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Item 9A. Controls and Procedures

2024-08-30 compared with 2023-08-25 · 271 added, 198 removed, 489 unchanged (49% of the section changed)

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Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

There were no changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

OTHER INFORMATION

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This information is incorporated by reference to Koss Corporation’s Proxy Statement for its 2024 Annual Meeting of Stockholders to be filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K.

The Company adopted a code of ethics, which is a "code of ethics"

as defined by applicable rules of the SEC, which is applicable to its directors, officers and employees.

The code of ethics is publicly available on the Company's website at investors.koss.com.

The Company adopted a code of ethics, which is a "code of ethics" as defined by applicable rules of the SEC, which is applicable to its directors, officers and employees.

The code of ethics is publicly available on the Company's website at investors.koss.com.

If the Company makes any substantive amendments to the code of ethics or grants any waiver, including any implicit waiver, from a provision of the code to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, the Company will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.

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Consolidated Balance Sheets as of June 30, 2024 and 2023

Consolidated Statements of Income for the Years Ended June 30, 2023 and 2022

Consolidated Statements of Operations for the Years Ended June 30, 2024 and 2023

Consolidated Statements of Cash Flows for the Years Ended June 30, 2024 and 2023

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Koss Corporation and Subsidiaries (the “Company”) as of June 30, 2023 and 2022, and the related statements of income, stockholders’ equity, and cash flows for the years ended June 30, 2023 and 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Koss Corporation and Subsidiaries (the “Company”) as of June 30, 2024 and 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended June 30, 2024 and 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for the years ended June 30, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.

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These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgements.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Deferred Compensation

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The principal consideration for our determination that deferred compensation should be a critical audit matter was based on the subjective nature of the assumptions estimated and used by management to calculate the deferred compensation liability.

Assumptions subject to estimate included discount rates, mortality rates, and a future retirement date.

Assumptions subject to estimate included discount rates, mortality rates, and future retirement date.

Changes to these assumptions may have a material impact on the consolidated financial statements.

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 We confirmed with the current officer his expected retirement date.

Other Income and Contingent Legal Expenses

As described in Notes 1 and 18 to the consolidated financial statements, the Company entered into a licensing revenue agreement with a third party during the year ended June 30, 2023.

Contingent legal fees were incurred and paid related to obtaining the licensing

The principal considerations for our determination that other income and legal expenses should be a critical audit matter was based on the materiality of the transactions, their significant effect on the comparability of the consolidated financial statements, and the determination of classification within the statement of income.

The primary audit procedures we performed to address this critical audit matter included:

 We tested the design of controls over the Company’s process for accounting and recording for license proceeds and related contingent legal expenses.

 We evaluated management’s conclusion and its compliance with accounting principles generally accepted in the United States of America regarding the timing, recognition, presentation and disclosure of license proceeds and legal expenses.

 We vouched license proceeds to the license agreement and bank statement deposits.

We confirmed the amount of legal expenses incurred with the relevant parties.

/s/ Wipfli LLP

We have served as the Company’s auditor since 2019.

Milwaukee, Wisconsin

Radnor, Pennsylvania

August 30, 2024

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Short term investments

Accounts receivable, less allowance for doubtful accounts of $ 6,027 and $ 2,027 , respectively

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

Prepaid expenses and other current assets

Interest receivable

Income tax receivable

Income taxes receivable

Total current assets

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Other assets:

Long term investments

Operating lease right-of-use asset

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Total other assets

LIABILITIES AND STOCKHOLDERS'

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

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Total liabilities

Stockholders'

Stockholders' equity:

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

issued and outstanding 9,234,795 and 9,147,795 shares, respectively

issued and outstanding 9,299,795 and 9,234,795 , respectively

Paid in capital

Retained earnings

Total stockholders'

Total liabilities and stockholders'

Total stockholders' equity

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these Consolidated Financial Statements.

KOSS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended June 30,

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Selling, general and administrative expenses

Income (loss) from operations

(Loss) from operations

( 1,872,159 )

( 24,884,220 )

Interest income

Income before income tax provision

Income tax provision

Income per common share:

(Loss) income before income tax provision (benefit)

( 1,024,515 )

Income tax (benefit) provision

Net (loss) income

(Loss) income per common share:

Weighted-average number of shares:

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Operating activities:

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

Provision for (recovery of) doubtful accounts receivable

Net (loss) income

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

(Recovery of) provision for doubtful accounts receivable

Depreciation of equipment and leasehold improvements

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Change in cash surrender value of life insurance

Provision (benefit) for deferred compensation

Deferred compensation gain

Deferred compensation relieved

Other income - Net gain from life insurance benefits

Loss on disposal of fixed assets

Provision for deferred compensation

Loss on disposal of equipment and leasehold improvements

Net changes in operating assets and liabilities:

Accounts receivable

( 2,729,850 )

Prepaid expenses and other current assets

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Deferred revenue

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities:

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Life insurance premiums paid

Proceeds from life insurance policy

Proceeds from the maturity of treasury securities

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( 13,985,921 )

Net cash (used in) provided by investing activities

( 18,859,671 )

Net cash (used in) investing activities

( 17,024,107 )

Financing activities:

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Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net (decrease) in cash and cash equivalents

( 6,117,108 )

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Supplemental cash flow information:

Cash paid for income taxes

Cash (refunded) paid for income taxes

The accompanying notes are an integral part of these Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS — Koss Corporation ("Koss"), a Delaware corporation, and its 100 %-owned subsidiaries (collectively the "Company"), reports its finances as a single reporting segment, as the Company’s only business line is the design, manufacture and sale of stereo headphones and related accessories.

