What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2025-01-31 · 94 added, 94 removed, 76 unchanged (71% of the section changed)

9 unchanged sentences

Financial Results

The following table presents selected financial data for the three and six months ended December 31, 2024 and 2023:

The following table presents selected financial data for the three and nine months ended March 31, 2025 and 2024:

Three Months Ended

Six Months Ended

Nine Months Ended

Financial Performance Summary

Net sales increase % from prior year period

Net sales increase (decrease) % from prior year period

Gross profit as % of net sales

2 unchanged sentences

Interest income

Income (loss) before income tax provision

Income (loss) before income tax provision as % of net sales

Income tax provision

Income tax provision as % of income (loss) before income tax provision

Loss before income tax provision (benefit)

Loss before income tax provision (benefit) as % of net sales

Income tax provision (benefit)

Income tax provision (benefit) as % of loss before income tax provision (benefit)

Fiscal 2025 Period Results Compared with Fiscal 2024 Period

(comments refer to the three and six-month periods ended December 31, 2024 unless otherwise noted)

Net sales of $3,557,000 for the three months ended December 31, 2024 were $197,000, or 5.9%, ahead of sales for the same three-month period in the prior year.

A significant increase in sales to certain of our European distributors, along with a sizable custom headphone order from a new customer, was partially offset by shortfalls in sales to customers in the education segment, domestic distributors and e-tailers.

For the six months ended December 31, 2024, sales of $6,759,000 were just slightly ahead compared to $6,734,000 of sales for the first half of the prior fiscal year, driven by the same variances as sales to Europe and custom orders were offset by lower distribution, education and e-tailer sales.

Sales to the export markets for the three months ended December 31, 2024 were $1,376,000 compared to $693,000 for the same period in the prior year due almost entirely to increased sales to two of our largest European distributors.

New product sales to these European distributors exceeded our expectations, resulting in an over 90% increase in sales compared to the same period in the prior year.

Export sales for the six months ended December 31, 2024 was $2,410,000, a $947,000, or 64.7%, increase over the same period in the prior year.

Similar to the second quarter, sales to the two largest European distributors were 111% above the prior year, driven by the success of new product sales.

Overall sales to Europe grew by $1,241,000, or 61%, while sales to our Asian and Canadian markets rose by $95,000, or 30.1%.

(comments refer to the three and nine-month periods ended March 31, 2025 unless otherwise noted)

Net sales for the three months ended March 31, 2025 were $2,781,000 compared to $2,638,000 for the same three-month period in the prior year, an increase of $143,000, or 5.4%.

Increased sales to a certain segment of our domestic distributors, along with recurring orders from two of our custom OEM customers, were partially offset by lower sales from the other domestic distributors.

Sales of $9,540,000 for the nine months ended March 31, 2025 were ahead by $168,000, or 1.8%, compared to sales of $9,372,000 for the nine months ended March 31, 2024.

Higher sales to our European and Asian distributors, along with a custom headphone order to a new customer and a year-over-year increase in direct-to-consumer (“DTC”) sales were mostly offset by lower sales in the other market segments.

Sales to the export markets were $612,000 for the three months ended March 31, 2025, a slight increase of $30,000, or 5.1%, over sales of $582,000 for the same period in the prior year behind higher sales to our Asian distributors.

A decrease in sales to our European distributors offset most of that favorability and was due mainly to timing of expected reorders being pushed back to the fourth quarter of the fiscal year.

Export sales for the nine months ended March 31, 2025 were $3,022,000, a $976,000, or 47.7%, increase over sales of $2,045,000 for the same period in the prior year.

Sales to European distributors were up 41% over the prior year, due to the continued success of new product sales as well as overall inventory restocking.

Sales to the Asian markets were up $182,000, or 67.0%, compared to last year driven by sales of headphones used in metal detecting units.

There were no sales to our Russian distributor during the current fiscal year, nor have there been any since April 2022.

Domestic market sales declined by $486,000, or 18.2%, year over year for the three-month period ended December 31, 2024.

