KOSS CORP 10-Q

Item 1. Financial Statements KOSS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) December 31, 2022 June 30, 2022 ASSETS Current assets: Cash and cash equivalents $ 4,812,277 $ 9,208,170 Short term investments, net of unamortized discounts 5,010,628 — Accounts receivable, less allowance for doubtful accounts of $ 10,500 and $ 2,027 , respectively 1,280,089 1,846,620 Inventories, net 7,829,596 8,631,362 Prepaid expenses and other current assets 341,646 188,478 Interest receivable 128,030 — Total current assets 19,402,266 19,874,630 Equipment and leasehold improvements, net 1,002,594 1,088,017 Other assets: Long term investments, net of unamortized discounts 9,890,533 — Operating lease right-of-use asset 3,133,274 3,247,725 Cash surrender value of life insurance 5,976,410 5,744,724 Total other assets 19,000,217 8,992,449 Total assets $ 39,405,077 $ 29,955,096 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 285,482 $ 796,163 Accrued liabilities 1,287,181 560,356 Deferred revenue 419,043 543,891 Operating lease liability 230,121 223,530 Income taxes payable 497,872 3,033 Total current liabilities 2,719,699 2,126,973 Long-term liabilities: Deferred compensation 1,891,154 1,937,229 Deferred revenue 135,594 169,210 Operating lease liability 2,907,629 3,024,195 Total long-term liabilities 4,934,377 5,130,634 Total liabilities 7,654,076 7,257,607 Stockholders' equity: Common stock, $ 0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,189,795 and 9,147,795 , respectively 45,949 45,739 Paid in capital 12,908,840 12,653,402 Retained earnings 18,796,212 9,998,348 Total stockholders' equity 31,751,001 22,697,489 Total liabilities and stockholders' equity $ 39,405,077 $ 29,955,096 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 3 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended December 31 December 31 2022 2021 2022 2021 Net sales $ 3,271,931 $ 4,415,886 $ 6,626,460 $ 8,780,953 Cost of goods sold 2,145,769 2,866,193 4,314,074 5,649,423 Gross profit 1,126,162 1,549,693 2,312,386 3,131,530 Selling, general and administrative expenses 2,473,975 1,229,294 26,144,571 3,010,091 (Loss) income from operations ( 1,347,813 ) 320,399 ( 23,832,185 ) 121,439 Other income — 255,975 33,000,000 355,975 Interest income 97,832 3,626 124,888 4,258 (Loss) income before income tax provision ( 1,249,981 ) 580,000 9,292,703 481,672 Income tax (benefit) provision ( 103,102 ) 1,031 494,839 2,062 Net (loss) income $ ( 1,146,879 ) $ 578,969 $ 8,797,864 $ 479,610 (Loss) income per common share: Basic $ ( 0.12 ) $ 0.06 $ 0.96 $ 0.05 Diluted $ ( 0.12 ) $ 0.06 $ 0.90 $ 0.05 Weighted-average number of shares: Basic 9,186,208 9,144,099 9,171,746 8,994,023 Diluted 9,186,208 10,064,713 9,817,398 10,062,915 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 4 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended December 31 2022 2021 Operating activities: Net income $ 8,797,864 $ 479,610 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for (recovery of) doubtful accounts of accounts receivable 8,473 ( 35,764 ) Depreciation of equipment and leasehold improvements 135,915 161,095 Amortization of discount on treasury securities ( 16,232 ) — Noncash operating lease expense 4,476 — Stock-based compensation expense 166,708 262,785 Change in cash surrender value of life insurance ( 143,691 ) ( 168,756 ) (Benefit) provision for deferred compensation ( 46,075 ) 167,560 Deferred compensation paid — ( 71,250 ) Deferred compensation relieved — ( 472,883 ) Other income - Net gain from life insurance benefits — ( 255,975 ) Net changes in operating assets and liabilities: Accounts receivable 558,058 818,483 Inventories 801,766 ( 1,844,937 ) Prepaid expenses and other current assets ( 153,168 ) ( 14,557 ) Interest receivable ( 128,030 ) — Income taxes payable 494,839 2,062 Accounts payable ( 510,681 ) 467,762 Accrued liabilities 726,825 236,076 Deferred revenue ( 158,464 ) ( 112,025 ) Net cash provided by (used in) operating activities 10,538,583 ( 380,714 ) Investing activities: Purchase of equipment and leasehold improvements ( 50,492 ) ( 75,155 ) Life insurance premiums paid ( 87,995 ) ( 95,888 ) Purchases of investments ( 14,884,929 ) — Net cash (used in) investing activities ( 15,023,416 ) ( 171,043 ) Financing activities: Proceeds from exercise of stock options 88,940 1,390,346 Net cash provided by financing activities 88,940 1,390,346 Net (decrease) increase in cash and cash equivalents ( 4,395,893 ) 838,589 Cash and cash equivalents at beginning of period 9,208,170 6,950,215 Cash and cash equivalents at end of period $ 4,812,277 $ 7,788,804 Non-cash financing and investing activity: Reclassification of cash surrender value of life insurance to life insurance receivable $ — $ 1,751,794 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 5 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Six