What changed in this filing

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Item 1. Financial Statements

2023-10-27 compared with 2023-05-12 · 125 added, 111 removed, 200 unchanged (54% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2023

September 30, 2023

June 30, 2023

1 unchanged sentence

Cash and cash equivalents

Short term investments, amortized cost basis

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

Inventories, net

Short term investments

Accounts receivable, less allowance for credit losses of $ 1,922 and $ 6,027 , respectively

Prepaid expenses and other current assets

Interest receivable

Income taxes receivable

Total current assets

1 unchanged sentence

Other assets:

Long term investments, amortized cost basis

Operating lease right-of-use asset

17 unchanged sentences

Common stock, $ 0.005 par value, authorized 20,000,000 shares;

issued and outstanding 9,216,795 and 9,147,795 , respectively

issued and outstanding 9,234,795

Paid in capital

6 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of goods sold

Selling, general and administrative expenses

(Loss) income from operations

(Loss) from operations

( 22,484,372 )

1 unchanged sentence

(Loss) income before income tax provision

Income tax (benefit) provision

Income tax provision

Net (loss) income

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended

Three Months Ended

Operating activities:

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

Provision for (recovery of) doubtful accounts of accounts receivable

Net (loss) income

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

(Recovery of) Provision for credit losses

Depreciation of equipment and leasehold improvements

Amortization of discount on treasury securities

Accretion of discount on treasury securities

Noncash operating lease expense

1 unchanged sentence

Change in cash surrender value of life insurance

Provision for deferred compensation

Deferred compensation paid

Deferred compensation relieved

Other income - Net gain from life insurance benefits

Loss on disposal of fixed assets

(Benefit) Provision for deferred compensation

Net changes in operating assets and liabilities:

Accounts receivable

( 1,849,288 )

Prepaid expenses and other current assets

Interest receivable

Income taxes receivable

Income taxes payable

2 unchanged sentences

Deferred revenue

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities:

1 unchanged sentence

Life insurance premiums paid

Proceeds from life insurance policy

Purchases of investments

( 16,884,358 )

Net cash (used in) provided by investing activities

Proceeds from the maturity of treasury securities

Purchases of treasury securities

( 1,999,074 )

Net cash used in investing activities

Financing activities:

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

Nine Months Ended March 31, 2023

Three Months Ended September 30, 2023

Balance, June 30, 2023

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2023

Nine Months Ended March 31, 2022

Balance, September 30, 2023

Three Months Ended September 30, 2022

Balance, June 30, 2022

1 unchanged sentence

Stock option exercises

Balance, March 31, 2022

Three Months Ended March 31, 2023

Balance, December 31, 2022

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2023

Three Months Ended March 31, 2022

Balance, December 31, 2021

Stock-based compensation expense

Stock option exercises

Balance, March 31, 2022

Balance, September 30, 2022

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

September 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

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.

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

equity for the three months ended September 30, 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.

6 unchanged sentences

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.

Significant estimates and assumptions are used for, but are not limited to, allowances for credit losses, 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.

2 unchanged sentences

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.

The amortized cost of debt securities is adjusted for amortization of premium and accretion of discounts to maturity.

Such amortization or accretion is included in interest income, along with other interest on cash and cash equivalents.

C) INCOME TAXES

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

During the quarter ended September 30, 2023, a state income tax provision of $ 1,879 was recorded for the minimum tax payments expected given the taxable net loss for the quarter.

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).

The Tax Cuts and Jobs Act (TCJA) changed the rules for deducting net operating losses (NOLs) beginning with the 2018 tax year.

Before 2018, NOLs were fully deductible and could be carried back two years and carried forward 20 years.

1 unchanged sentence

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 $ 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 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

For the three months ended September 30, 2022, due to additional income generated by licensing fees, partially offset by related legal fees and expenses, taxable income resulted.

The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $ 449,103 and $ 148,838 , respectively, for the three-month period ended September 30, 2022.

The effective tax rate was less than 1 % for the three months ended September 30, 2023 and 5.7 % for the three months ended September 30, 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 and state net operating loss carryforwards that existed as of June 30, 2023.

The Company's taxable loss generated during the quarter ended September 30, 2023 increased the tax loss carryforward as of September 30, 2023 to approximately $ 32,100,000 .

