##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 0-3295
 KOSS CORPORATION
  Delaware
    
    391168275(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)4129 North Port Washington Avenue, Milwaukee, Wisconsin
    
    53212(Address of principal executive offices)
    
    (Zip Code)
 (414) 964-5000
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredNONE
    
    NONE
  Common Stock, $0.005 par value (voting)
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   Documents Incorporated by Reference




---



TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERSITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. Controls and ProceduresPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEXHIBIT INDEXList of SubsidiariesConsent of Grant Thornton LLPRule 13a-14(a)/15d-14(a) Certification of CEO/CFOSection 1350 Certification of CEO/CFO    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS.
 GENERAL
       INTELLECTUAL PROPERTY
  2




---



##### Table of Contents



SEASONALITY
  WORKING CAPITAL AND BACKLOG
  CUSTOMERS
  3




---



##### Table of Contents



COMPETITION
  RESEARCH AND DEVELOPMENT
  ENVIRONMENTAL MATTERS
  EMPLOYEES
  FOREIGN SALES
   4




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005From U.S.
    
    $
    27,783,812
    
    
    $
    35,663,139
    
    
    $
    28,881,750From foreign countries
    
    
    18,418,046
    
    
    
    15,228,498
    
    
    
    11,404,941Total Sales
    
    $
    46,201,858
    
    
    $
    50,891,637
    
    
    $
    40,286,691
  AVAILABLE INFORMATION
 http://www.koss.com http://www.sec.gov
 
 ITEM 1A. RISK FACTORS.
  REDUCTION IN PRESENT LEVELS OF CASH FLOW COULD ADVERSELY AFFECT THE COMPANYS BUSINESS
 5




---



##### Table of Contents




    
    the Companys ability to attract new customers that will sell the Companys products
and pay for them,
    
    the Companys ability to retain the Companys existing customers at the level of
sales previously produced,
    
    the volume of sales for these customers,
    
    the loss of business of one or more primary customers,
    
    changes in types of products that the customers purchase in their sales mix,
    
    the volume of royalty income paid to the Company by its licensees based upon the
terms of each royalty agreement, including the inability to negotiate favorable royalty
arrangements and renew current arrangements with certain existing favorable terms,
    
    poor or deteriorating economic conditions which would directly impact the ability of
the Companys customers to remain in business and pay for their products on a timely
basis,
    
    managements ability to hold the line on any requests for increases in material or
labor cost increases, and
    
    the ability to collect in full and in a timely manner, amounts due to the Company.
  FAILURE TO ATTRACT AND RETAIN CUSTOMERS TO SELL THE COMPANYS PRODUCTS COULD ADVERSELY AFFECT SALES
VOLUME AND FUTURE PROFITABILITY
  6




---



##### Table of Contents



SHIFT IN CUSTOMER SPECIFICATIONS TO LOWER PRICED ITEMS CAN REDUCE PROFIT MARGINS NEGATIVELY
IMPACTING PROFITABILITY
  POOR ECONOMIC CONDITIONS CAN RESTRICT OR LIMIT PRODUCT PLACEMENT, SALES AND REPLENISHMENT WHICH
COULD DECREASE PROFITS
  MANAGEMENT IS SUBJECT TO DECISIONS MADE OUTSIDE ITS CONTROL WHICH COULD DIRECTLY AFFECT FUTURE
PROFITABILITY
  7




---



##### Table of Contents



ACCOUNTS RECEIVABLE AMOUNTS DUE FROM OUR CUSTOMERS CAN BE LOST AS A RESULT OF CUSTOMER BANKRUPTCY,
OPERATIONAL DIFFICULTY, OR FAILURE TO PAY, NEGATIVELY IMPACTING FUTURE PROFITABILITY
  COMPANY PROFITS CAN SUFFER FROM INTERRUPTIONS IN SUPPLY CHAIN
  FLUCTUATIONS IN CURRENCY EXCHANGE RATES COULD AFFECT PRICING OF PRODUCTS AND CAUSE CUSTOMERS TO
PURCHASE LOWER-PRICED, LESS PROFITABLE PRODUCTS AND COULD AFFECT OVERALL DEMAND FOR THE COMPANYS
PRODUCTS
 8




---



##### Table of Contents



CONSISTENCY OF THE COMPANYS BUSINESS WITH SEVERAL U.S. RETAILERS
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES.
  
 ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  9




---



##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 MARKET INFORMATION ON COMMON STOCK
  Per ShareQuarter Ended
    
    High
    
    
    Low
    
    
    DividendSeptember 30, 2005
    
    $18.30
    
    
    $17.00
    
    
    $0.13December 31, 2005
    
    $26.45
    
    
    $17.25
    
    
    $0.13March 31, 2006
    
    $29.95
    
    
    $24.25
    
    
    $0.13June 30, 2006
    
    $28.00
    
    
    $24.00
    
    
    $1.13September 30, 2006
    
    $25.00
    
    
    $18.70
    
    
    $0.13December 31, 2006
    
    $24.89
    
    
    $18.90
    
    
    $0.13March 31, 2007
    
    $23.86
    
    
    $20.35
    
    
    $0.13June 30, 2007
    
    $20.56
    
    
    $18.55
    
    
    $0.13  COMPANY REPURCHASES OF EQUITY SECURITIES
 Total
    
    
    
    Total Number of
    
    Approximate DollarNumber
    
    Average
    
    Shares Purchased as
    
    Value ofof Shares
    
    Price Paid
    
    Part of Publicly
    
    Shares Available underPeriod (2007)
    
    Purchased
    
        per Share
    
    Announced Plan (1)
    
    Repurchase PlanApril 1-April 30
    
    
    2,499
    
    
    $
    19.47
    
    
    
    2,499
    
    
    $
    2,260,689May 1-May 31
    
    
    9,419
    
    
    $
    19.58
    
    
    
    9,419
    
    
    $
    2,075,040June 1-June 30
    
    
    451
    
    
    $
    19.20
    
    
    
    451
    
    
    $
    2,066,377
 
 (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. As of June 30, 2007, the most recently approved increase was for additional purchases of
$2,000,000, which occurred in October of 2006, for an aggregate maximum of $45,500,000, of which
$43,433,623 had been expended through June 30, 2007. 10




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA.
 June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2004
    
    
    June 30, 2003Net sales
    
    $
    46,201,858
    
    
    $
    50,891,637
    
    
    $
    40,286,691
    
    
    $
    40,493,211
    
    
    $
    33,802,634Income before cumulative effect
of accounting change
    
    $
    5,156,520
    
    
    $
    6,222,191
    
    
    $
    4,493,827
    
    
    $
    5,448,147
    
    
    $
    4,169,411Accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,875
    )
    
    
    Net income
    
    $
    5,156,520
    
    
    $
    6,222,191
    
    
    $
    4,493,827
    
    
    $
    5,372,272
    
    
    $
    4,169,411Basic earnings per common share:Before cumulative effect
of accounting change
    
    $
    1.40
    
    
    $
    1.68
    
    
    $
    1.21
    
    
    $
    1.45
    
    
    $
    1.14Accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    Basic earnings per
common share
    
    $
    1.40
    
    
    $
    1.68
    
    
    $
    1.21
    
    
    $
    1.43
    
    
    $
    1.14Diluted earnings per common
share:Before cumulative effect
of accounting change
    
    $
    1.38
    
    
    $
    1.63
    
    
    $
    1.14
    
    
    $
    1.39
    
    
    $
    1.08Accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    Diluted earnings per
common share
    
    $
    1.38
    
    
    $
    1.63
    
    
    $
    1.14
    
    
    $
    1.37
    
    
    $
    1.08Total assets
    
    $
    29,173,543
    
    
    $
    31,441,613
    
    
    $
    9,241,491
    
    
    $
    25,679,556
    
    
    $
    23,786,818Contingently redeemable
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,490,000Cash dividends per
common share
    
    $
    0.52
    
    
    $
    1.52
    
    
    $
    0.52
    
    
    $
    0.52
    
    
    $
    0.52
  
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 LIQUIDITY AND CAPITAL RESOURCES
   11




---



##### Table of Contents



12




---



##### Table of Contents



2007 RESULTS OF OPERATIONS COMPARED WITH 2006
      2006 RESULTS OF OPERATIONS COMPARED WITH 2005
    13




---



##### Table of Contents



OFF-BALANCE SHEET FINANCING
  DISCLOSURE ABOUT CONTRACTUAL OBLIGATIONS
  Obligations Due by Period (in thousands)More thanContractual Obligations
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating Lease
Obligations
    
    
    $2,660
    
    
    
    $380
    
    
    
    $1,140
    
    
    
    $760
    
    
    
    $380
 DISCLOSURE ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED CONTRACTS ACCOUNTED
FOR AT FAIR VALUE
  DISCLOSURE ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
 14




---



##### Table of Contents



DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES
     15




---



##### Table of Contents



16




---



##### Table of Contents



RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 MANAGEMENTS REPORT
    Quarter2007
    