Sales to the largest customer in the company’s education segment were down by $338,000 and sales to a provider of therapeutic listening tools were down $110,000 compared to the prior year, both due to timing of repeat orders.

A $262,000 custom headphones order and a near 20% increase in direct-to-consumer (DTC) sales helped to offset the decline.

For the six months ended December 31, 2024, domestic sales were $4,349,000, down $922,000, or 17.5%, from sales of $5,271,000 for the first two quarters of the prior fiscal year.

Lower sales to the education market segment, domestic distributors and e-tailers were only partially offset by an approximately 19% increase in DTC sales for the six months ended December 31, 2024 compared to the same period in the prior year.

Gross profit as a percentage of net sales for the three months ended December 31, 2024 was 39.5%, compared to 33.0% for the three months ended December 31, 2023, an increase of 650 basis points.

Margins for the second quarter of the prior year were negatively impacted by working through the inventory investment made while freight costs were higher, along with an increase in the reserve for excess and obsolete inventory.

During the second quarter of the current fiscal year, inventory levels remained fairly constant, having little impact on margins as lower freight costs were capitalized into inventory.

Significant new product sales to Europe at higher margins combined with a higher volume of higher margin DTC sales also contributed to the increased gross margins for the three months ending December 31, 2024.

For the six months ended December 31, 2024, the gross margin was 38.1%, an increase of 580 basis points over the gross margin of 32.3% for the first half of the prior year.

A more favorable customer mix of sales, including increased higher margin DTC sales, new product sales to our European distributors at higher margins and a higher volume of higher margin sales to certain domestic distributors, drove the higher gross margin in the first half of fiscal year 2025.

This combined with the prior year’s adverse impact of the sell-through of inventory brought in at higher freight costs and resulted in the gap in margins year over year for the six months ended December 31, 2024.

While shipment costs slightly increased during the six months ended December 31, 2024, the Company expects them to increase more in the coming quarters due to general rate increases received at the end of December and into January.

Transit times increased as a result of labor disputes and other delays in the supply chain.

The Company’s partnership with a dedicated freight forwarder continues to help stabilize contract rates to limit the impact.

Selling, general and administrative expenses decreased only slightly year over year for the three months ended December 31, 2024, from $1,585,000 to $1,547,000, a decrease of $38,000, or 2.4%.

Income generated by the decrease in the deferred compensation liability as a result of the increase in the discount rates used to calculate the liability was mostly offset by an increase in legal expense during the second quarter of the current fiscal year as the result of the Company’s continued patent defense litigation, along with higher online advertising spend related to the new product launch in fiscal year 2025.

For the six months ended December 31, 2024, selling, general and administrative expenses of $3,357,000 were higher by $236,000, or 7.6%, compared to $3,121,000 for the six months ended December 31, 2023.

Increases in online advertising spend and new product certification testing related to new product development and launches, coupled with an increase in legal expense were somewhat offset by the reduction in stock based compensation expense as the remaining unvested stock options granted as part of the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) are nearly fully vested.

Also, an increase in the deferred compensation liability as of December 31, 2024, due mostly to the annual increase in the future payments earned under the arrangement due to an additional year of service completed, resulted in a corresponding increase to expense compared to the prior year.

As a result of minimal or no taxable income after utilization of the Company’s available net operating loss carryforwards (“NOLs”), no federal income tax expense was recorded for any of the three and six-month periods ended December 31, 2024 and 2023.

State income tax expense of $2,760 and $1,879 was recorded for the three months ended December 31, 2024 and 2023, respectively, and

$5,520 and $3,758 was recorded for the six months ended December 31, 2024 and 2023, respectively, reflecting the minimum required state tax due plus estimated tax due on negligible net taxable income after state NOL deductions.

The effective tax rate was 2.8% and 1.7% in the three and six months ended December 31, 2024, respectively.

The effective tax rate was less than 1% for the three and six months ended December 31, 2023.

It is anticipated that the effective rate in the current year and future years will continue to be reduced by utilization of a portion or all of the available federal and state net operating loss carryforwards that existed as of June 30, 2024.

