koss-20241231x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended December 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-3295

KOSS CORPORATION

(Exact Name of Registrant as Specified in its Charter)


DELAWARE		39-1168275
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

4129 North Port Washington Avenue, Milwaukee,

Wisconsin

53212

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (414) 964-5000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.005 per share	KOSS	Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☑		Smaller reporting company ☑

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ☐ No ☑

At January 27, 2025, there were 9,375,795 shares outstanding of the registrant’s common stock.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

KOSS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)



	December 31, 2024		June 30, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	2,535,727	$	2,837,081
Short term investments		7,164,281		12,104,459
Accounts receivable, less allowance for credit losses of $2,043 and $1,922 at December 31, 2024 and June 30, 2024, respectively		1,370,071		1,208,319
Inventories		4,570,621		4,473,680
Prepaid expenses and other current assets		942,194		1,081,437
Interest receivable		98,506		170,429
Income taxes receivable		42,131		41,756
Total current assets		16,723,531		21,917,161

Equipment and leasehold improvements, net		1,529,086		1,223,391

Other assets:
Long term investments		10,000,634		4,994,327
Operating lease right-of-use asset		2,643,336		2,765,445
Cash surrender value of life insurance		6,539,328		6,299,155
Total other assets		19,183,298		14,058,927

Total assets	$	37,435,915	$	37,199,479

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	256,143	$	329,829
Accrued liabilities		858,200		462,858
Deferred revenue		288,016		229,384
Operating lease liability		246,049		239,688
Income taxes payable		28,831		35,899
Total current liabilities		1,677,239		1,297,658

Long-term liabilities:
Deferred compensation		2,227,789		2,093,124
Deferred revenue		119,897		119,787
Operating lease liability		2,417,098		2,541,734
Total long-term liabilities		4,764,784		4,754,645

Total liabilities		6,442,023		6,052,303

Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 9,375,795 at December 31, 2024 and 9,299,795 at June 30, 2024, respectively		46,879		46,499
Paid in capital		13,576,206		13,404,477
Retained earnings		17,370,807		17,696,200
Total stockholders' equity		30,993,892		31,147,176

Total liabilities and stockholders' equity	$	37,435,915	$	37,199,479

The accompanying notes are an integral part of these condensed consolidated financial statements.
‎

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended				Six Months Ended
	December 31				December 31
	2024		2023		2024		2023
Net sales	$	3,557,086	$	3,360,124	$	6,758,954	$	6,734,062
Cost of goods sold		2,152,129		2,251,684		4,181,071		4,557,932
Gross profit		1,404,957		1,108,440		2,577,883		2,176,130

Selling, general and administrative expenses		1,546,741		1,584,523		3,356,800		3,120,802

Loss from operations		(141,784)		(476,083)		(778,917)		(944,672)

Interest income		238,686		208,809		459,044		421,668

Income (loss) before income tax provision		96,902		(267,274)		(319,873)		(523,004)

Income tax provision		2,760		1,879		5,520		3,758

Net income (loss)	$	94,142	$	(269,153)	$	(325,393)	$	(526,762)

Income (loss) per common share:
Basic	$	0.01	$	(0.03)	$	(0.03)	$	(0.06)
Diluted	$	0.01	$	(0.03)	$	(0.03)	$	(0.06)

Weighted-average number of shares:
Basic		9,355,686		9,241,208		9,332,844		9,238,002
Diluted		9,629,535		9,241,208		9,332,844		9,238,002

The accompanying notes are an integral part of these condensed consolidated financial statements.
‎

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Six Months Ended
	December 31
	2024		2023
Operating activities:
Net loss	$	(325,393)	$	(526,762)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for (recovery of) credit losses		121		(4,105)
Depreciation of equipment and leasehold improvements		113,858		93,647
Accretion of discount on treasury securities		(152,879)		(234,298)
Noncash operating lease expense		3,834		3,835
Stock-based compensation expense		19,664		84,040
Change in cash surrender value of life insurance		(169,596)		(152,892)
Provision for deferred compensation		134,665		63,255
Net changes in operating assets and liabilities:
Accounts receivable		(161,873)		(130,286)
Inventories		(96,941)		1,256,774
Prepaid expenses and other current assets		139,243		(59,750)
Interest receivable		71,923		(82,896)
Income taxes receivable		(375)		(40,462)
Income taxes payable		(7,068)		(83,479)
Accounts payable		(73,686)		(5,011)
Accrued liabilities		395,342		(418,796)
Deferred revenue		58,742		(107,999)
Net cash used in operating activities		(50,419)		(345,185)

