What changed in this filing

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Item 1A. Risk Factors

2024-08-30 compared with 2023-08-25 · 73 added, 62 removed, 141 unchanged (49% of the section changed)

We are subject to various risks that may materially harm our business, prospects, financial condition, and results of operations.

This discussion highlights some of the risks that may affect future operating results.

These are the risks and uncertainties we believe are most important for you to consider.

We cannot be certain that we will successfully address these risks.

If we are unable to address these risks, our business may not grow, our stock price may suffer, and we may be unable to stay in business.

Additional risks and uncertainties not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business, prospects, results of operations and financial condition.

We are subject to various risks that may adversely affect our business, prospects, financial condition, and results of operations, including, but not limited to, those set forth below.

These are the risks and uncertainties we believe are most important for you to consider, however, there may be other risks that are currently deemed immaterial or not currently known to us that could materially impact the business.

If any of the following risks, or those unidentified develop into actual events, our business may not grow, our stock price may suffer, and we may be unable to stay in business.

The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Risks Related to Our Operations and Financial Results

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

The Company is dependent on the proper functioning of our contract manufacturers, 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.

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

A reduction or interruption in supply, including interruptions due to possible future pandemic- related restrictions, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.

Many of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan.

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.

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 from our foreign suppliers or delay shipments of products.

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

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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.

Our dependence on foreign suppliers for our products also 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.

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.

We have experienced and may again in the future experience supplier price increases, 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.

Our inability to mitigate any of these disruptions may lead to a material adverse impact on our business, financial condition and results of operations.

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.

While we have no operations in Russia or Ukraine, we are unable to sell to certain of our customers in Russia as a result of this event.

The continuation of the military conflict in Eastern Europe, as well as the tension in the Middle East, could lead to increased supply chain disruptions, inflationary pressures and volatility in global markets that could negatively impact our operations.

The economies of Europe have also been impacted by these conflicts as a direct result of disruptions in transportation and the supply of energy, high food prices and tight credit.

These factors can have a direct impact on the consumer’s ability to access and purchase the Company’s products.

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 .

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.

Any disruption to any link in the Company’s supply or distribution chain can have a negative impact on results.

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

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The Company is dependent upon its ability to attract and retain a base of customers to sell the Company’s line of products.

The Company has broad distribution across many channels including specialty stores, mass merchants, electronics stores and computer retailers.

The Company has broad

distribution across many channels including specialty stores, mass merchants, electronics stores and computer retailers.

The Company may not be able to maintain customers or model selections and therefore may experience a reduction in its sales revenue until a model is restored to the mix or a lost customer is replaced by a new customer.

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Market acceptance of new designs and products is subject to uncertainty, and we cannot assure you that our efforts will be successful.

The inability of new product designs or new product lines to gain market acceptance, or our current products losing traction in the market, could adversely affect our brand image, our business and financial condition.

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 could decline.

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 designs and products we introduce do not gain broad market acceptance or demand for our existing products wanes, our sales, brand image, business and financial condition could be adversely affected.

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 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 larger retailers that are potentially more important to those retailers.

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

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

In addition, these competitors often 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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We may be adversely affected by the financial condition of our retailers and distributors.

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

We depend on, and expect to continue to depend on, sales to several significant distributors and retailers.

Some of them may experience financial difficulties because of current or future 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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We are also exposed to the risk of our customers declaring bankruptcy, exposing us to claims of preferential payment claims.

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

Any loss, cancellation or reduction of purchases by these distributors or retailers may have a material adverse effect on our business.

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.

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Quality problems can also adversely affect the experience for users of the Company’s products, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.

An information systems interruption or breach in security could adversely affect us.

Privacy, security, and compliance concerns have continued to increase as technology has evolved.

An information systems interruption, cyberattack or breach in security could adversely affect our business.

We rely on accounting, financial, and operational management information systems to conduct our operations.

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Any failure to maintain the security of the data, including the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in customers confidence in us and other competitive disadvantages, and thus could have a material adverse impact on our financial condition and results of operations.

High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses.

Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm.

Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data.

Cyberattacks are a growing geopolitical risk, becoming larger, more frequent, more sophisticated and more relentless as technology has evolved, resulting in privacy, security, and compliance concerns.

They are a significant threat to individual organizations and national security.

While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security.

The investor must also recognize the risk that these types of attacks might have on the entire supply and distribution chain for the Company’s product line.

In a world that runs on the internet, the Company can only be as strong as its weakest link, whether as a financial service provider, third party distributor, reseller, transportation service provider, contract manufacturer, customer or consumer.

Changes in tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.

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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.

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.

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

We attempt to mitigate th ese increases through pricing strategies, as well as working with a dedicated freight forwarding partner to minimize freight rate increases.

Other risk factors further exacerbated by inflation include supply chain disruptions, increased oil and energy costs, 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.

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, 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.

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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.

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 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.

Geopolitical conflicts including those between Russia and Ukraine, those occurring in the Middle East and other similar conflicts could adversely affect our business, financial condition, and results of operations.

In February 2022, Russian military forces invaded Ukraine, resulting in an ongoing military conflict between the two countries.

The length, impact and outcome of the ongoing conflict is highly unpredictable and the conflict has caused, and has expected to continue to cause, global political, economic and social instability, volatility in commodity prices and energy prices, increased cyberattacks and disruptions to the global economy, international trade and global supply chain.

In 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 at that time.

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 were impacted.

There have been no sales to Russia during the fiscal years ended June 30, 2024 and 2023, however, sales to Ukraine resumed during the current fiscal year with more expected in the future.

Prior to the imposition of the sanctions against Russia, sales to Russia approximated 2% of the Company’s total sales.

On October 7, 2023, Hamas launched attacks on civilian and military targets in Southern and Central Israel, to which the Israel Defense Forces responded.

In addition, Hezbollah has launched attacks on Northern Israel, to which Israel also responded.

The conflict has negatively impacted transportation in the region and the supply of energy.

The length and severity of the conflict is unknown at this time and any continuation of the clash may escalate in the future into a greater regional conflict.

We are unable to predict the impact the above conflicts will have on our business, financial condition and results of operations for the future.

We continue to actively monitor the conflicts and will report on any adverse effects 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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 export and import duties;

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

 local outbreak of disease, such as COVID-19;

 war, such as the invasion of Ukraine by Russia, military conflicts in the Middle East or terrorist attack;

 local outbreak of disease or pandemic;

 renegotiation or nullification of existing contracts or international trade arrangements;

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The Company is paid by its international customers in U.S.

To the extent that increased prices arising from currency fluctuations decrease the overall demand for the Company’s products or motivate customers to purchase lower-priced, lower profit products, the Company’s sales, profits, and cash flows could be adversely affected.

Volatility in the exchange rates between the foreign currencies and the U.S.

dollar could result in increased prices, a decrease in the overall demand for the Company’s products or lead customers to purchase lower-priced, lower profit products and, as such, could have an adverse effect on the Company’s business, financial condition and results of operations.

Risks Related to our Stock

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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.

During the fiscal year ended June 30, 2024, the sales price of our common stock fluctuated between a reported high sales price of $6.95 on May 14, 2024 and a reported low sales price of $2.27 on April 17, 2024.

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.

For example, during the most recent fiscal year, daily trading volume ranged from a low of 2,000 shares on April 30, 2024 to a high of 19,694,200 on May 14, 2024.

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

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No t applicable.

CYBER SECURITY

Risk Management and Strategy

The Company maintains policies and processes for assessing, identifying, and managing material risk from cybersecurity threats, and has integrated these processes into the overall risk management processes.

The Company has programs in place intended to address and mitigate the cybersecurity risks that could adversely impact customers and/or reputation and lead to financial losses from remediation actions, loss of business, production downtimes and operational delays.

These programs include regular monitoring of outside threats, continuous updating of software to mitigate risk, education of employees to the risks of external threats, a simplification of infrastructure to minimize servers and migration of business-critical systems, including the Company’s ERP system, to Tier-1 cloud service providers.

Annual vulnerability assessments and penetration testing, as well as periodic web application scanning, is performed by third party service providers as directed by the Company’s Managed Service Provider (“MSP”).

The results of these tests are shared with the CFO by the MSP.

We have processes in place to evaluate the potential risks from cybersecurity threats associated with our use of third-party service providers that have access to our data, including a review process for such providers’ cybersecurity practices, risk assessments, contractual requirement and system monitoring.

The Company also recently partnered with a breach protection platform to provide security and phishing training to its employees.

The Company has not been impacted by any previous cybersecurity incidents that would materially affect business operations or financial conditions.

The Company’s MSP is responsible for identifying and assessing risks on an ongoing basis to ensure that the Company’s policies and procedures are functioning as designed to protect the Company’s information systems from potential cybersecurity threats.

Management is provided regular updates on the Company’s cybersecurity programs and material cybersecurity risk and mitigation strategies, along with any necessary enhancements to those programs.

Cybersecurity policies and processes are reviewed annually with the Board of Directors, which serves in an oversight role as a whole.

In addition, the Audit Committee and the Board consider risk-related matters on an ongoing basis in connection with deliberations regarding specific transactions and issues and would be notified immediately of any cybersecurity incidents.

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