What changed in this filing

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Item 1A. Risk Factors

2023-08-25 compared with 2022-08-26 · 81 added, 125 removed, 122 unchanged (63% of the section changed)

7 unchanged sentences

Risks Related to Our Operations and Financial Results

Reduction in present levels of cash flow could adversely affect the Company’s business.

The Company’s primary source of liquidity historically has been operating cash flows.

The Company’s future cash flows from operations (on both a short-term and long-term basis) are dependent upon the following factors, among others:

 the Company’s ability to attract new customers that will sell the Company’s products and pay for them;

 the Company’s ability to retain its existing customers at the level of sales previously produced;

 the volume of sales for these customers;

 maintaining business from one or more primary customers;

Similarly, the Company’s future cash flows from operations are subject to the following risks and, among others:

 changes in types of products that customers purchase in their sales mix;

 poor or deteriorating economic conditions which would directly impact the ability of the Company’s customers to remain in business and pay for their products on a timely basis;

 timely, efficient and cost effective movement of products from suppliers and to export customers:

 management’s ability to minimize the impact of requests for increases in material or labor cost;

 the ability to collect in full and in a timely manner amounts due to the Company.

In addition, the Company’s cash flow is also dependent, to some extent, upon the ability to maintain operating margins.

Weakening consumer demand, including due to recessionary and inflationary concerns, could adversely impact the Company’s cash flow and profitability.

We are dependent on the proper functioning of our critical facilities, our contract manufacturers in China, our supply chain and distribution networks and the financial stability of our customers, all of which have been negatively impacted by the COVID-19 pandemic in a manner that may have a materially adverse effect on our business, financial condition or results of operations.

Our ability to produce products may be materially adversely impacted by COVID-19.

The Company has closely monitored the impact of COVID-19 (including the emergence of variants) to protect the health and safety of its employees and customers.

Business plans are being continuously updated and executed to maintain supply of the Company’s products to our customers throughout the world.

While the impacts of COVID-19 on our business have moderated, there still remains uncertainty around the pandemic.

As a result of the COVID-19 pandemic, uncertainty with respect to its economic effects has impacted not only our operating results but also the global economy.

The extent and nature of government actions to ease restrictions are varied based upon the current extent and severity of the COVID-19 pandemic within their respective countries and localities.

In the prior year, the Company saw a surge in demand for communication headsets in the education market that did not repeat at the same level in fiscal year 2022.

Also, certain retail businesses throughout the Company’s markets, particularly in certain European markets due to the spread of the Omicron subvariant BA.2, have seen continued disruption.

The Company expects the negative sales impacts caused by this disruption to continue until markets more fully re-open and consumer spending returns to normal.

The ultimate magnitude of the COVID-19 pandemic, including the extent of its impact on the Company’s business, financial position, results of operations or liquidity, cannot be reasonably estimated at this time due to the rapid development and fluidity of the situation.

The Company’s future results will be determined by the effectiveness of vaccines, rollout of vaccine boosters, the duration of the pandemic, impact of variants, its geographic spread, further business disruptions and the overall impact on the economy throughout the globe.

To protect the safety, health and well-being of employees, customers, and suppliers, the Company continues to maintain several preventive measures while also meeting the needs of global customers.

They include increased frequency of cleaning and disinfecting of facilities, social distancing practices, remote working when possible, restrictions on business travel, holding certain events virtually and limitations on visitor access to facilities.

The Company is committed to continuing to execute these plans and will remain in close contact with its supply chain to monitor future possible implications, especially on production facilities.

Company profits can suffer from interruption in its supply chain, including disruptions and price volatility in shipping products from China and Taiwan to the U.S.

and from the Company’s warehouse in Milwaukee to its customers.

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

The Company is at risk of business interruptions due to natural disaster, war, disease and government intervention through tariffs or trade restrictions, which lately have become of increased concern in these areas.

Therefore, any interruptions in the supply chain for any of these reasons could directly impact the Company’s profits in a material, negative way.

The Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks.

Any disruptions could adversely affect our business, financial condition or results of operations.

The Company relies on our third-party supply chain and distribution networks and the availability of necessary components to produce a significant number of our products.