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company leases its plant and office in Milwaukee, Wisconsin.

The domestic market is served by domestic sales representatives and independent manufacturers'

representatives working directly with certain retailers, distributors, and original equipment manufacturers.

The domestic market is served by domestic sales representatives and independent manufacturers' representatives working directly with certain retailers, distributors, and original equipment manufacturers.

International markets are served by domestic sales representatives and sales personnel in the Netherlands and the Caucasus region which utilize independent distributors in several foreign countries.

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and Koss U.K.

Limited ("Koss UK"), which were formed to comply with certain European Union ("EU") requirements.

Koss Corp B.V.

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All significant intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION — Revenues from product sales are recognized when the customer obtains control of the product, which typically occurs upon shipment from the Company's facility.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS — During the second quarter of fiscal year 2024, the Company learned that, due to misinterpretation of the required tax treatment for certain disqualifying dispositions of Incentive Stock Options (ISO), the Company improperly withheld amounts for Social Security and Medicare (“FICA”) taxes on the taxable gains resulting from those dispositions and remitted such amounts to the Internal Revenue Service (“IRS”).

Thus, for such disqualifying dispositions of ISOs beginning in fiscal year 2021, certain employees are owed a refund from the Company for the overpayment of the FICA taxes, with a similar refund due to the Company from the IRS for the employer portion of the taxes which were also remitted to the IRS and expensed by the Company.

The Company will reimburse the over withheld taxes to the impacted employees and will file amended 941-X forms with the IRS to claim a refund for both the Company overpayment of FICA taxes as well as the amounts refunded to employees.

As of June 30, 2024, the over-withheld taxes due to the impacted employees were remitted to the Company’s payroll provider for distribution to the employees.

As such, no liability is recorded in accrued liabilities on the Consolidated Balance Sheet as of that date.

The refund expected from the IRS as of June 30, 2024 and 2023 is $ 722,498 and $ 717,892 , respectively, and is included in prepaid expenses and other current assets on the Consolidated Balance Sheets.

Based on an analysis of Accounting Standards Codification ASC 250 – “Accounting Changes and Error Corrections” (“ASC 250”), Staff Accounting Bulletin 99 – “Materiality” and Staff Accounting Bulletin 108 – “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company determined that these errors did not result in the previously issued consolidated financial statements being materially misstated, and as such no restatement was necessary.

The following tables present the effect of the revision on the Consolidated Balance Sheet as of June 30, 2023 and the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows for the year ended June 30, 2023.

As of June 30, 2023

As Previously Reported

Consolidated Balance Sheet:

Prepaid expenses and other current assets

Total current assets

Accrued liabilities

Total current liabilities

Total liabilities

Retained earnings

Total stockholders' equity

Year Ended June 30, 2023

As Previously Reported

Consolidated Statement of Operations:

Selling, general and administrative expenses

(Loss) from operations

( 24,901,052 )

( 24,884,220 )

Income before income tax provision

Income per common share:

Year Ended June 30, 2023

As Previously Reported

Consolidated Statement of Cash Flows:

Prepaid expenses and other current assets

Accrued liabilities

Net cash provided by operating activities

The effect of this revision on the opening balances within the Company's Consolidated Statement of Stockholders' Equity for the years ended June 30, 2023 and 2022 was as follows:

As Previously Reported

Retained earnings, June 30, 2022

Total stockholders' equity, June 30, 2022

Retained earnings, June 30, 2023

Total stockholders' equity, June 30, 2023

The Company's Consolidated Statement of Stockholders' Equity for the year ended June 30, 2023 has also been revised to reflect the impacts to net income as presented above.

REVENUE RECOGNITION — Revenues from product sales are recognized when the customer obtains control of the product, which typically occurs upon shipment from the Company's facility.

There are a very limited number of customers for which control does not pass until they have received the products at their facility.

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The deferred revenue is based on historical analysis of warranty claims relative to sales.

This deferred revenue reflects the Company's best estimates of the amount of warranty returns and repairs it will experience during those future periods.

If future warranty activity varies from the estimates, the Company will adjust the estimated deferred revenue, which would affect net sales and operating results in the period that such adjustment becomes known.

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Reserves for Variable Consideration - Revenue from product sales is recorded at the net sales price, which includes estimates of variable consideration for which reserves are established and which result from returns, rebates, and co-pay assistance that are offered within contracts between the Company and its customers.

Overall, these reserves reflect the Company's best estimates of the amount of consideration to which it is entitled based on the terms of the contract.

If actual results in the future vary from the estimates, the Company will adjust these estimates, which would affect net sales and operating results in the period such variances become known.

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The fees assessed are based on a product’s category, price, size and weight and are deducted from the sales price of each product prior to remittance to the Company with revenue reported on a net basis.

Prior to fiscal

year 2023, revenue from orders obtained through the online marketplace but fulfilled by the Company direct to the end customer was reported net of referral fees, and related fulfillment costs were recorded in cost of goods sold.

Effective with the current year, the referral fees of $ 43,190 were reported as selling expense and revenue was reported as gross sales.

As a result of the accounting change, a reclass was made for fiscal year ending June 30, 2022 to move $ 98,252 of referral fees from Net Sales to Selling, General and Administrative Expenses to report these sales on a consistent basis.

Revenue from orders obtained through the online marketplace, but fulfilled by the Company direct to the end customer, are reported as gross sales and referral fees are recorded as selling expense in selling, general and administrative expenses.

