KOSS CORP

Previous wording

We are subject to various risks that may adversely affect our business, prospects, financial condition, and results of operations, including, but not limited to, those set forth below. These are the risks and uncertainties we believe are most important for you to consider, however, there may be other risks that are currently deemed immaterial or not currently known to us that could materially impact the business. If any of the following risks, or those unidentified develop into actual events, our business may not grow, our stock price may suffer, and we may be unable to stay in business. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Current wording

We are subject to various risks that may adversely affect our business, prospects, financial condition, and results of operations, including, but not limited to, those set forth below. These are the risks and uncertainties we believe are most important for you to consider, however, there may be other risks that are currently deemed immaterial or not currently known to us that could materially impact the business. If any of the following risks, or those unidentified, develop into actual events, the Company’s business, reputation, results of operations, financial condition and stock price can be materially and adversely affected. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Previous wording

The Company uses contract manufacturing facilities in the People’s Republic of China. Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability. Additionally, government trade policies, including the imposition of tariffs, export restrictions, sanctions or other retaliatory measures, as described above under “The Company is dependent on the proper functioning of our contract manufacturers, our supply chain, and our distribution networks. Any disruptions could adversely affect our business, financial condition or results of operations.,” could limit our ability to source materials and products from China at acceptable prices or at all. We do not currently have arrangements with contract manufacturers in other countries that may be acceptable substitutes. We cannot predict what actions may ultimately be taken with respect to tariffs, export controls, countermeasures, or other trade measures between the U.S. and China or other countries and what products may be subject to such actions. To the extent such actions inhibit our transactions with contract manufacturing facilities and suppliers in China, our business may be materially adversely affected.

Current wording

Primarily all of the Company’s contract manufacturing facilities are located in China and we do not currently have arrangements with contract manufacturers in other countries that may be acceptable substitutes. Significant increases in wages or wage taxes paid by contract manufacturing facilities may increase the cost of goods manufactured in China which could have a material adverse effect on the Company’s profit margins and profitability. Additionally, restrictions on international trade, the imposition of tariffs, sanctions and other controls on imports or exports of goods, technology or data, can materially adversely impact the Company’s business and supply chain. Further restrictive measures, which could be announced with little or no warning, could limit the Company’s ability to source materials and product from China at acceptable prices or at all and necessitate a change to the Company’s supply chain which would be disruptive, time-consuming and expensive. We cannot predict what actions may ultimately be taken with respect to tariffs, export controls, countermeasures, or other trade measures between the U.S. and China or other countries and what products may be subject to such actions. To the extent such actions inhibit our transactions with contract manufacturing facilities and suppliers in China, our business may be materially adversely affected. See further discussion below under “The Company is dependent on the proper functioning of our contract manufacturers, our supply chain, and our distribution networks. Any disruptions could adversely affect our business, financial condition or results of operations” and “A shift in U.S. and China trade relations, policies and imposed tariffs could adversely affect the Company’s business, financial condition and results of operations.”

Previous wording

In February 2022, Russian military forces invaded Ukraine, resulting in an ongoing military conflict between the two countries. The length, impact and outcome of the ongoing conflict is highly unpredictable and the conflict has caused, and has expected to continue to cause, global political, economic and social instability, volatility in commodity prices and energy prices, increased cyberattacks and disruptions to the global economy, international trade and global supply chain. 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 at that time. Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine were impacted. There have been no sales to Russia during the fiscal years ended June 30, 2024 and 2023, however, sales to Ukraine resumed during the current fiscal year with more expected in the future. Prior to the imposition of the sanctions against Russia, sales to Russia approximated 2% of the Company’s total sales.

Current wording

Ongoing and escalating geopolitical conflicts, including the Russia-Ukraine war, instability in the Middle East, and heightened tensions between the United States and China, create significant uncertainty in the global economic and regulatory environment. These conflicts may lead to supply chain disruptions, restrictions on the movement of goods, changes in trade policies, and imposition of new tariffs, sanctions, or export controls. For example, the conflict in Russia and Ukraine and the related sanctions and trade restrictions on Russia have caused and are expected to continue to cause, global political, economic and social instability, volatility in commodity prices and energy prices, increased cyberattacks and disruptions to the global economy. In accordance with Executive Order 14071 signed on April 6, 2022 soon after the war began, the Company suspended sales to Russia. Also, as a result of the humanitarian crisis in Ukraine created by the war and the population seeking refuge in other countries, sales to Ukraine have been impacted. There were no sales to Russia during the fiscal years ended June 30, 2025 and 2024, however, sales to Ukraine resumed in the fiscal year ended June 30, 2024 with more expected in the future. Prior to the imposition of the sanctions against Russia, fiscal year 2022 sales to Russia approximated 2% of the Company’s total sales.