A reduction or interruption in supply, including interruptions due to a reoccurrence of the COVID-19 pandemic, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.

The Company uses contract manufacturing facilities in the People’s Republic of China and Taiwan to produce a significant amount of our products.

There has been increasing geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers.

Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy or delay shipments.

There has also been increasing geopolitical tension between China and the United States.

Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country.

Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would also directly affect profits.

Our dependence on foreign suppliers for our products necessitates ordering products further in advance than we would if manufactured domestically, thus increasing investments in inventory.

Delays in receiving and shipping products due to interruptions in its supply chain would pose a risk of lower sales to the Company and the potential for price volatility, negatively impacting profits.

Recovery of a single facility through replacement of a supplier in the event of a disaster or suspension of supply could take an estimated six to twelve months.

The Company is also at risk if trade restrictions are imposed on the Company’s products based upon country of origin.

In addition, the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would directly affect profits.

We have experienced supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden

and significant changes in production levels by our suppliers, and disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other product components,

transportation, work force, force majeure events.

The increased cost of freight and extended transit time for our products has resulted

in backorders.

The ultimate impact of these supply chain interruptions on our business, results of operations, and cash flows remain

uncertain and could materially adversely affect our results of operations, financial condition, cash flows, prospects and the trading

prices of our common stock.

The Company’s supply chain is primarily in southern China.

Since late fiscal year 2021, the Company has experienced issues related to the availability of containers and routings to move products in a cost effective and time efficient manner.

There have also been impacts to the movement of new product introductions and costs.

The Company is monitoring the situation closely and the supply chain team has modified business plans, which include, but are not limited to:

(1) increasing the investment in inventory;

(2) being alert to potential short supply situations;

(3) assisting suppliers with acquisition of critical components;

and (4) utilizing alternative sources and/or air freight.

The latest COVID-19 resurgence resulted in another shut-down of several major ports in China, thus impacting manufacturing of our products and shipments from our suppliers.

Additionally, recently there has been increasing geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers.

The Company is at risk of lower sales due to delays in receiving and shipping products due to interruptions in its supply chain.

Any resulting price volatility will directly affect profits.

Our sales may be materially adversely impacted by COVID-19 .

Our sales efforts include in-person meetings with customers and potential customers to discuss our products.

Additionally, much of our customers’ sales are conducted in-person by consumers purchasing our products in brick-and-mortar stores.

The method and timing of these meetings and the ability of our customers to make in-person sales have been altered due to stay-at-home orders and travel restrictions relating to COVID-19.

The extent to which virtual meetings and interactions continue to be used or preferred in lieu of in-person interactions may significantly change business practices for us and our customers, even as COVID-19 restrictions and safety measures subside.

This limitation on the ability of our sales personnel and our customers to maintain their customary interaction with customers and consumers may negatively affect demand for our products and have a material adverse effect on our results of operations, financial condition and cash flows.

In the past, we have experienced supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our suppliers, and disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other product components, transportation, work force, or force majeure events.

In April 2023, United Parcel Service (“UPS”) and the International Brotherhood of Teamsters Union (the “Teamsters”) started labor contract talks to negotiate better pay, no forced overtime and the elimination of a two tier pay system.

On July 25, 2023, UPS and the Teamsters reached a tentative five-year contract deal that would avert a nationwide strike.

Also, since December 2022, when the U.S.

government abated a threatened railroad strike and implemented a labor agreement that prohibited the workers from striking, some union leaders and railroad executives have voluntarily reopened the conversation around paid sick leave in hopes of negotiating an improvement.

The Company continues to monitor both situations as ether strike in the U.S.

could potentially exacerbate disruptions in the supply chain and impact product shipments from suppliers and to customers, resulting in increased operating costs and delays in product shipments.

The Company also believes that the recent loss of Yellow freight lines to insolvency could impact carrier availability and increase freight costs.

The Company had no material direct exposure to Yellow in 2023.

The current hostilities in Eastern Europe and the resulting economic sanctions imposed by the government have impacted the global economy.

