KOSS CORP 10-Q

Item 1. Financial Statements KOSS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) December 31, 2025 June 30, 2025 ASSETS Current assets: Cash and cash equivalents $ 2,464,838 $ 2,807,797 Short term investments 13,005,592 12,879,882 Accounts receivable, less allowance for credit losses of $ 2,043 at December 31, 2025 and June 30, 2025 1,010,400 1,135,672 Inventories 4,838,377 4,885,067 Prepaid expenses and other current assets 397,992 738,330 Interest receivable 129,831 121,178 Income taxes receivable 30,298 36,179 Total current assets 21,877,328 22,604,105 Equipment and leasehold improvements, net 1,647,879 1,476,898 Other assets: Long term investments 3,994,317 4,000,774 Finance lease right-of-use asset 26,430 — Operating lease right-of-use asset 2,389,617 2,518,088 Cash surrender value of life insurance 6,834,107 6,584,744 Total other assets 13,244,471 13,103,606 Total assets $ 36,769,678 $ 37,184,609 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 489,946 $ 819,330 Accrued liabilities 659,947 582,140 Deferred revenue 249,113 242,644 Finance lease liability 10,151 — Operating lease liability 259,282 252,579 Income taxes payable 35,848 42,958 Total current liabilities 1,704,287 1,939,651 Long-term liabilities: Deferred compensation 2,446,703 2,226,454 Deferred revenue 133,166 119,314 Finance lease liability 16,776 — Operating lease liability 2,157,816 2,289,155 Total long-term liabilities 4,754,461 4,634,923 Total liabilities 6,458,748 6,574,574 Stockholders' equity: Common stock, $ 0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,466,438 at December 31, 2025 and 9,456,438 at June 30, 2025, respectively 47,332 47,282 Paid in capital 13,763,907 13,741,384 Retained earnings 16,499,691 16,821,369 Total stockholders' equity 30,310,930 30,610,035 Total liabilities and stockholders' equity $ 36,769,678 $ 37,184,609 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 3 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended December 31 December 31 2025 2024 2025 2024 Net sales $ 2,861,379 $ 3,557,086 $ 6,932,157 $ 6,758,954 Cost of goods sold 2,030,573 2,152,129 4,472,659 4,181,071 Gross profit 830,806 1,404,957 2,459,498 2,577,883 Selling, general and administrative expenses 1,845,384 1,546,741 3,520,116 3,356,800 Loss from operations ( 1,014,578 ) ( 141,784 ) ( 1,060,618 ) ( 778,917 ) Other income (expense): Interest income 202,484 238,686 495,612 459,044 Other income 250,000 — 250,000 — Interest expense ( 553 ) — ( 1,152 ) — Total other income, net 451,931 238,686 744,460 459,044 Income (loss) before income tax provision ( 562,647 ) 96,902 ( 316,158 ) ( 319,873 ) Income tax provision 2,760 2,760 5,520 5,520 Net income (loss) $ ( 565,407 ) $ 94,142 $ ( 321,678 ) $ ( 325,393 ) Income (loss) per common share: Basic $ ( 0.06 ) $ 0.01 $ ( 0.03 ) $ ( 0.03 ) Diluted $ ( 0.06 ) $ 0.01 $ ( 0.03 ) $ ( 0.03 ) Weighted-average number of shares: Basic 9,462,416 9,355,686 9,459,427 9,332,844 Diluted 9,462,416 9,629,535 9,459,427 9,332,844 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 4 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended December 31 2025 2024 Operating activities: Net loss $ ( 321,678 ) $ ( 325,393 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for credit losses — 121 Depreciation of equipment and leasehold improvements 141,840 113,858 Net accretion of discount on treasury securities ( 122,283 ) ( 152,879 ) Amortization of finance lease right-of-use asset 5,286 — Noncash operating lease expense 3,835 3,834 Stock-based compensation expense 1,474 19,664 Change in cash surrender value of life insurance ( 198,062 ) ( 169,596 ) Provision for deferred compensation 220,249 134,665 Net changes in operating assets and liabilities: Accounts receivable 125,272 ( 161,873 ) Inventories 46,690 ( 96,941 ) Prepaid expenses and other current assets 340,338 139,243 Interest receivable ( 8,653 ) 71,923 Income taxes receivable 5,881 ( 375 ) Income taxes payable ( 7,110 ) ( 7,068 ) Accounts payable ( 329,384 ) ( 73,686 ) Accrued liabilities 77,807 395,342 Deferred revenue 20,321 58,742 Net cash provided by (used in) operating activities 1,823 ( 50,419 ) Investing activities: Purchase of equipment and leasehold improvements ( 312,821 ) ( 419,553 ) Life insurance premiums paid ( 51,301 ) ( 70,577 ) Proceeds from the maturity of treasury securities 3,000,000 7,085,000 Purchases of treasury securities ( 