KOSS CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The purpose of this discussion and analysis is to enhance the understanding and evaluation of the financial position, results of operations, cash flows, indebtedness, and other key financial information of the Company for fiscal years 2024 and 2023. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. See also the “Cautionary Statement Regarding Forward-Looking Statements” on page 4 of this Report. Overview John C. Koss and the Company have been recognized as the creator of the personal listening industry. The Company initially developed the first Koss SP 3 stereo headphones in 1958 and has been an innovator in the field ever since. We market a complete line of high-fidelity headphones, wireless Bluetooth® headphones, wireless Bluetooth® speakers, computer headsets, telecommunications headsets, and active noise canceling headphones. Koss operates as one business segment, as its only business line is the design, manufacture and sale of stereo headphones and related personal listening accessories. The Company’s products are sold domestically and internationally through a variety of retailers and distributors, as well as directly to other manufacturers to include with their own products. Changes in sales volume are driven primarily by the addition or loss of customers, a customer adding or removing a product from its inventory, or changes in economic conditions. Sales levels are less impacted by seasonality or the traditional holiday shopping season. Although certain of the Company’s products could be viewed as essential by consumers for use with mobile phones and other portable electronic devices, many other models represent a more discretionary spend. The results of the Company’s operations are therefore susceptible to consumer confidence and adverse macroeconomic factors such as inflation, slower growth or recession, higher interest rates, and wage and commodity inflation. In addition, the economic sanctions imposed as a result of the Russia/Ukraine conflict have impacted certain of our customers in those markets and the surrounding regions. Fiscal Year 2024 Summary  Net sales declined 6.4% to $12,265,069 due predominantly to the timing of inventory replenishment by the Company’s largest European distributor in addition to a slowdown in Direct-to-Consumer (DTC) sales. Export sales fell 24% while domestic sales fell minimally at less than 1%.  Gross profit as a percentage of sales increased slightly by 0.1 percentage points to 34.1%. The favorable mix of higher margin domestic distributor sales and lower volume of lower margin export sales were offset by the adverse impact of the continued sell-through of inventory brought in at higher freight rates.  Selling, general and administrative expenses decreased significantly from the prior fiscal year due primarily to legal fees and expenses incurred in support of the Company’s patent defense litigation, coupled with bonus and profit-sharing expense related to the net income from licensing proceeds in the prior year. Excluding the effect of these fees and expenses, selling, general and administrative expenses decreased by approximately 3.7%, mainly attributable to lower payroll expense as a result of personnel attrition.  No other income was reported for the year ended June 30, 2024, however, $33,000,000 in licensing proceeds received in the first quarter of the prior year was recorded as other income during the year ended June 30, 2023.  A tax benefit of $73,604 was recorded for the year ended June 30, 2024 as a result of the return-to-provision adjustment identified during the third quarter. Income tax expense of $317,377 was incurred during the previous fiscal year as a direct result of the licensing income earned during the year. ‎ 18 Table of Contents Consolidated Results The following table presents selected consolidated financial data for each of the past two fiscal years: Consolidated Performance Summary 2024 2023 Net sales $ 12,265,069 $ 13,099,651 Net sales (decrease) % from prior year period (6.4)% (26.0)% Gross profit $ 4,185,447 $ 4,457,414 Gross profit as % of net sales 34.1% 34.0% Selling, general and administrative expenses $ 6,057,606 $ 29,341,634 Selling, general and administrative expenses as % of net sales 49.4% 224.0% Interest income $ 847,644 $ 520,809 Other income $ — $ 33,000,000 (Loss) income before income tax (benefit) provision $ (1,024,515) $ 8,636,589 (Loss) income before income tax (benefit) provision as % of net sales (8.4)% 65.9% Income tax (benefit) provision $ (73,604) $ 317,377 Income tax (benefit) provision as % of (loss) income before income tax (benefit) provision 7.2% 3.7% 2024 Results of Operations Compared with 2023 Net sales for the year ending June 30, 2024 declined by 6.4% to $12,265,069 primarily due to a 24.0% drop in sales to the Company’s export markets as well as a 19.7% decrease in DTC sales. The downturn in export net sales of $781,499 for the fiscal year 2024 is almost entirely due to a shortfall in sales to the Company’s largest European distributor as they delayed replenishment of their inventory, as well as a 19.6% decline in sales to Asia behind lower sales to an original equipment manufacturer of metal detectors. A revival of orders from the Ukrainian distributor slightly offset the decline. Domestic sales for the year ended June 30, 2024 decreased by less than 1%, or $53,083, to $9,795,438. DTC sales, which represent nearly 30% of the Company’s total sales, were down almost 20%. We believe this decline is driven by softer discretionary spending as consumers react to higher inflation and other spending commitments. A near 50% increase in sales to E-tailers, a sizable custom headphone order during the current fiscal year and a slight improvement in sales to certain of the Company’s U.S. distributors mostly offset the decline in DTC sales. Gross profit as a percentage of net sales for the year ended June 30, 2024 was 34.1% versus 34.0% for the prior fiscal year. Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin. While the mix of higher margin U.S. distributor sales coupled with fewer lower margin export sales was favorable compared to the prior fiscal year, the impact of an increase in the reserve for excess and obsolete inventory and continued sell-off of inventory received at higher freight costs in prior years continued to adversely impact gross margins. The Company was able to maintain fairly consistent freight rates throughout the fiscal year 2024 because of the renewal of their partnership agreement with a dedicated freight forwarder, which provided access to lower freight rates even though market rates increased near the end of the fiscal year. The impact of broader economic factors such as inflation and shifts in consumer behavior could result in overcapacity in the market and rising freight costs. The Company continues to monitor the situation. Selling, general and administrative expenses for the fiscal year ended June 30, 2024 declined approximately 80% from $29,342,000 to $6,058,000. In addition to the legal fees and expenses of $22,141,000 incurred during the prior fiscal year to support the Company’s patent defense and litigation resolution, a bonus accrual of $334,000 and a profit-sharing payout of $576,000 were recorded in expense as a result of the increased net income for the year ended June 30, 2023. Excluding the effect of these legal fees and related expenses, selling, general and administrative expenses still decreased by approximately $233,000, or 3.1%. The decrease is predominantly driven by a decrease in payroll expense due to personnel departures in the prior fiscal year whose job responsibilities were absorbed internally. There was no other income reported for the year ended June 30, 2024. Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of that year. Interest income of $847,644 was recorded during the year ended June 30, 2024 mainly due to interest earned on the U.S. Treasury investments held during the year in order to earn a return on the Company’s excess cash while maintaining a low risk profile. This compares to $520,809 of interest income earned in the prior fiscal year from these securities. 19 Table of Contents A net income tax benefit of $73,604 was reported for the year ended June 30, 2024 and included a federal income tax benefit of $81,278 recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified. The RTP adjustments were identified as part of the preparation and submission of the fiscal year 2023 tax returns during the third quarter. State income tax expense of $7,674, which represented only the required minimum estimated tax payments due, partially offset the benefit. Income tax expense of $317,377 for the year ended June 30, 2023 was comprised of the U.S. federal statutory rate of 21% and the blended state income tax rate of approximately 3.8%, offset by an adjustment to the valuation allowance for deferred tax assets. The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively. The effective tax rate was 7.2% for the fiscal year ended June 30, 2024 compared to 3.7% for the previous fiscal year. The Company’s taxable loss for the year ended June 30, 2024 increased the federal tax loss carryforward by $1,270,000, resulting in an expected carryforward of approximately $32,800,000 by the end of the fiscal year. The current fiscal year adjustment to the net operating loss carryforward increased the deferred tax asset to approximately $8,500,000 as of June 30, 2024, and the future realization of this continues to be uncertain. The valuation allowance was increased to fully offset the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred. As previously reported, the Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has enforced its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless headphone technology. The Company has recovered certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio, as further described in the notes to the financial statements included in this Annual Report on Form 10-K. Part of the litigation related to this enforcement has been dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 in the 2023 fiscal year from the granting of licenses to certain of its patents. If the program continues to be successful with the remaining complaints, the Company may receive additional royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position; however, there is no guarantee of a positive outcome from these efforts, which could ultimately be time consuming and unsuccessful. Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties. The Company believes that its financial position remains strong. The Company had $2.8 million of cash and cash equivalents, $12.1 million of short-term investments and available credit facilities of $5.0 million on June 30, 2024. During fiscal year 2024, inflation, increased interest rates and higher energy costs continue to impact consumers’ discretionary spending, and in turn, the Company’s sales volumes. Inflation may impact customer demand for our products resulting from a slowdown in consumers’ willingness to spend as disposable income decreases due to rising prices of essential items, spend through of excess savings from earlier in the pandemic and leading indicators pointing to a softening in the labor market. Inflationary cost increases have resulted in higher costs of commodities, packaging materials, and wages, along with higher energy and transportation costs. These increases have been partially mitigated by pricing actions implemented in the prior fiscal year and the Company continues to work 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. The Company relies on our third-party supply chain, primarily in southern China, 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 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. The global supply chain remains fragile, even while there is some stabilization and improved predictability. Freight rates continue to rise based on strong U.S. import demand and ongoing challenges shipping through the Red Sea and Suez Canal. The Company rarely uses this route so no material adverse impacts are expected, but the conflict has impacted freight traffic for the Company’s resellers. The Company continues to monitor ongoing tensions in Eastern Europe and the Middle East and the supply chain team will react as necessary should supply chain disruptions occur. 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. Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. 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. While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive a sizable order from their Ukrainian distributor in the first quarter of fiscal year 2024 with potential for more orders in the new year. During the years ended June 30, 2024 and 2023, there were no sales to Russia. 