Previous wording

Inflation has the potential to adversely affect our business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The Company continues to experience inflationary cost pressures in our commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting our ability to meet customer demand. We attempt to mitigate these increases through pricing strategies, as well as working with a dedicated freight forwarding partner to minimize freight rate increases. Inflation may impact customer demand for our products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items, availability of credit and dwindling savings. 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.

Current wording

Persistent inflationary pressures and elevated interest rates have the potential to adversely affect the Company’s business, financial condition and results of operations, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The Company continues to experience inflationary cost pressures in commodities, packaging materials, wages and higher energy and transportation costs, thus potentially impacting the ability to meet customer demand. The Company attempts to mitigate these increases through pricing strategies, as well as working with a dedicated freight forwarding partner to minimize freight rate increases. Inflation may impact customer demand for the Company’s products resulting from a slowdown in consumer spending as disposable income decreases due to rising interest rates, the price of essential items, availability of credit and dwindling savings. 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.

Previous wording

Risks Related to Our Operations and Financial Results

Current wording

The Company’s operations and financial results are subject to risks arising from evolving U.S.-China trade relations. In April 2025, the U.S. government imposed tariffs of up to 145% on certain imports from China, significantly increasing the Company’s costs of goods sourced from China. On May 12, 2025, the U.S. and China reached a temporary 90-day trade truce, reducing these tariffs to approximately 30%, including a 10% baseline reciprocal tariff and a 20% surcharge on specific categories. The truce, effective May 14 through August 12, 2025, resulted in a suspension of the elevated China-specific tariff rates, with China reciprocally reducing tariffs on U.S. exports. On August 12, 2025, the US and China extended a tariff truce for another 90 days, pushing negotiations into the fall.

Previous wording

Many of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan. There has been increasing 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. There has also been increasing geopolitical tension between China and the United States. 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 alterationsto 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.

Current wording

Over 90% of the Company’s products are sourced from contract manufacturing facilities in the People’s Republic of China and Taiwan. There has been increasing 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. There has also been increasing geopolitical tension between China and the United States. 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 alterationsto 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.

Previous wording

Our largest concentration of sales in fiscal year 2024 came from our DTC sales via the Amazon portal and accounted for more than 17% and 20% of our net sales in fiscal years 2024 and 2023, respectively. We do not have long-term contracts to conduct sales through the Amazon portal or for sales to any of our customers, and all of our customers generally purchase from us on a purchase order basis. As a result, Amazon or any other customer generally may, with no notice or penalty, cease ordering and selling our products, or materially reduce their orders. If certain customers, individually or in aggregate, choose to no longer sell our products, slow their rate of purchase of our products or decrease the number of unique products they purchase, our results of operations would be adversely affected.

Current wording

Our largest concentration of sales in fiscal year 2025 came from our DTC sales via the Amazon portal and accounted for more than 19% and 17% of our net sales in fiscal years 2025 and 2024, respectively. We do not have long-term contracts to conduct sales through the Amazon portal or for sales to any of our customers, and all of our customers generally purchase from us on a purchase order basis. As a result, Amazon or any other customer generally may, with no notice or penalty, cease ordering and selling our products, or materially reduce their orders. If certain customers, individually or in aggregate, choose to no longer sell our products, slow their rate of purchase of our products or decrease the number of unique products they purchase, our results of operations would be adversely affected.

Previous wording

We offer products that can be affected by design and manufacturing defects. Defects can also exist in components used for our products. Component defects could make the Company’s products unsafe and create a risk of property damage and personal injury. There can be no assurance the Company will be able to detect all issues and defects in the products it offers. Failure to do so can result in widespread technical and performance issues affecting the Company’s products. In addition, the Company can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant, and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of the Company’s products, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.

Current wording

We offer products that can be affected by design and manufacturing defects. Defects can also exist in components used for our products. Component defects could make the Company’s products unsafe and create a risk of property damage and personal injury. There can be no assurance that the Company will be able to detect all issues and defects in the products it offers. Failure to do so can result in widespread technical and performance issues affecting the Company’s products. In addition, the Company can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant, and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of the Company’s products, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.

Previous wording

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. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security. The investor must also recognize the risk that these types of attacks might have on 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.

Current wording

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. While we devote resources to security measures to protect our systems and data, these measures cannot provide absolute security. These types of attacks can also have an impact on the entire supply and distribution chain for the Company’s product line. Given connectivity through the internet, the Company can only be as strong as the weakest link, whether that is a financial service provider, third party distributor, reseller, transportation service provider, contract manufacturer, customer or consumer.