2,996,970 ) ( 6,998,250 ) Net cash used in investing activities ( 361,092 ) ( 403,380 ) Financing activities: Proceeds from exercise of stock options 21,099 152,445 Principal payments on finance lease obligations ( 4,789 ) — Net cash provided by financing activities 16,310 152,445 Net decrease in cash and cash equivalents ( 342,959 ) ( 301,354 ) Cash and cash equivalents at beginning of period 2,807,797 2,837,081 Cash and cash equivalents at end of period $ 2,464,838 $ 2,535,727 ‎ 5 Table of Contents Six Months Ended December 31 2025 2024 Supplemental cash flow information: Right of use assets obtained in exchange for finance lease liabilities 31,716 — Cash paid for interest on finance lease liability 1,152 — Cash paid, net of refunds, for income taxes: State of New York 2,022 1,550 State of Texas 2,000 6,500 State of Massachusetts 1,580 591 State of New Jersey 1,000 1,518 State of California — 1,600 State of North Carolina — 1,054 Other 147 150 Total cash paid, net of refunds for income taxes $ 6,749 $ 12,963 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 6 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Six Months Ended December 31, 2025 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, June 30, 2025 9,456,438 $ 47,282 $ 13,741,384 $ 16,821,369 $ 30,610,035 Net loss — — — ( 321,678 ) ( 321,678 ) Stock-based compensation expense — — 1,474 — 1,474 Stock option exercises 10,000 50 21,049 — 21,099 Balance, December 31, 2025 9,466,438 $ 47,332 $ 13,763,907 $ 16,499,691 $ 30,310,930 Six Months Ended December 31, 2024 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, June 30, 2024 9,299,795 $ 46,499 $ 13,404,477 $ 17,696,200 $ 31,147,176 Net loss — — — ( 325,393 ) ( 325,393 ) Stock-based compensation expense — — 19,664 — 19,664 Stock option exercises 76,000 380 152,065 — 152,445 Balance, December 31, 2024 9,375,795 $ 46,879 $ 13,576,206 $ 17,370,807 $ 30,993,892 Three Months Ended December 31, 2025 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, September 30, 2025 9,456,438 $ 47,282 $ 13,742,858 $ 17,065,098 $ 30,855,238 Net loss — — — ( 565,407 ) ( 565,407 ) Stock-based compensation expense — — — — — Stock option exercises 10,000 50 21,049 — 21,099 Balance, December 31, 2025 9,466,438 $ 47,332 $ 13,763,907 $ 16,499,691 $ 30,310,930 Three Months Ended December 31, 2024 Common Stock Paid in Retained Shares Amount Capital Earnings Total Balance, September 30, 2024 9,350,795 $ 46,754 $ 13,523,356 $ 17,276,665 $ 30,846,775 Net income — — — 94,142 94,142 Stock-based compensation expense — — 5,400 — 5,400 Stock option exercises 25,000 125 47,450 — 47,575 Balance, December 31, 2024 9,375,795 $ 46,879 $ 13,576,206 $ 17,370,807 $ 30,993,892 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 7 Table of Contents KOSS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION The condensed consolidated balance sheets as of December 31, 2025 and June 30, 2025, the condensed consolidated statements of operations for the three and six months ended December 31, 2025 and 2024, the condensed consolidated statements of cash flows for the six months ended December 31, 2025 and 2024, and the condensed consolidated statements of stockholders' equity for the three and six months ended December 31, 2025 and 2024, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and have not been audited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for any interim period are not necessarily indicative of the operating results that may be experienced for the full fiscal year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30 , 2025. The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for credit losses, reserves for excess and obsolete inventories, long-lived and right-of-use assets, income tax valuation allowance , stock-based compensation and deferred compensation. Actual results could differ from the Company's estimates. B) 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 discounts to maturity. Such amortization or accretion is included in interest income, along with other interest income earned on cash and cash equivalents. Accrued interest receivable on held-to-maturity debt securities is shown separately on the condensed 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 2 for additional information on investments. C) FAIR VALUE MEASUREMENTS 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 2. D) 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. Changes to the contingent legal fee expenses could have a material impact on the results of operations. ‎ 8 Table of Contents E) OTHER INCOME In the three and six months ended December 31, 2025, the Company received licensing proceeds of $ 250,000 , which were recorded as other income. Other income is shown as a separate line on the condensed consolidated statements of operations. No such licensing proceeds were recorded during the same periods in the prior year. F) INCOME TAXES We estimate a provision for income taxes based on the effective tax rate expected to be applicable for the fiscal year. If the actual results are different from these estimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized. State income tax provisions of $ 2,760 and $ 5,520 , respectively, were recorded for the three- and six-month periods ending December 31, 2025 and 2024 for the required minimum state tax payments. There were no federal income tax provisions recorded during the first six months of fiscal years 2026 and 2025 due to net operating loss carryforwards (“NOLs”) available to offset taxable income. Application of available NOLs to potential future taxable income would minimize any tax payment requirements. NOLs arising in tax years beginning after December 31, 2017 are limited to 80 percent of taxable income per the Tax Cuts and Jobs Act (“TCJA”) and, as such, the future utilization of all federal NOLs available to the Company are so limited. The Company's tax loss carryforward as of December 31, 2025 was approximately $ 34,760,000 . Given the cumulative taxable losses for the last three years, excluding one-time items, the expectation for utilization of the estimated tax loss carryforward is not likely, and as such, the future realization of this continues to be uncertain. The valuation allowance was adjusted to continue to fully offset the net deferred tax asset as there is sufficient negative evidence to support a full valuation allowance. G) DEFERRED COMPENSATION 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 condensed consolidated statements of operations. The deferred compensation liability recorded at December 31, 2025 and June 30, 2025 is $ 2,446,703 and $ 2,226,454 , respectively. Compensation expense of $ 59,364 and $ 220,249 , respectively, was recorded during the three and six months ended December 31, 2025 as a result of the increase in the deferred compensation liability for the current officer, due mainly to the annual increase in the future payments earned under the arrangement due to completing an additional year of service, as well as a decrease in the discount factor. The discount factor used to calculate the net present value of the liability was 5.81 % at June 30, 2025 and declined to 5.45 % at December 31, 2025. For the three and six months ended December 31, 2024, compensation (income) and expense of ($ 62,710 ) and $ 134,665 , respectively, were recorded under this arrangement. H) RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements 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 was adopted prospectively as of July 1, 2025 and ASU 2023-09 does not mandate retrospective disclosure. Given the ASU relates solely to disclosure requirements, adoption does not have a material impact on the Company’s financial position, results of operations or cash flows. See Note 4 for further information. Recently Issued Accounting Pronouncements Not Yet Adopted In March 2024, FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 40): Disaggregation of Certain Income Statement Expenses, which was subsequently amended by ASU 2025-01 in January 2025 to clarify and refine certain requirements. The ASU requires public business entities to disclose in the notes to the financial statements the amounts of employee compensation, depreciation, amortization, and inventory costs included in each relevant income statement line item. The guidance also requires disclosure of other expense categories if they are significant to an understanding of the entity’s financial performance. The amendments are effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027 and entities are required to apply the amendments retrospectively. Early adoption is permitted. 9 Table of Contents The Company will evaluate the impact of the standards on its consolidated financial statements and related disclosures. While the adoption of ASU 2024-03 and ASU 2025-01 will not affect the Company’s recognition, measurement or presentation of expenses on the face of the consolidated statements of operations, it is expected to result in expanded disclosures in the notes to the consolidated financial statements. The Company has not yet determined whether it will early adopt the guidance. 2. INVESTMENTS The following tables summarize the unrealized positions for the held-to-maturity debt securities as of December 31, 2025 and June 30, 2025: December 31, 2025 Amortized cost basis Gross unrealized gains Gross unrealized losses Fair Value US Treasury securities $ 16,999,909 $ 52,975 $ 4,447 $ 17,048,437 Total $ 16,999,909 $ 52,975 $ 4,447 $ 17,048,437 June 30, 2025 Amortized cost basis Gross unrealized gains Gross unrealized losses Fair Value US Treasury securities $ 16,880,656 $ 52,103 $ 625 $ 16,932,134 Total $ 16,880,656 $ 52,103 $ 625 $ 16,932,134 The following tables summarize the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of December 31, 2025 and June 30, 2025: December 31, 2025 Amortized Cost Basis Fair value Due within one year $ 13,005,592 $ 13,042,936 Due after one year through five years 3,994,317 4,005,501 Total $ 16,999,909 $ 17,048,437 June 30, 2025 Amortized Cost Basis Fair value Due within one year $ 12,879,882 $ 12,909,183 Due after one year through five years 4,000,774 4,022,951 Total $ 16,880,656 $ 16,932,134 3. INVENTORIES The components of inventories were as follows: December 31, 2025 June 30, 2025 Raw materials $ 1,865,943 $ 1,966,662 Finished goods 4,895,392 4,815,881 Inventories, gross 6,761,335 6,782,543 Reserve for obsolete inventory ( 1,922,958 ) ( 1,897,476 ) Inventories, net $ 4,838,377 $ 4,885,067 ‎ 10 Table of Contents 4. 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 condensed consolidated balance sheets. The Company’s income tax expense for the three and six months ended December 31, 2025 and 2024 consisted of the following: Three Months Ended Six Months Ended December 31, December 31, 2025 2024 2025 2024 Federal $ — $ — $ — $ — State 2,760 2,760 5,520 5,520 Foreign — — — — Total income tax provision $ 2,760 $ 2,760 $ 5,520 $ 5,520 All income is derived from domestic operations. For the three and six months ended December 31, 2025, respectively, the effective tax rate was less than 1 % and 1.7 %, respectively. The effective tax rate for the three and six months ended December 31, 2024 was 2.8 % and 1.7 %, 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 NOL carryforwards that existed as of June 30, 2025. The effective tax rate for the current quarter differs from the U.S. federal statutory rate of 21 % primarily due to:  State income taxes, net of federal benefit  Officer life insurance  Non-deductible meals and entertainment expense  Research and development tax credits  Nondeductible stock options expense  Changes in valuation allowances on deferred tax assets ‎ The Company will provide the enhanced annual disclosures required by ASU 2023-09, including the detailed rate reconciliation and jurisdictional income taxes paid, in its Form 10-K for the year ending June 30, 2026. No material changes in uncertain tax positions or valuation allowances were recorded during the three- and six-month periods ended December 31, 2025 or 2024. 5. 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 for 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 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. 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 December 31, 2025, the Company was in compliance with all covenants related to the Credit Agreement. As of December 31, 2025 and June 30, 2025, there were no outstanding borrowings on the facility. ‎ 11 Table of Contents 6. 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: Three Months Ended Six Months Ended December 31, December 31, 2025 2024 2025 2024 United States $ 2,249,103 $ 2,181,541 $ 5,570,841 $ 4,348,905 Export 612,276 1,375,545 1,361,316 2,410,049 Net Sales $ 2,861,379 $ 3,557,086 $ 6,932,157 $ 6,758,954 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. In the six months ended December 31, 2025 and 2024, the Company recognized revenue, which was included in the deferred revenue liability at the beginning of those periods of $ 153,935 and $ 141,787 , respectively, for performance obligations related to consumer and customer warranties. The Company estimates that the deferred revenue performance obligations are satisfied within one year to three years and therefore uses that same timeframe for recognition of the deferred revenue. 7. INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE Basic income (loss) per common 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: Three Months Ended December 31, Six Months Ended December 31, 2025 2024 2025 2024 Numerator Net income (loss) $ ( 565,407 ) $ 94,142 $ ( 321,678 ) $ ( 325,393 ) Denominator Weighted average shares, basic 9,462,416 9,355,686 9,459,427 9,332,844 Dilutive effect of stock compensation awards (1) — 273,849 — — Diluted shares 9,462,416 9,629,535 9,459,427 9,332,844 Net income (loss) attributable to common shareholders per share: Basic $ ( 0.06 ) $ 0.01 $ ( 0.03 ) $ ( 0.03 ) Diluted $ ( 0.06 ) $ 0.01 $ ( 0.03 ) $ ( 0.03 ) (1) Weighted average stock options excluded during the three months ended December 31, 2025 and the six months ended December 31, 2025 and 2024 due to anti-dilution were 72,696 , 98,030 , and 425,304 , respectively. For the three months ended December 31, 2024, no stock options were anti-dilutive. 8. 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 a former chairman’s revocable trust and includes current stockholders of the Company. On May 24, 2022, the lease was renewed for a period of five years , ending June 30, 2028, and is being accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $ 380,000 per year and included an option to renew at an increased rate of $ 397,000 for an additional five years ending June 30, 2033. 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. 9. ACCOUNTS RECEIVABLE CONCENTRATIONS As of December 31, 2025, three of the Company’s customers each represented more than 10% of total accounts receivable, and collectively these customers accounted for approximately 46 % of total accounts receivable ( 19 %, 14 % and 13 %, respectively). At June 30, 2025, three customers each represented more than 10% of total accounts receivable ( 16 %, 13 % and 11 %, respectively), comprising approximately 40 % of total trade receivables. 12 Table of Contents 10. SEGMENT INFORMATION The Company has a single reportable segment, the design, manufacture and sale of headphones and related accessories, which reflects the manner in which the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker (“CODM”), regularly reviews financial information to manage the business, allocate resources and assess performance. The headphones are sold through retailers and distributors both domestically and internationally, as well as direct-to-consumer. The CODM regularly reviews revenue, certain significant expense categories, net income and select balance sheet items in evaluating segment performance. The significant segment expense categories and other segment items provided to the CODM and included in the measure of segment profit or loss are presented below. Three Months Ended Six Months Ended December 31, December 31, 2025 2024 2025 2024 Net sales $ 2,861,379 $ 3,557,086 $ 6,932,157 $ 6,758,954 Cost of goods sold 2,030,573 2,152,129 4,472,659 4,181,071 Gross profit margin 29.0 % 39.5 % 35.5 % 38.1 % Selling, general and administrative expenses: New product certification and compliance testing 14,619 3,229 27,651 90,970 Legal and professional expense 418,239 273,411 647,373 557,302 Deferred compensation expense (income) 59,364 ( 62,710 ) 220,249 134,665 Other selling, general and administrative expenses 1,353,162 1,332,811 2,624,843 2,573,863 Selling, general and administrative expenses 1,845,384 1,546,741 3,520,116 3,356,800 Net income (loss) ( 565,407 ) 94,142 ( 321,678 ) ( 325,393 ) Segment net income (loss) includes interest income, other income, interest expense and income taxes. The CODM also reviews the following balance sheet items at period-end as part of performance monitoring and resource allocation decisions: As of December 31, 2025 June 30, 2025 Cash and cash equivalents $ 2,464,838 $ 2,807,797 Short term investments 13,005,592 12,879,882 Long term investments 3,994,317 4,000,774 Inventories 4,838,377 4,885,067 Total segment assets 36,769,678 37,184,609 The Company applied the provisions of ASU 2023-07 retrospectively and has included comparative information for the three and six months ended December 31, 2024 for statement of operations items. Because the Company operates as a single reportable segment, the amounts above reconcile directly to the corresponding condensed consolidated financial statement line items. There was no impact on previously reported consolidated net income, financial position or cash flows. 