Koss Corp 10-Q for FY2025 Q3
Koss Corp (KOSS)
About this 10-Q
Koss Corp filed this 10-Q on May 9, 2025, covering the quarter ended March 31, 2025 (FY2025 Q3).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.78M
- up 5.4% from $2.64M a year earlier
- Net loss
- $316.74K
- compared with a net loss of $313.78K a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
for the quarterly period ended
OR
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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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 May 5, 2025, there were
KOSS CORPORATION
FORM 10-Q
March 31, 2025
INDEX
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
KOSS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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| March 31, 2025 |
| June 30, 2024 | ||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | |
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Short term investments |
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Accounts receivable, less allowance for credit losses of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Interest receivable |
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Income taxes receivable |
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Total current assets |
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Equipment and leasehold improvements, net |
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Other assets: |
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Long term investments |
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Operating lease right-of-use asset |
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Cash surrender value of life insurance |
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Total other assets |
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Total assets | $ | |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable | $ | |
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Accrued liabilities |
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Deferred revenue |
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Operating lease liability |
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Income taxes payable |
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Total current liabilities |
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Long-term liabilities: |
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Deferred compensation |
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Deferred revenue |
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Operating lease liability |
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Total long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock, $ |
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Paid in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | |
| $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KOSS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| 2025 |
| 2024 |
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Net sales | $ | |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Loss from operations |
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Interest income |
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Loss before income tax provision (benefit) |
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Income tax provision (benefit) |
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Net loss | $ | ( |
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Loss per common share: |
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Basic | $ | ( |
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Diluted | $ | ( |
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Weighted-average number of shares: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
KOSS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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| Nine Months Ended | ||||
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Operating activities: |
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Net loss | $ | ( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Provision for (recovery of) credit losses |
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Depreciation of equipment and leasehold improvements |
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Net accretion of (discount)/premium on treasury securities |
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Noncash operating lease expense |
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Stock-based compensation expense |
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Change in cash surrender value of life insurance |
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Provision for deferred compensation |
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Net changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Interest receivable |
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Income taxes receivable |
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Income taxes payable |
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Accounts payable |
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Accrued liabilities |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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Investing activities: |
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Purchase of equipment and leasehold improvements |
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Life insurance premiums paid |
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Proceeds from the maturity of treasury securities |
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Purchases of treasury securities |
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Net cash used in investing activities |
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Financing activities: |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Net increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | |
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Supplemental cash flow information: |
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Cash paid for income taxes | $ | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
KOSS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
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| Nine Months Ended March 31, 2025 | ||||||||||||
| Common Stock |
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| Retained |
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| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||
Balance, June 30, 2024 | |
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Net loss | — |
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Stock-based compensation expense | — |
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Stock option exercises | |
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Balance, March 31, 2025 | |
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| Nine Months Ended March 31, 2024 | ||||||||||||
| Common Stock |
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| Retained |
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| Amount |
| Capital |
| Earnings |
| Total | ||||
Balance, June 30, 2023 | |
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Net loss | — |
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Stock-based compensation expense | — |
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Stock option exercises | |
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Balance, March 31, 2024 | |
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| Three Months Ended March 31, 2025 | ||||||||||||
| Common Stock |
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| Retained |
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| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||
Balance, December 31, 2024 | |
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Net loss | — |
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Stock-based compensation expense | — |
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Stock option exercises | — |
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Balance, March 31, 2025 | |
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| Three Months Ended March 31, 2024 | ||||||||||||
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| Retained |
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| Shares |
| Amount |
| Capital |
| Earnings |
| Total | ||||
Balance, December 31, 2023 | |
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Net loss | — |
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Stock-based compensation expense | — |
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Balance, March 31, 2024 | |
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| $ | |
| $ | |
| $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
KOSS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2025
(Unaudited)
The condensed consolidated balance sheets as of March 31, 2025 and June 30, 2024, the condensed consolidated statements of operations for the three and nine months ended March 31, 2025 and 2024, the condensed consolidated statements of cash flows for the nine months ended March 31, 2025 and 2024, and the condensed consolidated statements of stockholders' equity for the three and nine months ended March 31, 2025 and 2024, have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and have not been audited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The operating results for any interim period are not necessarily indicative of the operating results that may be experienced for the full fiscal year.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
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.
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.
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.
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.