Investing activities:
Purchase of equipment and leasehold improvements		(419,553)		(401,594)
Life insurance premiums paid		(70,577)		(81,744)
Proceeds from the maturity of treasury securities		7,085,000		7,223,000
Purchases of treasury securities		(6,998,250)		(6,997,085)
Net cash used in investing activities		(403,380)		(257,423)

Financing activities:
Proceeds from exercise of stock options		152,445		35,800
Net cash provided by financing activities		152,445		35,800

Net (decrease) in cash and cash equivalents		(301,354)		(566,808)
Cash and cash equivalents at beginning of period		2,837,081		3,091,062
Cash and cash equivalents at end of period	$	2,535,727	$	2,524,254

Supplemental cash flow information:
Cash paid for income taxes	$	12,963	$	127,700

The accompanying notes are an integral part of these condensed consolidated financial statements.
‎

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)



	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


	Six Months Ended December 31, 2023
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, June 30, 2023	9,234,795	$	46,174	$	13,113,993	$	18,647,111	$	31,807,278
Net loss	—		—		—		(526,762)		(526,762)
Stock-based compensation expense	—		—		84,040		—		84,040
Stock option exercises	20,000		100		35,700		—		35,800
Balance, December 31, 2023	9,254,795	$	46,274	$	13,233,733	$	18,120,349	$	31,400,356


	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


	Three Months Ended December 31, 2023
	Common Stock			Paid in		Retained
	Shares	Amount		Capital		Earnings		Total
Balance, September 30, 2023	9,234,795	$	46,174	$	13,160,785	$	18,389,502	$	31,596,461
Net loss	—		—		—		(269,153)		(269,153)
Stock-based compensation expense	—		—		37,248		—		37,248
Stock option exercises	20,000		100		35,700		—		35,800
Balance, December 31, 2023	9,254,795	$	46,274	$	13,233,733	$	18,120,349	$	31,400,356

The accompanying notes are an integral part of these condensed consolidated financial statements.

‎

KOSS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) BASIS OF PRESENTATION

The condensed consolidated balance sheets as of December 31, 2024 and June 30, 2024, the condensed consolidated statements of operations for the three and six months ended December 31, 2024 and 2023, the condensed consolidated statements of cash flows for the six months ended December 31, 2024 and 2023, and the condensed consolidated statements of stockholders' equity for the three and six months ended December 31, 2024 and 2023, 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, 2024.

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.

Beginning with the first quarter of fiscal year 2025, the Company reclassified certain amounts on its June 30, 2024 balance sheet to enhance clarity and consistency in financial statement reporting. Specifically, short-term deferred revenue liabilities related to estimated volume incentive rebates and sales returns were reclassified to accrued liabilities to reflect that revenue was already recognized on the sales related to these liabilities. To conform with current period presentation, the Company reclassified $60,511 to accrued liabilities at June 30, 2024. This reclassification does not affect the total assets, total liabilities, or equity of the Company.

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 on cash and cash equivalents. 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) 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.

During the three and six months ended December 31, 2024, state income tax provisions of $2,760 and $5,520, respectively, were recorded for the required minimum state tax payments plus estimated tax due on the negligible net taxable income after state net operating loss (NOL) deductions. State income tax provisions of $1,879 and $3,758, respectively, were recorded for the three and six months ended December 31, 2023 for minimum state required tax payments only as there was no taxable income after application of available NOLs. No federal income tax provisions were booked for either the three month or six-month periods ending December 31, 2024 or 2023 given the availability of federal net operating loss carryforwards to offset minimal to no taxable income. 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”). As such, the future utilization of all federal NOLs available to the Company is limited to 80 percent of the resulting taxable income.

The effective tax rate was 2.8% and 1.7% for the three and six months ended December 31, 2024, respectively. The effective tax rate was less than 1% for the three and six months ended December 31, 2023. It is anticipated that the effective rate in the current year and future years will continue to be reduced by utilization of a portion or all of the federal and state net operating loss carryforwards that existed as of June 30, 2024. The Company's taxable loss generated during the first six months of fiscal year 2025 increased the tax loss carryforward as of December 31, 2024 to approximately $32,900,000. 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.