While we have no operations in Russia or Ukraine, we are unable to sell to certain of our customers that have been negatively impacted by this event.

The continuation of the military conflict could lead to increased supply chain disruptions, inflationary pressures and volatility in global markets that could negatively impact our operations.

The Company continuously monitors its supply chain in order to modify business plans as may be necessary.

This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical

components and utilizing alternative sources and/or air freight .

However, these measures may entail additional costs to the Company and cannot guarantee that the Company will not be adversely affected by supply chain disruptions.

Failure to attract and retain customers to sell the Company’s products could adversely affect sales volume and future profitability.

The Company markets a line of products used by consumers to listen to music.

The Company distributes these products through retail channels in the U.S.

The Company distributes these products through large domestic distributors and some retail channels in the U.S.

and independent distributors throughout the rest of the world.

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A shift in customer specifications to lower priced items can reduce profit margins, negatively impacting profitability.

The Company sells lines of products with a suggested retail prices ranging from less than $10 up to $1,000.

The Company sells lines of products with suggested retail prices ranging from less than $10 up to $1,000.

The gross margin for each of these models varies in terms of percentages.

The Company finds the low-priced portion of the market most competitive and therefore most subject to pressure on gross margin percentages, which tends to lower profit contributions.

Therefore, a shift in retail customer specifications and preferences toward lower priced items could lead to lower gross margins and lower profit contributions per unit of sale.

Therefore, a shift in customer specifications and preferences toward lower priced items could lead to lower gross margins and lower profit contributions per unit of sale.

Due to the range of products that the Company sells, the product sales mix can produce a variation in profit margins.

Some distributors sell a limited range of products that yield lower profit margins than others.

Most notably, the budget-priced stereo headphone segment of the market (below $10 retail), which is distributed through mass market retailers, computer stores, and office supply stores tends to yield the lowest gross margins.

An increase in business with these types of accounts, if coupled with a simultaneous reduction in sales to customers with higher gross margins, would reduce profit margins and profitability.

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Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to increase consumer demand, which could constrain our management, financial and operational resources.

If new products we introduce do not experience broad market acceptance or demand for our existing products wanes, our net sales and market share could decline.

If new products we introduce do not experience broad market acceptance or demand for our existing products wanes, our net sales could decline.

We may not be able to compete effectively, which could cause our net sales and market share to decline.

The consumer electronics industry is highly competitive, and characterized by frequent introduction of new competitors, as well as increased competition from established companies expanding their product portfolio, aggressive price cutting and resulting downward pressure on gross margins and rapid consolidation of the market resulting in larger competitors.

We face competition from consumer electronics brands that have historically dominated the stereo headphone market, in addition to sport brand and lifestyle companies that also produce headphone products.

These companies include, among others, Apple, Sony, Bose, LG and Samsung.

We face competition from consumer electronics brands that have historically dominated the stereo headphone market, in addition to sport brands and lifestyle companies that also produce headphone products.

These competitors may have significant competitive advantages, including greater financial, distribution, marketing and other resources, longer operating histories, better brand recognition among certain groups of consumers, and greater economies of scale.

In addition, these competitors have long-term relationships with many of our larger retailers that are potentially more important to those retailers.

In addition, these competitors have long-term relationships with many larger retailers that are potentially more important to those retailers.

As a result, these competitors may be better equipped to influence consumer preferences or otherwise increase their market share by:

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Additionally, the industry in which we compete generally has low barriers to entry that allow the introduction of new products or new competitors at a fast pace.

Some retailers have begun to introduce their own private label headphones, which could reduce the volume of product they buy from us, as well as decrease the shelf space they allocate to our products.

If we are unable to protect our brand image and authenticity, while carefully balancing our growth, we may be unable to effectively compete with these new market entrants or new products.

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Similarly, if we settle such legal proceedings, it may negatively affect how we operate our business.

Recently, 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.

Some complaints we have filed remain outstanding.

I n connection with its ongoing intellectual property enforcement program, which includes lawsuits alleging infringement of patents relating to its wireless audio technology, the Company has granted licenses covering certain Company patents.

Other similar complaints filed remain outstanding.