Months Ended December 31, 2022 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, June 30, 2022 9,147,795 $ 45,739 $ 12,653,402 $ 9,998,348 $ 22,697,489 Net income — — — 8,797,864 8,797,864 Stock-based compensation expense — — 166,708 — 166,708 Stock option exercises 42,000 210 88,730 — 88,940 Balance, December 31, 2022 9,189,795 $ 45,949 $ 12,908,840 $ 18,796,212 $ 31,751,001 Six Months Ended December 31, 2021 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, June 30, 2021 8,608,706 $ 43,044 $ 10,802,118 $ 8,729,939 $ 19,575,101 Net income — — — 479,610 479,610 Stock-based compensation expense — — 262,785 — 262,785 Stock option exercises 539,089 2,695 1,387,651 — 1,390,346 Balance, December 31, 2021 9,147,795 $ 45,739 $ 12,452,554 $ 9,209,549 $ 21,707,842 Three Months Ended December 31, 2022 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, September 30, 2022 9,179,795 $ 45,899 $ 12,811,717 $ 19,943,091 $ 32,800,707 Net (loss) — — — ( 1,146,879 ) ( 1,146,879 ) Stock-based compensation expense — — 78,673 — 78,673 Stock option exercises 10,000 50 18,450 — 18,500 Balance, December 31, 2022 9,189,795 $ 45,949 $ 12,908,840 $ 18,796,212 $ 31,751,001 Three Months Ended December 31, 2021 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, September 30, 2021 9,137,795 $ 45,689 $ 12,302,395 $ 8,630,580 $ 20,978,664 Net income — — — 578,969 578,969 Stock-based compensation expense — — 123,909 — 123,909 Stock option exercises 10,000 50 26,250 — 26,300 Balance, December 31, 2021 9,147,795 $ 45,739 $ 12,452,554 $ 9,209,549 $ 21,707,842 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 6 Table of Contents KOSS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION The condensed consolidated balance sheets as of December 31, 2022 and June 30, 2022, the condensed consolidated statements of operations for the three and six months ended December 31, 2022 and 2021, the condensed consolidated statements of cash flows for the six months ended December 31, 2022 and 2021, and the condensed consolidated statements of stockholders' equity for the three and six months ended December 31, 2022 and 2021, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and have not been audited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for any interim period are not necessarily indicative of the operating results that may be experienced for the full fiscal year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. The preparation of financial statements in conformity with U.S. GAAP requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, income tax valuation allowance , stock-based compensation and deferred compensation. Actual results could differ from the Company's estimates. B) INVESTMENTS Debt securities are classified as held-to-maturity as the Company has the positive intent and ability to hold them to maturity. The securities are carried at amortized cost as current or noncurrent based upon maturity date and unrealized gains and losses are recognized when realized. The amortized cost of debt securities is adjusted for amortization of discounts to maturity. Such amortization is included in interest income, along with other interest on cash and cash equivalents. C) INCOME TAXES We estimate a provision for income taxes based on the effective tax rate expected to be applicable for the fiscal year. If the actual results are different from these estimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized. During the quarter ended December 31, 2022, a federal tax benefit of $ 74,389 and a state tax benefit of $ 28,713 were recorded based on a taxable loss. While declining sales contributed to the taxable loss, the main drivers were a payment made to the Company’s external patent litigation counsel and legal expenses paid related to the Company’s program focused on the enforcement of its intellectual property. For the six months ended December 31, 2022, as a result of additional income generated by licensing fees, offset by related legal fees and expenses, taxable income for the period was generated. On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted which changed the rules for deducting net operating losses (NOLs). Before 2017, NOLs were fully deductible and could be carried back two years and carried forward 20 years. For NOLs arising in tax years beginning after December 31, 2017, the TCJA limits the NOL deduction to 80 percent of taxable income. As such, the utilization of the Company’s net operating loss carryforwards from fiscal years after 2018 were limited to 80 percent of the resulting taxable income. The Company’s NOL carryforwards from fiscal 2017 and 2018 could be utilized to offset taxable income at 100 percent. The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $ 374,714 and $ 120,125 , respectively. For the three and six months ended December 31, 2021, a state tax