E) 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, 2024 and June 30, 2024 is $2,227,789 and $2,093,124, respectively. Compensation expense of $134,665 was recorded during the six months ended December 31, 2024 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 an additional year of service completed. The discount factor used to calculate the net present value of the liability was stable at 5.53% at December 31, 2024 compared to 5.55% at June 30, 2024. A compensation benefit of $(62,710) was recorded under this arrangement for the three months ended December 31, 2024 as the discount factor increased from 5.12% at September 30, 2024 to 5.53% as of December 31, 2024. Compensation expense of $123,190 and $63,255, respectively, was recorded for the three and six months ended December 31, 2023.

2. INVESTMENTS

The following tables summarize the unrealized positions for the held-to-maturity debt securities as of December 31, 2024 and June 30, 2024:


	December 31, 2024
	Amortized cost basis		Gross unrealized gains		Gross unrealized losses		Fair Value
US Treasury securities	$	17,164,915	$	49,513	$	—	$	17,214,428
Total	$	17,164,915	$	49,513	$	—	$	17,214,428


	June 30, 2024
	Amortized cost basis		Gross unrealized gains		Gross unrealized losses		Fair Value
US Treasury securities	$	17,098,786	$	—	$	(56,278)	$	17,042,508
Total	$	17,098,786	$	—	$	(56,278)	$	17,042,508

‎

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, 2024 and June 30, 2024:


	December 31, 2024
	Amortized Cost Basis		Fair value
Due within one year	$	7,164,281	$	7,175,136
Due after one year through five years		10,000,634		10,039,292
Total	$	17,164,915	$	17,214,428


	June 30, 2024
	Amortized Cost Basis		Fair value
Due within one year	$	12,104,459	$	12,075,702
Due after one year through five years		4,994,327		4,966,806
Total	$	17,098,786	$	17,042,508

3. INVENTORIES

The components of inventories were as follows:



	December 31, 2024		June 30, 2024
Raw materials	$	1,939,517	$	1,973,531
Finished goods		4,592,254		4,357,621
Inventories, gross		6,531,771		6,331,152
Reserve for obsolete inventory		(1,961,150)		(1,857,472)
Inventories, net	$	4,570,621	$	4,473,680

4. 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, 2024, the Company was in compliance with all covenants related to the Credit Agreement. As of December 31, 2024 and June 30, 2024, there were no outstanding borrowings on the facility.

5. 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,
	2024		2023		2024		2023
United States	$	2,181,541	$	2,666,978	$	4,348,905	$	5,270,669
Export		1,375,545		693,146		2,410,049		1,463,393
Net Sales	$	3,557,086	$	3,360,124	$	6,758,954	$	6,734,062

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, 2024 and 2023, the Company recognized revenue, which was included in the

deferred revenue liability at the beginning of those periods of $141,787 and $197,718, 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.

6. 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,
	2024		2023		2024		2023
Numerator
Net income (loss)	$	94,142	$	(269,153)	$	(325,393)	$	(526,762)

Denominator
Weighted average shares, basic		9,355,686		9,241,208		9,332,844		9,238,002
Dilutive effect of stock compensation awards (1)		273,849		—		—		—
Diluted shares		9,629,535		9,241,208		9,332,844		9,238,002

Net income (loss) attributable to common shareholders per share:
Basic	$	0.01	$	(0.03)	$	(0.03)	$	(0.06)
Diluted	$	0.01	$	(0.03)	$	(0.03)	$	(0.06)

(1) Excludes 713,846 weighted average stock options during the three months ended December 31, 2023 as the impact of such awards was anti-dilutive. Weighted average stock options excluded during the six months ended December 31, 2024 and 2023 due to anti-dilution were 425,304 and 743,465, respectively. For the three months ended December 31, 2024, no stock options were anti-dilutive.

7. 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.

8. ACCOUNTS RECEIVABLE CONCENTRATIONS

As of December 31, 2024, the Company’s top three accounts receivable customers represented approximately 52%, 15% and 9% of trade accounts receivable. The top three accounts receivable customers as of June 30, 2024, represented approximately 18%, 15% and 12% of trade accounts receivable.