A minimal federal income tax provision was recorded during the three and nine months ended March 31, 2025 as the result of taxes due on the fiscal year 2022 after an amended tax return was filed to properly reflect employer payroll taxes inappropriately paid in that year related to the gains from the disqualifying dispositions of incentive stock options. During the three- and nine-month periods ended March 31, 2024, a federal tax benefit of $
The effective tax rate for the three months ended March 31, 2025 and 2024 was
The Company's taxable loss generated during the first nine months of fiscal year 2025 increased the tax loss carryforward as of March 31, 2025 to approximately $
2. INVESTMENTS
The following tables summarize the unrealized positions for the held-to-maturity debt securities as of March 31, 2025 and June 30, 2024:
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| Amortized cost basis |
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| Fair Value | ||||
US Treasury securities | $ | |
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Total | $ | |
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| Amortized cost basis |
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US Treasury securities | $ | |
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Total | $ | |
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| $ | |
The following tables summarize the fair value and amortized cost basis of the held-to-maturity debt securities by contractual maturity as of March 31, 2025 and June 30, 2024:
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| Amortized Cost Basis |
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Due within one year | $ | |
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Due after one year through five years |
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Total | $ | |
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| June 30, 2024 | ||||
| Amortized Cost Basis |
| Fair value | ||
Due within one year | $ | |
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Due after one year through five years |
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Total | $ | |
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The components of inventories were as follows:
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Raw materials | $ | |
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Finished goods |
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Inventories, gross |
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Reserve for obsolete inventory |
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Inventories, net | $ | |
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On May 14, 2019, the Company entered into a secured credit facility (“Credit Agreement”) with Town Bank (“Lender”). The Credit Agreement provides for a $
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:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| March 31, |
| March 31, | ||||||||
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United States | $ | |
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Export |
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Net Sales | $ | |
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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
6. 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:
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Numerator |
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Net loss | $ | ( |
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Denominator |
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Weighted average shares, basic |
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Dilutive effect of stock compensation awards (1) |
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Diluted shares |
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Net loss attributable to common shareholders per share: |
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Basic | $ | ( |
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Diluted | $ | ( |
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| $ | ( |
As of March 31, 2025, the Company is involved in the matters described below:
•The Company maintains a program focused on enforcing its intellectual property and, in particular, certain patents in its patent portfolio. As part of this program, the Company filed complaints against certain parties alleging infringement on the Company’s patents relating to its wireless audio technology. In the event that a monetary award or judgment is received by the Company in connection with these complaints, all or portions of such amounts, such as contingent legal fees, will be due to third parties. The Company may incur additional fees and costs related to these lawsuits, however, timing and impact on its condensed financial statements is uncertain. Depending on the response to and the underlying results of the enforcement program, the Company may continue to litigate its claims, enter into licensing arrangements or reach some other outcome potentially advantageous to its competitive position.
•In early fiscal 2020, the Company was notified by One-E-Way, Inc. 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. The Company is investigating the merits of the notice and it is the Company’s hope that the controversy can come to a satisfactory resolution through good faith negotiations. Depending on the results of the investigation and the defense of these allegations, the ultimate resolution of this matter may have a material effect on the Company's condensed consolidated financial statements. The Company estimates that this matter will ultimately be resolved at a cost of approximately $
The ultimate resolution of these matters is not determinable unless otherwise noted.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (the “Act”) (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act. Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to the foregoing. In addition, when used in this Form 10-Q, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may,” “will,” “shall,” “should,” “could,” “would,” “forecasts,” “predicts,” “potential,” “continue”, “seeks”, “goal”, “projects” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this Form 10-Q, or in other Company filings, press releases, or otherwise. In addition to the factors discussed in this Form 10-Q, other factors that could contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: continued future fluctuations in economic conditions; the Company’s ability to successfully develop new products and assess potential market opportunities; the receptivity of consumers to new consumer electronics technologies; the Company’s ability to successfully and profitably market its products; the rate and consumer acceptance of new product introductions; the amount and nature of competition for the Company’s products; pricing; the number and nature of customers and their product orders; the Company’s ability to meet demand for products; production by third party vendors; foreign manufacturing, sourcing, and sales (including foreign government regulation, trade and importation concerns); uncertainties associated with the pandemics and other health crises or natural disasters, including their possible effects on the Company’s operations and its supply chain; trade tensions between the U.S. and China given recently enacted tariffs and their uncertainty; the impact of the ongoing conflict in Eastern Europe and the instability in the Middle East on the Company’s operations; the effects of any judicial, executive or legislative action affecting the Company or the audio/video industry; borrowing costs; changes in tax rates; the outcome of any litigation, government investigations, enforcement actions or other legal proceedings; the Company’s ability to retain and hire key personnel and other risk factors described in the Risk Factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 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.