Given the taxable loss for the current quarter, the expectation for utilization of the estimated tax loss carryforward is lessened, and as such, the future realization of this continues to be uncertain.

The valuation allowance was adjusted to continue to fully offset the net 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 September 30, 2023 and June 30, 2023 include:

September 30, 2023

June 30, 2023

5 unchanged sentences

Federal and state net operating loss carryforwards

IRC Section 174 research and development costs

Credit carryforwards

8 unchanged sentences

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.

All legal costs related to litigation for which the Company is liable, are charged to operations as incurred, except contingent legal fees as described below.

Proceeds from the settlement of disputes are recorded in other income when the amounts are determinable, and collection is certain.

Related license proceeds are considered functional and as such are recorded at a point in time, based on the underlying agreement.

Related contingent legal fees and expenses are recorded in selling, general and administrative expense at that time.

The contingent legal fee expenses could have a material effect on the results of operations, however, timing and impact is uncertain and is dependent on the resolution of related litigation.

E) 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.

In the three months ending September 30, 2022, the Company received licensing proceeds of $ 33,000,000 , which was recorded as other income.

No other income was received in the three months ended September 30, 2023.

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 Company’s deferred compensation liability is for a current officer and is calculated based on years of service and compensation, along with various assumptions related to 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 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, 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

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326):

The deferred compensation liability recorded at September 30, 2023 and June 30, 2023 is $ 1,937,185 and $ 1,997,120 , respectively.

The decrease in the deferred compensation liability for the current officer during the three months ended September 30, 2023 resulted in compensation income under this arrangement of $ 59,935 .

Deferred compensation expense of $ 42,301 was recognized in the three months ended September 30, 2022.

G) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective July 1, 2023, the Company adopted 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.

This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including trade receivables and held-to-maturity debt securities.

Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

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 receivable.

The Company adopted ASU 2016-13 effective July 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost.

Allowance for Credit Losses – Accounts Receivable:

The allowance for credit losses is deducted from the cost basis of the receivable to present the net amount expected to be collected on the accounts.

The Company measures expected credit losses for accounts receivable using the aging method whereby expected credit losses are determined on the basis of how long a receivable has been outstanding.

Historical loss data is utilized to estimate expected losses as the risk characteristics of the customer base and the Company’s credit practices have not changed significantly over time.

The estimates are then adjusted for current conditions, such as level of inflation and the potential change in credit availability given rising interest rates, as well as supportable and reasonable forecasts indicating whether these conditions will continue into the future or new ones will arise that need to be considered.

Upon evaluation of the impact of this ASU, the Company concluded that minimal reserves were necessary as historical losses were immaterial, and, based on the qualitative and quantitative analysis performed in accordance with Topic 326 requirements, the Company determined there was no reasonable expectation of significant credit losses associated with the Company’s accounts receivable in the foreseeable future.

Allowance for Credit Losses - Held-to Maturity Debt Securities:

The Company did no t record an allowance for credit losses on held-to-maturity U.S.

Treasury securities of $ 17,183,653 as these securities have the following characteristics that support a zero loss expectation:

they are explicitly guaranteed by the U.S.

government, are consistently highly rated by major rating agencies and have a long history of no credit losses.

The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.

Results for reporting periods beginning after July 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

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 March 31, 2023:

The following tables summarize the unrealized positions for the held-to-maturity debt securities as of September 30, 2023 and June 30, 2023:

September 30, 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 March 31, 2023:

June 30, 2023

Amortized cost basis

Gross unrealized gains

Gross unrealized losses

US Treasury securities

The following tables summarize the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of September 30, 2023 and June 30, 2023:

September 30, 2023

Amortized Cost Basis

Due within one year

Due after one year through five years

June 30, 2023

Amortized Cost Basis

Due within one year

The components of inventories were as follows:

March 31, 2023

September 30, 2023

June 30, 2023

14 unchanged sentences

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 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.

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets,

mergers and liquidations, among other restrictions.

As of September 30, 2023, the Company was in compliance with all covenants related to the Credit Agreement.

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

REVENUE RECOGNITION

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

United States

1 unchanged sentence

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 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.

