Koss(KOSS) - 2025 Q4 - Annual Report

PART I Business Overview Koss Corporation designs, manufactures, and sells stereo headphones globally, with 84% of FY2025 sales from music headphones, actively enforcing its extensive intellectual property rights - Koss Corporation operates as a single reporting segment, focusing on the design, manufacture, and sale of stereo headphones and related personal listening accessories[19] - Approximately 84% of the Company's fiscal year 2025 sales were from stereo headphones used for listening to music, with the remaining 16% from headphones for communications, education, and OEM[21] - As of June 30, 2025, the Company had over 400 trademarks registered in approximately 88 countries and over 170 patents in approximately 26 countries, actively enforcing its intellectual property rights[24][25] - The Company's business is not seasonal, with net sales for the last three years, including fiscal year 2025, being fairly evenly dispersed throughout the year[26] Net Sales by Country (Fiscal Years 2025 vs. 2024) | Country/Region | 2025 Sales ($) | 2024 Sales ($) | | :--------------- | :------------- | :------------- | | United States | 8,968,799 | 9,795,438 | | Sweden | 1,247,981 | 993,043 | | Czech Republic | 1,206,827 | 418,004 | | Korea, Republic of | 207,061 | 185,143 | | Malaysia | 156,976 | 41,641 | | Canada | 131,320 | 101,056 | | Japan | 114,438 | 66,682 | | All other countries | 590,768 | 664,062 | | Net sales | 12,624,170 | 12,265,069 | Risk Factors The company faces diverse risks including macroeconomic downturns, geopolitical tensions, supply chain disruptions, inflationary pressures, operational challenges, and stock price volatility - The Company's sales outside the U.S. represent nearly 30% of total net sales for fiscal year 2025, and it relies almost exclusively on contract manufacturing facilities in China, making it vulnerable to global economic and political developments[38] - Geopolitical tensions, including the Russia-Ukraine war and U.S.-China trade relations, pose risks of supply chain disruptions, trade restrictions, and increased costs, with sales to Russia suspended and Ukraine sales impacted[42][43][45] - Inflationary pressures, elevated interest rates, and increased costs for commodities, packaging, wages, energy, and transportation could adversely affect the Company's profitability and consumer demand[46] - Over 90% of the Company's products are sourced from contract manufacturing facilities in China and Taiwan, creating dependence and risks related to geopolitical tensions, supply chain interruptions, and tariffs[53] - Direct-to-Consumer (DTC) sales through the Amazon portal accounted for approximately 19% and 17% of net sales in fiscal years 2025 and 2024, respectively, making the company significantly dependent on this channel[66] - The market price of the Company's common stock has experienced significant fluctuations and volatility, with a high of $18.73 and a low of $4.00 during fiscal year 2025, potentially driven by social media hype[74][75] Unresolved Staff Comments There are no unresolved staff comments applicable to the company Cybersecurity Koss Corporation integrates robust cybersecurity policies and processes, including continuous monitoring, cloud migration, and third-party assessments, into its overall risk management framework - The Company has integrated cybersecurity risk management into its overall risk processes, including programs for monitoring threats, updating software, and securing corporate systems[80] - Enhancements to cybersecurity include migrating business-critical systems to Tier-1 cloud service providers, enhanced encryption, two-factor authentication (2FA), and real-time threat monitoring[80] - Annual vulnerability assessments and penetration testing are performed by third-party service providers, with results shared with the CFO[81] - The Board of Directors reviews cybersecurity policies and processes annually, with management providing regular updates on programs, training metrics, and risk mitigation strategies[83] Properties Koss Corporation leases its 126,000 square foot Milwaukee facility from a related party, with a renewed lease extending to 2028 and an option to 2033, including a rent increase - The Company leases its 126,000 square foot facility in Milwaukee, Wisconsin, from Koss Holdings, LLC, which is controlled by beneficiaries of the former chairman's revocable trust and includes current stockholders[84] - The lease was renewed on May 24, 2022, extending to June 30, 2028, with a second extension option to June 30, 2033[84] - Annual rent is $380,000 for the extended term, increasing to $397,000 for the second extended term, which will be the first rent increase since 1996[84] Legal Proceedings Koss Corporation is engaged in ongoing patent infringement lawsuits against jLab Audio and Skullcandy, and is investigating a new infringement claim from One-E-Way, Inc - The Company has ongoing patent infringement suits against PEAG, LLC d/b/a jLab Audio and Skullcandy, Inc. related to its wireless headphone technology, filed on July 22, 2020[85] - A Supplemental Notice of Infringement was sent to the Company on March 18, 2025, by One-E-Way, Inc., alleging infringement by some of Koss's wireless products, which the Company is investigating[86] Mine Safety Disclosures Mine safety disclosures are not applicable to the company PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Koss Corporation's common stock trades on Nasdaq (KOSS), with 9.46 million shares outstanding; the company has an authorized stock repurchase program but no recent activity and no plans for future dividends - The Company's common stock is traded on The Nasdaq Capital Market under the trading symbol KOSS[89] - As of August 25, 2025, there were 9,456,438 shares