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 nine months ended March 31, 2025 and 2024:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| March 31 |
| March 31 | ||||||||
Financial Performance Summary | 2025 |
| 2024 |
| 2025 |
| 2024 | ||||
Net sales | $ | 2,781,006 |
| $ | 2,637,606 |
| $ | 9,539,960 |
| $ | 9,371,668 |
Net sales increase (decrease) % from prior year period |
| 5.4% |
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| (22.0)% |
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| 1.8% |
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| (6.5)% |
Gross profit | $ | 1,084,672 |
| $ | 841,523 |
| $ | 3,662,555 |
| $ | 3,017,653 |
Gross profit as % of net sales |
| 39.0% |
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| 31.9% |
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| 38.4% |
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| 32.2% |
Selling, general and administrative expenses | $ | 1,603,678 |
| $ | 1,451,247 |
| $ | 4,960,478 |
| $ | 4,572,049 |
Selling, general and administrative expenses as % of net sales |
| 57.7% |
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| 55.0% |
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| 52.0% |
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| 48.8% |
Interest income | $ | 208,175 |
| $ | 214,814 |
| $ | 667,219 |
| $ | 636,482 |
Loss before income tax provision (benefit) | $ | (310,831) |
| $ | (394,910) |
| $ | (630,704) |
| $ | (917,914) |
Loss before income tax provision (benefit) as % of net sales |
| (11.2)% |
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| (15.0)% |
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| (6.6)% |
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| (9.8)% |
Income tax provision (benefit) | $ | 5,911 |
| $ | (81,130) |
| $ | 11,431 |
| $ | (77,372) |
Income tax provision (benefit) as % of loss before income tax provision (benefit) |
| (1.9)% |
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| 20.5% |
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| (1.8)% |
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| 8.4% |
Fiscal 2025 Period Results Compared with Fiscal 2024 Period
(comments refer to the three and nine-month periods ended March 31, 2025 unless otherwise noted)
Net sales for the three months ended March 31, 2025 were $2,781,000 compared to $2,638,000 for the same three-month period in the prior year, an increase of $143,000, or 5.4%. Increased sales to a certain segment of our domestic distributors, along with recurring orders from two of our custom OEM customers, were partially offset by lower sales from the other domestic distributors. Sales of $9,540,000 for the nine months ended March 31, 2025 were ahead by $168,000, or 1.8%, compared to sales of $9,372,000 for the nine months ended March 31, 2024. Higher sales to our European and Asian distributors, along with a custom headphone order to a new customer and a year-over-year increase in direct-to-consumer (“DTC”) sales were mostly offset by lower sales in the other market segments.
Sales to the export markets were $612,000 for the three months ended March 31, 2025, a slight increase of $30,000, or 5.1%, over sales of $582,000 for the same period in the prior year behind higher sales to our Asian distributors. A decrease in sales to our European distributors offset most of that favorability and was due mainly to timing of expected reorders being pushed back to the fourth quarter of the fiscal year. Export sales for the nine months ended March 31, 2025 were $3,022,000, a $976,000, or 47.7%, increase over sales of $2,045,000 for the same period in the prior year. Sales to European distributors were up 41% over the prior year, due to the continued success of new product sales as well as overall inventory restocking. Sales to the Asian markets were up $182,000, or 67.0%, compared to last year driven by sales of headphones used in metal detecting units. There were no sales to our Russian distributor during the current fiscal year, nor have there been any since April 2022.
For the three months ended March 31, 2025, sales to the domestic markets increased by $114,000, or 5.5%, as compared to the same period in the prior year. Sales of custom therapeutic listening headphones to one OEM customer and custom elements to another OEM customer were the biggest driver, while increased sales to a particular domestic distributor segment and DTC sales were offset by declines in other domestic distributor sales and sales to e-tailers. Sales for the nine months ended March 31, 2025 were $6,518,000, down $808,000, or 11.0%, compared to $7,326,000 for the nine months ended March 31,2024. A 57% decline in sales to the education markets, mainly due to timing, along with lower sales to domestic distributors, the music and books sector and e-tailers, was slightly offset by a 16.2% increase in DTC sales and a $262,000 custom headphones order.