    First
    
    Second
    
    Third
    
    FourthNet sales
    
    $
    13,325,099
    
    
    $
    12,222,584
    
    
    $
    9,601,291
    
    
    $
    11,052,884Gross profit
    
    
    5,595,544
    
    
    
    4,410,565
    
    
    
    3,602,568
    
    
    
    4,308,200Net income
    
    
    1,693,680
    
    
    
    1,283,758
    
    
    
    753,134
    
    
    
    1,425,948Basic earnings per common share:
    
    $
    0.46
    
    
    $
    0.35
    
    
    $
    0.20
    
    
    $
    0.39Diluted earnings per common share:
    
    $
    0.45
    
    
    $
    0.34
    
    
    $
    0.20
    
    
    $
    0.38
 17




---



##### Table of Contents



Quarter2006
    
    First
    
    Second
    
    Third
    
    FourthNet sales
    
    $
    11,949,841
    
    
    $
    15,435,597
    
    
    $
    13,222,496
    
    
    $
    10,283,703Gross profit
    
    
    4,674,879
    
    
    
    6,038,570
    
    
    
    4,955,538
    
    
    
    4,127,273Net income
    
    
    1,441,218
    
    
    
    2,031,246
    
    
    
    1,500,118
    
    
    
    1,249,609Basic earnings per common share:
    
    $
    0.39
    
    
    $
    0.55
    
    
    $
    0.43
    
    
    $
    0.34Diluted earnings per common share:
    
    $
    0.38
    
    
    $
    0.53
    
    
    $
    0.40
    
    
    $
    0.33
 
 (1)
    
    Due to the use of weighted-average shares outstanding each quarter for computing
earnings per share, the sum of the quarterly per share amounts may not equal the per share
amount for the year. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. Controls and Procedures.
 (a)
    
    Evaluation of Disclosure Controls and Procedures. The Company maintains a system of
disclosure controls and procedures that are designed to provide reasonable assurance that
information, which is required to be timely disclosed, is accumulated and communicated to
management in a timely fashion. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. The Company, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer/Chief Financial Officer, after
evaluating the effectiveness of the Companys disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this report, have concluded that the
Companys disclosure controls and procedures are effective to provide reasonable assurance
that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the Companys management,
including its principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure and are effective to provide reasonable
assurance that such information is recorded, processed, summarized, and reported within the
time periods specified in the SECs rules and forms.
 (b)
    
    Changes in Internal Controls. The Companys internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) is designed to provide reasonable
assurances regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
There were no changes in the Companys internal control over financial reporting 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. However, because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.
 18




---



##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  Equity Compensation Plan Information.
 Equity Compensation Plan Information Table
 Number of securitiesNumber of securities
    
    Weighted-average
    
    remaining available forto be issued upon
    
    exercise price of
    
    future issuance underexercise of
    
    outstanding
    
    equity compensation plansoutstanding options,
    
    options, warrants
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    and rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    585,662
    
    
    
    $22.81
    
    
    
    865,304Equity compensation
plans not approved
by security holders
    
    
    Not applicable
    

    
    
    Not applicable
    

    
    
    Not applicableTotal
    
    
    585,662
    
    
    
    $22.81
    
    
    
    865,304
 19




---



##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  20




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
  1. Financial StatementsThe following consolidated financial statements of Koss
Corporation are set forth on pages 23 to 36:Report of Independent Registered Public Accounting Firm
    
    
    22Consolidated Statements of Income for the Years Ended
June 30, 2007, 2006, and 2005
    
    
    23Consolidated Balance Sheets as of June 30, 2007 and 2006
    
    
    24Consolidated Statements of Cash Flows for the Years
Ended June 30, 2007, 2006, and 2005
    
    
    25Consolidated Statements of Stockholders Investment for
the Years Ended June 30, 2007, 2006, and 2005
    
    
    26Notes to Consolidated Financial Statements
    
    
    272. Financial Statement SchedulesAll schedules have been omitted because the information is not applicable, is not
material or because the information required is included in
    the financial statements or the notes thereto.3. Exhibits Filed
 See Exhibit Index attached hereto.
 21




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 22




---



##### Table of Contents



Year Ended June 30,
    
    2007
    
    
    2006
    
    
    2005Net sales
    
    $
    46,201,858
    
    
    $
    50,891,637
    
    
    $
    40,286,691Cost of goods sold
    
    
    28,284,981
    
    
    
    31,095,377
    
    
    
    25,216,760Gross profit
    
    
    17,916,877
    
    
    
    19,796,260
    
    
    
    15,069,931Selling, general, and
administrative expense
    
    
    10,066,385
    
    
    
