KOSS CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to ensure that (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2024. The Company’s management has concluded that the Company’s disclosure controls and procedures as of June 30, 2024, were effective at the reasonable assurance level. Management’s Annual Report on Internal Controls over Financial Reporting . The Company’s management, including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. There are inherent limitations to the effectiveness of any system of internal control over financial reporting, including the possibility of human error or the circumvention or overriding of controls and procedures. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives. Management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting as of June 30, 2024, was effective. 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, 2024, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. ITEM 9C. DISCL OSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 25 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 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. 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. ITEM 11. EXECUTIVE COMPENSATION. 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. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 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. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 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. ‎ 26 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following documents are filed as part of this report: 1. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 28 Consolidated Balance Sheets as of June 30, 2024 and 2023 30 Consolidated Statements of Operations for the Years Ended June 30, 2024 and 2023 31 Consolidated Statements of Cash Flows for the Years Ended June 30, 2024 and 2023 32 Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2024 and 2023 33 Notes to Consolidated Financial Statements 34 2. Financial Statement Schedules All schedules have been omitted because the information is not applicable, is not material or because the information required is included in the Consolidated Financial Statements or the notes thereto. 3. Exhibits Filed See Exhibit Index attached hereto. ‎ 27 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors Koss Corporation and Subsidiaries 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, 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 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 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 As described in Note 10 to the consolidated financial statements, the Company has a deferred compensation agreement with a current officer as of June 30, 2024 and 2023, which is measured at its estimated net present value. 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 future retirement date. Changes to these assumptions may have a material impact on the consolidated financial statements. 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 the deferred compensation liability.  We evaluated management’s calculation methodology and its compliance with accounting principles generally accepted in the United States of America regarding deferred compensation liabilities.  We tested the discount and mortality rate assumptions used by management to calculate the deferred compensation liability by independently determining our own assumptions based on the relevant facts and circumstances and recalculating the deferred compensation liability utilizing those assumptions.  We confirmed with the current officer his expected retirement date. 28 Table of Contents /s/ Wipfli LLP PCAOB ID 344 We have served as the Company’s auditor since 2019. Radnor, Pennsylvania August 30, 2024 ‎ 29 Table of Contents KOSS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 2,837,081 $ 3,091,062 Short term investments 12,104,459 17,064,274 Accounts receivable, less allowance for credit losses of $ 1,922 and $ 6,027 , respectively 1,208,319 1,379,517 Inventories 4,473,680 6,423,441 Prepaid expenses and other current assets 1,081,437 1,002,514 Interest receivable 170,429 51,150 Income taxes receivable 41,756 86,901 Total current assets 21,917,161 29,098,859 Equipment and leasehold improvements, net 1,223,391 953,903 Other assets: Long term investments 4,994,327 — Operating lease right-of-use asset 2,765,445 3,015,887 Cash surrender value of life insurance 6,299,155 6,020,048 Total other assets 14,058,927 9,035,935 Total assets $ 37,199,479 $ 39,088,697 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 329,829 $ 267,513 Accrued liabilities 402,347 1,342,039 Deferred revenue 289,895 450,312 Operating lease liability 239,688 236,225 Income taxes payable 35,899 87,237 Total current liabilities 1,297,658 2,383,326 Long-term liabilities: Deferred compensation 2,093,124 1,997,120 Deferred revenue 119,787 113,003 Operating lease liability 2,541,734 2,787,970 Total long-term liabilities 4,754,645 4,898,093 Total liabilities 6,052,303 7,281,419 Stockholders' equity: Common stock, $ 0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,299,795 and 9,234,795 , respectively 46,499 46,174 Paid in capital 