As a percentage of net sales for the three months ended March 31, 2025, gross margin was 39.0%, which compares favorably to a gross margin of 31.9% for the same three months in the prior year, an increase of 710 basis points. Margin improvement for the third quarter of the current fiscal year was largely due to the adverse impact in the prior year of the sell-through of inventory investment made while freight costs were higher. Margins were positively impacted in the three months ended March 31, 2025 due to a decrease in the reserve for excess and obsolete inventory compared to the same period in the prior year. A more favorable customer mix also contributed to the improved margins. For the nine months ended March 31, 2025, the gross margin was 38.4%, an increase of 620 basis points over the gross margin of 32.2% for the same nine-month period in the prior year. In the prior year, the adverse impact related to the sell-through of inventory brought in at higher freight costs drove the improvement in margins for the first nine months of the current year. The write-off of some obsolete inventory partially offset those gains.
Despite a slowdown in the increase in freight rates, due to increased competition, post-Lunar New Year demand lull and capacity growth, shipment costs remain elevated and are expected to increase in the next quarter due to disruptions in key shipping routes, capacity issues, market volatility and general rate increases. Transit times decreased over the last quarter. The Company will sign a new contract with its dedicated freight forwarder in May but does not expect significant changes regarding freight costs or available services.
With the recent tariff announcements, the Company expects to pay significantly more in duties going forward for product manufactured in China. Given the volatility of the tariff landscape and the substantial amount of product coming from China, the Company continues to closely monitor the latest updates and their impact on operations, planning efforts and financial conditions.
Selling, general and administrative expenses of $1,604,000 for the three months ended March 31, 2025 increased $152,000, or 10.5%, from $1,451,000 for the same three-month period in the prior year. The increase was due mainly to new product certification and compliance testing, along with higher online advertising spend. For the nine months ended March 31, 2025, selling, general and administrative expenses of $4,960,000 were higher by $388,000, or 8.5%, compared to $4,572,000 for the nine months ended March 31, 2024. Increased spend related to certification, compliance and online advertising was also the primary driver of the year over year nine-month period overall increase, coupled with expenditures related to contract resources utilized to modify existing NetSuite functionality to incorporate necessary security and user rights. The reduction in stock-based compensation expense during the current year partially offset the increases as the remaining unvested stock options granted as part of the Koss Corporation 2012 Omnibus Incentive Plan (the “2012 Plan”) are nearly fully vested.
An immaterial federal income tax expense was booked during the three and nine months ended March 31, 2025 due to the amendment of the 2022 fiscal year tax return as a result of adjustments for employer payroll taxes inappropriately paid in that year related to the gains from the disqualifying dispositions of incentive stock options. No federal income tax expense was recorded for the same periods
in the prior year, however, as a result of the Return-to-Provision (RTP) adjustment recorded during the third quarter of fiscal year 2024, a federal income tax benefit of $82,652 was recorded for both the three and nine months ended March 31, 2024. State income tax expense of $5,203 and $1,522 was recorded for the three months ended March 31, 2025 and 2024, respectively, and $10,724 and $5,281 was recorded for the nine months ended March 31, 2025 and 2024, respectively, reflecting the minimum required state tax due. The effective tax rate for the three and nine months ended March 31, 2025 was 1.9% and 1.8%, respectively. For the three and nine months ended March 31, 2024, the effective tax rate was 20.5% and 8.4%, respectively. It is anticipated that the effective rate in future years will continue to be reduced by utilization of a portion or all of the available federal and state net operating loss (NOL) carryforwards that existed as of June 30, 2024.
The Company’s remaining expected federal tax loss carryforward approximates $33,600,000 at the end of the third quarter. The taxable loss for the initial nine months of the fiscal year increased the deferred tax asset by approximately $190,000, leading to a deferred tax asset related to the Company's net operating loss carry forwards of roughly $8,600,000 as of March 31, 2025. The valuation allowance was adjusted accordingly to fully offset the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss has occurred.
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 $2.9 million of cash and cash equivalents, $10.1 million of short-term investments and available credit facilities of $5.0 million on March 31, 2025.
Recent Trends
Recent and ongoing macroeconomic and geopolitical conditions have impacted, and will continue to impact, our business. These include economic uncertainty from unexpected job growth, recently enacted tariffs and the global trade war, elevated inflation and interest rates, reduced consumer confidence, disruption in our supply chain, the ongoing crises in Eastern Europe and the Middle East and increased risk of cyberattacks.