Previous wording

We are subject to income taxes in the United States. Our effective income tax rate could be adversely affected in the future by several factors, including changes in the valuation of deferred tax assets and liabilities and changes in tax laws. We regularly assess all of these matters to determine the adequacy of our tax provision. If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results, and cash flows could be adversely affected.

Current wording

The Company regularly assesses all of these tax-related matters to determine the adequacy of its tax provision. If current tax strategies are ineffective or not in compliance with domestic and international tax laws, the Company’s financial position, operating results, and cash flows could be adversely affected.

Previous wording

The market price of our stock is subject to price volatility. Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to companies’ operating performance. Factors such as the depth and liquidity of the market for our common stock, investor perceptions of us and our business, actions by institutional shareholders, strategic actions by us, litigation, changes in accounting standards, policies, guidance, interpretations and principles, additions or departures of key personnel, a decline in demand for our products and our results of operations, financial performance and future prospects may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from realizing the liquidity of their shares. During the fiscal year ended June 30, 2024, the sales price of our common stock fluctuated between a reported high sales price of $6.95 on May 14, 2024 and a reported low sales price of $2.27 on April 17, 2024. The trading volume in shares of our common stock can also vary widely. For example, during the most recent fiscal year, daily trading volume ranged from a low of 2,000 shares on April 30, 2024 to a high of 19,694,200 on May 14, 2024. Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations. As a result of this volatility, investors may experience losses on their investment in our common stock.

Current wording

The market price of our stock is subject to price volatility. Additionally, over the years, the Company, the technology industry, and the stock market as a whole have experienced dramatic and extreme stock price and volume fluctuations that have affected stock prices in ways that may have been driven primarily by social media hype rather than companies’ operating performance and prospects. Factors such as the depth and liquidity of the market for our common stock, investor perceptions of us and our business, actions by institutional shareholders, strategic actions by us, litigation, changes in accounting standards, policies, guidance, interpretations and principles, additions or departures of key personnel, a decline in demand for our products and our results of operations, financial performance and future prospects may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from realizing the liquidity of their shares. During the fiscal year ended June 30, 2025, the sales price of our common stock fluctuated between a reported high sales price of $18.73 on July 3, 2024 and a reported low sales price of $4.00 on April 9, 2025. The trading volume in shares of our common stock can also vary widely. For example, during the most recent fiscal year, daily trading volume ranged from a low of 11,400 shares on May 1, 2025 to a high of 70,055,500 on July 3, 2024. Our market capitalization, as implied by various trading prices, can reflect valuations that diverge significantly from those seen prior to volatility and, to the extent these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations. As a result of this volatility, investors may experience losses on their investment in our common stock.

Previous wording

The Koss family, including certain members of our management, owns a significant percentage of our stock and, as a result, the trading price for our shares may be depressed and they can take actions that may be adverse to the interests of our stockholders.

Current wording

The Koss family, including certain members of our management, owns a significant percentage of our stock and, as a result, the trading price for our shares may be depressed and it can take actions that may be adverse to the interests of our stockholders.

Previous wording

Michael Koss, our President and Chief Executive Officer, beneficially owned 4,018,410 shares of our common stock as of August 1, 2024, representing 42.5% of shares outstanding on such date, including shares held by a voting trust over which Mr. Koss holds sole voting and dispositive power. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with a large stockholder, since such a stockholder can significantly influence all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, due to his significant ownership stake and his service as our Principal Executive Officer and Chairman of the Board of Directors, Michael Koss directs the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.

Current wording

Michael Koss, our President and Chief Executive Officer, beneficially owned 3,858,410 shares of our common stock as of August 1, 2025, representing 40.8% of shares outstanding on such date, including shares held by a voting trust over which Mr. Koss holds sole voting and dispositive power. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with a large stockholder, since such a stockholder can significantly influence all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, due to his significant ownership stake and his service as our Principal Executive Officer and Chairman of the Board of Directors, Michael Koss directs the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.

Previous wording

Our employees, directors and officers, and their affiliates collectively hold substantial amounts of shares of our common stock and have vested options for the purchase of our common stock. Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline. Other than restrictions on trading that arise under securities laws (or pursuant to our securities trading policy that is intended to facilitate compliance with securities laws), including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information, we have no restrictions on the right of our employees, directors and officers, and their affiliates, to sell their unrestricted shares of common stock.

Current wording

Our employees, directors and officers, and their affiliates collectively hold substantial amounts of shares of our common stock and have vested options for the purchase of our common stock. Sales of a substantial number of such shares by these stockholders, or the perception that such sales will occur, may cause the market price of our common stock to decline. Other than restrictions on trading that arise under securities laws (or pursuant to our Insider Trading and Tipping Policy that is intended to facilitate compliance with securities laws), including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information, we have no restrictions on the right of our employees, directors and officers, and their affiliates, to sell their unrestricted shares of common stock.