13,404,477 13,113,993 Retained earnings 17,696,200 18,647,111 Total stockholders' equity 31,147,176 31,807,278 Total liabilities and stockholders' equity $ 37,199,479 $ 39,088,697 The accompanying notes are an integral part of these Consolidated Financial Statements. ‎ 30 Table of Contents KOSS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended June 30, 2024 2023 Net sales $ 12,265,069 $ 13,099,651 Cost of goods sold 8,079,622 8,642,237 Gross profit 4,185,447 4,457,414 Selling, general and administrative expenses 6,057,606 29,341,634 (Loss) from operations ( 1,872,159 ) ( 24,884,220 ) Other income — 33,000,000 Interest income 847,644 520,809 (Loss) income before income tax provision (benefit) ( 1,024,515 ) 8,636,589 Income tax (benefit) provision ( 73,604 ) 317,377 Net (loss) income $ ( 950,911 ) $ 8,319,212 (Loss) income per common share: Basic $ ( 0.10 ) $ 0.90 Diluted $ ( 0.10 ) $ 0.85 Weighted-average number of shares: Basic 9,251,373 9,192,799 Diluted 9,251,373 9,753,760 The accompanying notes are an integral part of these Consolidated Financial Statements. ‎ 31 Table of Contents KOSS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2024 2023 Operating activities: Net (loss) income $ ( 950,911 ) $ 8,319,212 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: (Recovery of) provision for doubtful accounts receivable ( 4,105 ) 4,000 Depreciation of equipment and leasehold improvements 192,272 230,292 Accretion of discount on treasury securities ( 379,591 ) ( 226,603 ) Noncash operating lease expense 7,669 8,308 Stock-based compensation expense 155,834 289,676 Change in cash surrender value of life insurance ( 197,363 ) ( 187,329 ) Provision for deferred compensation 96,004 59,891 Loss on disposal of equipment and leasehold improvements — 2,263 Net changes in operating assets and liabilities: Accounts receivable 175,303 463,103 Inventories 1,949,761 2,207,921 Prepaid expenses and other current assets ( 78,923 ) ( 131,029 ) Interest receivable ( 119,279 ) ( 51,150 ) Income taxes receivable 45,145 ( 83,816 ) Income taxes payable ( 51,338 ) 81,119 Accounts payable 62,316 ( 528,650 ) Accrued liabilities ( 939,692 ) 428,227 Deferred revenue ( 153,633 ) ( 149,786 ) Net cash (used in) provided by operating activities ( 190,531 ) 10,735,649 Investing activities: Purchase of equipment and leasehold improvements ( 461,760 ) ( 98,441 ) Life insurance premiums paid ( 81,744 ) ( 87,995 ) Proceeds from the maturity of treasury securities 14,331,000 2,022,000 Purchases of treasury securities ( 13,985,921 ) ( 18,859,671 ) Net cash (used in) investing activities ( 198,425 ) ( 17,024,107 ) Financing activities: Proceeds from exercise of stock options 134,975 171,350 Net cash provided by financing activities 134,975 171,350 Net (decrease) in cash and cash equivalents ( 253,981 ) ( 6,117,108 ) Cash and cash equivalents at beginning of year 3,091,062 9,208,170 Cash and cash equivalents at end of year $ 2,837,081 $ 3,091,062 Supplemental cash flow information: Cash (refunded) paid for income taxes $ ( 67,410 ) $ 320,073 The accompanying notes are an integral part of these Consolidated Financial Statements. ‎ 32 Table of Contents KOSS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, June 30, 2022 9,147,795 45,739 12,653,402 10,327,899 23,027,040 Net income — — — 8,319,212 8,319,212 Stock-based compensation expense — — 289,676 — 289,676 Exercise of common stock options 87,000 435 170,915 — 171,350 Balance, June 30, 2023 9,234,795 46,174 13,113,993 18,647,111 31,807,278 Net loss — — — ( 950,911 ) ( 950,911 ) Stock-based compensation expense — — 155,834 — 155,834 Exercise of common stock options 65,000 325 134,650 — 134,975 Balance, June 30, 2024 9,299,795 $ 46,499 $ 13,404,477 $ 17,696,200 $ 31,147,176 The accompanying notes are an integral part of these Consolidated Financial Statements. ‎ 33 Table of Contents KOSS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF 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. 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. 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. The Company has two subsidiaries, Koss Corp B.V. and Koss U.K. Limited ("Koss UK"), which were formed to comply with certain European Union ("EU") requirements. Koss Corp B.V. and Koss UK are non-operating and hold no assets. BASIS OF CONSOLIDATION — The Consolidated Financial Statements include the accounts of Koss and its subsidiaries, Koss Corp B.V. and Koss UK, which are 100 %-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 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 Revision As Revised Consolidated Balance Sheet: Prepaid expenses and other current assets $ 284,622 $ 717,892 $ 1,002,514 Total current assets 28,380,967 717,892 29,098,859 Total assets 38,370,805 717,892 39,088,697 Accrued liabilities 970,530 371,509 1,342,039 Total current liabilities 2,011,817 371,509 2,383,326 Total liabilities 6,909,910 371,509 7,281,419 Retained earnings 18,300,728 346,383 18,647,111 Total stockholders' equity $ 31,460,895 $ 346,383 $ 31,807,278 ‎ 34 Table of Contents Year Ended June 30, 2023 As Previously Reported Revision As Revised Consolidated Statement of Operations: Selling, general and administrative expenses $ 29,358,466 $ ( 16,832 ) $ 29,341,634 (Loss) from operations ( 24,901,052 ) 16,832 ( 24,884,220 ) Income before income tax provision 8,619,757 16,832 8,636,589 Net income $ 8,302,380 $ 16,832 $ 8,319,212 Income per common share: Basic $ 0.90 $ 0.90 Diluted $ 0.85 $ 0.85 Year Ended June 30, 2023 As Previously Reported Revision As Revised Consolidated Statement of Cash Flows: Net income $ 8,302,380 $ 16,832 $ 8,319,212 Prepaid expenses and other current assets ( 96,144 ) ( 34,885 ) ( 131,029 ) Accrued liabilities 410,174 18,053 428,227 Net cash provided by operating activities $ 10,735,649 $ - $ 10,735,649 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 Revision As Revised Retained earnings, June 30, 2022 $ 9,998,348 $ 329,551 $ 10,327,899 Total stockholders' equity, June 30, 2022 22,697,489 329,551 23,027,040 Retained earnings, June 30, 2023 18,300,728 346,383 18,647,111 Total stockholders' equity, June 30, 2023 $ 31,460,895 $ 346,383 $ 31,807,278 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. Revenue from product sales is adjusted for estimated warranty obligations and variable consideration, which are detailed below. The amount of revenue recognized is to reflect the consideration expected to be received for those goods or services. Warranties - The Company offers a lifetime warranty to consumers in the United States and certain other countries. This lifetime warranty creates a future performance obligation. The Company determines the standalone selling price for this performance obligation using the cost-plus method. 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 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. The Company typically receives payment for product at the time of shipment or under normal collection terms, which are generally 30-60 days. The Company estimates that the warranty related performance obligation is satisfied within one to three years and therefore uses that same time frame for recognition of the deferred revenue, using amortization of 50 % in year 1 , 30 % in year 2 , and 20 % in year 3 for domestic sales. Export deferred revenue, where applicable, is recognized over a 12-month period from date of shipment. 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. 35 Table of Contents Product Returns - The Company generally offers customers a limited right of return. The Company estimates the amount of product sales that may be returned by its customers and records the estimate as a reduction of revenue in the period the related product revenue is recognized. Product return liabilities are estimated using historical sales and returns information. 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. Volume Rebates - The Company offers volume rebates to certain customers in the United States and certain foreign distributors. These volume rebates are tied to sales volume within specified periods. The amount of revenue is reduced for variable consideration related to customer rebates, which are calculated using expected values and is based on program specific factors such as expected rebate percentages and expected volumes. Changes in such accruals may be required if actual sales volume differs from estimated sales volume, which would affect net sales and operating results in the period such variances become known. Seller Fees – The Company pays fees to a major online marketplace for use of its services. Referral fees, the commission paid to the online platform to cover the costs associated with promoting, advertising, and facilitating product sales to its customers, are calculated as a percentage of the sales price and are imposed on sales of all products sold through the marketplace. When orders are fulfilled by the online marketplace, the Company is assessed fulfillment fees to cover the cost of fulfillment of the order as well as the assumption of risk of inventory control, damages and returns. 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. 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 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 (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 (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. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount that is more likely than not to be realized. 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 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. The Company maintains its cash on deposit at a commercial bank located in the United States of America. The Company periodically has cash balances in excess of insured amounts. The Company has not experienced, and does not expect to incur, any losses on these deposits. ACCOUNTS RECEIVABLE — Accounts receivable consist of unsecured trade receivables due from customers. 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 36 Table of Contents 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. The securities are carried at amortized cost as current or noncurrent based upon maturity date and unrealized gains and losses are recognized when realized. The amortized cost of debt securities is adjusted for amortization of premium and accretion of discount to maturity. 