The Company’s remaining expected federal tax loss carryforward approximates $32,900,000 at the end of the second quarter.

The small taxable gain for the first quarter of fiscal year 2025 decreased the net operating loss carryforward deferred tax asset by approximately $3,000 and the taxable loss in the second quarter increased it by approximately $14,000, resulting in a deferred tax asset of approximately $8,500,000 as of December 31, 2024.

For the three months ended March 31, 2025, sales to the domestic markets increased by $114,000, or 5.5%, as compared to the same period in the prior year.

Sales of custom therapeutic listening headphones to one OEM customer and custom elements to another OEM customer were the biggest driver, while increased sales to a particular domestic distributor segment and DTC sales were offset by declines in other domestic distributor sales and sales to e-tailers.

Sales for the nine months ended March 31, 2025 were $6,518,000, down $808,000, or 11.0%, compared to $7,326,000 for the nine months ended March 31,2024.

A 57% decline in sales to the education markets, mainly due to timing, along with lower sales to domestic distributors, the music and books sector and e-tailers, was slightly offset by a 16.2% increase in DTC sales and a $262,000 custom headphones order.

As a percentage of net sales for the three months ended March 31, 2025, gross margin was 39.0%, which compares favorably to a gross margin of 31.9% for the same three months in the prior year, an increase of 710 basis points.

Margin improvement for the third quarter of the current fiscal year was largely due to the adverse impact in the prior year of the sell-through of inventory investment made while freight costs were higher.

Margins were positively impacted in the three months ended March 31, 2025 due to a decrease in the reserve for excess and obsolete inventory compared to the same period in the prior year.

A more favorable customer mix also contributed to the improved margins.

For the nine months ended March 31, 2025, the gross margin was 38.4%, an increase of 620 basis points over the gross margin of 32.2% for the same nine-month period in the prior year.

In the prior year, the adverse impact related to the sell-through of inventory brought in at higher freight costs drove the improvement in margins for the first nine months of the current year.

The write-off of some obsolete inventory partially offset those gains.

Despite a slowdown in the increase in freight rates, due to increased competition, post-Lunar New Year demand lull and capacity growth, shipment costs remain elevated and are expected to increase in the next quarter due to disruptions in key shipping routes, capacity issues, market volatility and general rate increases.

Transit times decreased over the last quarter.

The Company will sign a new contract with its dedicated freight forwarder in May but does not expect significant changes regarding freight costs or available services.

With the recent tariff announcements, the Company expects to pay significantly more in duties going forward for product manufactured in China.

Given the volatility of the tariff landscape and the substantial amount of product coming from China, the Company continues to closely monitor the latest updates and their impact on operations, planning efforts and financial conditions.

Selling, general and administrative expenses of $1,604,000 for the three months ended March 31, 2025 increased $152,000, or 10.5%, from $1,451,000 for the same three-month period in the prior year.

The increase was due mainly to new product certification and compliance testing, along with higher online advertising spend.

For the nine months ended March 31, 2025, selling, general and administrative expenses of $4,960,000 were higher by $388,000, or 8.5%, compared to $4,572,000 for the nine months ended March 31, 2024.

Increased spend related to certification, compliance and online advertising was also the primary driver of the year over year nine-month period overall increase, coupled with expenditures related to contract resources utilized to modify existing NetSuite functionality to incorporate necessary security and user rights.

The reduction in stock-based compensation expense during the current year partially offset the increases as the remaining unvested stock options granted as part of the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) are nearly fully vested.

An immaterial federal income tax expense was booked during the three and nine months ended March 31, 2025 due to the amendment of the 2022 fiscal year tax return as a result of adjustments for employer payroll taxes inappropriately paid in that year related to the gains from the disqualifying dispositions of incentive stock options.

No federal income tax expense was recorded for the same periods

in the prior year, however, as a result of the Return-to-Provision (RTP) adjustment recorded during the third quarter of fiscal year 2024, a federal income tax benefit of $82,652 was recorded for both the three and nine months ended March 31, 2024.