‎

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis supplements our management’s discussion and analysis for the year ended June 30, 2024 as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 30, 2024, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans and strategy for our business and involve risks and uncertainties. You should review the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, as updated by subsequent filings with the Securities and Exchange Commission, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read “Cautionary Statement Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Overview

The Company initially developed stereo headphones in 1958 and has been recognized as a leader in the industry ever since. Koss markets a complete line of high-fidelity headphones, wireless Bluetooth® headphones, wireless Bluetooth® speakers, computer headsets, telecommunications headsets, and active noise canceling headphones. The Company operates as one business segment, as its principal business line is the design, manufacture and sale of stereo headphones and related accessories.

Financial Results

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



	Three Months Ended				Six Months Ended
	December 31				December 31
Financial Performance Summary	2024		2023		2024		2023
Net sales	$	3,557,086	$	3,360,124	$	6,758,954	$	6,734,062
Net sales increase % from prior year period		5.9%		2.4%		0.4%		1.3%
Gross profit	$	1,404,957	$	1,108,440	$	2,577,883	$	2,176,130
Gross profit as % of net sales		39.5%		33.0%		38.1%		32.3%
Selling, general and administrative expenses	$	1,546,741	$	1,584,523	$	3,356,800	$	3,120,802
Selling, general and administrative expenses as % of net sales		43.5%		47.2%		49.7%		46.3%
Interest income	$	238,686	$	208,809	$	459,044	$	421,668
Income (loss) before income tax provision	$	96,902	$	(267,274)	$	(319,873)	$	(523,004)
Income (loss) before income tax provision as % of net sales		2.7%		(8.0)%		(4.7)%		(7.8)%
Income tax provision	$	2,760	$	1,879	$	5,520	$	3,758
Income tax provision as % of income (loss) before income tax provision		2.8%		(0.7)%		(1.7)%		(0.7)%

‎

Fiscal 2025 Period Results Compared with Fiscal 2024 Period

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

Net sales of $3,557,000 for the three months ended December 31, 2024 were $197,000, or 5.9%, ahead of sales for the same three-month period in the prior year. A significant increase in sales to certain of our European distributors, along with a sizable custom headphone order from a new customer, was partially offset by shortfalls in sales to customers in the education segment, domestic distributors and e-tailers. For the six months ended December 31, 2024, sales of $6,759,000 were just slightly ahead compared to $6,734,000 of sales for the first half of the prior fiscal year, driven by the same variances as sales to Europe and custom orders were offset by lower distribution, education and e-tailer sales.

Sales to the export markets for the three months ended December 31, 2024 were $1,376,000 compared to $693,000 for the same period in the prior year due almost entirely to increased sales to two of our largest European distributors. New product sales to these European distributors exceeded our expectations, resulting in an over 90% increase in sales compared to the same period in the prior year. Export sales for the six months ended December 31, 2024 was $2,410,000, a $947,000, or 64.7%, increase over the same period in the prior year. Similar to the second quarter, sales to the two largest European distributors were 111% above the prior year, driven by the success of new product sales. Overall sales to Europe grew by $1,241,000, or 61%, while sales to our Asian and Canadian markets rose by $95,000, or 30.1%. There were no sales to our Russian distributor during the current fiscal year, nor have there been any since April 2022.

Domestic market sales declined by $486,000, or 18.2%, year over year for the three-month period ended December 31, 2024. Sales to the largest customer in the company’s education segment were down by $338,000 and sales to a provider of therapeutic listening tools were down $110,000 compared to the prior year, both due to timing of repeat orders. A $262,000 custom headphones order and a near 20% increase in direct-to-consumer (DTC) sales helped to offset the decline. For the six months ended December 31, 2024, domestic sales were $4,349,000, down $922,000, or 17.5%, from sales of $5,271,000 for the first two quarters of the prior fiscal year. Lower sales to the education market segment, domestic distributors and e-tailers were only partially offset by an approximately 19% increase in DTC sales for the six months ended December 31, 2024 compared to the same period in the prior year.

Gross profit as a percentage of net sales for the three months ended December 31, 2024 was 39.5%, compared to 33.0% for the three months ended December 31, 2023, an increase of 650 basis points. Margins for the second quarter of the prior year were negatively impacted by working through the inventory investment made while freight costs were higher, along with an increase in the reserve for excess and obsolete inventory. During the second quarter of the current fiscal year, inventory levels remained fairly constant, having little impact on margins as lower freight costs were capitalized into inventory. Significant new product sales to Europe at higher margins combined with a higher volume of higher margin DTC sales also contributed to the increased gross margins for the three months ending December 31, 2024. For the six months ended December 31, 2024, the gross margin was 38.1%, an increase of 580 basis points over the gross margin of 32.3% for the first half of the prior year. A more favorable customer mix of sales, including increased higher margin DTC sales, new product sales to our European distributors at higher margins and a higher volume of higher margin sales to certain domestic distributors, drove the higher gross margin in the first half of fiscal year 2025. This combined with the prior year’s adverse impact of the sell-through of inventory brought in at higher freight costs and resulted in the gap in margins year over year for the six months ended December 31, 2024.

