensation expense of $ 206,000 and $ 26,504 was recognized under this arrangement in 2021 and 2020, respectively.

The Board of Directors has approved a supplemental retirement plan for an officer that calls for annual cash compensation following retirement from the Company in an amount equal to 2 % of base salary, as defined in the agreement, multiplied by the number of years of service to the Company.

The Board of Directors entered into an agreement to continue the 1991 base salary of the Company’s founder and former chairman beginning in fiscal year ended June 30, 2015 and continuing for the remainder of his life.

In December 2021, the former officer passed away.

In fiscal year 2022 payments totaling $ 71,250 were made to the former officer under the deferred compensation arrangement until December 31, 2021 and were expensed as paid.

At June 30, 2021, the Company had a total deferred compensation liability of $ 472,883 recorded related to the former officer, which at his death was relieved.

As a result, deferred compensation income of $ 472,883 was recognized in selling, general and administrative expenses during the year ended June 30, 2022.

The remaining deferred compensation liability of $ 1,937,229 and $ 2,168,599 recorded at June 30, 2022 and June 30, 2021, respectively, relates to a supplemental retirement plan for a current officer that calls for annual cash compensation following retirement from the Company in an amount equal to 2 % of base salary, as defined in the agreement, multiplied by the number of years of service to the Company.

The retirement payments are to be paid monthly to the officer until his death and then to his surviving spouse monthly until her death.

The Company has a deferred compensation liability of $ 2,168,599 and $ 2,066,599 recorded as of June 30, 2021 and 2020, respectively.

Deferred compensation expense of $ 102,000 and $ 37,016 was recognized under this arrangement in 2021 and 2020, respectively.

The current officer's retirement date is estimated to be no earlier than October 2029.

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding.

Diluted income (loss) per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

Deferred compensation (income)/expense of ($ 231,370 ) and $ 102,000 was recognized under this arrangement during the years ended June 30, 2022 and 2021, respectively, to record the liability at net present value of the future expected payments.

The net present value was calculated using a discount factor of 4.78 % at June 30, 2022 and 3.29 % as of June 30, 2021.

The life expectancies used in the calculation of net present value were 19.70 and 21.00 years for fiscal years ended June 30, 2022 and 2021, respectively.

The current officer's retirement date is estimated to be October 2029.

INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income per share is computed based on the weighted-average number of common shares outstanding.

Diluted income per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

The following table reconciles the numerator and denominator used to calculate basic and diluted income per share:

Net income (loss)

Weighted average shares, basic

1 unchanged sentence

Diluted shares

Net income (loss) attributable to common shareholders per share:

(1) Excludes 0 and 2,786,225 weighted average stock options for the years ended June 30, 2021 and 2020, respectively, as the impact of such awards was anti-dilutive.

Net income attributable to common shareholders per share:

(1) No stock options were anti-dilutive for the years ended June 20, 2022 and 2021.

STOCK OPTIONS

5 unchanged sentences

The Company's policy is to issue new shares when stock options are exercised.

As of July 25, 2022, the tenth anniversary of the 2012 Plan, no further awards may be made under the 2012 Plan.

The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model.

10 unchanged sentences

Options are granted at a price equal to or greater than the market value of the common stock on the date of grant.

The per share weighted average fair value of the stock options granted during the years ended June 30, 2021 and 2020 were $ 1.12 and $ 1.26 , respectively.

The per share weighted average fair value of the stock options granted during the year ended June 30, 2021 was $ 1.12 .

No options were granted during the year ended June 30, 2022.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.

For the options granted in 2021 and 2020, the Company used the following weighted-average assumptions:

For the options granted in 2021, the Company used the following weighted-average assumptions:

Expected stock price volatility

8 unchanged sentences

1.77 - $ 6.00

Shares under option at June 30, 2020

1.77 - $ 5.24

1.73 - $ 2.11

Shares under option at June 30, 2021

1.73 - $ 6.00

18 unchanged sentences

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 has approved increases in the amount authorized for repurchase under the program.

Subsequently, the Board of Directors periodically approved increases in the amount authorized for repurchase under the program.

As of June 30, 2022, the repurchase of an aggregate of $ 45,500,000 of common stock was authorized under the stock repurchase program, of which $ 43,360,247 had been expended.

No shares were repurchased in fiscal year 2022 or 2021.

The Company has an agreement with its former chairman, in the event of his death, at the request of the executor of his estate, to repurchase his Company common stock from his estate.

The Company does not have the right to require the estate to sell stock to the Company.

As of June 30, 2020 and June 30, 2021, the estate of the former chairman does not hold a material amount of Company stock.

As such, there is no exposure that the executor of the former chairman's estate may require the Company to repurchase a material amount of stock in the event of his death.

The repurchase price is 95 % of the fair market value of the common stock on the date that notice to repurchase is provided to the Company.

The total number of shares to be repurchased will be sufficient to provide proceeds which are the lesser of $ 2,500,000 or the amount of estate taxes and administrative expenses incurred by his estate.

The Company may elect to pay the purchase price in cash or may elect to pay cash equal to 25 % of the total amount due and to execute a promissory note at the prime rate of interest for the balance payable over four years .

The Company maintains approximately $ 2,000,000 of life insurance policies to fund a substantial portion of this obligation.

The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the Company’s former Chairman.

On January 5, 2017, the lease was renewed for a period of five years, ending June 30, 2023, and is being accounted for as an operating lease.

The lease extension maintained the rent at a fixed rate of $ 380,000 per year and included an option to renew at the same rate for an additional five years ending June 30, 2028.

The Company has an agreement with the former chairman, in the event of his death, at the request of the executor of his estate, to repurchase up to $ 2,000,000 of Company common stock from his estate.

The Company did not have the right to require the estate to sell stock to the Company.

Upon his passing, the estate has twelve months to exercise the right to require the Company to repurchase the stock.

The estate did not exercise this right as of June 30, 2022 and is not expected to do so.

As of June 30, 2022, the estate of the former chairman did not hold a material amount of Company stock.

On May 24, 2022, the lease was renewed for a period of five years, ending June 30, 2028 (the “Extended Term”, and is being accounted for as an operating lease.

The lease extension maintained the rent at a fixed rate of $ 380,000 per year and included an option to renew at an increased rate of $ 397,000 for an additional five years ending June 30, 2033 (the “Second Extended Term”).

The negotiated increase in rent slated for 2028 will be the first increase in rent since 1996.

The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership.

The Company used its incremental borrowing rate as of July 1, 2017, the retrospective date of adoption of ASU 2016-02 (Topic 842) Leases, to calculate the net present value of the operating lease ROU asset and liability.

The five year renewal option was included in the calculation of the ROU asset and liability as the Company believes it is reasonably certain to exercise its right to renew.

The Company used its incremental borrowing rate as of the date of renewal, May 24, 2022, to recalculate the net present value of the operating lease ROU asset and liability.

Both the Extended Term and the Second Extended Term renewal options were included in the calculation of the ROU asset and liability as the Company believes it is reasonably certain to exercise both rights to renew.

The non-lease components of the agreement related to common area maintenance charges are accounted for separately.

9 unchanged sentences

Present value adjustment

( 1,017,275 )

Total lease liabilities

5 unchanged sentences

Matching contributions can be made at the discretion of the Board of Directors.

For fiscal years 2021 and 2020, the matching contribution was 25 % and 75 % of employee contributions to the plan, respectively.

For fiscal years 2022 and 2021, the matching contribution was 25 % of employee contributions to the plan.

Vesting of Company contributions occurs immediately.

1 unchanged sentence

CONCENTRATIONS

In the year ended June 30, 2021, the Company’s largest customer was Ingram Micro.

In the year ended June 30, 2020, the largest customer was Walmart.

The Company’s sales to Ingram Micro, were approximately 18 % and 10 % of net sales in fiscal year 2021 and 2020, respectively.

Walmart sales were approximately 6 % and 18 % of net sales in fiscal year 2021 and 2020, respectively.

Amazon, the second largest customer in 2021 and 2020, was approximately 10 % and 11 % of net sales in fiscal years 2021 and 2020, respectively.

The five largest customers of the Company (including Ingram Micro and Amazon in both years) accounted for approximately 48 % of net sales in both fiscal years 2021 and 2020.

Accounts receivable from Ingram Micro as of June 30, 2021 and June 30, 2020, represented approximately 24 % and 9 % of trade account receivables, respectively.

Amazon accounts receivable as of June 30, 2021 and June 30, 2020, were 19 % and 17 % of trade accounts receivables, respectively.

Accounts receivable from Walmart as of June 30, 2021 and 2020, represented approximately 1 % and 8 %, respectively.