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. INVENTORIES — As of June 30, 2024 and 2023, the Company’s inventory was recorded using standard cost which approximates the lower of first in first out (“FIFO”) cost or net realizable value. The carrying value of inventory is reviewed for impairment on at least a quarterly basis, or more frequently if warranted due to changes in market conditions. See Note 5 for additional information on inventory. EQUIPMENT AND LEASEHOLD IMPROVEMENTS — Equipment and leasehold improvements are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets. 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 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. See Note 6 for additional information on equipment and leasehold improvements. LEASES — The Company determines if a contract is a lease at the date of inception. The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the five beneficiaries of the former chairman’s revocable trust and includes current stockholders of the Company. 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 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. The Company uses a rate based upon current incremental borrowing rates to determine the present value of future lease payments as the rate is not implicit in the lease. Operating lease expense is recorded on a straight-line basis over the life of the lease taking into account expected renewal periods. 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 Operations. 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 Operations. See Note 10 for additional information on deferred compensation. 37 Table of Contents 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. IMPAIRMENT OF LONG-LIVED ASSETS — The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. 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, 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. Proceeds from the settlement of legal disputes are recorded in other income when the amounts are determinable, and the collection is certain. License proceeds are considered functional and as such are recorded at a point in time, based on the underlying agreement. Related contingent legal fees and expenses are recorded in selling, general and administrative expense at that time. 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”. 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 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. 2. 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. 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. 38 Table of Contents 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. 3. 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 following table summarizes net sales by geographical location: 2024 2023 United States $ 9,795,438 $ 9,848,521 Export 2,469,631 3,251,130 Net Sales $ 12,265,069 $ 13,099,651 Deferred revenue relates primarily to consumer and customer warranties. These constitute future performance obligations, and the Company defers revenue related to these future performance obligations. 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. The deferred revenue liability was $ 713,101 as of June 30, 2 022 . 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. 4. INVESTMENTS 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 Gross unrealized gains Gross unrealized losses Fair Value US Treasury securities $ 17,098,786 $ — $ 56,278 $ 17,042,508 Total $ 17,098,786 $ — $ 56,278 $ 17,042,508 TTh 39 Table of Contents Amortized cost basis Gross unrealized gains Gross unrealized losses Fair Value US Treasury securities $ 17,064,274 $ — $ 93,740 $ 16,970,534 Total $ 17,064,274 $ — $ 93,740 $ 16,970,534 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 Fair Value Due within one year $ 12,104,459 $ 12,075,702 Due after one year through five years 4,994,327 4,966,806 Total $ 17,098,786 $ 17,042,508 Amortized Cost Basis Fair Value Due within one year $ 17,064,274 $ 16,970,534 Total $ 17,064,274 $ 16,970,534 5. INVENTORIES The components of inventories at June 30, 2024 and 2023 were as follows: 2024 2023 Raw materials $ 1,973,531 $ 2,071,360 Finished goods 4,357,621 6,178,186 Inventories, gross 6,331,152 8,249,546 Reserve for obsolete inventory ( 1,857,472 ) ( 1,826,105 ) Inventories, net $ 4,473,680 $ 6,423,441 6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS The major categories of equipment and leasehold improvements at June 30, 2024 and 2023 are summarized as follows: Estimated useful lives (in years) 2024 2023 Machinery and equipment 5 - 10 $ 619,064 $ 619,064 Furniture and office equipment 5 - 10 337,419 337,419 Tooling 5 3,765,766 4,506,044 Computer & technology equipment 3 - 5 197,073 197,072 Leasehold improvements 3 - 11 3,171,070 2,864,335 Assets in progress N/A 359,990 256,038 8,450,382 8,779,972 Less: accumulated depreciation and amortization 7,226,991 7,826,069 Equipment and leasehold improvements, net $ 1,223,391 $ 953,903 During the year ended June 30, 2024 and 2023, depreciation expense was $ 192,272 and $ 230,292 , respectively. ‎ 40 Table of Contents 7. INCOME TAXES 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 (benefit) provision in 2024 and 2023 consisted of the following: Years Ended June 30, 2024 2023 Current: Federal $ ( 81,278 ) $ 230,139 State 7,674 87,238 Deferred — — Total income tax (benefit) provision $ ( 73,604 ) $ 317,377 The 2024 and 2023 tax results in an effective rate different than the federal statutory rate because of the following: Years Ended June 30, 2024 2023 Federal income tax (benefit) liability at statutory rate $ ( 214,457 ) $ 1,803,000 State income tax liability, net of federal income tax effect ( 41,386 ) 323,565 Utilization of net operating loss carryforwards — ( 1,720,747 ) Increase (decrease) in valuation allowance 270,679 ( 44,841 ) Stock option (deduction) ( 243 ) ( 24,218 ) All other permanent items ( 45,299 ) ( 41,701 ) R&D credit ( 25,459 ) ( 19,340 ) Return-to-provision ( 81,738 ) ( 54,414 ) Deferred adjustment related to payroll tax withholding on disqualifying disposition of incentive stock options 110,906 — State tax rate change ( 55,248 ) 83,094 Uncertain tax position 2,593 25,269 Other 6,048 ( 12,290 ) Total income tax (benefit) provision $ ( 73,604 ) $ 317,377 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. 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. ‎ 41 Table of Contents Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2024 and 2023 include: 2024 2023 Deferred income tax assets: Deferred compensation $ 523,785 $ 491,608 Stock-based compensation 76,532 117,607 Accrued expenses and reserves 501,736 571,719 Deferred revenue 102,519 138,665 Federal and state net operating loss carryforwards 8,508,548 8,216,671 IRC Section 174 research and development costs 116,204 63,855 Credit carryforwards 184,406 169,552 Equipment and leasehold improvements 159,648 136,294 Operating lease liability 696,026 744,431 Valuation allowance ( 10,176,697 ) ( 9,906,018 ) Total deferred income tax assets 692,707 744,384 Deferred income tax liabilities: Operating right-of-use asset ( 692,028 ) ( 742,386 ) Other ( 679 ) ( 1,998 ) Total deferred income tax liabilities ( 692,707 ) ( 744,384 ) Net deferred income tax assets $ — $ — D eferred income tax balances reflect the effects of temporary differences between the tax bases of assets and liabilities and their carrying amounts. These differences are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. 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 $ 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. As of the end of the period, the Company has evaluated all evidence concerning the usage of their deferred tax assets and the determination has been made to maintain a full valuation allowance on the Company’s net deferred tax asset. 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. The following are the changes in the valuation allowance: Balance, Decrease (Increase) beginning in valuation Balance, Years Ended June 30, of year allowance end of year 2024 $ ( 9,906,018 ) $ ( 270,679 ) $ ( 10,176,697 ) 2023 $ ( 11,671,606 ) $ 1,765,588 $ ( 9,906,018 ) 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. 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. 42 Table of Contents The reserve for UTP was recorded in income taxes payable on the Consolidated Balance Sheets. 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, 2024 and 2023. 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. 8. 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. 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. As of June 30, 2024, the Company was 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 and t here was no interest expense recognized during the years then ended. 9. ACCRUED LIABILITIES Accrued liabilities as of June 30, 2024, and 2023 were as follows: 2024 2023 Cooperative advertising and promotion allowances $ 86,935 $ 77,181 Customer credit balances 33,453 281,780 Employee benefits 72,240 76,323 Legal and professional fees 80,200 85,500 Bonus and profit-sharing 52,563 369,529 Sales commissions 44,045 46,857 Amounts owed to employees for overpayment of payroll taxes on disqualifying dispositions of incentive stock options — 371,509 Other 32,911 33,360 Total accrued liabilities $ 402,347 $ 1,342,039 10. DEFERRED COMPENSATION 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 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 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 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. 43 Table of Contents 11. 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, 2024 2023 Numerator Net (loss) income $ ( 950,911 ) $ 8,319,212 Denominator Weighted average shares, basic 9,251,373 9,192,799 Dilutive effect of stock compensation awards (1) — 560,961 Diluted shares 9,251,373 9,753,760 Net (loss) income attributable to common shareholders per share: Basic $ ( 0.10 ) $ 0.90 Diluted $ ( 0.10 ) $ 0.85 (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. 12. STOCK OPTIONS 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. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight-line basis over the vesting period for the entire award. Forfeitures are accounted for as they occur. The expected term of awards granted was determined based on historical experience with similar awards, giving consideration to the expected term and vesting schedules. The expected volatility was determined based on the Company’s historical stock prices over the most recent period commensurate with the expected term of the award. The risk-free interest rate was based on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. As of June 30, 2024, there was $ 39,371 of total unrecognized compensation cost related to stock options granted under the 2012 Plan. This cost is expected to be recognized over a weighted average period of 0.88 years. The Company recognized stock-based compensation expense of $ 155,834 and $ 289,676 in 2024 and 2023, respectively. These expenses were included in selling, general and administrative expenses. ‎ 44 Table of Contents The following table identifies options granted, exercised, canceled, or available for exercise pursuant to the 2012 Plan: Aggregate Weighted Intrinsic Weighted Average Value of Stock Average Remaining In-The- Number of Options Exercise Contractual Money Shares Price Range Price Life - Years Options Shares under option at June 30, 2022 1,058,911 $ 1.73 - $ 2.92 $ 2.18 3.72 $ 5,055,797 Granted — $ — $ — Exercised ( 87,000 ) $ 1.73 - $ 2.65 $ 1.97 Expired — $ — $ — Forfeited ( 51,000 ) $ 1.73 - $ 2.65 $ 1.92 Shares under option at June 30, 2023 920,911 $ 1.73 - $ 2.92 $ 2.21 2.21 $ 1,373,117 Granted — $ — $ — Exercised ( 65,000 ) $ 1.73 - $ 2.65 $ 2.08 Expired ( 200,000 ) $ $ 2.92 $ 2.92 Forfeited — $ — $ — Shares under option at June 30, 2024 655,911 $ 1.73 - $ 2.65 $ 2.01 1.65 $ 1,602,600 Exercisable as of June 30, 2023 532,245 $ 1.73 - $ 2.92 $ 2.38 1.30 $ 700,947 Exercisable as of June 30, 2024 501,911 $ 1.73 - $ 2.65 $ 2.05 1.19 $ 1,202,985 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: 2024 2023 Total intrinsic value of stock options exercised $ 179,865 $ 371,714 Cash received from stock option exercises $ 134,975 $ 171,350 Total fair value of stock options vested $ 278,208 $ 448,476 Total recognized tax benefit $ 37,073 $ 77,328 Weighted Average Grant Date Shares Fair Value Non-vested as of June 30, 2022 794,334 $ 1.22 Granted — — Vested ( 354,668 ) 1.26 Forfeited ( 51,000 ) 1.34 Non-vested as of June 30, 2023 388,666 1.17 Granted — — Vested ( 234,666 ) 1.19 Forfeited — — Non-vested as of June 30, 2024 154,000 $ 1.14 13. 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 repurchase of an aggregate of $ 45,500,000 of common stock was authorized under the stock repurchase program, of which $ 43,360,247 had been expended. No shares were repurchased in fiscal year 2024 or 2023. 45 Table of Contents 14. LEASES The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the five beneficiaries of 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 (the “Extended Term”), and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $ 380,000 per year and included an option to renew at an increased rate of $ 397,000 for an additional five years ending June 30, 2033 (the “Second Extended Term”). 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 Company used its incremental borrowing rate as of the date of renewal, May 24, 2022, to recalculate the net present value of the operating lease ROU asset and liability. Both the Extended Term and the Second Extended Term renewal options were included in the calculation of the ROU asset and liability as the Company believes it is reasonably certain to exercise both rights to renew. The non-lease components of the agreement related to common area maintenance charges are accounted for separately. Supplemental information related to lease expense and valuation of the ROU asset and liability was as follows: Year Ended 2024 2023 Operating lease cost $ 387,669 $ 387,669 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ ( 380,000 ) $ ( 380,000 ) Weighted-average remaining lease term (in years) 9 10 Weighted-average discount rate 5.25 % 5.25 % The maturity schedule of future minimum lease payments and reconciliation to the operating lease liabilities reported on the 2024 Consolidated Balance Sheet is as follows: Year Ending June 30, 2025 $ 380,000 2026 380,000 2027 380,000 2028 380,000 2029 397,000 Thereafter 1,588,000 Total lease payments 3,505,000 Present value adjustment ( 723,578 ) Total lease liabilities $ 2,781,422 15. RELATED PARTY TRANSACTIONS The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is controlled by five equal ownership interests in trusts held by the five beneficiaries of the former chairman’s revocable trust and includes current stockholders of the Company. The lease is described more fully in Note 14. 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. Koss Jr., executive officers of the Company, serve as officers. Neither officer receives fees or compensation from the Foundation for holding these positions. There were $ 75,000 of charitable contributions made to the Foundation during the year ended June 30, 2023. 16. EMPLOYEE BENEFIT PLANS 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 46 Table of Contents Board of Directors. For fiscal years 2024 and 2023, the matching contribution was 25 % of employee contributions to the plan. Vesting of Company contributions occurs immediately. Company contributions were $ 80,831 and $ 92,986 during 2024 and 2023, respectively. 