The Company’s related fulfillment costs are recorded in cost of goods sold.

Sales Commissions - The Company has elected the practical expedient of not capitalizing sales commissions.

RESEARCH AND DEVELOPMENT — Research and development is primarily comprised of product prototypes and testing.

These activities, charged to operations as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Income, amounted to $ 288,231 and $ 285,244 in 2023 and 2022, respectively.

ADVERTISING COSTS — Advertising costs included within selling, general and administrative expenses in the accompanying Consolidated Statements of Income were $ 65,374 in 2023 and $ 50,513 in 2022.

These activities, charged to operations as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Operations, amounted to $ 238,086 and $ 288,231 in 2024 and 2023, respectively.

ADVERTISING COSTS — Advertising costs included within selling, general and administrative expenses in the accompanying Consolidated Statements of Operations were $ 142,859 in 2024 and $ 65,374 in 2023.

Such costs are expensed as incurred.

INCOME TAXES — The Company operates as a C Corporation under the Internal Revenue Code (the “Code").

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws.

INCOME TAXES — The Company operates as a C Corporation under the Internal Revenue Code (the “Code”).

Amounts provided for income tax expense (benefit) are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws.

Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes.

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision (benefit) for income taxes.

The differences relate principally to different methods used for depreciation and amortization for income tax purposes, net operating loss carryforwards, capitalization requirements of the Code, allowances for doubtful accounts, provisions for excess and obsolete inventory, stock-based compensation, warranty reserves, and other income tax related carryforwards.

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PATENT COSTS — The Company incurs on-going legal fees and filing costs related to the patent portfolio.

These costs are expensed in the period they are incurred since no patent legal costs were probable to provide a future economic benefit.

INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE — Income per common and common stock equivalent share is calculated under the provisions of Topic 260 in the Accounting Standards Codification ("ASC") which provides for calculation of “basic” and “diluted” income per share.

Basic income per common and common stock equivalent share includes no dilution and is computed by dividing net income by the weighted average common shares outstanding for the period.

Diluted income per common and common stock equivalent share reflects the potential dilution of securities that could share in the earnings of an entity.

See Note 11 for additional information on income per common and common stock equivalent share.

These costs are expensed in the period they are incurred since no patent legal costs are probable to provide a future economic benefit.

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE — Income (loss) per common and common stock equivalent share is calculated under the provisions of Topic 260 in the Accounting Standards Codification (“ASC”) which provides for calculation of “basic” and “diluted” income (loss) per share.

Basic income (loss) per common and common stock equivalent share includes no dilution and is computed by dividing net income (loss) by the weighted average common shares outstanding for the period.

Diluted income (loss) per common and common stock equivalent share reflects the potential dilution of securities that could share in the earnings (losses) of an entity.

See Note 11 for additional information on income (loss) per common and common stock equivalent share.

CASH AND CASH EQUIVALENTS — The Company considers depository accounts and investments with a maturity at the date of acquisition and expected usage of three months or less to be cash and cash equivalents.

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ACCOUNTS RECEIVABLE — Accounts receivable consist of unsecured trade receivables due from customers.

An allowance for doubtful accounts is recorded for significant past due receivable balances based on a review of the past due item and general economic conditions .

An allowance for credit losses is deducted from the cost basis of the receivables and is estimated using the aging method whereby expected credit losses

are determined on the basis of how long a receivable has been outstanding as well as historical loss data.

The estimates are then adjusted for changes in the risk characteristics of the Company’s customer base, changes in credit practices, current conditions, and reasonable and supportable future forecasts that would impact the collectability of the receivables.

This model replaced the incurred loss model used in previous years.

An adjustment of $ 4,105 was made during the year ended June 30, 2024 to record the appropriate allowance per the new methodology and no write-offs were necessary and there were no recoveries on prior losses.

As such, the impact of the change on the Company’s financial statements was not significant.

INVESTMENTS — Debt securities are classified as held-to-maturity as the Company has the positive intent and ability to hold them to maturity.

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

Accrued interest receivable on held-to-maturity debt securities is shown separately on the Consolidated Balance Sheets and is not included in any estimate for credit losses.

No allowance for credit losses on held-to-maturity U.S.

Treasury securities is recorded 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.

See Note 4 for additional information on investments.

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Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset.

Major expenditures for property and equipment and significant renewals are capitalized.

Major expenditures for leasehold improvements and equipment and significant renewals are capitalized.

Maintenance, repairs and minor renewals are expensed as incurred.

When assets are retired or otherwise disposed of, their costs and related accumulated depreciation and

amortization are removed from the accounts and any resulting gains or losses are included in operations.

When assets are retired or otherwise disposed of, their costs and related accumulated depreciation and amortization are removed from the accounts and any resulting gains or losses are included in operations.

See Note 6 for additional information on equipment and leasehold improvements.

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The lease agreement provides the Company the right to substantially all of the economic benefits and direct the use of the building, thus is considered a lease.

The agreement does not convey ownership of the building to the lessee at the end of the term of the lease so is accounted for as an operating lease.

Operating leases are reported on the Company's Consolidated Balance Sheets as operating lease right-of-use ("ROU") assets and operating lease liabilities.

The agreement does not convey ownership of the building to the lessee at the end of the lease term, does not contain an option to purchase the underlying asset at the end of the lease term and the lease term is not for a major part of the remaining economic life of the underlying asset so is accounted for as an operating lease.

Operating leases are reported on the Company's Consolidated Balance Sheets as operating lease right-of-use ("ROU") assets and operating lease liabilities.