In the years ended June 30, 2022 and 2021, the Company’s largest customers were Amazon Seller Central and Ingram Micro, respectively.

The Company’s sales to Amazon Seller Central were approximately 13 % and 3 % of net sales in fiscal year 2022 and 2021, respectively.

Ingram Micro sales were approximately 10 % and 18 % of net sales in fiscal year 2022 and 2021, respectively.

The five largest customers of the Company accounted for approximately 45 % of net sales in fiscal year 2022 and 48 % in fiscal year 2021.

The two customers with the largest accounts receivable balances as of June 30, 2022 and 2021 were Ingram Micro and Amazon Vendor Central.

Accounts receivable from Ingram Micro as of June 30, 2022 and June 30, 2021, represented 19 % and 24 % of total trade accounts receivables, respectively.

Amazon Vendor Central accounts receivable as of June 30, 2022 and June 30, 2021, were approximately 18 % and 19 % of total trade account receivables, respectively.

The majority of international customers, outside of Canada, purchase products on a cash against documents or cash in advance basis.

1 unchanged sentence

The Company uses contract manufacturing facilities in the People’s Republic of China.

The majority of the contract manufacturing is done by four vendors with one vendor representing approximately 52 % and 70 % of the manufacturing costs in fiscal years 2021 and 2020, repsectively.

The majority of the contract manufacturing is done by two vendors with one vendor representing approximately 59 % and 52 % of the manufacturing costs in fiscal years 2022 and 2021, respectively.

The Company has a long-term relationship with this vendor.

However, increased costs from the vendor or an interruption of supply from this vendor could have a material adverse effect on the Company's profit margins and profitability.

SUBSEQUENT EVENTS

In July 2021, the Company entered into a license agreement with a headphone manufacturer.

Under the terms of the license agreement, the licensee has rights to use certain intellectual property in headphones that are soon to be released..

The licensee proactively sought a license for use of the intellectual property, based on knowledge of the Company’s enforcement campaign, because they believed their products may potentially infringe on the Company’s intellectual property.

The licensee is not part of the Company’s current lawsuits.

The agreement included a one-time license fee reflecting an early adopter discount, which was fully paid in July 2021.

The Company now has two licenses in place for various patents in the portfolio.

LEGAL MATTERS

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The Company has continued to enforce its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless audio technology.

In the year ended June 30, 2020, the Company recovered approximately $ 385,000 of fees and costs that were involved with the underlying efforts to enforce this portfolio.

These costs primarily relate to legal fees, expenses, time and effort of its management team, and other costs involved with the underlying efforts to enforce certain aspects of its portfolio.

In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts may be due to third parties.

The Company does not expect to incur additional fees and costs related to these lawsuits that will have a material impact to its financial statements.

In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts will be due to third parties.

The Company does not expect to incur additional fees and costs related to these lawsuits that may have a material impact to its financial statements.

Depending on the response to and the underlying results of the enforcement program, the Company may continue to litigate its claims, enter into licensing arrangements or reach some other outcome potentially advantageous to its competitive position .

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Although management currently believes that resolving these claims against us, individually or in aggregate, will not have a material adverse impact on our Consolidated Financial Statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

SUBSEQUENT EVENTS

In July 2022, in 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 and will realize approximately $ 12 million in non-recurring net proceeds, after fees and expenses, in the first quarter of fiscal year 2023.

EXHIBIT INDEX

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The following financial information from Koss Corporation's Annual Report on Form 10-K for the year ended June 30, 2022, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Balance Sheets as of June 30, 2021 and 2020 , (ii) Consolidated Statements of Operations for the years ended June 30, 2021 and 2020, (iii) Consolidated Statements of Cash Flows for the years ended June 30, 2021 and 2020 , (iv) Consolidated Statements of Stockholders'

(i) Consolidated Balance Sheets as of June 30, 2022 and 2021 , (ii) Consolidated Statements of Income for the years ended June 30, 2022 and 2021, (iii) Consolidated Statements of Cash Flows for the years ended June 30, 2022 and 2021 , (iv) Consolidated Statements of Stockholders'

Equity for the years ended June 30, 2022 and 2021 and (v) the Notes to Consolidated Financial Statements.

The cover page from Koss Corporation’s Annual Report on Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission on August 26, 2022, formatted in XBRL Cover Page Interactive Data File **

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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.

What changed 10-K

Item 9A. Controls and Procedures