While shipment costs slightly increased during the six months ended December 31, 2024, the Company expects them to increase more in the coming quarters due to general rate increases received at the end of December and into January. Transit times increased as a result of labor disputes and other delays in the supply chain. The Company’s partnership with a dedicated freight forwarder continues to help stabilize contract rates to limit the impact.

Selling, general and administrative expenses decreased only slightly year over year for the three months ended December 31, 2024, from $1,585,000 to $1,547,000, a decrease of $38,000, or 2.4%. Income generated by the decrease in the deferred compensation liability as a result of the increase in the discount rates used to calculate the liability was mostly offset by an increase in legal expense during the second quarter of the current fiscal year as the result of the Company’s continued patent defense litigation, along with higher online advertising spend related to the new product launch in fiscal year 2025. For the six months ended December 31, 2024, selling, general and administrative expenses of $3,357,000 were higher by $236,000, or 7.6%, compared to $3,121,000 for the six months ended December 31, 2023. Increases in online advertising spend and new product certification testing related to new product development and launches, coupled with an increase in legal expense were somewhat offset by the reduction in stock based compensation expense as the remaining unvested stock options granted as part of the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) are nearly fully vested. Also, an increase in the deferred compensation liability as of December 31, 2024, due mostly to the annual increase in the future payments earned under the arrangement due to an additional year of service completed, resulted in a corresponding increase to expense compared to the prior year.

As a result of minimal or no taxable income after utilization of the Company’s available net operating loss carryforwards (“NOLs”), no federal income tax expense was recorded for any of the three and six-month periods ended December 31, 2024 and 2023. State income tax expense of $2,760 and $1,879 was recorded for the three months ended December 31, 2024 and 2023, respectively, and

$5,520 and $3,758 was recorded for the six months ended December 31, 2024 and 2023, respectively, reflecting the minimum required state tax due plus estimated tax due on negligible net taxable income after state NOL deductions. The effective tax rate was 2.8% and 1.7% in the three and six months ended December 31, 2024, respectively. The effective tax rate was less than 1% for the three and six months ended December 31, 2023. It is anticipated that the effective rate in the current year and future years will continue to be reduced by utilization of a portion or all of the available federal and state net operating loss carryforwards that existed as of June 30, 2024.

The Company’s remaining expected federal tax loss carryforward approximates $32,900,000 at the end of the second quarter. The small taxable gain for the first quarter of fiscal year 2025 decreased the net operating loss carryforward deferred tax asset by approximately $3,000 and the taxable loss in the second quarter increased it by approximately $14,000, resulting in a deferred tax asset of approximately $8,500,000 as of December 31, 2024. The valuation allowance was adjusted accordingly to fully offset the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss has occurred.

The Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio. 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. If efforts are successful, the Company may receive royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position from time to time. However, there is no guarantee of a positive outcome from these efforts in the future, 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.

The Company believes that its financial position remains strong. The Company had $2.5 million of cash and cash equivalents, $7.2 million of short-term investments and available credit facilities of $5.0 million on December 31, 2024.

Recent Trends

Recent and ongoing macroeconomic and geopolitical conditions have impacted, and will continue to impact, our business. These include economic uncertainty from unexpected job growth, elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain and trade tensions with China, the ongoing crises in Eastern Europe, the continued conflict in the Middle East and increased risk of cyberattacks.

While the impact of these factors on our fiscal 2025 performance remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations. These and other uncertainties with respect to these recent events could result in changes to our current expectations.

Job Market and Inflationary Cost Environment and the Impact on Consumer Confidence - Inflation, higher interest rates and higher energy costs continue to impact consumers’ discretionary spending and, in turn, the Company’s sales volumes. The U.S. economy added 256,000 jobs in December 2024, surpassing expectations and marking the largest increase since March 2024. The data indicates that, although consumers feel more optimistic about the economy, the increase in confidence is not reflected in their intent to spend. Intent to spend, which measures whether consumers expect to spend on various products and services, held steady or decreased across most essential, discretionary, and semi-discretionary categories compared with last quarter, despite the holiday shopping season.