11. LEGAL MATTERS As of December 31, 2025, the Company is involved in the matters described below: The Company maintains a program focused on enforcing its intellectual property and, in particular, certain patents in its patent portfolio. As part of this program, the Company filed 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, such as contingent legal fees, will be due to third parties. The Company may incur additional fees and costs related to these lawsuits, however, timing and impact on its condensed 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. The ultimate resolution of these matters is not determinable unless otherwise noted. 13 Table of Contents On November 20, 2025, the Company resolved its lawsuit against PEAG, LLC d/b/a JLab Audio and granted a license covering certain of its patents. Gross proceeds of $ 250,000 were recognized and recorded as other income during the three and six months ended December 31, 2025. Total contingent legal fees and related expenses of $ 250,000 offset these proceeds and were recorded as a selling, general and administrative expense during the three and six months ended December 31, 2025. In early fiscal 2020, the Company was notified by One-E-Way, Inc. (“One-E-Way”) that some of the Company's wireless products may infringe on certain One-E-Way patents. A Supplemental Notice of Infringement was served on the Company on March 18, 2025 and the complaint was resolved in September 2025. The matter was resolved at a cost of $ 22,200 and had been adequately accrued for as of June 30, 2025. The Company is also subject to a variety of other claims and suits that arise from time to time in the ordinary course of its business. Although management currently believes that resolving these claims against the Company, individually or in the aggregate, will not have a material adverse impact on its condensed consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. ‎ 14 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (the “Act”) (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to the foregoing. In addition, when used in this Form 10-Q, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may,” “will,” “shall,” “should,” “could,” “would,” “forecasts,” “predicts,” “potential,” “continue”, “seeks”, “goal”, “projects” and variations thereof and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this Form 10-Q, or in other Company filings, press releases, or otherwise. In addition to the factors discussed in this Form 10-Q, other factors that could contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: continued future fluctuations in economic conditions; the Company’s ability to successfully develop new products and assess potential market opportunities; the receptivity of consumers to new consumer electronics technologies; the Company’s ability to successfully and profitably market its products; the rate and consumer acceptance of new product introductions; the amount and nature of competition for the Company’s products; pricing; the number and nature of customers and their product orders; the Company’s ability to meet demand for products; production by third party vendors; foreign manufacturing, sourcing, and sales (including foreign government regulation, trade and importation concerns); uncertainties associated with the pandemics and other health crises or natural disasters, including their possible effects on the Company’s operations and its supply chain; trade tensions between the U.S. and China given recently enacted tariffs and their uncertainty; the impact of the ongoing conflict in Eastern Europe and the instability in the Middle East on the Company’s operations; the effects of any judicial, executive or legislative action affecting the Company or the audio/video industry; borrowing costs; changes in tax rates; the outcome of any litigation, government investigations, enforcement actions or other legal proceedings; the Company’s ability to retain and hire key personnel and other risk factors described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025 and subsequently filed Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect new information. ‎ 15 Table of Contents