outstanding of the registrant's common stock[8] - The Board of Directors has authorized an aggregate of $45,500,000 for stock repurchases, with $2,139,753 remaining available as of June 30, 2025; no purchases were made in fiscal years 2025 or 2024[90] - The Company has not paid dividends on its capital stock since March 2014 and does not anticipate paying cash dividends in the foreseeable future, intending to retain future earnings[91] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes FY2025 and FY2024 financial performance, noting a 2.9% net sales increase, improved gross profit margin, higher SG&A, and strong liquidity, alongside critical accounting estimates Consolidated Performance Summary (Fiscal Years 2025 vs. 2024) | Metric | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Net sales | $12,624,170 | $12,265,069 | | Net sales increase (decrease) % from prior year | 2.9% | (6.4)% | | Gross profit | $4,773,598 | $4,185,447 | | Gross profit as % of net sales | 37.8% | 34.1% | | Selling, general and administrative expenses | $6,510,721 | $6,057,606 | | Selling, general and administrative expenses as % of net sales | 51.6% | 49.4% | | Interest income | $879,774 | $847,644 | | Loss before income tax provision (benefit) | $(857,349) | $(1,024,515) | | Income tax provision (benefit) | $17,482 | $(73,604) | | Net loss | $(874,831) | $(950,911) | | Basic Loss per common share | $(0.09) | $(0.10) | - Net sales increased by 2.9% in fiscal year 2025 to $12,624,170, primarily driven by a 48% increase in sales to European distributors and a 16.5% increase in Direct-to-Consumer (DTC) sales[99][103] - Gross profit as a percentage of net sales increased from 34.1% in FY2024 to 37.8% in FY2025, attributed to a favorable sales mix, higher-margin new product sales to Europe, and reduced impact from higher prior-year freight rates[99][106] - Selling, general and administrative expenses increased by 7.5% ($453,000) in FY2025, mainly due to new product compliance testing, higher online marketing spend, and legal costs for patent litigation and an ADA lawsuit settlement[99][107] Cash Flows Summary (Fiscal Years 2025 vs. 2024) | Activity | 2025 ($) | 2024 ($) | | :-------------------------------- | :--------- | :--------- | | Operating activities | (214,908) | (190,531) | | Investing activities | (120,284) | (198,425) | | Financing activities | 305,908 | 134,975 | | Net (decrease) in cash and cash equivalents | (29,284) | (253,981) | - As of June 30, 2025, the Company had $2.8 million in cash and cash equivalents, $12.9 million in short-term investments, and available credit facilities of $5.0 million, indicating a strong financial position[113] Overview Fiscal Year 2025 Summary Consolidated Results 2025 Results of Operations Compared with 2024 Liquidity and Capital Resources Cash Flows Operating Activities Investing Activities Financing Activities Short Term Liquidity Long Term Liquidity Credit Facility Stock Repurchase Program Contractual Obligation Critical Accounting Estimates Revenue Recognition Accounts Receivable Inventories Product Warranty Obligations Deferred Compensation Stock-Based Compensation Income Taxes Quantitative and Qualitative Disclosure About Market Risk Quantitative and qualitative disclosures about market risk are not applicable to the company Financial Statements and Supplementary Data This section refers to the Consolidated Financial Statements and Supplementary Data included elsewhere in the report - The report includes Consolidated Financial Statements: Balance Sheets, Statements of Operations, Cash Flows, and Stockholders' Equity for the years ended June 30, 2025 and 2024, along with Notes to Consolidated Financial Statements[164] - All financial statement schedules have been omitted because the information is not applicable, not material, or included in the Consolidated Financial Statements or their notes[165] - An Exhibit Index is attached, detailing other documents filed as part of this report[166][271] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes during the quarter - The Company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of June 30, 2025[149] - Management concluded that the Company's internal control over financial reporting was effective as of June 30, 2025[151] - There were no material changes in the Company's internal control over financial reporting during the three months ended June 30, 2025[152] Other Information There is no other information to report Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections applicable to the company PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the code of ethics, is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[156] - The Company has adopted a code of ethics and an Insider Trading and Tipping Policy, publicly available on its website[156][157] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[158] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[159] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[160] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement - Information is incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement[161] PART IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits, including Balance Sheets, Statements of Operations, Cash Flows, Stockholders' Equity, and Notes - The report includes Consolidated Financial Statements: Balance Sheets, Statements of Operations, Cash Flows, and Stockholders' Equity for the years ended June 30, 2025 and 2024, along with Notes to Consolidated Financial Statements[164] - All financial statement schedules have been omitted because the information is not applicable, not material, or included in the Consolidated Financial Statements or their notes[165] - An Exhibit Index is attached, detailing other documents filed as part of this report[166][271]