provision of $ 1,031 and $ 2,062 , respectively, was recorded. The federal income tax expense was zero for the three and six months ended December 31, 2021. ‎ 7 Table of Contents The effective tax rate was 5.3 % in the six months ended December 31, 2022 and less than 1 % in the six months ended December 31, 2021. It is anticipated that the effective rate in the current year and future years will be reduced by utilization of a portion or all of the federal net operating loss carryforwards that existed as of June 30, 2022. The Company's remaining tax loss carryforward will be approximately $ 32,500,000 . Given the taxable loss generated during the quarter ended December 31, 2022, the expected utilization of the estimated tax loss carryforward decreased, which increased the deferred tax asset to approximately $ 9,600,000 as of December 31, 2022, and the future realization of this continues to be uncertain. The valuation allowance also increased to fully offset the deferred tax asset as there is sufficient negative evidence to support a full valuation allowance. Temporary differences which give rise to deferred income tax assets and liabilities at December 31, 2022 and June 30, 2022 include: December 31, 2022 June 30, 2022 Deferred income tax assets: Deferred compensation $ 474,734 $ 479,340 Stock-based compensation 112,858 107,499 Accrued expenses and reserves 612,678 551,562 Deferred revenue 156,269 176,447 Federal and state net operating loss carryforwards 7,861,442 9,942,511 Credit carryforwards 309,623 292,155 Equipment and leasehold improvements 116,184 122,764 Lease liability 775,285 803,603 Valuation allowance ( 9,643,452 ) ( 11,671,606 ) Total deferred income tax assets 775,621 804,275 Deferred income tax liabilities: ROU asset ( 775,285 ) ( 803,603 ) Other ( 336 ) ( 672 ) Net deferred income tax assets $ - $ - D) LEGAL COSTS All legal costs related to litigation for which the Company is liable are charged to operations as incurred, except settlements, which are expensed when a claim is probable and can be reasonably estimated. Recoveries of legal costs are recorded when the amount and items to be paid are confirmed by the third party. Proceeds from the settlement of legal disputes are recorded in other income when the amounts are determinable, and the collection is certain. Related contingent legal fees and expenses are recorded in selling, general and administrative expense at that time. E) OTHER INCOME In the six months ending December 31, 2022 and 2021, the Company received licensing proceeds of $ 33,000,000 and $ 100,000 , respectively, which were recorded as other income. In December 2021, the Company also recognized approximately $ 256,000 of other income related to the proceeds from company-owned life insurance policies on its founder, who passed away on December 21, 2021. Other income is shown as a separate line on the condensed consolidated statements of operations. F) DEFERRED COMPENSATION The Company’s deferred compensation liability is for a current officer and is calculated based on various assumptions which 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 condensed consolidated statements of operations. The deferred compensation liability recorded at December 31, 2022 and June 30, 2022 is $ 1,891,154 and $ 1,937,229 , respectively. The decrease in the deferred compensation liability for the current officer during the six months ended December 31, 2022 resulted in a reduction of compensation expense under this arrangement of $ 46,075 . In December 2021, the Company’s founder and former officer passed away. The Company had a total deferred compensation liability of $ 472,883 recorded at June 30, 2021 related to the former officer, which at his death was relieved. Deferred compensation income of $ 472,883 was recognized in selling, general and administrative expenses as a result. Payments of $ 71,250 made under this arrangement during the six months ended December 31, 2021 were expensed as paid . ‎ 8 Table of Contents G) RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets , including accounts and notes receivables. The new guidance represents significant changes to accounting for credit losses. The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold. The expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. On November 15, 2019 , the FASB delayed the effective date of FASB ASC Topic 326 for certain smaller public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition. As such, ASC Topic 326 will be effective for the Company for the fiscal year ending June 30, 2024. Management is currently assessing the impact of the adoption of this standard on the Company’s financial statements. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not, or are not expected by management to have a material impact on the Company’s present or future consolidated financial statements . 