The current consumer landscape presents a paradox in which rising optimism coexists with restrained spending. This trend highlights a collective shift toward financial prudence, reflecting a broader desire for economic security amid lingering uncertainties, though it could also reflect a shift among consumers toward more mindful consumption patterns.

While inflation rates have consistently decreased over the last few months, the Company is still experiencing higher costs for commodities, packaging materials, and wages, along with higher energy and transportation costs. The Company continues to monitor costs and will react with pricing actions as it deems necessary. 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.

Supply Chain Disruption and Trade Tensions with China - The Company relies on our third-party supply chain, primarily in southern China, and distribution networks and the availability of necessary components to produce a considerable number of our products. A reduction or interruption in supply, including interruptions due to pandemic related restrictions, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs. Many of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan. There continues to be geopolitical tension between China and the United States, as well as geopolitical tension between China and Taiwan that may affect future shipments from Taiwan-based suppliers. Any other adverse changes in the social, political, regulatory or economic conditions in the countries could materially increase the cost of the products we buy from our foreign suppliers or delay shipments of products. Sustained uncertainty about, or worsening of, economic relations and further escalation of trade tensions

between the United States and China, or any other country in which the Company conducts business, could result in retaliatory trade restrictions that restrict our ability to source products from China or continue business in such other country. Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and the Company may not be able to pass along most increases in tariffs and freight charges to the Company’s customers, which would also directly affect profits. President-elect Donald Trump intends to direct a good portion of his tariff escalation on products sourced from China. Broad tariffs on Chinese exports encourage shifting supply chains out of China to other global regions and

the Americas, however, before the shift, tariffs could cause inflation to rise, potentially impacting the Company’s costs and consumer demand. The Company will continue to monitor the situation and others that may arise as the changes in the current labor landscape, the settlement of recent labor disputes, coupled with rising energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.

A potential crisis at United States East and Gulf Coast ports has been averted as the International Longshoremen’s Association (the “ILA”) and the United States Maritime Alliance reached a tentative six-year labor agreement, preventing what would have been the second strike in four months. The agreement came just days before the January 15 deadline, when a temporary contract extension was set to expire.

Russia’s Invasion of Ukraine - Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia. While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive orders from their Ukrainian distributor in the first half of both fiscal year 2025 and 2024 with potential for more in the current year. During the three and six months ended December 31, 2024 and 2023, there were no sales to Russia.

Cyberattacks - Cyberattacks are a growing geopolitical risk, becoming larger, more frequent, more sophisticated and more relentless as technology has evolved, resulting in privacy, security, and compliance concerns. They are a significant threat to individual organizations and national security. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyberattacks targeting businesses. We rely on accounting, financial, and operational management information systems to conduct our operations. Any disruption in these systems could adversely affect our ability to conduct our business. Furthermore, as part of our normal business activities, we collect and store common confidential information about customers, employees, vendors, and suppliers. This information is entitled to protection under a number of regulatory regimes. Any failure to maintain the security of the data, including the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also result in deterioration in customers confidence in us and other competitive disadvantages, and thus could have a material adverse impact on our financial condition and results of operations. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security and there is a risk that these types of attacks could impact the entire supply and distribution chain for the Company’s product line. In a world that runs on the internet, the Company can only be as strong as its weakest link, whether as a financial service provider, third party distributor, reseller, transportation service provider, contract manufacturer, customer or consumer.

‎

Liquidity and Capital Resources

Cash Flows

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



Total cash (used in) provided by:	2024		2023
Operating activities	$	(50,419)	$	(345,185)
Investing activities		(403,380)		(257,423)
Financing activities		152,445		35,800
Net decrease in cash and cash equivalents	$	(301,354)	$	(566,808)

Operating Activities

The cash used in operating activities during the six months ending December 31, 2024 was driven primarily by the net operating loss for the first half of the year, offset by improvements in working capital and the receipt of a partial refund of the employee and employer payroll taxes inappropriately withheld related to the gains from the disqualifying dispositions of incentive stock options. During the six months ended December 31, 2023, the cash used in operating activities was primarily the payment of bonuses earned in the prior year and general insurance premiums.

