KOSS CORP 10-Q

Item 1. Financial Statements KOSS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2026 June 30, 2025 ASSETS Current assets: Cash and cash equivalents $ 1,901,466 $ 2,807,797 Available-for-sale investments, at fair value 16,956,081 — Short term investments held to maturity, at amortized cost — 12,879,882 Accounts receivable, less allowance for credit losses of $ 2,043 at March 31, 2026 and June 30, 2025 1,047,912 1,135,672 Inventories 4,760,003 4,885,067 Prepaid expenses and other current assets 465,359 738,330 Interest receivable 130,042 121,178 Income taxes receivable 30,298 36,179 Total current assets 25,291,161 22,604,105 Equipment and leasehold improvements, net 1,580,815 1,476,898 Other assets: Long term investments held to maturity, at amortized cost — 4,000,774 Finance lease right-of-use asset 23,787 — Operating lease right-of-use asset 2,324,147 2,518,088 Cash surrender value of life insurance 6,838,742 6,584,744 Total other assets 9,186,676 13,103,606 Total assets $ 36,058,652 $ 37,184,609 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 478,558 $ 819,330 Accrued liabilities 615,911 582,140 Deferred revenue 241,519 242,644 Finance lease liability 10,349 — Operating lease liability 262,700 252,579 Income taxes payable 37,673 42,958 Total current liabilities 1,646,710 1,939,651 Long-term liabilities: Deferred compensation 2,446,100 2,226,454 Deferred revenue 133,269 119,314 Finance lease liability 14,113 — Operating lease liability 2,090,845 2,289,155 Total long-term liabilities 4,684,327 4,634,923 Total liabilities 6,331,037 6,574,574 Stockholders' equity: Common stock, $ 0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,466,438 at March 31, 2026 and 9,456,438 at June 30, 2025, respectively 47,332 47,282 Paid in capital 13,765,141 13,741,384 Accumulated other comprehensive loss ( 37,962 ) — Retained earnings 15,953,104 16,821,369 Total stockholders' equity 29,727,615 30,610,035 Total liabilities and stockholders' equity $ 36,058,652 $ 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 Nine Months Ended March 31 March 31 2026 2025 2026 2025 Net sales $ 2,824,763 $ 2,781,006 $ 9,756,920 $ 9,539,960 Cost of goods sold 1,822,002 1,696,334 6,294,661 5,877,405 Gross profit 1,002,761 1,084,672 3,462,259 3,662,555 Selling, general and administrative expenses 1,721,892 1,603,678 5,242,008 4,960,478 Loss from operations ( 719,131 ) ( 519,006 ) ( 1,779,749 ) ( 1,297,923 ) Other income (expense): Interest income 174,875 208,175 670,487 667,219 Other income — — 250,000 — Interest expense ( 506 ) — ( 1,658 ) — Total other income, net 174,369 208,175 918,829 667,219 Loss before income tax provision ( 544,762 ) ( 310,831 ) ( 860,920 ) ( 630,704 ) Income tax provision 1,825 5,911 7,345 11,431 Net loss $ ( 546,587 ) $ ( 316,742 ) $ ( 868,265 ) $ ( 642,135 ) Loss per common share: Basic $ ( 0.06 ) $ ( 0.03 ) $ ( 0.09 ) $ ( 0.07 ) Diluted $ ( 0.06 ) $ ( 0.03 ) $ ( 0.09 ) $ ( 0.07 ) Weighted-average number of shares: Basic 9,466,438 9,375,795 9,461,730 9,346,952 Diluted 9,466,438 9,375,795 9,461,730 9,346,952 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 4 Table of Contents KOSS CORPORATION CO NDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) Three Months Ended Nine Months Ended March 31 March 31 2026 2025 2026 2025 Net loss $ ( 546,587 ) $ ( 316,742 ) $ ( 868,265 ) $ ( 642,135 ) Other comprehensive loss: Unrealized loss on available-for-sale securities ( 37,962 ) — ( 37,962 ) — Total comprehensive loss $ ( 584,549 ) $ ( 316,742 ) $ ( 906,227 ) $ ( 642,135 ) ‎ 5 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended March 31 2026 2025 Operating activities: Net loss $ ( 868,265 ) $ ( 642,135 ) 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 212,568 172,356 Net accretion of discount on treasury securities ( 141,818 ) ( 192,820 ) Amortization of finance lease right-of-use asset 7,929 — Noncash operating lease expense 5,752 5,753 Stock-based compensation expense 2,707 25,689 Change in cash surrender value of life insurance ( 202,697 ) ( 173,807 ) Provision for deferred compensation 219,646 148,680 Net changes in operating assets and liabilities: Accounts receivable 87,760 156,243 Inventories 125,064 77,297 Prepaid expenses and other current assets 272,971 127,201 Interest receivable ( 8,864 ) 23,443 Income taxes receivable 5,881 ( 375 ) Income taxes payable ( 5,285 ) ( 1,558 ) Accounts payable ( 340,772 ) 143,417 Accrued liabilities 33,771 422,863 Deferred revenue 12,830 27,621 Net cash provided by (used in) operating activities ( 580,822 ) 319,989 Investing activities: Purchase of equipment and leasehold improvements ( 316,485 ) ( 483,767 ) Life insurance premiums paid ( 51,301 ) ( 70,577 ) Proceeds from the maturity of treasury securities 9,035,000 9,179,000 Purchases of treasury securities ( 9,006,569 ) ( 8,999,279 ) Net cash used in investing activities ( 339,355 ) ( 374,623 ) Financing activities: Proceeds from exercise of stock options 21,100 152,445 Principal payments on finance lease obligations ( 7,254 ) — Net