While the impact of these factors on our fiscal 2025 performance remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations. These and other uncertainties with respect to these recent events could result in changes to our current expectations.
Tariffs - As of April 2025, U.S. tariff policy has undergone significant changes under President Donald Trump's administration, leading to heightened global trade tensions and economic repercussions. The tariff announcements have significantly increased the Company's expected duty costs for products manufactured in China to as high as 145%. The new tariffs are also expected to increase inflation in the short term, which could result in a decline in consumer sentiment. The Company continues to monitor the volatile tariff landscape to assess its impact on operations, planning, and financial conditions.
Inflationary Cost Environment and the Impact on Consumer Confidence – In addition to the expected inflation as a result of the newly imposed tariffs, higher interest rates and higher energy costs continue. A pervasive sense of uncertainty is evident, and consumer sentiment is waning. Consumers may put off making purchase decisions and cut back on overall spending, which could impact the Company’s sales volumes.
As noted, the Company will experience higher costs for commodities and packaging materials due to the recently enacted tariffs and will react with pricing actions as it deems necessary. 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 faces significant risks due to reliance on third-party supply chains, primarily in southern China and Taiwan, distribution networks and the availability of necessary components to produce a considerable number of our products. Issues such as pandemic restrictions, geopolitical unrest, labor shortages, strikes, and component procurement failures could delay manufacturing and increase costs. The escalating U.S.-China tariff war has severely disrupted supply chains, impacting both domestic industries and global trade dynamics. Continued geopolitical tensions between China and Taiwan may affect future shipments from Taiwan-based suppliers. Adverse changes in social, political, regulatory, or economic conditions could increase product costs or delay shipments. The escalation of trade tensions might lead to retaliatory trade restrictions, potentially
affecting the Company's ability to source products from China or conduct business internationally. Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, with limited ability to pass increased tariffs and freight costs onto customers. Broad tariffs may shift supply chains out of China, which could cause inflation to rise, impacting costs and consumer demand. The Company will continue to monitor the evolving situation and others that may arise as the changes in the current labor landscape, coupled with rising inflation and energy prices, could potentially exacerbate disruptions in the supply chain, delay product shipments and increase transportation costs.
Russia’s Invasion of Ukraine - Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and these sanctions remain unchanged. 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 continues to receive orders from their Ukrainian distributor in the first half of both fiscal years 2025 and 2024 with potential for more in the current year. During the three and nine months ended March 31, 2025 and 2024, there were no sales to Russia.
Cyberattacks - Cyberattacks are a growing geopolitical risk, becoming larger, more frequent, more sophisticated and more relentless as technology has evolved, resulting in privacy, security, and compliance concerns. 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 nine months ended March 31, 2025 and 2024:
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Total cash (used in) provided by: | 2025 |
| 2024 | ||
Operating activities | $ | 319,989 |
| $ | (16,558) |
Investing activities |
| (374,623) |
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| (197,625) |
Financing activities |
| 152,445 |
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| 35,800 |
Net increase (decrease) in cash and cash equivalents | $ | 97,811 |
| $ | (178,383) |
Operating Activities
The cash provided by operating activities during the nine months ending March 31, 2025 was mainly driven by customer deposits of approximately $334,000 for orders that will ship in the next quarter. Cash used in operating activities during the nine months ended March 31, 2024 was primarily a result of the payment of bonuses earned in the year previous. Cash provided by improvements in cash flow related to working capital, namely the reduction of inventory levels, offset the majority of outflow.
Investing Activities
Cash used by investing activities for the nine months ended March 31, 2025 was related mostly to fixed asset expenditures, namely the replacement of a second roof section of the Company’s facility for approximately $346,000 and other leasehold improvements. Payments of approximately $70,000 were also made for the premiums on the Company-owned life insurance policies on two of its executives. Proceeds of $9,179,000 received during the nine months ended March 31, 2025 from the maturity of U.S. Treasury securities were mostly reinvested to purchase $9,059,000 of similar securities at a net discount of $60,000. Cash used by investing activities for the nine months ended March 31, 2024 was also related to fixed asset expenditures, predominantly the replacement of the first roof section of the building for approximately $300,000. The Company also paid $82,000 in premiums on the Company-owned life insurance policies on two of its executives. Proceeds of $14,331,000 from the maturity of U.S. Treasury securities were received and utilized to purchase $14,286,000 of similar securities at a $300,000 discount.