Investing Activities

Cash used by investing activities for the six months ended December 31, 2024 was related mostly to fixed asset expenditures, namely the replacement of a second roof section of the building for approximately $346,000, and the payment of the premiums on the company-owned life insurance policies on two of its executives. Proceeds of $7,085,000 received during the six months ended December 31, 2024 from the maturity of U.S. Treasury securities were mostly reinvested to purchase $7,059,000 of similar securities at a $61,000 discount. Cash used by investing activities for the six months ended December 31, 2023 was also related to fixed asset expenditures, predominantly the replacement of the first roof section of the building for approximately $300,000. The Company also paid the premiums on the company-owned life insurance policies on two of its executives. Proceeds of $7,223,000 from the maturity of U.S. Treasury securities were received and utilized to purchase $7,177,000 of similar securities at a discount of $180,000.

Financing Activities

Cash from the exercise of stock options during the six months ended December 31, 2024 provided the only cash from financing activities. An aggregate of 76,000 shares of common stock were issued as a result of employee stock option exercises under grants still outstanding from the Company’s 2012 Omnibus Incentive Plan. Employee stock option exercises provided the only cash from financing activities during the six months ended December 31, 2023. An aggregate of 20,000 shares of common stock were issued as a result.

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

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

Liquidity

The Company believes its existing cash and cash equivalents, investments in short-term U.S. Treasury securities, cash provided by operating activities and borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months. 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 expenditures, or draw on its credit facilities. The Company regularly evaluates new product offerings, inventory levels and capital expenditures to ensure that it is effectively allocating resources in line with current market conditions.

Credit Facility

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of December 31, 2024 were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

As part of its intellectual property enforcement program, on July 22, 2020, the Company brought patent infringement suits against certain parties, including Bose Corporation, PEAG, LLC d/b/a jLab Audio and Skullcandy, Inc., alleging infringement of the Company’s patents relating to its wireless headphone technology and seeking monetary relief and attorneys’ fees. These lawsuits are pending in U.S. District Courts in District of Massachusetts (Bose Corporation), Southern District of California (PEAG, LLC), and District of Utah (Skullcandy, Inc.).

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1. Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, as filed with the Securities and Exchange Commission on August 30, 2024. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this report. There have been no material changes to the risk factors described under “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

‎


	Total # of ‎Shares ‎Purchased	Average ‎Price Paid ‎per Share		Total Number of Shares Purchased as ‎Part of Publicly Announced Plan (1)	Approximate Dollar Value of ‎Shares Available under Repurchase Plan
October 1 - October 31, 2024	—	$	—	—	$	2,139,753
November 1 - November 30, 2024	—	$	—	—	$	2,139,753
December 1 - December 31, 2024	—	$	—	—	$	2,139,753


Exhibit No.	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of Koss Corporation, as in effect on November 19, 2009. Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009 and incorporated herein by reference.
3.2	By-Laws of Koss Corporation. Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated herein by reference.
3.3	Amendment to the By-Laws of Koss Corporation. Filed as Exhibit 3.3 to the Company’s Current Report on Form 8-K on March 7, 2006 and incorporated herein by reference.
3.4	Amendment to the By-Laws of Koss Corporation. Filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K on August 27, 2020 and incorporated herein by reference.
10.1	Fourth Amendment to Revolving Credit Agreement, effective October 30, 2024, by and between the Company and Town Bank. Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2024 and incorporated herein by reference.*
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer *
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer *
32.1	Section 1350 Certification of Chief Executive Officer **
32.2	Section 1350 Certification of Chief Financial Officer **
101	The following financial information from Koss Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 2024, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of December 31, 2024 and June 30, 2024, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended December 31, 2024 and 2023 (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended December 31, 2024 and 2023, (iv) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and six months ended December 31, 2024 and 2023 and (v) the Notes to Condensed Consolidated Financial Statements (Unaudited). *


KOSS CORPORATION

/s/ Michael J. Koss		January 31, 2025
Michael J. Koss
Chairman
Chief Executive Officer

/s/ Kim M. Schulte		January 31, 2025
Kim M. Schulte
Chief Financial Officer
Principal Accounting Officer


			Page

PART I	FINANCIAL INFORMATION		3
	Item 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets as of December 31, 2024 and June 30, 2024	3
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2024 and 2023	4
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2024 and 2023	5
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2024 and 2023	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19
PART II	OTHER INFORMATION		19
	Item 1.	Legal Proceedings	19
	Item 1A.	Risk Factors	19
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 6.	Exhibits	21