Operating lease ROU assets and liabilities are valued at the present value of the future lease payment obligations.

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LIFE INSURANCE POLICIES — Life insurance policies are stated at cash surrender value or at the amount the Company would receive in the case of split-dollar arrangements.

Increases in cash surrender value, net of annual premiums paid, and the proceeds from company-owned life insurance policies are included in selling, general and administrative expenses and other income, respectively, in the Consolidated Statements of Income.

DEFERRED COMPENSATION —At June 30, 2024 and 2023, 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 Consolidated Statements of Income.

The selling, general and administrative expenses recorded during the year end June 30, 2022, also include the gain recorded as a result of the reversal of the deferred compensation current and noncurrent liabilities recorded for the Company’s founder who passed away on December 21, 2021.

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 Consolidated Statements of Operations.

See Note 10 for additional information on deferred compensation.

FAIR VALUE OF FINANCIAL INSTRUMENTS — Cash equivalents, accounts receivable, and accounts payable approximate fair value based on the short maturity of these instruments.

The Company’s investments are classified as held-to-maturity and reported at amortized cost on the Consolidated Balance Sheets.

FAIR VALUE OF FINANCIAL INSTRUMENTS — Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date.

A three-tier hierarchy prioritizes the inputs used in measuring fair value.

These tiers include Level 1, defined as observable inputs such as quoted market prices in active markets;

Level 2, defined as inputs other than quoted market prices in active markets that are either directly or indirectly observable;

and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

The asset's or liability's fair value measurement within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Cash equivalents, accounts receivable, and accounts payable approximate fair value based on the short maturity of these instruments.

The Company’s U.S.

treasury debt securities are recorded at amortized cost with fair value disclosure.

They have a readily available market price (Level 1 input), thus a lesser degree of judgment needs to be used in measuring fair value, and fair value was determined by quoted market prices .

The fair value is based upon quoted market prices and is disclosed in Note 4.

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Management determines fair value using an undiscounted future cash flow analysis or other accepted valuation techniques.

No impairments of the Company's long-lived assets were recorded in the years ended June 30, 2023 or 2022.

No impairments of the Company's long-lived assets were recorded in the years ended June 30, 2024 or 2023.

LEGAL COSTS — 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.

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administrative expense at that time.

Changes to the contingent legal fee expenses would cause a material impact to the results of operations.

In the year ended June 30, 2023, the Company incurred legal fees and expenses of approximately $ 22,141,000 related to licensing proceeds received in the same year.

Changes to the contingent legal fee expenses would have a material impact on the results of operations.

STOCK-BASED COMPENSATION — The Company has a stock-based employee compensation plan, which is described more fully in Note 12.

The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation - Stock Compensation".

The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation - Stock Compensation”.

Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.

The Company recognizes forfeitures as they occur.

OTHER INCOME — The Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio, by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless headphone technology.

The Company has granted license agreements related to certain patents allowing the Company to recover certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio .

In the years ended June 30, 2023 and 2022, the Company received licensing proceeds of $ 33,000,000 and $ 100,000 , respectively, which were recorded as other income.

In the year ended June 30, 2022, the Company also recognized approximately $ 262,000 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 year ended June 30, 2023, the Company received licensing proceeds of $ 33,000,000 , which was recorded as other income.

No other income was received in the year ended June 30, 2024.

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods.

Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

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

Measurement of Credit Losses on Financial Instruments .

The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets, including accounts and notes receivables.

The new guidance represents significant changes to accounting for credit losses.

The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold.

NEW ACCOUNTING STANDARD

New Accounting Standards Adopted as of July 1, 2023

Effective July 1, 2023, the Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments using the modified retrospective approach for all financial assets measured at amortized cost, including trade receivables and held-to-maturity debt securities.

The main goal of this ASU is to require businesses to adjust their allowance for lifetime expected credit losses rather than incurred losses.

It is believed that the change will result in more timely recognition of such losses.

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.

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

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 not record an allowance for credit losses on held-to-maturity U.S.

Treasury securities 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 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).

Recently Issued Accounting Standard

In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid and requires consistent categories and greater disaggregation of information in the rate reconciliation, income taxes paid disaggregated by jurisdiction and certain other amendments.

The new guidance will be effective for annual periods beginning after December 15, 2024, or the Company’s fiscal year ending June 30, 2026.

Management is currently assessing the impact of the adoption of this standard on the Company’s Consolidated Financial Statements.

REVENUE RECOGNITION

The Company disaggregates its net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty of net sales and cash flows are affected by economic factors.

The Company disaggregates its net sales by geographical location as it believes it best depicts how the nature, timing and uncertainty

of net sales and cash flows are affected by economic factors.

The following table summarizes net sales by geographical location:

2 unchanged sentences

These constitute future performance obligations, and the Company defers revenue related to these future performance obligations.

Effective July 1, 2022, the Company decreased its rates from 3 % to 2.4 % for domestic sales and from 14 % to 10 % for export sales to reflect recent warranty experience.

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.

The Company recognized revenue, which was included in the deferred revenue liability at the beginning of the periods, of $ 308,851 and $ 338,529 in the years ended June 30, 2024 and 2023, respectively, for performance obligations related to consumer and customer warranties.

1 unchanged sentence

The Company estimates that the deferred revenue performance obligations are satisfied within 1 to 3 years and therefore uses the same time frame for recognition of the deferred revenue.

