What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2023-01-27 · 57 added, 64 removed, 254 unchanged (32% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

December 31, 2022

March 31, 2023

June 30, 2022

1 unchanged sentence

Cash and cash equivalents

Short term investments, net of unamortized discounts

Short term investments, amortized cost basis

Accounts receivable, less allowance for doubtful accounts of $ 36,262 and $ 2,027 , respectively

5 unchanged sentences

Other assets:

Long term investments, net of unamortized discounts

Long term investments, amortized cost basis

Operating lease right-of-use asset

26 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

2 unchanged sentences

( 24,285,543 )

( 23,832,185 )

Interest income

(Loss) income before income tax provision

( 1,249,981 )

Income tax (benefit) provision

Net (loss) income

( 1,146,879 )

(Loss) income per common share:

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Six Months Ended

Nine Months Ended

Operating activities:

6 unchanged sentences

Change in cash surrender value of life insurance

(Benefit) provision for deferred compensation

Provision for deferred compensation

Deferred compensation paid

1 unchanged sentence

Other income - Net gain from life insurance benefits

Loss on disposal of fixed assets

Net changes in operating assets and liabilities:

11 unchanged sentences

Life insurance premiums paid

Proceeds from life insurance policy

Purchases of investments

( 16,884,358 )

Net cash (used in) investing activities

Net cash (used in) provided by investing activities

( 17,040,594 )

6 unchanged sentences

Cash and cash equivalents at end of period

Non-cash financing and investing activity:

Reclassification of cash surrender value of life insurance to life insurance receivable

Supplemental cash flow information:

Cash paid for income taxes

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Six Months Ended December 31, 2022

Nine Months Ended March 31, 2023

Balance, June 30, 2022

1 unchanged sentence

Stock option exercises

Balance, December 31, 2022

Six Months Ended December 31, 2021

Balance, March 31, 2023

Nine Months Ended March 31, 2022

Balance, June 30, 2021

1 unchanged sentence

Stock option exercises

Balance, March 31, 2022

Three Months Ended March 31, 2023

Balance, December 31, 2022

Three Months Ended December 31, 2022

Balance, September 30, 2022

( 1,146,879 )

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2023

Three Months Ended March 31, 2022

Balance, December 31, 2021

Three Months Ended December 31, 2021

Balance, September 30, 2021

Stock-based compensation expense

Stock option exercises

Balance, December 31, 2021

Balance, March 31, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

March 31, 2023

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.

The condensed consolidated balance sheets as of March 31, 2023 and June 30 , 2022, the condensed consolidated statements of operations for the three and nine months ended March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the nine months ended March 31, 2023 and 2022, and the condensed consolidated statements of stockholders'

equity for the three and nine months ended March 31, 2023 and 2022, 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.

17 unchanged sentences

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.

During the quarter ended March 31, 2023, a state income tax benefit of $ 30,910 was recorded mainly as a result of an update to state apportionment percentages.

No federal tax benefit or provision was recorded for the quarter.

For the nine months ended March 31, 2023, 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).

3 unchanged sentences

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.

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.

The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $ 374,714 and $ 89,214 , respectively, for the nine months ended March 31, 2023.

For the three and nine months ended March 31, 2022, a state tax provision of $ 3,575 and $ 5,638 , respectively, was recorded.

The federal income tax expense was zero for the three and nine months ended March 31, 2022.

The effective tax rate was 5.1 % in the nine months ended March 31, 2023 and less than 1 % in the nine months ended March 31, 2022.

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

The Company's remaining tax loss carryforward as of June 30, 2023 is expected to be approximately $ 32,600,000 .

A taxable loss was generated during the quarter ended March 31, 2023, lessening the expected utilization of the estimated tax loss carryforward, and as such, the future realization of this continues to be uncertain.

The valuation allowance was adjusted to continue 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 March 31, 2023 and June 30, 2022 include:

March 31, 2023

June 30, 2022

20 unchanged sentences

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 the nine months ending March 31, 2023 and 2022, 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.

3 unchanged sentences

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 .

The deferred compensation liability recorded at March 31, 2023 and June 30, 2022 is $ 2,000,012 and $ 1,937,229 , respectively.

The increase in the deferred compensation liability for the current officer during the nine months ended March 31, 2023 resulted in compensation expense under this arrangement of $ 62,783 .

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 .

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, resulting in deferred compensation income of $ 472,883 recognized in selling, general and administrative expenses during the nine months ended March 31, 2022.

Deferred compensation payments of $ 71,250 made under this arrangement during the period prior to his passing were expensed as paid , along with compensation expense of $ 116,310 recorded related to the increase in the deferred compensation liability for the current officer, resulting in $ 285,323 of deferred compensation income recorded during that nine-month period.

G) RECENT ACCOUNTING PRONOUNCEMENTS

10 unchanged sentences

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 .

The following table summarizes the unrealized positions for the held-to-maturity debt securities as of December 31, 2022:

The following table summarizes the unrealized positions for the held-to-maturity debt securities as of March 31, 2023:

Amortized cost basis

2 unchanged sentences

US treasury securities

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:

The following table summarizes the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of March 31, 2023:

Amortized Cost Basis

2 unchanged sentences

The components of inventories were as follows:

December 31, 2022

March 31, 2023

June 30, 2022

15 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 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.

As of March 31, 2023, the Company was in compliance with all covenants related to the Credit Agreement.

As of March 31, 2023, and June 30, 2022, there were no outstanding borrowings on the facility.

REVENUE RECOGNITION

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

United States

2 unchanged sentences

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.

In the nine months ended March 31, 2023 and 2022, the Company recognized revenue which was included in the deferred revenue liability at the beginning of the periods of $ 284,584 and $ 394,963 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.

4 unchanged sentences

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,

Three Months Ended March 31,

Nine Months Ended March 31,

Net (loss) income

( 1,146,879 )

Weighted average shares, basic

2 unchanged sentences

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

(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.

(1) Excludes approximately 514,878 weighted average stock options during the three months ended March 31, 2023, as the impact of such awards was anti-dilutive.

For the three months ended March 31, 2022, as well as the nine months ended March 31, 2023 and 2022, no stock options were anti-dilutive.

RELATED PARTY TRANSACTIONS

4 unchanged sentences

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.

During the nine months ended March 31, 2023, 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.

1 unchanged sentence

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.

There were no charitable contributions made to the Foundation during the three months ended March 31, 2023 nor the three and nine months ended March 31, 2022.

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.

As of March 31, 2023, the Company’s top four accounts receivable customers represented approximately 32 %, 11 %, 11 %, and 8 % of trade accounts receivables.

These same customers represented approximately 19 %, 4 %, 3 %, and 18 % of trade accounts receivable at June 30, 2022.

LEGAL MATTERS

As of December 31, 2022, the Company is involved in the matters described below:

As of March 31, 2023, 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.

3 unchanged sentences

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.

Total legal fees and related expenses of $ 68,543 and $ 22,264,972 , respectively, were recorded as selling, general and administrative expense during the three and nine months ended March 31, 2023 in connection with its program focused on enforcing its intellectual property.

During the three and nine-month periods ended March 31, 2022, $ 20,416 and $ 77,365 , respectively, of legal fees and related expenses were recorded.

• In July 2019, the Company was notified by One-E-Way, Inc.

3 unchanged sentences

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 Company estimates that this matter will ultimately be resolved at a cost of approximately $ 41,000 , which was accrued as of March 31, 2023 and June 30, 2022.

The ultimate resolution of these matters is not determinable unless otherwise noted.

14 unchanged sentences

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-Q

Item 1. Financial Statements