17. CONCENTRATIONS 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, 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 5 % and 24 % of the Company's trade accounts receivable at June 30, 2024 and 2023, were foreign receivables denominated in U.S. dollars. 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. ‎ 47 Table of Contents 18. LEGAL MATTERS As of June 30, 2024, the Company is involved in the following matters described below:  As previously reported, the Company has launched a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. The Company has continued to enforce its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless audio technology. In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts will be due to third parties. 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 . During the year ended June 30, 2023, in connection with its intellectual property enforcement program, the Company granted a license covering certain of its patents and recognized gross proceeds of $ 33,000,000 , which were recorded as other income, offset by legal fees and related expenses of approximately $ 22,141,000 which were recorded as selling, general and administrative expenses. Also, on August 4, 2023 , the Company’s lawsuit against Plantronics, Inc. and Polycom, Inc. 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 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 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. ‎ 48 Table of Contents EXHIBIT INDEX Exhibit No. Exhibit Description 3.1 Amended and Restated Certificate of Incorporation of Koss Corporation, as in effect on November 19, 2009. Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009 and incorporated herein by reference. 3.2 By-Laws of Koss Corporation. Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference. 3.3 Amendment to the By-Laws of Koss Corporation. Filed as Exhibit 3.3 to the Company’s Current Report on Form 8-K on March 7, 2006 and incorporated herein by reference. 3.4 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. 4.1 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. 9.1 Restated Koss Voting Trust Agreement by and among Michael J. Koss (the Voting Trustee) and John C. Koss, Jr. and Michael J. Koss, as co-Trustees of the John C. Koss, Sr. Revocable Trust, the Nancy Koss 2012 Trust, the Koss Family Trust and Michael J. Koss as President of K.F.T. Corporation** 10.1 Death Benefit Agreement with John C. Koss. Filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference. * 10.2 Stock Purchase Agreement with John C. Koss. Filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference. * 10.3 Consent of Directors (Supplemental Executive Retirement Plan for Michael J. Koss dated March 7, 1997). Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. * 10.4 Revolving Credit Agreement dated May 14, 2019, between Koss Corporation and Town Bank Filed as Exhibit 10.1 to the Company’s Form 8-K on May 16, 2019 and incorporated by reference herein. 10.5 First Amendment to Revolving Credit Agreement dated January 28, 2022, and between Koss Corporation and Town Bank filed as Exhibit 10.1 to the Company’s Form 10-Q on January 29, 2022 and incorporated by reference here. 10.6 Second Amendment to Revolving Credit Agreement dated February 4, 2022** 10.7 Third Amendment to Revolving Credit Agreement, effective October 30, 2022, by and between the Company and Town Bank. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q on October 28, 2022 and incorporated herein by reference. 10.8 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. 10.9 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). * 10.10 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. * 10.11 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. * 14 Koss Corporation Code of Ethics. Filed as Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2011 and incorporated by reference herein. 21.1 Subsidiaries of Koss Corporation. Filed as Exhibit 21.1 to the Company’s Annual report on Form 10-K for the year ended June 30, 2020 and incorporated herein by reference. 23.1 Consent of Wipfli LLP. ** 31.1 Rule 13a -14(a)/15d-14(a) Certification of Chief Executive Officer. ** 31.2 Rule 13a -14(a)/15d-14(a) Certification of Chief Financial Officer. ** 32.1 Section 1350 Certification of Chief Executive Officer. *** 32.2 Section 1350 Certification of Chief Financial Officer. *** 97 Koss Corporation Incentive-Based Compensation Clawback Policy** 101 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. 104 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 ** 49 Table of Contents __________________________ * Denotes a management contract or compensatory plan or arrangement ** Filed herewith *** Furnished herewith ‎ 50 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KOSS CORPORATION By: /s/ Michael J. Koss August 30, 2024 Michael J. Koss Chairman Chief Executive Officer By: /s/ Kim M. Schulte August 30, 2024 Kim M. Schulte Chief Financial Officer Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on August 30, 2024. /s/ Michael J. Koss /s/ Thomas L. Doerr Michael J. Koss, Director Thomas L. Doerr, Director /s/ Steven A. Leveen /s/ William J. Sweasy Steven A. Leveen, Director William J. Sweasy, Director /s/ Lenore E. Lillie Lenore E. Lillie, Director 51