As all litigation is uncertain, there can be no assurance that any of this remaining or future litigation will be decided in our favor.

We may be adversely affected by the financial condition of our retailers and distributors.

Some of our retailers and distributors are experiencing financial difficulties as a result of current adverse economic conditions.

Some of our retailers and distributors are experiencing financial difficulties because of current adverse economic conditions.

A retailer or distributor experiencing such difficulties generally will not purchase and sell as many of our products as it would under normal circumstances and may cancel orders.

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Financial difficulties on the part of our retailers or distributors could have a material adverse effect on our results of operations and financial condition.

One of our customer’s accounts for a significant amount of our net sales, and the loss of, or reduced purchases from, this or other customers could have a material adverse effect on our operating results.

Our largest fiscal year 2022 customer, Amazon Seller Central, accounted for more than 13% and 3% of our net sales in fiscal years 2022 and 2021, respectively.

We do not have long-term contracts with any of our customers and all of our customers generally purchase from us on a purchase order basis.

As a result, this customer generally may, with no notice or penalty, cease ordering and selling our products, or materially reduce its orders.

If certain customers, individually or in the aggregate, choose to no longer sell our products, to slow their rate of purchase of our products or to decrease the number of products they purchase, our results of operations would be adversely affected.

Direct-to-Consumer sales through the Amazon marketplace account for a significant amount of our net sales and the loss of, or reduced purchases from, this sales channel could have a material adverse effect on our operating results.

Our largest concentration of sales in fiscal year 2023 came from our DTC sales via the Amazon portal and accounted for more than 20% and 16% of our net sales in fiscal years 2023 and 2022, respectively.

We do not have long-term contracts to conduct sales through the Amazon portal or for sales to any of our customers, and all of our customers generally purchase from us on a purchase order basis.

As a result, Amazon or any other customer generally may, with no notice or penalty, cease ordering and selling our products, or materially reduce their orders.

If certain customers, individually or in aggregate, choose to no longer sell our products, slow their rate of purchase of our products or decrease the number of unique products they purchase, our results of operations would be adversely affected.

Our products may experience quality problems from time to time that can result in decreased sales and operating margin and harm to our reputation.

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Component defects could make the Company’s products unsafe and create a risk of property damage and personal injury.

There can be no assurance the Company will be able to detect and fix all issues and defects in the products it offers.

There can be no assurance the Company will be able to detect all issues and defects in the products it offers.

Failure to do so can result in widespread technical and performance issues affecting the Company’s products.

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We are subject to income taxes in the United States.

Our effective income tax rate could be adversely affected in the future by a number of factors, including:

changes in the valuation of deferred tax assets and liabilities and changes in tax laws.

Our effective income tax rate could be adversely affected in the future by several factors, including changes in the valuation of deferred tax assets and liabilities and changes in tax laws.

We regularly assess all of these matters to determine the adequacy of our tax provision.

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Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers.

There have been recent inflationary cost increases in our commodities, packaging materials and transportation costs.

Other inflationary pressures could affect wages, the cost and availability of components and materials, and our ability to meet customer demand.

Inflation may further exacerbate other risk factors, including customer demand, supply chain disruptions, and risks of international operations and the recruitment and retention of talent.

During fiscal 2022, we have experienced inflationary cost increases in our commodities, packaging materials and transportation costs.

The Company continues to experience inflationary cost increases in our commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting our ability to meet customer demand.

These increases have been partially mitigated by pricing actions implemented in the third quarter of the current fiscal year, as well as working with a dedicated freight forwarding partner to minimize freight rate increases.

Inflation may impact customer demand for our products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items and dwindling savings.

Other risk factors further exacerbated by inflation include supply chain disruptions, risks of international operations and the recruitment and retention of talent.

Risks Related to our International Operations

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

For many years, the Chinese economy has experienced periods of rapid growth.

An increase in the cost of labor or taxes on wages in China may lead to an increase in the cost of goods manufactured in China.

Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability.

Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures could limit our ability to source materials and products from China at acceptable prices or at all.

Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures, as described above under “ The Company is dependent on the proper functioning of our contract manufacturers in China, our supply chain, and our distribution networks.