2. INVESTMENTS The following table summarizes the unrealized positions for the held-to-maturity debt securities as of December 31, 2022: Amortized cost basis Gross unrealized gains Gross unrealized losses Fair Value US treasury securities $ 14,901,161 $ — $ 38,950 $ 14,862,211 Total $ 14,901,161 $ — $ 38,950 $ 14,862,211 The following table summarizes the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of December 31, 2022: Amortized Cost Basis Fair value Due within one year $ 5,010,628 $ 5,003,216 Due after one year through five years 9,890,533 9,858,995 Total $ 14,901,161 $ 14,862,211 3. INVENTORIES The components of inventories were as follows: December 31, 2022 June 30, 2022 Raw materials $ 2,171,305 $ 2,217,621 Finished goods 7,566,200 8,302,546 Inventories, gross 9,737,505 10,520,167 Reserve for obsolete inventory ( 1,907,909 ) ( 1,888,805 ) Inventories, net $ 7,829,596 $ 8,631,362 ‎ 9 Table of Contents 4. CREDIT FACILITY On May 14, 2019, the Company entered into a secured credit facility “Credit Agreement”) with Town Bank (“Lender”). The Credit Agreement provides for a $ 5,000,000 revolving secured credit facility for letters of credit for the benefit of the Company of up to a sublimit of $ 1,000,000 . There are no unused line fees in the credit facility. On January 28, 2021, the Credit Agreement was amended to extend the expiration to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50 %. A Third Amendment to the Credit Agreement effective October 30, 2022 extends the maturity date to October 31, 2024. The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. As of December 31, 2022, the Company was in compliance with all covenants related to the Credit Agreement. As of December 31, 2022, and June 30, 2022, there were no outstanding borrowings on the facility. 5. REVENUE RECOGNITION 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: Three Months Ended Six Months Ended December 31, December 31, 2022 2021 2022 2021 United States $ 2,146,474 $ 3,191,867 $ 4,873,307 $ 6,003,559 Export 1,125,457 1,224,019 1,753,153 2,777,394 Net Sales $ 3,271,931 $ 4,415,886 $ 6,626,460 $ 8,780,953 Deferred revenue relates primarily to consumer and customer warranties. These constitute future performance obligations, and the Company defers revenue related to these future performance obligations. Effective July 1, 2022, the Company decreased its deferral rates from 3 % to 2.4 % for domestic sales and from 14 % to 10 % for export sales to reflect recent warranty experience. In the six months ended December 31, 2022 and 2021, the Company recognized revenue which was included in the deferred revenue liability at the beginning of the periods of $ 210,236 and $ 335,578 respectively, for performance obligations related to consumer and customer warranties. The deferred revenue liability was $ 713,101 and $ 883,564 , respectively, as of June 30, 2022 and 2021. The Company estimates that the deferred revenue performance obligations are satisfied within one year to three years and therefore uses that same time frame for recognition of the deferred revenue. ‎ 10 Table of Contents 6. (LOSS) INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE Basic (loss) income per share is computed based on the weighted-average number of common shares outstanding. Diluted (loss) 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 (loss) income per share: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Numerator Net (loss) income $ ( 1,146,879 ) $ 578,969 $ 8,797,864 $ 479,610 Denominator Weighted average shares, basic 9,186,208 9,144,099 9,171,746 8,994,023 Dilutive effect of stock compensation awards (1) — 920,614 645,652 1,068,892 Diluted shares 9,186,208 10,064,713 9,817,398 10,062,915 Net (loss) income attributable to common shareholders per share: Basic $ ( 0.12 ) $ 0.06 $ 0.96 $ 0.05 Diluted $ ( 0.12 ) $ 0.06 $ 0.90 $ 0.05 (1) Excludes approximately 590,046 weighted average stock options during the three months ended December 31, 2022, as the impact of such awards was anti-dilutive. For the three months ended December 31, 2021, as well as the six months ended December 31, 2022 and 2021, no stock options were anti-dilutive. 7. RELATED PARTY TRANSACTIONS 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 five beneficiaries of a former chairman’s revocable trust. On May 24, 2022, the lease was renewed for a period of five years , ending June 30, 2028, 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 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. During the six months ended December 31, 2022, the Company made a charitable contribution of $ 79,000 to the Koss Foundation (the “Foundation”), a 501(c)(3) charitable organization for which Michael J. Koss and John C. Koss Jr., executive officers of the Company, serve as officers. Neither officer receives fees or compensation from the Foundation for holding these positions. There were no charitable contributions made to the Foundation during the three months ended December 31, 2022 nor the three and six months ended December 31, 2021. 