State income tax expense of $5,203 and $1,522 was recorded for the three months ended March 31, 2025 and 2024, respectively, and $10,724 and $5,281 was recorded for the nine months ended March 31, 2025 and 2024, respectively, reflecting the minimum required state tax due.

The effective tax rate for the three and nine months ended March 31, 2025 was 1.9% and 1.8%, respectively.

For the three and nine months ended March 31, 2024, the effective tax rate was 20.5% and 8.4%, respectively.

It is anticipated that the effective rate in future years will continue to be reduced by utilization of a portion or all of the available federal and state net operating loss (NOL) carryforwards that existed as of June 30, 2024.

The Company’s remaining expected federal tax loss carryforward approximates $33,600,000 at the end of the third quarter.

The taxable loss for the initial nine months of the fiscal year increased the deferred tax asset by approximately $190,000, leading to a deferred tax asset related to the Company's net operating loss carry forwards of roughly $8,600,000 as of March 31, 2025.

The valuation allowance was adjusted accordingly 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 has occurred.

5 unchanged sentences

The Company believes that its financial position remains strong.

The Company had $2.5 million of cash and cash equivalents, $7.2 million of short-term investments and available credit facilities of $5.0 million on December 31, 2024.

The Company had $2.9 million of cash and cash equivalents, $10.1 million of short-term investments and available credit facilities of $5.0 million on March 31, 2025.

Recent Trends

Recent and ongoing macroeconomic and geopolitical conditions have impacted, and will continue to impact, our business.

These include economic uncertainty from unexpected job growth, elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain and trade tensions with China, the ongoing crises in Eastern Europe, the continued conflict in the Middle East and increased risk of cyberattacks.

These include economic uncertainty from unexpected job growth, recently enacted tariffs and the global trade war, elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain, the ongoing crises in Eastern Europe and the Middle East and increased risk of cyberattacks.

While the impact of these factors on our fiscal 2025 performance remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations.

These and other uncertainties with respect to these recent events could result in changes to our current expectations.

Job Market and Inflationary Cost Environment and the Impact on Consumer Confidence - Inflation , higher interest rates and higher energy costs continue to impact consumers’ discretionary spending and, in turn, the Company’s sales volumes.

economy added 256,000 jobs in December 2024, surpassing expectations and marking the largest increase since March 2024.

The data indicates that, although consumers feel more optimistic about the economy, the increase in confidence is not reflected in their intent to spend.

Intent to spend, which measures whether consumers expect to spend on various products and services, held steady or decreased across most essential, discretionary, and semi-discretionary categories compared with last quarter, despite the holiday shopping season.

The current consumer landscape presents a paradox in which rising optimism coexists with restrained spending.

This trend highlights a collective shift toward financial prudence, reflecting a broader desire for economic security amid lingering uncertainties, though it could also reflect a shift among consumers toward more mindful consumption patterns.

While inflation rates have consistently decreased over the last few months, the Company is still experiencing higher costs for commodities, packaging materials, and wages, along with higher energy and transportation costs.

The Company continues to monitor costs and will react with pricing actions as it deems necessary.

Tariffs - As of April 2025, U.S.

tariff policy has undergone significant changes under President Donald Trump's administration, leading to heightened global trade tensions and economic repercussions.

The tariff announcements have significantly increased the Company's expected duty costs for products manufactured in China to as high as 145%.

The new tariffs are also expected to increase inflation in the short term, which could result in a decline in consumer sentiment.

The Company continues to monitor the volatile tariff landscape to assess its impact on operations, planning, and financial conditions.

Inflationary Cost Environment and the Impact on Consumer Confidence – In addition to the expected inflation as a result of the newly imposed tariffs , higher interest rates and higher energy costs continue.

A pervasive sense of uncertainty is evident, and consumer sentiment is waning.

Consumers may put off making purchase decisions and cut back on overall spending, which could impact the Company’s sales volumes.

