What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-29 compared with 2024-08-30 · 93 added, 84 removed, 148 unchanged (54% of the section changed)

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The purpose of this discussion and analysis is to enhance the understanding and evaluation of the financial position, results of operations, cash flows, indebtedness, and other key financial information of the Company for fiscal years 2025 and 2024.

Unless otherwise indicated, comparisons of financial information reflect the fiscal year ended June 30, 2025 versus the fiscal year ended June 30, 2024.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Although certain of the Company’s products could be viewed as essential by consumers for use with mobile phones and other portable electronic devices, many other models represent a more discretionary spend.

The results of the Company’s operations are therefore susceptible to consumer confidence and adverse macroeconomic factors such as inflation, slower growth or recession, higher interest rates, and wage and commodity inflation.

The results of the Company’s operations are therefore susceptible to consumer confidence and adverse macroeconomic factors such as newly imposed tariffs, inflation, slower growth or recession, higher interest rates, and wage and commodity inflation.

In addition, the economic sanctions imposed as a result of the Russia/Ukraine conflict have impacted certain of our customers in those markets and the surrounding regions.

Fiscal Year 2025 Summary

 Net sales declined 6.4% to $12,265,069 due predominantly to the timing of inventory replenishment by the Company’s largest European distributor in addition to a slowdown in Direct-to-Consumer (DTC) sales.

Export sales fell 24% while domestic sales fell minimally at less than 1%.

 Gross profit as a percentage of sales increased slightly by 0.1 percentage points to 34.1%.

The favorable mix of higher margin domestic distributor sales and lower volume of lower margin export sales were offset by the adverse impact of the continued sell-through of inventory brought in at higher freight rates.

 Selling, general and administrative expenses decreased significantly from the prior fiscal year due primarily to legal fees and expenses incurred in support of the Company’s patent defense litigation, coupled with bonus and profit-sharing expense related to the net income from licensing proceeds in the prior year.

Excluding the effect of these fees and expenses, selling, general and administrative expenses decreased by approximately 3.7%, mainly attributable to lower payroll expense as a result of personnel attrition.

 No other income was reported for the year ended June 30, 2024, however, $33,000,000 in licensing proceeds received in the first quarter of the prior year was recorded as other income during the year ended June 30, 2023.

 A tax benefit of $73,604 was recorded for the year ended June 30, 2024 as a result of the return-to-provision adjustment identified during the third quarter.

Income tax expense of $317,377 was incurred during the previous fiscal year as a direct result of the licensing income earned during the year.

 Net sales grew 2.9% to $12,624,170, mainly as a result of a 48% increase in sales to our European distributors, a 16.5% increase in Direct-to-Consumer (DTC) sales.

The growth was somewhat offset by lower sales to domestic distributors claiming excess inventory of prior year models of non-Koss electronics combined with a drop in sales to the Education market due to a delay in an order while awaiting budget approval.

Overall domestic sales fell 8.4% while Export sales grew quite significantly at 48%.

 Gross profit as a percentage of sales increased by 3.7 percentage points over the prior fiscal year from 34.1% to 37.8%.

A favorable sales mix, with a higher mix of higher margin sales to certain domestic distributors and DTC coupled with sales to Europe that generated higher than normal margins due to new product sales.

The prior year’s adverse impact of the continued sell-through of inventory brought in at higher freight rates also contributed to the favorable gross margin for the 2025 fiscal year.

 Selling, general and administrative expenses increased 7.5% over the prior fiscal year principally due to the increase in new product compliance testing and certification.

Legal fees and expenses also increased in support of the Compan y’s patent defense litigation and the settlement of an ADA lawsuit related to the Koss.com website.

 Total tax expense of $17,482 was recorded for the year ended June 30, 2025 driven by minimum required payments and in increase in the uncertain tax position (UTP) related to research and development credits taken in the prior year and the appropriate tax and penalties that would be incurred should there be a denial of the credits During the prior year, a federal tax benefit of $73,604 was recorded as a result of the return-to-provision adjustment identified during the third quarter of fiscal year 2024.

Consolidated Results

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Consolidated Performance Summary

Net sales (decrease) % from prior year period

Net sales increase (decrease) % from prior year period

Gross profit as % of net sales

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Interest income

(Loss) income before income tax (benefit) provision

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

Income tax (benefit) provision

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

2025 Results of Operations Compared with 2024

Net sales for the year ending June 30, 2024 declined by 6.4% to $12,265,069 primarily due to a 24.0% drop in sales to the Company’s export markets as well as a 19.7% decrease in DTC sales.