    10,063,871
    
    
    
    8,544,383Income from operations
    
    
    7,850,492
    
    
    
    9,732,389
    
    
    
    6,525,548Other income (expense):Royalty income
    
    
    324,996
    
    
    
    341,918
    
    
    
    805,485Interest income
    
    
    169,227
    
    
    
    169,047
    
    
    
    64,795Interest expense
    
    
    
    
    
    
    
    
    
    
    Income before income tax provision
    
    
    8,344,715
    
    
    
    10,243,354
    
    
    
    7,395,828Provision for income taxes
    
    
    3,188,195
    
    
    
    4,021,163
    
    
    
    2,902,001Net income
    
    $
    5,156,520
    
    
    $
    6,222,191
    
    
    $
    4,493,827Earnings per common share:Basic
    
    $
    1.40
    
    
    $
    1.68
    
    
    $
    1.21Diluted
    
    $
    1.38
    
    
    $
    1.63
    
    
    $
    1.14Dividends per common share
    
    $
    0.52
    
    
    $
    1.52
    
    
    $
    0.52
  23




---



##### Table of Contents



As of June 30,
    
    2007
    
    
    2006ASSETSCurrent Assets:Cash
    
    $
    4,187,682
    
    
    $
    6,146,580Accounts receivable, less allowances of $958,868
and $1,181,359, respectively
    
    
    7,938,913
    
    
    
    6,819,852Inventories
    
    
    9,923,544
    
    
    
    10,522,605Prepaid expenses
    
    
    403,983
    
    
    
    418,818Deferred income taxes
    
    
    1,124,799
    
    
    
    1,365,547Income taxes receivable
    
    
    291,251
    
    
    
    Total current assets
    
    
    23,870,172
    
    
    
    25,273,402Equipment and Leasehold Improvements, at cost:Leasehold improvements
    
    
    1,748,816
    
    
    
    1,706,484Machinery, equipment, furniture, and fixtures
    
    
    2,464,050
    
    
    
    3,444,111Tools, dies, molds, and patterns
    
    
    11,656,951
    
    
    
    11,898,07415,869,817
    
    
    
    17,048,669Lessaccumulated depreciation
    
    
    13,302,678
    
    
    
    14,011,1212,567,139
    
    
    
    3,037,548Deferred Income Taxes
    
    
    423,928
    
    
    
    672,823Other Assets
    
    
    2,312,304
    
    
    
    2,457,840$
    29,173,543
    
    
    $
    31,441,613LIABILITIES AND STOCKHOLDERS INVESTMENTCurrent Liabilities:Accounts payable
    
    $
    1,371,152
    
    
    $
    1,870,256Accrued liabilities
    
    
    2,282,155
    
    
    
    2,149,102Dividends payable
    
    
    476,459
    
    
    
    4,202,591Income taxes payable
    
    
    
    
    
    
    927,528Total current liabilities
    
    
    4,129,766
    
    
    
    9,149,477Deferred Compensation
    
    
    989,153
    
    
    
    992,830Derivative Liability
    
    
    125,000
    
    
    
    125,000Stockholders Investment:Common stock, $0.005 par value, authorized
8,500,000 shares; issued and outstanding
3,665,069 and 3,717,574 shares, respectively
    
    
    1,104,200
    
    
    
    541,782Retained earnings
    
    
    22,825,424
    
    
    
    20,632,524Total stockholders investment
    
    
    23,929,624
    
    
    
    21,174,306$
    29,173,543
    
    
    $
    31,441,613
  24




---



##### Table of Contents



Year Ended June 30,
    
    2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING
ACTIVITIES:Net income
    
    $
    5,156,520
    
    
    $
    6,222,191
    
    
    $
    4,493,827Adjustments to reconcile net income to net cash
provided by operating activities:Allowance for doubtful accounts
    
    
    (222,491
    )
    
    
    572,688
    
    
    
    155,324Loss on disposal
    
    
    
    
    
    
    116
    
    
    
    Depreciation and amortization
    
    
    973,802
    
    
    
    955,166
    
    
    
    1,103,951Stock compensation expense
    
    
    562,680
    
    
    
    523,194
    
    
    
    Deferred income taxes
    
    
    489,643
    
    
    
    (864,999
    )
    
    
    (61,875
    )Cash surrender value
    
    
    (181,787
    )
    
    
    (169,181
    )
    
    
    (177,641
    )Deferred compensation
    
    
    (3,677
    )
    
    
    31,665
    
    
    
    (24,100
    )Net changes in operating assets and
liabilities (see note 8)
    