Any disruptions could adversely affect our business, financial condition or results of operations.

,” could limit our ability to source materials and products from China at acceptable prices or at all.

We do not currently have arrangements with contract manufacturers in other countries that may be acceptable substitutes.

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To the extent such actions inhibit our transactions with contract manufacturing facilities and suppliers in China, our business may be materially adversely affected.

Our international operations could be adversely impacted by Russia’s invasion of Ukraine

The ongoing war between Russia and Ukraine could adversely affect our business, financial condition, and results of operations.

Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022.

response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions

or take further punitive actions in the future.

The full economic and social impact of the sanctions imposed on Russia (as well as

possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, remains uncertain.

The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty.

In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales into Russia.

Also, given the current humanitarian crisis in Ukraine and the population seeking refuge in other countries, sales to Ukraine have been impacted.

Neither Russia nor Ukraine constitutes a significant portion of the business – in the aggregate less than 4% of net sales for the year ended June 30, 2022, with no sales to Russia or Ukraine in the current quarter.

We are uncertain, however, of the impact it will have on our results of operations for the future.

We continue to monitor the conflict and will report on its impact as necessary as developments occur.

response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take

further punitive actions in the future.

In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia.

Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine have been impacted.

There have been no sales to Russia or Ukraine during the fiscal year ended June 30, 2023 and such sales consisted of approximately 3.4% of net sales for the year ended June 30, 2022.

Although the length, impact and outcome of the conflict is unpredictable, the war has already contributed to market and other disruptions, including volatility in commodity prices, supply and prices of energy, disrupted supply chains, political and social instability as well as an increase in cyberattacks.

We are uncertain, however, of the impact it will have on our results of operations for the future in the region.

We are actively monitoring the conflict and will report on its impact on our business, financial condition, and results of operations as necessary as developments occur.

We may be subject to risks related to doing business in, and having counterparties based in, foreign countries.

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 currency exchange restrictions and currency fluctuations;

 export and import duties;

 war, such as the invasion of Ukraine by Russia, or terrorist attack;

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Risks Related to our Stock

Our stock price is subject to volatility.

Our stock is subject to substantial price volatility.

Additionally, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies’ operating performance.

Factors such as the depth and liquidity of the market for our common stock, investor perceptions of us and our business, actions by institutional shareholders, strategic actions by us, litigation, changes in accounting standards, policies, guidance, interpretations and principles, additions or departures of key personnel and our results of operations, financial performance and future prospects may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from realizing the liquidity of their shares.

Our stock price and trading volume has recently been extremely volatile and may be volatile in the future for reasons unrelated to our operating performance or prospects and, as a result, investors in our common stock could incur substantial losses.

Our stock price has recently been extremely volatile and may be volatile in the future.

By way of example, on January 22, 2021, the price of our common stock closed at $3.34 per share, and on January 29, 2021, our stock price closed at $64.00 per share with no discernible material announcements or developments relating to our operations.

On January 28, 2021, the intra-day sales price of our common stock fluctuated between a reported low sale price of $25.00 and a reported high sales price of $127.45.

Additionally, the trading volume in shares of our common stock can vary widely.

For example, during the fiscal year ended June 30, 2022, daily trading volume ranged from a low of 15,600 shares on June 24, 2022 to a high of 12.2 million on October 13, 2021.

Our market capitalization, as implied by various trading prices, has recently reflected valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization prior to the recent increase, and to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations.

Additionally, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies.

Our stock price has been, and may in the future, be subject to significant fluctuations and volatility.

The market price of our stock is subject to price volatility.

Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies’ operating performance.

Factors such as the depth and liquidity of the market for our common stock, investor perceptions of us and our business, actions by institutional shareholders, strategic actions by us, litigation, changes in accounting standards, policies, guidance, interpretations and principles, additions or departures of key personnel, a decline in demand for our products and our results of operations, financial performance and future prospects may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from realizing the liquidity of their shares.

During the fiscal year ended June 30, 2023, the sales price of our common stock fluctuated between a reported high sales price of $11.20 on July 25, 2022 and a reported low sales price of $3.56 on June 23, June 26, and June 27, 2023.