Financing Activities
Cash from the exercise of stock options during the nine months ended March 31, 2025 and 2024 provided the only cash from financing activities. An aggregate of 76,000 and 20,000 shares of common stock, respectively, were issued as a result of employee stock option exercises under grants still outstanding from the Company’s 2012 Omnibus Incentive Plan for those periods.
As of March 31, 2025 and June 30, 2024, the Company had no outstanding borrowings on its bank line of credit facility.
There were no purchases of common stock in the three and nine months ended March 31, 2025 or 2024 under the Company’s stock repurchase program.
Liquidity
The Company believes its existing cash and cash equivalents, investments in short-term U.S. Treasury securities, cash provided by operating activities and available borrowings under its credit facility, if any, will be sufficient to meet its anticipated working capital, and capital expenditure requirements during the next twelve months. There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels. 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
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, 2025, the Company was in compliance with all covenants related to the Credit Agreement. As of March 31, 2025 and June 30, 2024, there were no outstanding borrowings on the facility.
Contractual Obligation
The Company leases its 126,000 square foot facility 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. The Company has the option to renew the lease for an additional five years beginning July 1, 2028 and ending June 30, 2033 under the same terms and conditions except that the annual rent will increase to $397,000. 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. The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from the information we provided in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Off-Balance Sheet Transactions
At March 31, 2025, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
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 March 31, 2025. The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as of March 31, 2025 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 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. The lawsuits still unresolved are pending in U.S. District Courts in Southern District of California (PEAG, LLC) and District of Utah (Skullcandy, Inc.).
In early fiscal 2020, the Company was notified by One-E-Way, Inc. 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. The Company is investigating the merits of the notice.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases of common stock of the Company made during the three months ended March 31, 2025, by the Company.
COMPANY REPURCHASES OF EQUITY SECURITIES
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| Total # of |
| Average |
| Total Number of Shares Purchased as |
| Approximate Dollar Value of | ||
January 1 - January 31, 2025 |
| — |
| $ | — |
| — |
| $ | 2,139,753 |
February 1 - February 28, 2025 |
| — |
| $ | — |
| — |
| $ | 2,139,753 |
March 1 - March 31, 2025 |
| — |
| $ | — |
| — |
| $ | 2,139,753 |
(1)In April of 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase from time to time up to $2,000,000 of its common stock for its own account. Subsequently, the Board of Directors periodically has approved increases in the stock repurchase program. The most recent increase was for an additional $2,000,000 in October 2006, for a maximum of $45,500,000 of which $43,360,247 had been expended through March 31, 2025.
Item 6. Exhibits
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Exhibit No. | Exhibit Description |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
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 | |
32.2 | |
101 | The following financial information from Koss Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2025 and June 30, 2024, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended March 31, 2025 and 2024 (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended March 31, 2025 and 2024, (iv) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and nine months ended March 31, 2025 and 2024 and (v) the Notes to Condensed Consolidated Financial Statements (Unaudited). * |
__________________________
* Filed herewith
** Furnished herewith
# Management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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KOSS CORPORATION |
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/s/ Michael J. Koss |
| May 9, 2025 |
Michael J. Koss |
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Chairman |
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Chief Executive Officer |
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/s/ Kim M. Schulte |
| May 9, 2025 |
Kim M. Schulte |
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Chief Financial Officer |
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Principal Accounting Officer |
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael J. Koss, certify that:
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I have reviewed this quarterly report on Form 10-Q of Koss Corporation; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Dated: May 9, 2025 |
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/s/ Michael J. Koss |
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Michael J. Koss |
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Chairman and Chief Executive Officer |
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Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kim M. Schulte, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Koss Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the condensed financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Dated: May 9, 2025 |
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/s/ Kim M. Schulte |
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Kim M. Schulte |
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Chief Financial Officer |
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Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Michael J. Koss, Chief Executive Officer of Koss Corporation (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that to my knowledge:
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Michael J. Koss |
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Michael J. Koss |
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Chairman and Chief Executive Officer |
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Dated: May 9, 2025 |
Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Kim M. Schulte, Chief Financial Officer of Koss Corporation (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 that to my knowledge:
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Kim M. Schulte |
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Kim M. Schulte |
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Chief Financial Officer |
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Dated: May 9, 2025 |
Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.