As noted, the Company will experience higher costs for commodities and packaging materials due to the recently enacted tariffs and will react with pricing actions as it deems necessary.

T he 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.

Supply Chain Disruption and Trade Tensions with China - 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.

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

There continues to be geopolitical tension between China and the United States, as well as geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers.

Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy from our foreign suppliers or delay shipments of products.

Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions

between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country.

Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would also directly affect profits.

President-elect Donald Trump intends to direct a good portion of his tariff escalation on products sourced from China.

Broad tariffs on Chinese exports encourage shifting supply chains out of China to other global regions and

the Americas, however, before the shift, tariffs could cause inflation to rise, potentially impacting the Company’s costs and consumer demand.

The Company will continue to monitor the situation and others that may arise as the changes in the current labor landscape, the settlement of recent labor disputes, coupled with rising energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.

A potential crisis at United States East and Gulf Coast ports has been averted as the International Longshoremen’s Association (the “ILA”) and the United States Maritime Alliance reached a tentative six-year labor agreement, preventing what would have been the second strike in four months.

The agreement came just days before the January 15 deadline, when a temporary contract extension was set to expire.

Supply Chain Disruption and Trade Tensions with China - The Company faces significant risks due to reliance on third-party supply chains, primarily in southern China and Taiwan, distribution networks and the availability of necessary components to produce a considerable number of our products .

Issues such as pandemic restrictions, geopolitical unrest, labor shortages, strikes, and component procurement failures could delay manufacturing and increase costs.

The escalating U.S.-China tariff war has severely disrupted supply chains, impacting both domestic industries and global trade dynamics.

Continued geopolitical tensions between China and Taiwan may affect future shipments from Taiwan-based suppliers.

Adverse changes in social, political, regulatory, or economic conditions could increase product costs or delay shipments.

The escalation of trade tensions might lead to retaliatory trade restrictions, potentially

affecting the Company's ability to source products from China or conduct business internationally.

Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, with limited ability to pass increased tariffs and freight costs onto customers.

Broad tariffs may shift supply chains out of China, which could cause inflation to rise, impacting costs and consumer demand.

The Company will continue to monitor the evolving situation and others that may arise as the changes in the current labor landscape, coupled with rising inflation and energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.

Russia’s Invasion of Ukraine - 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 orders from their Ukrainian distributor in the first half of both fiscal year 2025 and 2024 with potential for more in the current year.

During the three and six months ended December 31, 2024 and 2023, there were no 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 continues to receive orders from their Ukrainian distributor in the first half of both fiscal years 2025 and 2024 with potential for more in the current year.

During the three and nine months ended March 31, 2025 and 2024, there were no sales to Russia.

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

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Liquidity and Capital Resources

The following table summarizes cash flows from operating, investing and financing activities for the six months ended December 31, 2024 and 2023:

The following table summarizes cash flows from operating, investing and financing activities for the nine months ended March 31, 2025 and 2024:

Total cash (used in) provided by:

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Financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

The cash used in operating activities during the six months ending December 31, 2024 was driven primarily by the net operating loss for the first half of the year, offset by improvements in working capital and the receipt of a partial refund of the employee and employer payroll taxes inappropriately withheld related to the gains from the disqualifying dispositions of incentive stock options.

During the six months ended December 31, 2023, the cash used in operating activities was primarily the payment of bonuses earned in the prior year and general insurance premiums.

The cash provided by operating activities during the nine months ending March 31, 2025 was mainly driven by customer deposits of approximately $334,000 for orders that will ship in the next quarter.

Cash used in operating activities during the nine months ended March 31, 2024 was primarily a result of the payment of bonuses earned in the year previous.

Cash provided by improvements in cash flow related to working capital, namely the reduction of inventory levels, offset the majority of outflow.

Investing Activities

Cash used by investing activities for the six months ended December 31, 2024 was related mostly to fixed asset expenditures, namely the replacement of a second roof section of the building for approximately $346,000, and the payment of the premiums on the company-owned life insurance policies on two of its executives.