cash provided by financing activities 13,846 152,445 Net increase (decrease) in cash and cash equivalents ( 906,331 ) 97,811 Cash and cash equivalents at beginning of period 2,807,797 2,837,081 Cash and cash equivalents at end of period $ 1,901,466 $ 2,934,892 ‎ 6 Table of Contents Nine Months Ended March 31 2026 2025 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 1,658 — Cash paid, net of refunds, for income taxes: State of New York 2,022 1,617 State of Texas 2,000 6,500 State of Massachusetts 1,580 925 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 $ 13,364 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 7 Table of Contents KOSS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Nine Months Ended March 31, 2026 Accumulated Other Common Stock Paid in Comprehensive Retained Shares Amount Capital Loss Earnings Total Balance, June 30, 2025 9,456,438 $ 47,282 $ 13,741,384 $ — $ 16,821,369 $ 30,610,035 Net loss — — — — ( 868,265 ) ( 868,265 ) Stock-based compensation expense — — 2,707 — — 2,707 Unrealized loss on available-for-sale securities — — — ( 37,962 ) — ( 37,962 ) Stock option exercises 10,000 50 21,050 — — 21,100 Balance, March 31, 2026 9,466,438 $ 47,332 $ 13,765,141 $ ( 37,962 ) $ 15,953,104 $ 29,727,615 Nine Months Ended March 31, 2025 Accumulated Other Common Stock Paid in Comprehensive Retained Shares Amount Capital Loss Earnings Total Balance, June 30, 2024 9,299,795 $ 46,499 $ 13,404,477 $ — $ 17,696,200 $ 31,147,176 Net loss — — — — ( 642,135 ) ( 642,135 ) Stock-based compensation expense — — 25,689 — — 25,689 Unrealized loss on available-for-sale securities — — — — — — Stock option exercises 76,000 380 152,065 — — 152,445 Balance, March 31, 2025 9,375,795 $ 46,879 $ 13,582,231 $ — $ 17,054,065 $ 30,683,175 Three Months Ended March 31, 2026 Accumulated Other Common Stock Paid in Comprehensive Retained Shares Amount Capital Loss Earnings Total Balance, December 31, 2025 9,466,438 $ 47,332 $ 13,763,907 $ — $ 16,499,691 $ 30,310,930 Net loss — — — — ( 546,587 ) ( 546,587 ) Stock-based compensation expense — — 1,234 — — 1,234 Unrealized loss on available-for-sale securities — — — ( 37,962 ) — ( 37,962 ) Stock option exercises — — — — — — Balance, March 31, 2026 9,466,438 $ 47,332 $ 13,765,141 $ ( 37,962 ) $ 15,953,104 $ 29,727,615 Three Months Ended March 31, 2025 Accumulated Other Common Stock Paid in Comprehensive Retained Shares Amount Capital Loss Earnings Total Balance, December 31, 2024 9,375,795 $ 46,879 $ 13,576,206 $ — $ 17,370,807 $ 30,993,892 Net loss — — — — ( 316,742 ) ( 316,742 ) Stock-based compensation expense — — 6,025 — — 6,025 Unrealized loss on available-for-sale securities — — — — — — Stock option exercises — — — — — — Balance, March 31, 2025 9,375,795 $ 46,879 $ 13,582,231 $ — $ 17,054,065 $ 30,683,175 The accompanying notes are an integral part of these condensed consolidated financial statements. ‎ 8 Table of Contents KOSS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2026 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION The condensed consolidated balance sheets as of March 31, 2026 and June 30, 2025, the condensed consolidated statements of operations for the three and nine months ended March 31, 2026 and 2025, the condensed consolidated statements of comprehensive loss for the three and nine months ended March 31, 2026 and 2025, the condensed consolidated statements of cash flows for the nine months ended March 31, 2026 and 2025, and the condensed consolidated statements of stockholders' equity for the three and nine months ended March 31, 2026 and 2025, 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 The Company’s investments consist of debt securities classified as available-for-sale and are recorded at fair value. Any unrealized gains or losses arising from changes in the fair value of these available-for-sale debt securities are recognized in accumulated other comprehensive income (loss) until they are realized through the sale of the securities or if an impairment is identified. Available-for-sale debt securities are classified as short-term investments in the Company’s financial statements as management intends to use the proceeds from the sales of these securities to fund potential acquisitions, although the exact timing of such acquisitions is currently undetermined. During the quarter ended March 31, 2026, the Company reclassified its debt securities previously designated as held-to-maturity to available-for-sale in connection with changes in the Company’s anticipated liquidity needs as the Company adopted a diversification by acquisition strategy. The debt securities had an amortized cost of $ 16,994,043 and fair value of $ 16,956,081 as of March 31, 2026. As a result of the transfer, the Company recorded an unrealized loss of $ 37,962 in other comprehensive loss, representing the difference between the securities’ amortized cost and fair value. The unrealized loss is the sole component of accumulated other comprehensive income for the three months ended March 31, 2026. Management concluded that the transfer was consistent with the exceptions to the held-to-maturity classification restrictions under applicable accounting guidance due to changes in circumstances that could not have been reasonably anticipated at the time the securities were classified as held-to-maturity. Debt securities were classified as held-to-maturity at June 30, 2025 as the Company had the positive intent and ability to hold them to maturity. The securities were carried at amortized cost as current or noncurrent based upon maturity date and unrealized gains and losses were recognized only if realized. The amortized cost of all 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 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 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. 9 Table of Contents 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 at March 31, 2026 are recorded at fair value as they are classified as available-for-sale. At June 30, 2025, U.S. treasury debt securities were classified as held-to-maturity and 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. E) OTHER INCOME In the nine months ended March 31, 2026, 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 period in the prior year or during the three months ended March 31, 2026 and 2025. 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 $ 1,825 and $ 7,345 , respectively, were recorded for the three- and nine-month periods ending March 31, 2026 for the required minimum state tax payments. State income tax expense of $ 5,204 and $ 10,724 , respectively, was recorded for the three and nine months ended March 31, 2025 as well for the required minimum state tax payments. Federal income tax expense of $ 707 was recorded during the three and nine months ended March 31, 2025 as a result of the amendment of a prior year tax return. No other federal income tax provisions were recorded during the first nine 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 March 31, 2026 was approximately $ 35,290,000 . 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 March 31, 2026 and June 30, 2025 is $ 2,446,100 and $ 2,226,454 , respectively. Compensation income of $ 603 was recorded during the three months ended March 31, 2026, mostly due to an increase in the discount factor from 5.45 % at December 31, 2025 to 5.62 % at March 31, 2026. Expense of $ 219,646 was recorded during the nine month period ended March 31, 2026 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 5.62 % at March 31, 2026. For the three and nine months ended March 31, 2025, compensation expense of $ 14,016 and $ 148,680 , respectively, were recorded under this arrangement. ‎ 10 Table of Contents 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. 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 During the three months ended March 31, 2026, the Company transferred its debt securities with an amortized cost basis of $ 16,994,043 from its held-to-maturity portfolio to its available-for-sale portfolio. The securities were transferred at their aggregate fair value of $ 16,956,081 on March 31, 2026. As a result of the transfer, the Company recorded a $ 37,962 unrealized loss in accumulated other comprehensive loss within stockholders’ equity during the period. The transfer was made in response to the Company’s recently announced diversification strategy via acquisition and the related cash requirements of funding potential acquisition opportunities. Following the transfer, the securities are classified as available-for-sale and carried at fair value on the condensed consolidated balance sheet. The following table summarizes the amortized cost and fair value of the debt securities available for sale at March 31, 2026: March 31, 2026 Amortized cost basis Gross unrealized gains Gross unrealized losses Fair Value US Treasury securities $ 16,994,043 $ 22,801 $ 60,763 $ 16,956,081 Total $ 16,994,043 $ 22,801 $ 60,763 $ 16,956,081 At June 30, 2025, the debt securities were classified as held to maturity and the amortized cost and fair value are shown below: 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 ‎ 11 Table of Contents The following tables summarize the fair value and amortized cost basis of the debt securities by contractual maturity as of March 31, 2026 and June 30, 2025: March 31, 2026 Amortized Cost Basis Fair value Due within one year $ 8,990,789 $ 9,013,590 Due after one year through five years 8,003,254 7,942,491 Total $ 16,994,043 $ 16,956,081 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: March 31, 2026 June 30, 2025 Raw materials $ 1,849,337 $ 1,966,662 Finished goods 4,788,779 4,815,881 Inventories, gross 6,638,116 6,782,543 Reserve for obsolete inventory ( 1,878,113 ) ( 1,897,476 ) Inventories, net $ 4,760,003 $ 4,885,067 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 nine months ended March 31, 2026 and 2025 consisted of the following: Three Months Ended Nine Months Ended March 31, March 31, 2026 2025 2026 2025 Federal $ — $ 707 $ — $ 707 State 1,825 5,204 7,345 10,724 Foreign — — — — Total income tax provision $ 1,825 $ 5,911 $ 7,345 $ 11,431 All income is derived from domestic operations. For both the three and nine months ended March 31, 2026, the effective tax rate was less than 1 %. The effective tax rate for the three and nine months ended March 31, 2025 was 1.9 % and 1.8 %, 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. 