The downturn in export net sales of $781,499 for the fiscal year 2024 is almost entirely due to a shortfall in sales to the Company’s largest European distributor as they delayed replenishment of their inventory, as well as a 19.6% decline in sales to Asia behind lower sales to an original equipment manufacturer of metal detectors.

A revival of orders from the Ukrainian distributor slightly offset the decline.

Domestic sales for the year ended June 30, 2024 decreased by less than 1%, or $53,083, to $9,795,438.

DTC sales, which represent nearly 30% of the Company’s total sales, were down almost 20%.

We believe this decline is driven by softer discretionary spending as consumers react to higher inflation and other spending commitments.

A near 50% increase in sales to E-tailers, a sizable custom headphone order during the current fiscal year and a slight improvement in sales to certain of the Company’s U.S.

distributors mostly offset the decline in DTC sales.

Net sales for the year ending June 30, 2025 were $12,624,170, a 2.9% increase compared to $12,265,069 in the prior fiscal year, primarily behind a 48% increase in sales to Europe and a 16.5% increase in DTC sales.

Growth in net export sales of $1,185,738, or 48%, for the fiscal year 2025 is predominantly driven by the significant increase in sales to two of the Company’s largest European distributors, which consisted of nearly $1,400,000 new product sales.

Sales to the Asian markets were up almost 52%, assisting Europe with the overall increase.

For the year ended June 30, 2025, domestic sales declined by 8.4%, or $826,637.

Sales to our domestic distributors were down 27.3% behind weak commitments to stocking inventory and there was a $531,000 drop in sales to the Education market due to a delay in the finalization of a significant order while awaiting budget approval.

E-tailer and Music and Books sales also declined $441,035 compared to the prior year.

DTC and certain domestic distributors saw a combined sales increase of $860,019 for the year ended June 30, 2025, partially offsetting the overall decline.

DTC sales represent 24% of the Company’s total sales and the noteworthy increase appears to be driven by new product launches, continued page optimizations and increased online advertising efforts.

Gross profit as a percentage of net sales for the year ended June 30, 2025 was 37.8% versus 34.1% for the prior fiscal year.

Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin.

While the mix of higher margin U.S.

distributor sales coupled with fewer lower margin export sales was favorable compared to the prior fiscal year, the impact of an increase in the reserve for excess and obsolete inventory and continued sell-off of inventory received at higher freight costs in prior years continued to adversely impact gross margins.

The Company was able to maintain fairly consistent freight rates throughout the fiscal year 2024 because of the renewal of their partnership agreement with a dedicated freight forwarder, which provided access to lower freight rates even though market rates increased near the end of the fiscal year.

The impact of broader economic factors such as inflation and shifts in consumer behavior could result in overcapacity in the market and rising freight costs.

A favorable mix of higher margin sales to certain of our domestic distributors and DTC sales was coupled with a higher mix of sales to Europe which included a significant amount of sales of new product at higher margins.

This was slightly offset by the adverse impact of newly imposed tariffs included in inventory sold in the last quarter of fiscal year 2025 along with a write-off of some obsolete inventory.

The negative impact of the sell-through of inventory brought in at higher freight rates in the prior year also contributed to the increase in gross margins year over year.

Freight rates increased slightly throughout the year due mainly to strong demand, capacity constraints and disruptions in major ports.

Rates are expected to settle back down in the first part of the coming fiscal year as the Peak Season Surcharge (PSS) imposed in the fourth quarter of fiscal year 2025 was cancelled.

The Company renewed its partnership agreement with a dedicated freight forwarder, which will continue to provide access to lower freight rates even if market rates should go up, and a lane was added to a bonded warehouse which may be utilized to defer tariff spend.

The cost of additional loading, unloading and storage at this new facility will be offset by the delayed payments to the Custom Border Patrol for product stored there until final delivery to the Company.

The first shipment to the bonded warehouse occurred in August 2025, deferring the tariffs until the product arrives at the Company’s plant in Milwaukee, WI.

The Company continues to stay abreast of current events that might impact future freight rates and will act accordingly to ensure availability of goods.

The impact of broader economic factors such as newly imposed tariffs, inflation and shifts in consumer behavior could result in overcapacity in the market and rising freight costs.

The Company continues to monitor the situation.

Selling, general and administrative expenses for the fiscal year ended June 30, 2024 declined approximately 80% from $29,342,000 to $6,058,000.

In addition to the legal fees and expenses of $22,141,000 incurred during the prior fiscal year to support the Company’s patent defense and litigation resolution, a bonus accrual of $334,000 and a profit-sharing payout of $576,000 were recorded in expense as a result of the increased net income for the year ended June 30, 2023.

Excluding the effect of these legal fees and related expenses, selling, general and administrative expenses still decreased by approximately $233,000, or 3.1%.

The decrease is predominantly driven by a decrease in payroll expense due to personnel departures in the prior fiscal year whose job responsibilities were absorbed internally.

There was no other income reported for the year ended June 30, 2024.

Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of that year.

Interest income of $847,644 was recorded during the year ended June 30, 2024 mainly due to interest earned on the U.S.

Treasury investments held during the year in order to earn a return on the Company’s excess cash while maintaining a low risk profile.

This compares to $520,809 of interest income earned in the prior fiscal year from these securities.

A net income tax benefit of $73,604 was reported for the year ended June 30, 2024 and included a federal income tax benefit of $81,278 recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified.

The RTP adjustments were identified as part of the preparation and submission of the fiscal year 2023 tax returns during the third quarter.

Selling, general and administrative expenses rose by approximately $453,000, or 7.5%, for the fiscal year ended June 30, 2025.

New product compliance testing and certifications were the main driver of the increase, combined with higher online marketing spend.

Legal costs incurred for a Supreme Court appeal in the Company’s continued patent litigation, along with legal fees incurred and a settlement paid related to an ADA lawsuit brought against the Koss.com website, also contributed to the year over year increase.

A reduction in stock-based compensation expense partially offset the increases as any remaining unvested stock options granted with the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) are nearly fully vested.

Interest income of $879,774 and $847,644 was recorded during the fiscal years ended June 30 2025 and 2024, respectively, due almost entirely to interest earned on the U.S.

Treasury investments held during the years in order to earn a return on the Company’s excess cash while maintaining a low risk profile.

Total tax expense of $17,482 was recorded for the year ended June 30, 2025.

Federal tax expense of $5,570 was recorded for the uncertain tax position related to research and development (R&D) credits taken in a prior year and state tax expense of $11,912 related mostly to minimum estimated state tax payments due.

In the prior year, a net income tax benefit of $73,604 was reported for the year, which included a federal income tax benefit of $81,278 recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified.

The RTP adjustments were identified as part of the preparation and submission of the fiscal year 2023 tax returns during the third quarter fiscal year 2024.

State income tax expense of $7,674, which represented only the required minimum estimated tax payments due, partially offset the benefit.

Income tax expense of $317,377 for the year ended June 30, 2023 was comprised of the U.S.

federal statutory rate of 21% and the blended state income tax rate of approximately 3.8%, offset by an adjustment to the valuation allowance for deferred tax assets.

The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively.

The effective tax rate was 2.1% for the fiscal year ended June 30, 2025 compared to 7.2% for the previous fiscal year.

The Company’s taxable loss for the year ended June 30, 2024 increased the federal tax loss carryforward by $1,270,000, resulting in an expected carryforward of approximately $32,800,000 by the end of the fiscal year.

The Company’s taxable losses for the years ended June 30, 2025 and 2024 increased the federal tax loss carryforward by approximately $1,150,000 and $1,270,000, respectively, resulting in an expected carryforward of approximately $34,00,000 by the end of the current fiscal year.

The current fiscal year adjustment to the net operating loss carryforward increased the deferred tax asset to approximately $8,700,000 as of June 30, 2025, and the future realization of this continues to be uncertain.

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The Company has enforced its intellectual property by filing complaints against certain parties alleging infringement on the Company’s patents relating to its wireless headphone technology.

The Company has recovered certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio, as further described in the notes to the financial statements included in this Annual Report on Form 10-K.

Part of the litigation related to this enforcement has been dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 in the 2023 fiscal year from the granting of licenses to certain of its patents.

If the program continues to be successful with the remaining complaints, the Company may receive additional royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position;

however, there is no guarantee of a positive outcome from these efforts, which could ultimately be time consuming and unsuccessful.

The Company has, in the past, recovered certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio and, if the program continues to be successful with the remaining complaints, the Company may receive additional royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position.

There is no guarantee, however, of a positive outcome from these efforts, which could ultimately be time-consuming and unsuccessful.

Additionally, the Company may owe all or a portion of any future proceeds arising from the enforcement program to third parties.

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The Company had $2.8 million of cash and cash equivalents, $12.9 million of short-term investments and available credit facilities of $5.0 million on June 30, 2025.

During fiscal year 2024, inflation, increased interest rates and higher energy costs continue to impact consumers’ discretionary spending, and in turn, the Company’s sales volumes.

Inflation may impact customer demand for our products resulting from a slowdown in consumers’ willingness to spend as disposable income decreases due to rising prices of essential items, spend through of excess savings from earlier in the pandemic and leading indicators pointing to a softening in the labor market.

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

In April 2025, the U.S.

government imposed tariffs of up to 145% on certain imports from China, significantly increasing the Company’s expected duty costs for goods sourced from China.

On May 12, 2025, the U.S.

and China reached a temporary 90 - day trade truce, reducing these tariffs to approximately 30%.

During fiscal year 2025, inflation remained elevated with Personal Consumption Expenditures (PCE) inflation up 2.6% compared to a year ago.

The Federal Reserve has maintained higher interest rates, even amid persisting tariff-driven price pressures.

Energy prices have seen some mild relief, although their deflationary impact is modest compared to tariff-induced inflation.

As such, rising costs and tariff uncertainty continue to impact consumer confidence with cuts to discretionary spending, switching to lower-priced brands and delaying large purchases which, in turn, impact the Company’s sales volumes.

Inflationary cost increases have resulted in higher costs of commodities, packaging materials, and wages, along with higher energy and transportation costs.

These increases have been partially mitigated by pricing actions implemented in the prior fiscal year and the Company continues to work with a dedicated freight forwarding partner to minimize freight rate increases.

Other risk factors further exacerbated by inflation include supply chain disruptions, increased oil and energy costs, risks of international operations and the recruitment and retention of talent.

These increases have been partially mitigated by somewhat higher pricing on new product launches, and the Company continues to work with a dedicated freight forwarding partner to minimize freight rate increases.

Other risk factors further exacerbated by inflation include supply chain disruptions, risks of international operations, tight labor markets, and the challenges in recruitment and retention of talent.

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

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

The global supply chain remains fragile, even while there is some stabilization and improved predictability.

Freight rates continue to rise based on strong U.S.

import demand and ongoing challenges shipping through the Red Sea and Suez Canal.

The Company rarely uses this route so no material adverse impacts are expected, but the conflict has impacted freight traffic for the Company’s resellers.

The Company continues to monitor ongoing tensions in Eastern Europe and the Middle East and the supply chain team will react as necessary should supply chain disruptions occur.

This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight.

Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022.

In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future.

In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia.

While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive a sizable order from their Ukrainian distributor in the first quarter of fiscal year 2024 with potential for more orders in the new year.

During the years ended June 30, 2024 and 2023, there were no sales to Russia.

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

The global supply chain remains fragile despite pockets of stabilization and improved predictability.

Freight rates have risen due to strong U.S.

import demand and rerouting around the Red Sea and Suez Canal.

While the Company rarely uses the Suez route and does not expect material impact, elevated costs and transit delays are affecting resellers who rely on carriers traversing that corridor.

Freight rates may ease during the new fiscal year, but espionage, tariff uncertainly and capacity stress continue to pose risks.

The Company continues to closely monitor developments in the tension in Eastern Europe and the Middle East, and the supply chain team remains ready to increase inventory investment as needed.

This includes being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight.

Following Russia’s invasion of Ukraine in February 2022, global financial and credit markets around the world saw heightened volatility.

In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed sweeping

sanctions and export controls targeting Russia’s financial sector, energy, technology, sovereign debt and key individuals.

In January 2025, additional sanctions were authorized by the U.S.

on Russia’s energy sector, imposing a petroleum services ban and secondary sanctions on operators, insurers, oil producers and certain vessels.

The proposed “Sanctioning Russia Act of 2025” aims to impose secondary tariffs and sanctions on countries that continue to fund Russia’s war in Ukraine and Trump has threatened additional action against Russia if they don’t agree to a ceasefire with Ukraine.

In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia and during the years ended June 30, 2025 and 2024, there were no sales to customers in Russia.

Liquidity and Capital Resources

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Operating Activities

Cash used in operating activities of the Company during the year ended June 30, 2024 included bonus payouts of $403,000 and funding of $362,000 relating to employee payroll taxes on the gains from the disqualifying dispositions of incentive stock options.

During the fiscal year ended June 30, 2025, cash used in operating activities of the Company consisted of approximately $375,000 of payments to the Custom Border Patrol for the newly imposed tariffs on product shipped from China.

This was partially offset by IRS refunds of $262,000 relating to employer payroll taxes incorrectly paid in prior years on the gains from the disqualifying dispositions of incentive stock options.

Cash used in operating activities of the Company during the prior fiscal year related mostly to bonus payouts of $403,000 and funding of $362,000 relating to reimbursement of employee payroll taxes incorrectly withheld on the gains from the disqualifying dispositions of incentive stock options.

Cash outflow was partially offset by tighter inventory buying practices and interest received on investments.

During the previous year, cash provided by operating activities of the Company included the licensing proceeds received, partially offset by the payment of related legal fees and expenses and the profit-sharing payout.

Investing Activities

Net cash used by investing activities for year ended June 30, 2024 was related to capital expenditures, including the replacement of a roof section of the building and HVAC upgrades for approximately $330,000 and premiums on company-owned life insurance policies for two of its executives.

Proceeds of $14,331,000 were received during the year ended June 30, 2024 from the maturity of U.S.

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

In the prior year, cash used for investing activities was almost entirely related to the purchase of $19,334,000 of U.S.

Treasury securities at a discount of $474,000, offset slightly by proceeds of $2,022,000 from the maturity of one of the Company’s U.S.

Treasury notes.

Purchases of equipment and leasehold improvements by the Company of $98,441 and the payment of premiums on Company-owned life insurance policies for two of its executives also contributed to the overall use of cash during the year ended June 30, 2023.

Net cash used by investing activities for fiscal year 2025 was mostly related to capital expenditures comprised of a new roof section replacement for $346,000 and other leasehold improvements of approximately $75,000.

The Company also paid life insurance premiums of $71,000 on company-owned life insurance policies for two of its executives.

Proceeds of $14,303,000 from the maturity of U.S.

Treasury securities were received during the year, of which $14,059,000 was reinvested in new similar securities at a discount of $197,000.

For the fiscal year ended June 30, 2024, cash used by investing activities was related to capital expenditures, including the replacement of a roof section of the building and HVAC upgrades for approximately $330,000 and premiums of $82,000 on company-owned life insurance policies for two of its executives.

Proceeds of $14,331,000 were received during the prior fiscal year from the maturity of U.S.

Treasury securities which were mostly reinvested to purchase $14,286,000 of similar securities at a $300,000 discount.

Financing Activities

The cash generated from financing activities in the years ended June 30, 2024 and 2023 was solely driven by stock option exercises.

In the fiscal year ended 2024, there were stock option exercises of 65,000 shares generating $134,975 of cash.

This compares to the exercise of 87,000 options during the year ended June 30, 2023, which generated cash of $171,350.

There were no purchases of common stock in 2024 or 2023 under the stock repurchase program.

The cash generated from financing activities in the fiscal years ended June 30, 2025 and 2024 was solely a result of stock option exercises.

In the fiscal year ended 2025, exercises of stock options for 156,643 shares generated $305,908 of cash while stock option exercises for 65,000 shares in the previous fiscal year generated $134,975 of cash.

As of June 30, 2025 and 2024, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility").

Short Term Liquidity

The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, inventory purchases and any potential interest payments, if it utilizes its line of credit facility, through existing working capital, funds provided by operating activities and interest earned on investments.

The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, inventory purchases, related tariffs and any potential interest payments, if it utilizes its line of credit facility, through existing working capital, funds provided by operating activities and interest earned on investments.

Payment terms for the majority of the Company’s international customers, as well as custom and OEM customers, are cash in advance whereby funds are received before a shipment is even made.

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There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels.

If the Company is unable to generate sufficient cash flow from operations, then it may be required to sell assets, reduce capital expenditure, or draw on its credit facilities.

If the Company is unable to generate sufficient cash flow from operations, then it may

be required to sell assets, reduce capital expenditure, or draw on its credit facilities.

Management is focused on increasing sales, especially in the U.S.

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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.

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

An amendment effective October 31, 2024 extended the maturity date to October 31, 2026.

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.

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The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes.

Critical Accounting Policies

Critical Accounting Estimates

Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

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We have made estimates and we continually evaluate our estimates and judgments, including those related to doubtful accounts, product returns, excess inventories, warranties, impairment of long-lived assets, deferred compensation, income taxes and other contingencies.

We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflicts in Eastern Europe and the Middle East, and any changes to the global economic situation as a consequence of future pandemics.

We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, recently enacted tariffs, the economic sanctions imposed on the international community as a result of the continued conflicts in Eastern Europe and the Middle East, and any changes to the global economic situation as a consequence of future pandemics.

Actual results may differ from these estimates.

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The Company applies a historical loss rate based upon historic write-offs, adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary.

The Company may also record a specific reserve for individual accounts if they become aware of specific customer circumstances such as bankruptcy or deterioration in operation results or financial position.

These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.

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Additionally, we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “more likely than not” criteria.

New Accounting Pronouncements

Applicable new accounting pronouncements are set forth under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.

QUANTITATIVE AND QU ALITATIVE 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-K

Item 7. Management’s Discussion and Analysis