The following table summarizes the unrealized positions for the held-to-maturity debt securities as of June 30, 2023:

The following tables summarize the unrealized positions for the held-to-maturity debt securities as of June 30, 2024 and 2023, respectively:

Amortized Cost Basis

2 unchanged sentences

US Treasury securities

There were no investments held at June 30, 2022.

The following table summarizes the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of 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 June 30, 2024 and 2023, respectively:

Amortized Cost Basis

Due within one year

Due after one year through five years

Amortized Cost Basis

Due within one year

The components of inventories at June 30, 2024 and 2023 were as follows:

16 unchanged sentences

Equipment and leasehold improvements, net

During the year ended June 30, 2024 and 2023, depreciation expense was $ 192,272 and $ 230,292 , respectively.

The Company utilizes the liability method of accounting for income taxes.

The liability method measures the expected income tax impact of future taxable income and deductions implicit in the Consolidated Balance Sheets.

The income tax provision in 2023 and 2022 consisted of the following:

Year Ended June 30,

Total income tax provision

The income tax (benefit) provision in 2024 and 2023 consisted of the following:

Years Ended June 30,

Total income tax (benefit) provision

The 2024 and 2023 tax results in an effective rate different than the federal statutory rate because of the following:

Year Ended June 30,

Federal income tax liability at statutory rate

Years Ended June 30,

Federal income tax (benefit) liability at statutory rate

State income tax liability, net of federal income tax effect

1 unchanged sentence

( 1,720,747 )

(Decrease) increase in valuation allowance

Increase (decrease) in valuation allowance

Stock option (deduction)

( 1,966,822 )

Non-deductible officers'

All other permanent items

Return-to-provision

Expiration of stock options and tax credits

Deferred adjustment related to payroll tax withholding on disqualifying disposition of incentive stock options

State tax rate change

Uncertain tax position

Total income tax provision

Total income tax (benefit) provision

During the year ended June 30, 2024, a federal tax benefit of $ 81,278 was recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified.

The adjustments were identified when the prior year tax returns were filed in the third quarter of fiscal year 2024.

State income tax expense of $ 7,674 , which represented only the required minimum estimated state tax payments due, offset the federal tax benefit for a total income tax benefit of $ 73,604 .

For the year ended June 30, 2023, as a result of additional income generated by licensing fees, partially offset by related legal fees and expenses, taxable income for the period was generated.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted which changed the rules for deducting net operating losses (NOLs).

Before 2017, NOLs were fully deductible and could be carried back two years and carried forward 20 years.

For NOLs arising in tax years beginning after December 31, 2017, the TCJA limits the NOL deduction to 80 percent of taxable income.

As such, the utilization of the Company’s net operating loss carryforwards from fiscal years after 2018 were limited to 80 percent of the resulting taxable income.

The Company’s NOL carryforwards from fiscal 2017 and 2018 could be utilized to offset taxable income at 100 percent.

The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $ 230,139 and $ 87,238 , respectively, for the year ended June 30, 2023.

For the year ended June 30, 2022, a state tax provision of $ 7,517 was recorded.

The federal income tax expense was zero for the year ended June 30, 2022.

Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2023 and June 30, 2022 include:

For NOLs arising in tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act (“TCJA”) limits the NOL deduction to 80 percent of taxable income.

As such, the utilization of the Company’s net operating loss carryforwards from fiscal years after 2018 is limited to 80 percent of the resulting taxable income whereas 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 for the year ended June 30, 2023, resulting in federal and state tax provisions of $ 230,139 and $ 87,238 , respectively.

Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2024 and 2023 include:

Deferred income tax assets:

7 unchanged sentences

Equipment and leasehold improvements

Lease liability

Operating lease liability

Valuation allowance

2 unchanged sentences

Total deferred income tax assets

Equipment and leasehold improvements

Deferred income tax liabilities:

Operating right-of-use asset

Total deferred income tax liabilities

Net deferred income tax assets

2 unchanged sentences

The recognition of these deferred tax balances will be realized through normal recurring operations and, as such, the Company has recorded the value of such expected benefits.

The Company has federal net operating loss carryforwards of approximately $ 31,793,000 which can be carried forward indefinitely.

The Company has state net operating loss carryforwards totaling approximately $ 10,944,000 in Wisconsin, which expire in tax years 2030 through 2041, and approximately $ 15,090,000 in other states.

In the year ended June 30, 2023, the Company estimates that federal net operating loss carryforwards of approximately $ 7,006,000 will be utilized to offset taxable income.

At the state level, net operating loss carryforwards of $ 4,565,000 in Wisconsin and all other states combined are expected to be utilized.

The Company's remaining tax loss carryforward as of June 30, 2023 is expected to be approximately $ 31,800,000 .

Taxable income was generated during the year ended June 30, 2023, mainly as a result of non-recurring license proceeds and, as such, the future realization of this continues to be uncertain.

The Company has federal net operating loss carryforwards of approximately $ 32,778,000 which can be carried forward indefinitely and state net operating loss carryforwards totaling approximately $ 11,242,000 in Wisconsin, which expire in tax years 2029 through 2043, and approximately $ 15,910,000 in other states.

Given a taxable net loss for fiscal year 2024, it is expected that $ 1,270,000 will be added to the Company’s federal net operating loss carryforwards.

The Company's remaining tax loss carryforward as of June 30, 2024 is expected to be approximately $ 32,778,000 and given recurring taxable losses with the exception of fiscal year 2023 whereby taxable income was generated mainly as a result of non-recurring license proceeds, 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.

For the year ended June 30, 2023, the Company utilized federal net operating loss carryforwards of approximately $ 6,944,000 to offset taxable income.

At the state level, net operating loss carryforwards of $ 4,381,000 in Wisconsin and all other states combined were utilized.

The need for a valuation allowance is evaluated each accounting period based on the Company’s evaluation of positive and negative evidence concerning the usage of their deferred tax assets.

1 unchanged sentence

The need for a valuation allowance is an estimate at period-end, which is subject to change once additional evidence is obtained in future periods.

Generally accepted accounting principles in the United States (“GAAP”) prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return.

The Company recorded a liability of approximately $ 25,000 as a reserve for an uncertain tax position (“UTP”) related to the research and development credits taken.

The reserve for UTP was recorded in income taxes receivable on the Consolidated Balance Sheet as of June 30, 2023.

There were no other matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded on the Company’s Consolidated Financial Statements for the years ended June 30, 2023 and 2022.

Additionally, GAAP provides guidance on the recognition of interest and penalties related to income taxes.

No interest or penalties related to income taxes has been accrued or recognized as of and for the years ended June 30, 2023 or 2022.

The Company records interest related to unrecognized tax benefits in interest expense.

The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions.

The Company’s federal tax returns for tax years and state income tax returns are open for the standard statutory period.

The following are the changes in the valuation allowance:

Decrease (Increase)

Year Ended June 30,

( 11,671,606 )

Years Ended June 30,

( 9,906,018 )

2 unchanged sentences

( 9,906,018 )

CREDIT FACILITY AND SBA LOAN

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”).

The Credit Agreement provides for a $ 5,000,000 revolving secured credit facility for letters of credit for the benefit of the Company of up to a sublimit of $ 1,000,000 .

Due to the non-recurring license proceeds, the Company had positive taxable income for the fiscal year ending June 30, 2023 and was able to use all their federal R&D tax credits, including carryovers, of $ 132,466 .

The claim for research and development (R&D) tax credits continues to be a highly scrutinized area by the Internal Revenue Service and, while the Company is confident in its credit claim, it cannot anticipate the impact that future guidance could have on current claims.

Due to the costs of defense, the Company may also decide to settle for less than the full amount of the credits used on the returns.

As a result, the Company believes that it is more likely than not that upon audit, the realization of the credits used would be 80% and accordingly recorded a liability of approximately $ 28,000 and $ 25,000 as a reserve for an uncertain tax position (“UTP”) related to the R&D credits taken at June 30, 2024 and 2023, respectively.

The UTP increased during 2024 due to a change in the final credit amount utilized with the fiscal year 2023 tax return.

The reserve for UTP was recorded in income taxes payable on the Consolidated Balance Sheets.

Additionally, GAAP provides guidance on the recognition of interest and penalties related to income taxes.

No interest or penalties related to income taxes has been accrued or recognized as of and for the years ended June 30, 2024 or 2023.

The Company records interest related to unrecognized tax benefits, when applicable, in interest expense.

The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions.

The Company’s federal tax returns and state income tax returns are open for the standard statutory period.

CREDIT FACILITY

On May 14, 2019, the Company entered into a secured credit facility ("Credit Agreement") with Town Bank (“Lender”).

The Credit Agreement provides for a $ 5,000,000 revolving secured credit facility and letters of credit for the benefit of the Company of up to a sublimit of $ 1,000,000 .

There are no unused line fees in the credit facility.

5 unchanged sentences

As of June 30, 2024, the Company was in compliance with all covenants related to the Credit Agreement.

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

The Company incurs interest expense primarily related to its secured credit facility.

There was no interest expense for the years ended June 30, 2023 or 2022.

As of June 30, 2024 and 2023, there were no outstanding borrowings on the facility and t here was no interest expense recognized during the years then ended.

ACCRUED LIABILITIES

5 unchanged sentences

Bonus and profit-sharing

Sales commissions and bonuses

Sales commissions

Amounts owed to employees for overpayment of payroll taxes on disqualifying dispositions of incentive stock options

Total accrued liabilities

1 unchanged sentence

As of June 30, 2024 and 2023, the Company has a deferred compensation agreement with a current officer.

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 Consolidated Statements of Income.

The Company's non-current deferred compensation obligation is included in deferred compensation in the Consolidated Balance Sheets.

Deferred compensation income of $ 472,883 was recognized in selling, general and administrative expenses during the year ended June 30, 2022 when the deferred compensation liability related to the deferred compensation arrangement with Company’s founder and former chairman was relieved upon his passing on December 21, 2021.

Payments of $ 71,250 made to the former chairman during the period before his passing partially offset the income.

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 Consolidated Statements of Operations.

The Company's non-current deferred compensation obligation is recorded as deferred compensation in the Consolidated Balance Sheets.

The deferred compensation liability of $ 2,093,142 , and $ 1,997,120 recorded at June 30, 2024 and June 30, 2023, respectively, relates to a supplemental retirement plan for a current officer that calls for annual cash compensation following retirement from the Company in an amount equal to 2 % of base salary, as defined in the agreement, multiplied by the number of years of service to the Company.

The retirement payments are to be paid monthly to the officer until his death and then to his surviving spouse monthly until her death.

Deferred compensation expense/(income) of $ 59,891 and ($ 231,370 ) was recognized under this arrangement during the years ended June 30, 2023 and 2022, respectively, to record the liability at net present value of the future expected payments.

Deferred compensation expense of $ 96,004 and $ 59,891 was recognized under this arrangement during the years ended June 30, 2024 and 2023, respectively, to record the liability at net present value of the future expected payments.