8. ACCOUNTS RECEIVABLE CONCENTRATIONS As of December 31, 2022, the Company’s top four accounts receivable customers represented approximately 20 %, 14 %, 13 %, and 12 % of trade accounts receivables. These same customers represented approximately 0 %, 19 %, 18 %, and 3 % of trade accounts receivable at June 30, 2022. ‎ 11 Table of Contents 9. LEGAL MATTERS As of December 31, 2022, the Company is involved in the matters described below: • The Company maintains a program focused on enforcing its intellectual property and, in particular, certain patents in its patent portfolio. As part of this program, the Company filed complaints in United States District Court against certain parties alleging infringement on the Company’s patents relating to its wireless audio technology. 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 may incur additional fees and costs related to these lawsuits, however, timing and impact on its financial statements is uncertain. Depending on the response to and the underlying results of the enforcement program, the Company may continue to litigate or settle its claims, enter into licensing arrangements or reach some other outcome. During the quarter ended December 31, 2022, the Company made a payment of $ 950,000 to its external patent litigation team and incurred an additional $ 175,000 of related legal expense. The amounts became estimable during the second quarter, thus the expense was recorded in the second quarter as a change in estimate. Total legal fees and related expenses of $ 1,139,568 and $ 22,196,428 , respectively, were recorded as selling, general and administrative expense during the three and six months ended December 31, 2022 in connection with its program focused on enforcing its intellectual property. During the three and six-month periods ended December 31, 2021, $ 30,583 and $ 56,950 , respectively, of legal fees and related expenses were recorded. • In July 2019, the Company was notified by One-E-Way, Inc. that some of the Company's wireless products may infringe on certain One-E-Way patents. No lawsuits involving these allegations have yet been filed and served on the Company. The Company is currently investigating whether these allegations have any merit. Depending on the results of the investigation and the defense of these allegations, the ultimate resolution of this matter may have a material effect on the Company's financial statements. The Company estimates that this matter will ultimately be resolved at a cost of approximately $ 41,000 , which amount was accrued as of December 31, 2022 and June 30, 2022. The ultimate resolution of these matters is not determinable unless otherwise noted. The Company is also subject to a variety of other claims and suits that arise from time to time in the ordinary course of its business. Although management currently believes that resolving these claims against the Company, individually or in the aggregate, will not have a material adverse impact on its condensed consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. ‎ 12 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (the “Act”) (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to the foregoing. In addition, when used in this Form 10-Q, the words “aims,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “thinks,” “may,” “will,” “shall,” “should,” “could,” “would,” “forecasts,” “predicts,” “potential,” “continue” and variations thereof and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this Form 10-Q, or in other Company filings, press releases, or otherwise. In addition to the factors discussed in this Form 10-Q, other factors that could contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: future fluctuations in economic conditions, increase in prices for raw materials, labor, and fuel caused by rising inflation, the receptivity of consumers to new consumer electronics technologies, the rate and consumer acceptance of new product introductions, competition, pricing, the number and nature of customers and their product orders, production by third party vendors, foreign manufacturing, sourcing, and sales (including foreign government regulation, trade and importation concerns), the effects of the COVID-19 pandemic on the economy, the impact of the Russian-Ukrainian conflict on the Company’s operations, borrowing costs, changes in tax rates, pending or threatened litigation and investigations and their outcomes, and other risk factors described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 and subsequently filed Quarterly Reports on Form 10-Q Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect new information. ‎ 13 Table of Contents