20 Table of Contents Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows from operating, investing and financing activities for each of the past two fiscal years: Total cash provided by (used in): 2024 2023 Operating activities $ (190,531) $ 10,735,649 Investing activities (198,425) (17,024,107) Financing activities 134,975 171,350 Net (decrease) in cash and cash equivalents $ (253,981) $ (6,117,108) Operating Activities Cash used in operating activities of the Company during the year ended June 30, 2024 included bonus payouts of $403,000 and funding of $362,000 relating to employee payroll taxes on the gains from the disqualifying dispositions of incentive stock options. Cash outflow was partially offset by tighter inventory buying practices and interest received on investments. During the previous year, cash provided by operating activities of the Company included the licensing proceeds received, partially offset by the payment of related legal fees and expenses and the profit-sharing payout. Investing Activities Net cash used by investing activities for year ended June 30, 2024 was related to capital expenditures, including the replacement of a roof section of the building and HVAC upgrades for approximately $330,000 and premiums on company-owned life insurance policies for two of its executives. Proceeds of $14,331,000 were received during the year ended June 30, 2024 from the maturity of U.S. Treasury securities and were mostly reinvested to purchase $14,286,000 of similar securities at a $300,000 discount. In the prior year, cash used for investing activities was almost entirely related to the purchase of $19,334,000 of U.S. Treasury securities at a discount of $474,000, offset slightly by proceeds of $2,022,000 from the maturity of one of the Company’s U.S. Treasury notes. Purchases of equipment and leasehold improvements by the Company of $98,441 and the payment of premiums on Company-owned life insurance policies for two of its executives also contributed to the overall use of cash during the year ended June 30, 2023. Financing Activities The cash generated from financing activities in the years ended June 30, 2024 and 2023 was solely driven by stock option exercises. In the fiscal year ended 2024, there were stock option exercises of 65,000 shares generating $134,975 of cash. This compares to the exercise of 87,000 options during the year ended June 30, 2023, which generated cash of $171,350. There were no purchases of common stock in 2024 or 2023 under the stock repurchase program. As of June 30, 2024 and 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility"). Short Term Liquidity The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, inventory purchases and any potential interest payments, if it utilizes its line of credit facility, through existing working capital, funds provided by operating activities and interest earned on investments. Payment terms for the majority of the Company’s international customers, as well as custom and OEM customers, are cash in advance whereby funds are received before a shipment is even made. The Company believes its existing cash, cash equivalents, investments in short-term U.S. Treasury securities, cash provided by operating activities and borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months. There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels. If the Company is unable to generate sufficient cash flow from operations, then it may be required to sell assets, reduce capital expenditure, or draw on its credit facilities. Management is focused on increasing sales, especially in the U.S. distributor market, DTC, and the export markets, increasing new product introductions, increasing the generation of cash from operations, and improving the Company’s overall earnings to help improve the Company’s liquidity. The Company regularly evaluates new product offerings, inventory levels, and capital expenditure to ensure that it is effectively allocating resources in line with current market conditions. 21 Table of Contents Long Term Liquidity The Company’s future capital requirements, to a certain extent, are also subject to general conditions in or affecting the electronics industry and are subject to general economic, political, financial, competitive, legislative, and regulatory factors that are beyond its control. Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are insufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below). In addition, the Company may also need to seek additional equity funding or debt financing if it becomes a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services, or technologies. 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 as well as 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. On January 28, 2021, the Credit Agreement was amended to extend the expiration to October 31, 2022, and to change the interest rate to Wall Street Journal Prime less 1.50%. A Third Amendment to the Credit Agreement effective October 30, 2022 extends the maturity date to October 31, 2024. The Company and the Lender also entered into a General Business Security Agreement dated May 14, 2019 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type. The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions. The Company is currently in compliance with all covenants related to the Credit Agreement. As of June 30, 2024 and 2023, there were no outstanding borrowings on the facility. Stock Repurchase Program In April 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase, from time to time, up to $2,000,000 of its common stock for its own account. Subsequently, the Board of Directors periodically approved increases in the amount authorized for repurchase under the program. As of June 30, 2024, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended. No stock repurchases were made under the program during the years ended June 30, 2024 or 2023. As of June 30, 2024, the amount of common stock subject to repurchase by the Company under the Board of Director’s prior authorization remained $2,139,753 at the discretion of the Chief Executive Officer of the Company. Future stock purchases under this program are dependent on management’s assessment of value versus market price, may occur either on the open market or through privately negotiated transactions and may be financed through the Company’s cash flow or by borrowing. Contractual Obligation The Company leases the 126,000 square foot facility from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the five beneficiaries of the former Chairman’s revocable trust and includes current stockholders of the Company. On May 24, 2022, the lease was renewed for a period of five years, ending June 30, 2028, and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $380,000 per year. The Company has the option to renew the lease for an additional five years beginning July 1, 2028 and ending June 30, 2033 under the same terms and conditions except that the annual rent will increase to $397,000. The negotiated increase in rent slated for 2028 will be the first increase in rent since 1996. The Company is responsible for all property maintenance, insurance, taxes, and other normal expenses related to ownership. The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes. ‎ 22 Table of Contents Critical Accounting Policies Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have made estimates and we continually evaluate our estimates and judgments, including those related to doubtful accounts, product returns, excess inventories, warranties, impairment of long-lived assets, deferred compensation, income taxes and other contingencies. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflicts in Eastern Europe and the Middle East, and any changes to the global economic situation as a consequence of future pandemics. Actual results may differ from these estimates. Below are the estimates that we believe are critical to the understanding of the Company’s results of operations and financial condition. Other accounting policies are described in Note 1, “Significant Accounting Policies” to the consolidated financial statements included in this Annual Report on Form 10-K. 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. Revenue from product sales is adjusted for estimated warranty obligations and variable consideration, which are detailed below. The Company uses a five-step analysis to determine how revenue is recognized. The underlying principle is to recognize revenue when promised goods or services transfer to the customer. The amount of revenue recognized is to reflect the consideration expected to be received for those goods or services. See Note 3 to the Consolidated Financial Statements for additional information on revenue recognition. Accounts Receivable The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of the customer’s current credit information. The Company continuously monitors collections and payments from customers and maintains an allowance for estimated credit losses. Accounts receivable are stated net of an allowance for doubtful accounts. The Company establishes an allowance based upon the current expected credit loss impairment model. The Company applies a historical loss rate based upon historic write-offs, adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. The Company may also record a specific reserve for individual accounts if they become aware of specific customer circumstances such as bankruptcy or deterioration in operation results or financial position. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. However, the ultimate collectability of the unsecured receivable is dependent upon the financial condition of an individual customer, which could change rapidly and without warning. Inventories The Company values its inventories using standard cost which approximates the lower of first in first out (“FIFO”) cost or net realizable value. Valuing inventories at the lower of cost or net realizable value requires the use of estimates and judgment. The Company continues to use the same techniques to value inventories that it has in the past. Our customers may cancel their orders or change purchase volumes. This, or certain additional actions or market developments, could create excess inventory levels, which would impact the valuation of our inventories. Any actions taken by our customers or market developments that could impact the value of our inventory are considered when determining the lower of cost or net realizable value valuations. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on historical and projected usage and production requirements. If the Company is not able to achieve its expectations of the net realizable value of the inventory at its current value, the Company would have to adjust its reserves accordingly. When a reserve is established, it creates a new cost basis, which is not increased in the future. Product Warranty Obligations The Company offers a lifetime warranty to consumers in the United States and certain other countries. This lifetime warranty creates a future performance obligation. There are also certain foreign distributors that receive warranty repair parts and replacement headphones to satisfy warranty obligations in those countries. The Company defers revenue to recognize the future obligations related to these warranties. 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 23 Table of Contents 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. Deferred Compensation The Company’s deferred compensation liability is for a current officer and is calculated based on various assumptions that may include compensation, years of service, 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 Operations. Management makes estimates of life expectancy and discount rates using information available from several sources. In addition, management estimates the expected retirement date for the current officer as that impacts the timing for expected future payments. See Note 10 to the Consolidated Financial Statements for additional information on deferred compensation. Stock-Based Compensation The Company has a stock-based employee compensation plan, which is described more fully in Note 12 to the Consolidated Financial Statements. 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 expected term of the options and volatility are estimated using historical experience for the options by vesting period. The risk-free interest rate is calculated based on the expected life of the options. The Company does not estimate forfeitures as they are recognized when they occur. Income Taxes We estimate a provision for income taxes based on the effective tax rate expected to be applicable for the fiscal year. If the actual results are different from these estimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized. Deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using statutory tax rates. Deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period. Additionally, we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “more likely than not” criteria. New Accounting Pronouncements Applicable new accounting pronouncements are set forth under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference. ‎ 24 Table of Contents ITEM 7A. QUANTITATIVE AND QU ALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable . ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Consolidated Financial Statements included herewith. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.