Proceeds of $7,085,000 received during the six months ended December 31, 2024 from the maturity of U.S.

Treasury securities were mostly reinvested to purchase $7,059,000 of similar securities at a $61,000 discount.

Cash used by investing activities for the six months ended December 31, 2023 was also related to fixed asset expenditures, predominantly the replacement of the first roof section of the building for approximately $300,000.

The Company also paid the premiums on the company-owned life insurance policies on two of its executives.

Cash used by investing activities for the nine months ended March 31, 2025 was related mostly to fixed asset expenditures, namely the replacement of a second roof section of the Company’s facility for approximately $346,000 and other leasehold improvements.

Payments of approximately $70,000 were also made for the premiums on the Company-owned life insurance policies on two of its executives.

Proceeds of $9,179,000 received during the nine months ended March 31, 2025 from the maturity of U.S.

Treasury securities were mostly reinvested to purchase $9,059,000 of similar securities at a net discount of $60,000.

Cash used by investing activities for the nine months ended March 31, 2024 was also related to fixed asset expenditures, predominantly the replacement of the first roof section of the building for approximately $300,000.

The Company also paid $82,000 in premiums on the Company-owned life insurance policies on two of its executives.

Proceeds of $14,331,000 from the maturity of U.S.

Treasury securities were received and utilized to purchase $7,177,000 of similar securities at a discount of $180,000.

Treasury securities were received and utilized to purchase $14,286,000 of similar securities at a $300,000 discount.

Financing Activities

Cash from the exercise of stock options during the six months ended December 31, 2024 provided the only cash from financing activities.

An aggregate of 76,000 shares of common stock were issued as a result of employee stock option exercises under grants still outstanding from the Company’s 2012 Omnibus Incentive Plan.

Employee stock option exercises provided the only cash from financing activities during the six months ended December 31, 2023.

An aggregate of 20,000 shares of common stock were issued as a result.

As of December 31, 2024 and June 30, 2024, the Company had no outstanding borrowings on its bank line of credit facility.

There were no purchases of common stock in the three and six months ended December 31, 2024 or 2023 under the stock repurchase program.

Cash from the exercise of stock options during the nine months ended March 31, 2025 and 2024 provided the only cash from financing activities.

An aggregate of 76,000 and 20,000 shares of common stock, respectively, were issued as a result of employee stock option exercises under grants still outstanding from the Company’s 2012 Omnibus Incentive Plan for those periods.

As of March 31, 2025 and June 30, 2024, the Company had no outstanding borrowings on its bank line of credit facility.

There were no purchases of common stock in the three and nine months ended March 31, 2025 or 2024 under the Company’s stock repurchase program.

The Company believes its existing cash and 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.

Treasury securities, cash provided by operating activities and available 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.

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There are no unused line fees in the credit facility.

On January 28, 2021, the Credit Agreement was amended

to change the interest rate to Wall Street Journal Prime less 1.50%.

An amendment to the Credit Agreement effective October 30, 2024, extended the maturity date to October 31, 2026, and removed one of the covenants requiring submission of annual financial performance projections to the Lender.

On January 28, 2021, the Credit Agreement was amended to change the interest rate to Wall Street Journal Prime less 1.50%.

An amendment to the Credit Agreement effective October 30, 2024, extended the maturity date to October 31, 2026, and removed one of the covenants requiring submission of annual financial

performance projections to the Lender.

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.

1 unchanged sentence

The negative covenants include restrictions on other indebtedness, liens, fundamental changes, certain investments, disposition of assets, mergers and liquidations, among other restrictions.

As of December 31, 2024, the Company was in compliance with all covenants related to the Credit Agreement.

As of December 31, 2024 and June 30, 2024, there were no outstanding borrowings on the facility.

As of March 31, 2025, the Company was in compliance with all covenants related to the Credit Agreement.

As of March 31, 2025 and June 30, 2024, there were no outstanding borrowings on the facility.

Contractual Obligation

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Off-Balance Sheet Transactions

At December 31, 2024, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

At March 31, 2025, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis