KOSS CORP

In the three months ended March 31, 2021, stock option exercises resulted in tax deductible compensation expense of approximately $29,300,000.  The deduction of this stock option exercise compensation expense will cause a tax loss in the year ended June 30, 2021, which will be carried forward to future tax years.  The expected tax loss carryforward will create a deferred tax asset of approximately $7,400,000.  The future realization of this deferred tax asset is uncertain.  The valuation allowance was increased to fully offset the deferred tax asset.

Net sales in the domestic market were approximately $2,693,000 in the three months ended March 31, 2021, compared to approximately $4,227,000 in the prior year period.  Sales to mass retail customers decreased due to reduced product placement.  Net sales to certain distrbutors were negatively impacted in the quarter ended March 31, 2021 due to timing of shipments and sales recognition that was delayed until the fiscal fourth quarter.  In March 2020, there was a surge in demand as pandemic related shutdowns took place causing many people to work and study remotely.  Current year comparisons to the three months ended March 31, 2020, show declines in several channels due to the strength in last year’s numbers.  The Company made the final shipment of a non Koss branded product to a mass retailer in the US during the quarter ended March 31, 2021.  The loss of net sales for this product will likely increase margins since it had very low margins compared to other products.

Our stock price has recently been extremely volatile and may be volatile in the future. By way of example, on January 22, 2021, the price of our common stock closed at $3.34 per share, on January 29, 2021, our stock price closed at $64.00 per share with no discernible material announcements or developments relating to our operations. On January 28, 2021, the intra-day sales price of our common stock fluctuated between a reported low sale price of $25.00 and a reported high sales price of $127.45. Additionally, the trading volume in shares of our common stock during the three months ended March 31, 2021 ranged from a low of 26,200 shares on January 14, 2021 to a high of 60.2 million on March 10, 2021. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock.

Recently, securities of certain companies have experienced significant and extreme volatility in stock price due to a sudden increase in demand for stock resulting in aggregate short positions in the stock exceeding the number of shares available for purchase, forcing investors with short exposure to pay a premium to repurchase shares for delivery to share lenders. This is known as a “short squeeze.” These short squeezes have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. A large proportion of our common stock has been and may continue to be traded by short sellers which may increase the likelihood that our common stock will be the target of a short squeeze. A short squeeze has led and could continue to lead to volatile price movements in shares of our common stock that are unrelated or disproportionate to our operating performance or prospects and, once investors purchase the shares of our common stock necessary to cover their short positions, the price of our common stock may rapidly decline. Stockholders that purchase shares of our common stock during a short squeeze may lose a significant portion of their investment.

Our employees, directors and officers, and their affiliates, hold substantial amounts of shares 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.