    
    (1,867,504
    )
    
    
    (1,444,503
    )
    
    
    2,251,161Net cash provided by operating activities
    
    
    4,907,186
    
    
    
    5,826,337
    
    
    
    7,740,647CASH FLOWS FROM INVESTING
ACTIVITIES:Sale of investments
    
    
    250,000
    
    
    
    
    
    
    
    Acquisition of equipment and leasehold improvements
    
    
    (426,070
    )
    
    
    (921,807
    )
    
    
    (1,170,494
    )Net cash used in investing activities
    
    
    (176,070
    )
    
    
    (921,807
    )
    
    
    (1,170,494
    )CASH FLOWS FROM FINANCING
ACTIVITIES:Tax benefit of non-qualified stock options
    
    
    288,630
    
    
    
    691,660
    
    
    
    104,749Dividends paid to stockholders
    
    
    (5,641,556
    )
    
    
    (1,932,483
    )
    
    
    (1,926,938
    )Purchase of common stock
    
    
    (1,837,655
    )
    
    
    (6,605,451
    )
    
    
    (2,217,371
    )Exercise of stock options
    
    
    500,566
    
    
    
    3,869,626
    
    
    
    577,188Net cash used in financing activities
    
    
    (6,690,014
    )
    
    
    (3,976,648
    )
    
    
    (3,462,372
    )Net (decrease) increase in cash
    
    
    (1,958,898
    )
    
    
    927,882
    
    
    
    3,107,781Cash at beginning of period
    
    
    6,146,580
    
    
    
    5,218,698
    
    
    
    2,110,917Cash at end of period
    
    $
    4,187,682
    
    
    $
    6,146,580
    
    
    $
    5,218,698
  25




---



##### Table of Contents



Common Stock
    
    RetainedShares
    
    Amount
    
    EarningsBalance, June 30, 2004
    
    
    3,769,775
    
    
    $
    18,849
    
    
    $
    21,070,938Net income
    
    
    
    
    
    
    
    
    
    
    4,493,827Dividends declared
    
    
    
    
    
    
    
    
    
    
    (1,926,938
    )Exercise of stock options
    
    
    75,000
    
    
    
    375
    
    
    
    681,562Purchase and retirement of treasury stock
    
    
    (99,250
    )
    
    
    (496
    )
    
    
    (2,216,875
    )Balance, June 30, 2005
    
    
    3,745,525
    
    
    
    18,728
    
    
    
    22,102,514Net income
    
    
    
    
    
    
    
    
    
    
    6,222,191Dividends declared
    
    
    
    
    
    
    
    
    
    
    (5,648,156
    )Stock compensation expense
    
    
    
    
    
    
    523,194
    
    
    
    Exercise of stock options
    
    
    220,906
    
    
    
    1,104
    
    
    
    4,561,426Purchase and retirement of treasury stock
    
    
    (248,857
    )
    
    
    (1,244
    )
    
    
    (6,605,451
    )Balance, June 30, 2006
    
    
    3,717,574
    
    
    
    541,782
    
    
    
    20,632,524Net income
    
    
    
    
    
    
    
    
    
    
    5,156,520Dividends declared
    
    
    
    
    
    
    
    
    
    
    (1,915,424
    )Stock compensation expense
    
    
    
    
    
    
    562,680
    
    
    
    Tax impact of stock options
    
    
    
    
    
    
    
    
    
    
    288,631Exercise of stock options
    
    
    30,932
    
    
    
    155
    
    
    
    500,411Purchase and retirement of treasury stock
    
    
    (83,437
    )
    
    
    (417
    )
    
    
    (1,837,238
    )Balance, June 30, 2007
    
    
    3,665,069
    
    
    $
    1,104,200
    
    
    $
    22,825,424
  26




---



##### Table of Contents



27




---



##### Table of Contents



YearEnded
    
    Balance,
    
    Provision Charged to
    
    Accounts
    
    Balance atJune 30,
    
    Beginning of Year
    
    Expense
    
    Written off*
    
    End Year2007
    
    $
    1,181,359
    
    
    $
    (105,956
    )
    
    $
    301,447
    
    
    $
    985,8682006
    
    
    608,671
    
    
    
    (596,563
    )
    
    
    23,875
    
    
    
    1,181,3592005
    
    
    738,995
    
    
    
    (227,193
    )
    
    
    357,517
    
    
    
    608,671
 
 *
    
    Represents charges against the allowance, net of recoveries.   2007
    
    
    2006Raw materials
    
    $
    2,759,437
    
    
    $
    3,865,243Finished goods
    
    
    7,164,107
    
    
    
    6,657,362Total
    
    $
    9,923,544
    
    
    $
    10,522,605
   Leasehold improvements
    
    10-15
yearsMachinery, equipment, furniture, and fixtures
    
    3-10
yearsTools, dies, molds, and patterns
    
    4-5
years
   28




---



##### Table of Contents



29




---



##### Table of Contents



30




---



##### Table of Contents



Year Ended June 30,
    
    2005Net income, as reported
    
    $
    4,493,827Add: Total stock-based employee compensation recorded
    
    
    104,749Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
outstanding
    
    
    341,192Pro forma net income
    
    $
    4,257,384Earnings per share:Basic-as reported
    
    $
    1.21Basic-pro forma
    
    $
    1.15Diluted-as reported
    
    $
    1.14Diluted-pro forma
    
    $
    1.08
  2007
    
    2006
    
    2005Expected stock price volatility
    
    
    35.00
    %
    
    
    35.00
    %
    
    
    35.00
    %Risk free interest rate
    
    
    4.60
    %
    
    
    3.69
    %
    
    
    3.69
    %Expected dividend yield
    
    
    2.27
    %
    
    
    2.27
    %
    
    
    2.27
    %Expected forfeitures
    
    
    1.50
    %
    
    
    1.50
    %
    
    NAExpected life of options
    
    4.6 years
    
    4.21 years
    
    4.21 years
 31




---



##### Table of Contents



Range of Exercise
    
    
    WeightedNumber of
    
    
    Prices per
    
    
    AverageShares
    
    
    Share
    
    
    Exercise PriceShares under option at June 30, 2004
    
    
    840,000
    
    
    $
    5.10-$24.21
    
    
    $
    17.88Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (75,000
    )
    
    $
    6.73-$16.80
    
    
    $
    7.69Shares under option at June 30, 2005
    
    
    765,000
    
    
    $
    5.10-$24.21
    
    
    $
    18.87Granted
    
    
    135,000
    
    
    $
    17.38-$28.80
    
    
    $
    24.21Forfeited
    
    
    (87,500
    )
    
    $
    15.75-$22.01
    
    
    $
    18.82Exercised
    
    
    (220,906
    )
    
    $
    4.42-$22.01
    
    
    $
    17.52Shares under option at June 30, 2006
    
    
    591,594
    
    
    $
    5.38-$28.80
    
    
    $
    20.60Granted
    
    
    80,000
    
    
    $
    19.47-$21.42
    
    
    $
    20.93Forfeited
    
    
    (55,000
    )
    
    $
    18.48
    
    
    $
    18.48Exercised
    
    
    (30,932
    )
    
    $
    5.42-$16.80
    
    
    $
    16.18Shares under option at June 30, 2007
    
    
    585,662
    
    
    $
    5.38-$28.80
    
    
    $
    21.08
  Weighted AverageRange of
    
    Number of Options
    
    Weighted Average Exercise
    
    RemainingExercise Prices
    
    Outstanding/Exercisable
    
    Price Outstanding/Exercisable
    
    Contractual Life (In Years)$  5.38 - $6.73
    
    
    17,500   / 17,500
    
    
    $
    6.15   / $6.15
    
    
    
    2.4$15.75 - $19.47
    
    
    226,162 / 158,912
    
    
    $
    17.55 / $17.12
    
    
    
    3.0$21.42 - $28.80
    
    
    342,000 / 156,500
    
    
    $
    24.18 / $24.14
    
    
    
    4.4585,662 / 332,912
    
    
    $
    20.60 / $18.94
     32




---



##### Table of Contents



Year Ended June 30,
    
    2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    2,210,552
    
    
    $
    3,843,000
    
    
    $
    2,527,001State
    
    
    488,000
    
    
    
    650,000
    
    
    
    486,000Deferred
    
    
    489,643
    
    
    
    (471,837
    )
    
    
    (111,000
    )$
    3,188,195
    
    
    $
    4,021,163
    
    
    $
    2,902,001
  Year Ended June 30,
    
    2007
    
    
    2006
    
    
    2005Federal income tax at statutory rate
    
    $
    2,837,203
    
    
    $
    3,487,523
    
    
    $
    2,514,582State income taxes, net of federal tax
Benefit
    
    
    283,163
    
    
    
    592,732
    
    
    
    354,247Other
    
    
    67,829
    
    
    
    (59,092
    )
    
    
    33,172Total provision for income taxes
    
    $
    3,188,195
    
    
    $
    4,021,163
    
    
    $
    2,902,001
  2007
    
    
    2006Deferred Income Tax Assets:Deferred compensation
    
    $
    157,000
    
    
    $
    157,000Accrued expenses and reserves
    
    
    680,000
    
    
    
    1,213,000SFAS No. 123(R) expense
    
    
    426,000
    
    
    
    205,000Package design and trademarks
    
    
    231,000
    
    
    
    247,000Other
    
    
    244,000
    
    
    
    437,0001,738,000
    
    
    
    2,259,000Deferred Income Tax Liabilities:Equipment and leasehold improvements
    
    
    (189,000
    )
    
    
    (221,000
    )Net deferred income tax asset
    
    $
    1,549,000
    
    
    $
    2,038,000
  33




---



##### Table of Contents



Estimated useful2007
    
    
    2006
    
    
    livesPatents
    
    $
    710,291
    
    
    $
    710,291
    
    
    10 yearsCustomer lists and other
    
    
    188,811
    
    
    
    188,811
    
    
    10 years899,102
    
    
    
    899,102Less accumulated
amortization
    
    
    (449,102
    )
    
    
    (371,779
    )$
    450,000
    
    
    $
    527,323
   2007
    
    
    2006Employee compensation
    
    $
    309,749
    
    
    $
    444,215Cooperative advertising and
promotion allowances
    
    
    1,318,871
    
    
    
    1,207,332Payroll taxes and other employee
Benefits
    
    
    177,538
    
    
    
    169,318Other
    
    
    475,997
    
    
    
    328,237$
    2,282,155
    
    
    $
    2,149,102
   2007
    
    
    2006
    
    
    2005Accounts receivable
    
    ($
    896,570
    )
    
    $
    1,371,428
    
    
    $
    420,799Inventories
    
    
    599,061
    
    
    
    (2,926,802
    )
    
    
    (280,444
    )Prepaid expenses and other assets
    
    
    14,835
    
    
    
    711,121
    
    
    
    (443,744
    )Income taxes
    
    
    (1,218,779
    )
    
    
    234,990
    
    
    
    506,548Accounts payable
    
    
    (499,104
    )
    
    
    (1,142,480
    )
    
    
    (1,963,330
    )Accrued liabilities
    
    
    133,053
    
    
    
    307,240
    
    
    
    84,672Net change
    
    ($
    1,867,504
    )
    
    ($
    1,444,503
    )
    
    $
    2,251,161
 34




---



##### Table of Contents



2007
    
    2006
    
    2005Net cash paid
during the year
for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    $
    3,688,000
    
    
    $
    3,905,000
    
    
    $
    1,388,822
        11. INDUSTRY SEGMENT INFORMATION, FOREIGN SALES AND SIGNIFICANT CUSTOMERS
    35




---



##### Table of Contents



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
    36




---



##### Table of Contents



By:
    
    /s/ Michael J. Koss
    
    
    
    Dated: August 17, 2007Michael J. Koss,Vice ChairmanPresidentChief Executive OfficerChief Operating Officer andChief Financial OfficerBy:
    
    /s/ Sujata Sachdeva
    
    
    
    Dated: August 17, 2007Sujata Sachdeva,Vice President  FinancePrincipal Accounting OfficerSecretary
  /s/ John C. Koss
    
    
    
    /s/ Michael J. KossJohn C. Koss, Director
    
    
    
    Michael
J. Koss, Director/s/ Lawrence S. Mattson
    
    
    
    /s/ John J. StollenwerkLawrence S. Mattson, Director
    
    
    
    John
J. Stollenwerk, Director/s/ Thomas L. Doerr
    
    
    
    /s/ Theodore H. NixonThomas L. Doerr, Director
    
    
    
    Theodore
H. Nixon, Director
  37




---



##### Table of Contents



OFFICERS AND SENIOR MANAGEMENT
 
 
 
 
 
 
 
 ANNUAL MEETING
 
 INDEPENDENT AUDITORS
 
 LEGAL COUNSEL
 
 DIRECTORS
 
 
 
 
 
 
 TRANSFER AGENT
 
 
  38




---



##### Table of Contents



Exhibit No.
    