The trading volume in shares of our common stock can also vary widely.

For example, during the most recent fiscal year, daily trading volume ranged from a low of 3,200 shares on April 6, 2023 to a high of 7,202,400 on July 25, 2022.

Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there

are declines in market prices driven by a return to earlier valuations.

As a result of this volatility, investors may experience losses on their investment in our common stock.

In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies.

Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.

There can be no guarantee that our stock price will remain at current prices or that future sales of our common stock will not be at prices lower than those sold to investors.

A “short squeeze” due to a sudden increase in demand for shares of our common stock that largely exceeds supply has led to, and may continue to lead to, extreme price volatility in shares of our common stock.

In the recent past, securities of certain companies have experienced significant and extreme volatility in stock price due to a sudden increase in demand for stock resulting in aggregate short positions in the stock exceeding the number of shares available for purchase, forcing investors with short exposure to pay a premium to repurchase shares for delivery to share lenders.

This is known as a “short squeeze.” These short squeezes have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company.

A large proportion of our common stock has been and may continue to be traded by short sellers which may increase the likelihood that our common stock will be the target of a short squeeze.

A short squeeze has led and could continue to lead to volatile price movements in shares of our common stock that are unrelated or disproportionate to our operating performance or prospects and, once investors purchase the shares of our common stock necessary to cover their short positions, the price of our common stock may rapidly decline.

A “short squeeze” due to a sudden increase in demand for shares of our common stock that largely exceeds supply could lead to extreme price volatility in shares of our common stock.

In the past, securities of certain companies have experienced significant and extreme volatility in stock price due to a sudden increase in demand for stock resulting in aggregate short positions in the stock exceeding the number of shares available for purchase, forcing investors with short exposure to pay a premium to repurchase shares for delivery to share lenders.

This is known as a “short squeeze.” These short squeezes can lead to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company.

Trading by short sellers may increase the likelihood that our common stock will be the target of a short squeeze.

A short squeeze could lead to volatile price movements in shares of our common stock that are unrelated or disproportionate to our operating performance or prospects and, once investors purchase the shares of our common stock necessary to cover their short positions, the price of our common stock may rapidly decline.

Stockholders that purchase shares of our common stock during a short squeeze may lose a significant portion of their investment.

The Koss family, including certain members of our management, own a significant percentage of our stock, and as a result, the trading price for our shares may be depressed and they can take actions that may be adverse to the interests of our stockholders.

The Koss family, including certain members of our management, owns a significant percentage of our stock and, as a result, the trading price for our shares may be depressed and they can take actions that may be adverse to the interests of our stockholders.

Michael Koss, our President and Chief Executive Officer, beneficially owned 4,153,410 shares of our common stock as of August 1, 2023, representing 43.7% of shares outstanding on such date, including shares held by a voting trust over which Mr.

Koss holds sole voting and dispositive power.

The group can significantly influence all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets.

In addition, due to his significant ownership stake and his service as our Principal Executive Officer and Chairman of the Board and Directors, Michael Koss controls the management of our business and affairs.

This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with a large stockholder, since such a stockholder can significantly influence all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets.

In addition, due to his significant ownership stake and his service as our Principal Executive Officer and Chairman of the Board of Directors, Michael Koss directs the management of our business and affairs.

This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.

Future sales of a substantial amount of our common stock in the public markets by our insiders, or the perception that these sales may occur, may cause the market price of our common stock to decline.

Our employees, directors and officers, and their affiliates, hold substantial amounts of shares of our common stock and have vested options for purchase of our common stock.

Our employees, directors and officers, and their affiliates collectively hold substantial amounts of shares of our common stock and have vested options for the purchase of our common stock.

Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline.

Other than restrictions on trading that arise under securities laws (or pursuant to our securities trading policy that is intended to facilitate compliance with securities laws), including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information, we have no restrictions on the right of our employees, directors and officers, and their affiliates, to sell their unrestricted shares of common stock.

UNRESO LVED STAFF COMMENTS

No t applicable.

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 1A. Risk Factors