12 Table of Contents 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 nine-month periods ended March 31, 2026 or 2025. 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 March 31, 2026, the Company was in compliance with all covenants related to the Credit Agreement. As of March 31, 2026 and June 30, 2025, there were no outstanding borrowings on the facility. 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 Nine Months Ended March 31, March 31, 2026 2025 2026 2025 United States $ 2,443,633 $ 2,169,252 $ 8,014,473 $ 6,518,157 Export 381,130 611,754 1,742,447 3,021,803 Net Sales $ 2,824,763 $ 2,781,006 $ 9,756,920 $ 9,539,960 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 nine months ended March 31, 2026 and 2025, the Company recognized revenue, which was included in the deferred revenue liability at the beginning of those periods of $ 203,348 and $ 192,592 , 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. ‎ 13 Table of Contents 7. LOSS PER COMMON AND COMMON STOCK EQUIVALENT SHARE Basic loss per common share is computed based on the weighted-average number of common shares outstanding. Diluted 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 loss per share: Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Numerator Net loss $ ( 546,587 ) $ ( 316,742 ) $ ( 868,265 ) $ ( 642,135 ) Denominator Weighted average shares, basic 9,466,438 9,375,795 9,461,730 9,346,952 Dilutive effect of stock compensation awards (1) — — — — Diluted shares 9,466,438 9,375,795 9,461,730 9,346,952 Net loss attributable to common shareholders per share: Basic $ ( 0.06 ) $ ( 0.03 ) $ ( 0.09 ) $ ( 0.07 ) Diluted $ ( 0.06 ) $ ( 0.03 ) $ ( 0.09 ) $ ( 0.07 ) (1) Weighted average stock options excluded during the three months ended March 31, 2026 and 2025 and the nine months ended March 31, 2026 and 2025 due to anti-dilution were 77,889 , 354,000 , 91,414 and 401,884 , respectively. 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 March 31, 2026, three of the Company’s customers each represented more than 10% of total accounts receivable, and collectively these customers accounted for approximately 45 % of total accounts receivable ( 16 %, 16 % 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 accounts receivable. 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. ‎ 14 Table of Contents The CODM regularly reviews revenue, certain significant expense categories, net loss 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 Nine Months Ended March 31, March 31, 2026 2025 2026 2025 Net sales $ 2,824,763 $ 2,781,006 $ 9,756,920 $ 9,539,960 Cost of goods sold 1,822,002 1,696,334 6,294,661 5,877,405 Gross profit margin 35.5 % 39.0 % 35.5 % 38.4 % Selling, general and administrative expenses: New product certification and compliance testing 31,075 91,997 50,326 182,967 Legal and professional expense 257,269 201,833 904,642 759,135 Deferred compensation expense (income) ( 603 ) 14,016 219,646 148,681 Other selling, general and administrative expenses 1,434,151 1,295,832 4,067,394 3,869,695 Selling, general and administrative expenses 1,721,892 1,603,678 5,242,008 4,960,478 Net loss ( 546,587 ) ( 316,742 ) ( 868,265 ) ( 642,135 ) Segment net 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 March 31, 2026 June 30, 2025 Cash and cash equivalents $ 1,901,466 $ 2,807,797 Available-for-sale investments 16,956,081 — Short term investments, held-to-maturity — 12,879,882 Inventories 4,760,003 4,885,067 Long term investments, held-to-maturity — 4,000,774 Total segment assets 36,058,652 37,184,609 The Company applied the provisions of ASU 2023-07 retrospectively and has included comparative information for the three and nine months ended March 31, 2025 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 loss, financial position or cash flows. 11. LEGAL MATTERS As of March 31, 2026, 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. The patent infringement lawsuit between the Company and Skullcandy Inc. is in the appeal stage after a federal judge in Utah dismissed the case with prejudice on March 25, 2026. This lawsuit is the last remaining case in a series of litigation initiated by the Company against major headphone manufacturers in 2020. 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 nine months ended March 15 Table of Contents 31, 2026. 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 nine months ended March 31, 2026. 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. ‎ 16 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 conflicts in Eastern Europe and the instability and escalation 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. ‎ 17 Table of Contents