    Exhibit Description3.1
    
    Certificate of Incorporation of Koss Corporation. Filed as Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the year ended June 30, 1996 and
incorporated herein by reference.3.2
    
    By-Laws of Koss Corporation, as in effect on September 25, 1996. Filed as
Exhibit 3.2 to the Companys Annual Report on Form 10-K for the year ended June
30, 1996 and incorporated herein by reference.10.1
    
    Death Benefit Agreement with John C. Koss. Filed as Exhibit 10.4 to the
Companys Annual Report on Form 10-K for the year ended June 30, 1996 and
incorporated herein by reference.10.2
    
    Stock Purchase Agreement with John C. Koss. Filed as Exhibit 10.5 to the
Companys Annual Report on Form 10-K for the year ended June 30, 1996 and
incorporated herein by reference.10.3
    
    Salary Continuation Resolution for John C . Koss. Filed as Exhibit 10.6 to the
Companys Annual Report on Form 10-K for the year ended June 30, 1996 and
incorporated herein by reference.10.4
    
    1983 Incentive Stock Option Plan. Filed as Exhibit 10.7 to the Companys
Annual Report on Form 10-K for the year ended June 30, 1996 and incorporated
herein by reference.10.5
    
    Assignment of Lease to John C. Koss. Filed as Exhibit 10.7 to the Companys
Annual Report on Form 10-K for the year ended June 30, 1988 and incorporated
herein by reference.10.6
    
    Addendum to Lease. Filed as Exhibit 10.8 to the Companys Annual Report on
Form 10-K for the year ended June 30, 1988 and incorporated herein by
reference.10.7
    
    Amendment to Lease. Filed as Exhibit 10.22 to the Companys Annual Report on
Form 10-K for the year ended June 30, 2000 and incorporated herein by
reference.10.8
    
    Partial Assignment, Termination and Modification of Lease. Filed as Exhibit
10.25 to the Companys Annual Report on Form 10-K for the year ended June 30,
2001 and incorporated herein by reference.10.9
    
    Restated Lease. Filed as Exhibit 10.26 to the Companys Annual Report on Form
10-K for the year ended June 30, 2001 and incorporated herein by reference.10.10
    
    1990 Flexible Incentive Plan. Filed as Exhibit 25 to the Companys Annual
Report on Form 10-K for the year ended June 30, 1990 and incorporated herein by
reference.10.11
    
    Consent of Directors (Supplemental Executive Retirement Plan for Michael J.
Koss dated March 7, 1997). Filed as Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated
herein by reference.10.12
    
    Loan Agreement, effective as of February 17, 1995. Filed as Exhibit 10 to the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
and incorporated herein by reference.
 39




---



##### Table of Contents



Exhibit No.
    
    Exhibit Description10.13
    
    Amendment to Loan Agreement dated June 15, 1995, effective as of February 17,
1995. Filed as Exhibit 10.13 to the Companys Annual Report on Form 10-K for
the year ended June 30, 1995 and incorporated herein by reference.10.14
    
    Amendment to Loan Agreement dated April 29, 1999. Filed as Exhibit 10.14 to
the Companys Annual Report on Form 10-K for the year ended June 30, 1999 and
incorporated herein by reference.10.15
    
    Amendment to Loan Agreement dated December 15, 1999. Filed as Exhibit 10.15 to
the Companys Annual Report on Form 10-K for the year ended June 30, 2000 and
incorporated herein by reference.10.16
    
    Amendment to Loan Agreement dated October 10, 2001. Filed as Exhibit 10.16 to
the Companys Quarterly Report on Form 10-Q for the quarter ended December 31,
2001 and incorporated herein by reference.10.17
    
    License Agreement dated June 30, 1998 between Koss Corporation and Logitech
Electronics Inc. (including Addendum to License Agreement dated June 30, 1998).
Filed as Exhibit 10.18 to the Companys Annual Report on Form 10-K for the
year ended June 30, 1998 and incorporated herein by reference.10.18
    
    Amendment and Extension Agreement between Koss Corporation and Logitech
Electronics Inc. dated May 1, 2001. Filed as Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and
incorporated herein by reference.10.19
    
    License Agreement dated June 30, 2003 between Koss Corporation and Sonigem
Products, Inc. Filed as Exhibit 10.19 to the Companys Annual Report on Form
10-K for the year ended June 30, 2005 and incorporated herein by reference.10.20
    
    Amendment to License Agreement dated August 1, 2005, between Koss Corporation
and Sonigem Products, Inc. Filed as Exhibit 10.20 to the Companys Annual
Report on Form 10-K for the year ended June 30, 2005 and incorporated herein by
reference.14
    
    Koss Corporation Code of Ethics. Filed as Exhibit 14 to the Companys Annual
Report on Form 10-K for the year ended June 30, 2004 and incorporated herein by
reference.21
    
    List of Subsidiaries of Koss Corporation *23.1
    
    Consent of Grant Thornton LLP *31
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer/Chief
Financial Officer *32
    
    Section 1350 Certification of Chief Executive Officer/Chief Financial Officer **
 
 *
    
    Filed herewith**
    
    Furnished herewith 40