Effective July 1, 2023, the Company increased its deferral rates from 2.4 % to 3 % for domestic sales and decreased its deferral rate from 10 % to 8 % for export sales to reflect recent warranty experience.

In the three months ended September 30, 2023 and 2022, the Company recognized revenue which was included in the deferred revenue liability at the beginning of the periods of $ 107,205 and $ 167,939 respectively, for performance obligations related to consumer and customer warranties.

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.

3 unchanged sentences

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

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Net (loss) income

3 unchanged sentences

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

(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.

(1) Excludes approximately 773,085 weighted average stock options during the three months ended September 30, 2023, as the impact of such awards was anti-dilutive.

For the three months ended September 30, 2022, no stock options were anti-dilutive.

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.

2 unchanged sentences

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

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.

During the three months ended September 30, 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.

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 March 31, 2023 nor the three and nine months ended March 31, 2022.

There were no charitable contributions made to the Foundation during the three months ended September 30, 2023.

ACCOUNTS RECEIVABLE CONCENTRATIONS

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.

As of September 30, 2023, the Company’s top three accounts receivable customers represented approximately 30 %, 18 % and 12 % of trade accounts receivable.

The top three accounts receivable customers as of June 30, 2023 represented approximately 24 %, 14 % and 13 %.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company amended and restated its Koss Employee Stock Ownership Trust (“KESOT”) effective July 1, 2023 and received approval from the Board of Directors on July 26, 2023.

Substantially all domestic employees are participants in the KESOT under which an annual contribution in either cash or common stock may be made at the discretion of the Board of Directors.

All contributions to date have been fully allocated to employees’ company contribution accounts.

No contributions were made for the three months ended September 30, 2023 or 2022, respectively.

LEGAL MATTERS

As of March 31, 2023, the Company is involved in the matters described below:

As of September 30, 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.

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.

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.

As part of this program, the Company filed complaints 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, such as contingent legal fees, will be due to third parties.

The Company may incur additional fees and costs related to these lawsuits, however, timing and impact on its condensed financial statements is uncertain.

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

On August 4, 2023, the Company’s lawsuit against Plantrontrics, Inc.

and Polycom, Inc.

was dismissed following resolution of the litigation between the parties, which had no impact on the Company’s condensed consolidated financial statements.

During the three months ended September 30, 2022, in connection with its intellectual property enforcement program, the Company granted a license covering certain of its patents and recognized gross proceeds of $ 33,000,000 , which was recorded as other income.

Total legal fees and related expenses of $ 21,016,408 offset these proceeds and were recorded as selling, general and administrative expense.

• 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.

1 unchanged sentence

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 was accrued as of March 31, 2023 and June 30, 2022.

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 condensed consolidated financial statements.

The Company estimates that this matter will ultimately be resolved at a cost of approximately $ 41,000 and has accrued this amount as of September 30, 2023 and June 30, 2023.

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

1 unchanged sentence

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.

SUBSEQUENT EVENT

At the Company’s Annual Meeting on October 18, 2023, the shareholders approved the Koss Corporation 2023 Equity Incentive Plan (the “2023 Plan”).

Concurrently with the adoption of the new plan, the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) was terminated.

The 2023 Plan will be administered by the Compensation Committee of the Board of Directors and provides for the granting of various stock-based incentive awards to eligible participants, primarily officers and certain key employees of the Company.

The 2023 Plan has available for issuance 2,000,000 shares of common stock thereunder, plus any shares subject to awards remaining outstanding under the 2012 Plan that expired or are otherwise forfeited, canceled, or terminated.

The Company’s Board of Directors will determine the terms and conditions under which an option will become exercisable but expects that stock options granted under the 2023 Plan will vest over a three -to- five -year period from the date of grant.

An option will expire no more than ten years from its grant date, with the exception of incentive stock options held by a 10% stockholder, which will expire no more than five years from the grant date.

As with the 2012 Plan, pursuant to the 2023 Plan new shares will be issued upon exercise of stock options.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

7 unchanged sentences

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

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 or other pandemics on the economy, the impact of the Russian-Ukrainian conflict or other disruptive geopolitical events on the Company’s operations, borrowing costs and interest rates, 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, 2023 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.

1 unchanged sentence

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