The net present value was calculated using a discount factor of 5.55 % and 5.21 % at June 30, 2024 and 2023, respectively.

The life expectancies used in the calculation of net present value were 18.10 and 18.90 years for fiscal years ended June 30, 2024 and 2023, respectively.

The current officer's retirement date is estimated to be October 2029.

INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income per share is computed based on the weighted-average number of common shares outstanding.

Diluted income per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

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

The increase in the deferred compensation expense recorded in the year ended June 30, 2024 compared to the prior year was due mainly to the annual increase in the future payments under the arrangement, offset partially by the increase in the discount factor.

The current officer's retirement date is estimated to be October 2029.

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding.

Diluted income (loss) per common share is calculated assuming the exercise of stock options except where the result would be anti-dilutive.

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

Years Ended June 30,

Net (loss) income

Weighted average shares, basic

1 unchanged sentence

Diluted shares

Net income attributable to common shareholders per share:

(1) No exercised stock options were anti-dilutive for the years ended June 20, 2023 and 2022.

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

(1) Excludes 717,024 weighted average stock options during the year ended June 30, 2024 as the impact of such awards was anti-dilutive.

No stock options were anti-dilutive for the year ended June 30, 2023.

STOCK OPTIONS

As of July 25, 2022, the tenth anniversary of the Company’s 2012 Omnibus Incentive Plan (the “2012 Plan”), the 2012 Plan expired.

A new plan (the “2023 Plan”) was approved by the Board of Directors on July 26, 2023, and will be proposed to be approved by the shareholders at the Company’s Annual Meeting in October 2023.

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

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

The Company expects that stock options granted under the 2023 Plan would vest over a three -to- five-year period from the date of grant and have a maximum term of five to ten years .

In July 2023, pursuant to the recommendation of the Board of Directors, the shareholders approved the creation of 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 Compensation Committee of the Board of Directors administers the 2023 Plan and provides for the granting of various stock-based incentive awards to eligible participants, primarily officers and certain key employees of the Company.

2,000,000 shares of common stock were authorized for issuance under the 2023 Plan, 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.

As of June 30, 2024, no new stock-based awards have been granted under the 2023 Plan.

The fair value of each stock option grant under the 2012 Plan was estimated as of the date of grant using the Black-Scholes pricing model.

9 unchanged sentences

These expenses were included in selling, general and administrative expenses.

Options were granted at a price equal to or greater than the market value of the common stock on the date of grant.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.

No options were granted during the years ended June 30, 2023 and 2022.

The following table identifies options granted, exercised, canceled, or available for exercise pursuant to the 2012 Plan:

6 unchanged sentences

1.73 - $ 2.65

Shares under option at June 30, 2024

4 unchanged sentences

1.73 - $ 2.65

The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company's stock on any given date and the exercise price, multiplied by the number of in-the-money outstanding and exercisable stock options.

A summary of intrinsic value and cash received from stock option exercises and fair value of vested stock options for the fiscal years ended June 30, 2024 and 2023 is as follows:

33 unchanged sentences

The lease is described more fully in Note 14.

During the year ended June 30, 2023, the Company made a charitable contribution of $ 75,000 to the Koss Foundation (the “Foundation”), a 501(c)(3) charitable organization for which Michael J.

During the year ended June 30, 2024, the Company made no charitable contribution 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 approximately $ 4,000 of charitable contributions made to the Foundation during the year ended June 30, 2022.

There were $ 75,000 of charitable contributions made to the Foundation during the year ended June 30, 2023.

EMPLOYEE BENEFIT PLANS

Substantially all domestic employees are participants in the Koss Employee Stock Ownership Trust ("KESOT") under which an annual contribution in either cash or common stock may be made at the discretion of the Board of Directors.

No contributions were made for the fiscal years 2023 or 2022.

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 years ended June 30, 2024 or 2023, respectively.

The Company maintains a retirement savings plan under Section 401(k) of the Internal Revenue Code.

This plan covers all employees of the Company who have completed one full fiscal quarter of service.

Matching contributions can be made at the discretion of the Board of Directors.

Matching contributions can be made at the discretion of the

Board of Directors.

For fiscal years 2024 and 2023, the matching contribution was 25 % of employee contributions to the plan.

2 unchanged sentences

CONCENTRATIONS

In the years ended June 30, 2023 and 2022, the Company’s largest concentration of sales came from direct-to-consumer through the Amazon portal and were approximately 20 % and 16 % of net sales in fiscal year 2023 and 2022, respectively.

In the years ended June 30, 2024 and 2023, the Company’s largest concentration of sales came from DTC through the Amazon portal and were approximately 17 % and 20 % of net sales in fiscal year 2024 and 2023, respectively.

The five largest customers of the Company accounted for approximately 46 % of net sales in fiscal year 2024 and 51 % in fiscal year 2023.

The three customers with individual accounts receivable balances greater than 10% as of June 30, 2023 and 2022 were Eurostar, Ingram Micro and Amazon Vendor Central.

Accounts receivable from Eurostar represented 24 % of total trade accounts receivable as of June 30, 2023.

As of June 30, 2022, there was no receivable from Eurostar.

Ingram Micro accounts receivable as of June 30, 2023 and 2022, were approximately 14 % and 19 % of total trade account receivables, respectively.

Amazon Vendor Central accounts receivables were approximately 13 % and 18 % of total trade account receivables as of June 30, 2023 and 2022, respectively.

The three customers with individual accounts receivable balances greater than 10% as of June 30, 2024 were Ingram Micro, Amazon Vendor Central and The Computer Supply People.

As of June 30, 2024 and 2023, accounts receivable from Ingram Micro represented 18 % and 14 % of total trade accounts receivable, respectively, and Amazon Vendor Central accounts receivable represented approximately 15 % and 13 %, respectively.

The Computer Supply People accounts receivable as of June 30, 2024 and 2023 was approximately 12 % and less than 10 %, respectively, while there was no accounts receivable from Eurostar as of the end of the current fiscal year, the accounts receivable as of June 30, 2023 was 24 % of total trade accounts receivable.

The majority of international customers, outside of Canada, purchase products on a cash against documents or cash in advance basis.

Approximately 24 % and 4 % of the Company's trade accounts receivable at June 30, 2023 and 2022, were foreign receivables denominated in U.S.

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

The majority of the contract manufacturing is done by two vendors with one vendor representing approximately 59 % of the manufacturing costs in fiscal year 2023 and 2022.

Approximately 5 % and 24 % of the Company's trade accounts receivable at June 30, 2024 and 2023, were foreign receivables denominated in U.S.

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

The majority of the contract manufacturing is done by two vendors with one vendor representing approximately 65 % and 59 % of the manufacturing costs in fiscal years 2024 and 2023, respectively.

The Company has a long-term relationship with this vendor.

However, increased costs from the vendor or an interruption of supply from this vendor could have a material adverse effect on the Company's profit margins and profitability.

LEGAL MATTERS

3 unchanged sentences

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.

The Company may incur additional fees and costs related to these lawsuits, however, timing and impact on its Consolidated 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 .

2 unchanged sentences

and Polycom, Inc.

was dismissed following resolution of the litigation between the parties and had no impact on the Company’s financial statements.

was dismissed following resolution of the litigation between the parties and had no impact on the Company’s Consolidated Financial Statements.

 The Company was notified by One-E-Way, Inc.

that some of the Company's wireless products may infringe on certain One-E-Way patents.

No lawsuits involving these allegations have yet been filed and served on the Company.

The Company is currently investigating whether these allegations have any merit.

Depending on the results of the investigation and the defense of these allegations, the ultimate resolution of this matter may have a material effect on the Company's financial statements.

The Company estimates that this matter will ultimately be resolved at a cost of approximately $ 41,000 and has accrued this amount as of June 30, 2023 and 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 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 in accrued liabilities as of June 30, 2024 and 2023.

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

We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business.

We are also subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business.

Although management currently believes that resolving these claims against us, individually or in aggregate, will not have a material adverse impact on our Consolidated Financial Statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

8 unchanged sentences

Amendment to the By-Laws of Koss Corporation.

Filed as Exhibit 3.4 to the Company's Annual report on Form 10-K for the year ended June 30, 2020 and incorporated herein by reference.

Description of Common Stock of Koss Corporation.

Filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 2020 and incorporated herein by reference.

Restated Voting Trust Agreement by and among Michael J.

Filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 2020 and incorporated herein by reference.

Restated Koss Voting Trust Agreement by and among Michael J.

Koss (the Voting Trustee) and John C.

17 unchanged sentences

General Business Security Agreement dated May 14, 2019, between Koss Corporation and Town Bank Filed as Exhibit 10.2 to the Company’s Form 8-K on May 16, 2019 and incorporated by reference herein.

Koss Corporation 2012 Omnibus Incentive Plan (Incorporated by reference to Appendix B to Koss Corporation's Definitive Proxy Statement on Schedule 14A filed on August 27, 2012).

Koss Corporation 2023 Equity Incentive Plan.

Filed as Exhibit 10.1 to Koss Corporation’s Current Report on Form 8-K filed on October 23, 2023 and incorporated herein by reference.

Koss Corporation 2023 Equity Incentive Plan Notice of Grant of Stock Option Award.

Filed as Exhibit 10.2 to Koss Corporation's Quarterly Report on 10-Q filed February 2, 2024 and incorporated herein by reference.

Koss Corporation Code of Ethics.

7 unchanged sentences

Section 1350 Certification of Chief Financial Officer.

The following financial information from Koss Corporation's Annual Report on Form 10-K for the year ended June 30, 2023, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Balance Sheets as of June 30, 2023 and 2022 , (ii) Consolidated Statements of Income for the years ended June 30, 2023 and 2022, (iii) Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022 , (iv) Consolidated Statements of Stockholders'

Equity for the years ended June 30, 2023 and 2022 and (v) the Notes to Consolidated Financial Statements.

Koss Corporation Incentive-Based Compensation Clawback Policy**

The following financial information from Koss Corporation’s Annual Report on Form 10-K for the year ended June 30, 2024, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Balance Sheets as of June 30, 2024 and 2023, (ii) Consolidated Statements of Operations for the years ended June 30, 2024 and 2023, (iii) Consolidated Statements of Cash Flows for the years ended June 30, 2024 and 2023, (iv) Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2024 and 2023 and (v) the Notes to the Consolidated Financial Statements.

The cover page from Koss Corporation’s Annual Report on Form 10-K for the year ended June 30, 2024, filed with the Securities and Exchange Commission on August 30, 2024, formatted in XBRL Cover Page Interactive Data File **

17 unchanged sentences

/s/ Steven A.

/s/ Theodore H.

Leveen, Director

Nixon, Director

/s/ William J.

/s/ Lenore E.

Leveen, Director

Sweasy, Director

/s/ Lenore E.

Lillie, Director

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 9A. Controls and Procedures