KOSS CORP — Annual Report 1995

Sep 25, 1995

1 Dear Stockholders, Fiscal year 1995 marked the second largest sales year in Koss Corporation's history. While not a record breaking sales year like 1994, we are pleased by the technological breakthroughs and product advancements we have made over the course of 1995. Sales for the fiscal year ending June 30, 1995 were $33,432,344 compared to $35,561,322 in 1994. Net income for the year was $2,087,994 compared to $2,800,855 one year ago. Earnings per share were $0.58 in 1995 compared to $0.75 in fiscal year 1994. We suffered a set back in our computer speaker business which was partially covered by growth in our stereophone base business. The growth, however, was not enough to cover the total decline in speaker sales. Adding to this sales decline, dealer returns for repair and credit also created a significant impact on our sales and profit figures for this year. Information gathered from other sources indicate that this propensity for credit returns was widespread throughout the retail industry and not limited to Koss. In fiscal year 1995, the Canadian subsidiary contributed a loss of approximately $600,000. The Canadian warehouse has been sublet and, since May, all products for the Canadian market have been shipping from the U.S. warehouse directly to dealers in Canada. Our move to transform the Canadian subsidiary from a warehousing unit into a sales-only operation was extremely delicate. We began this move two years ago as we took our first steps to ship Canadian customers directly. We are now satisfied that this reconfiguration will make a contribution to the company's profitability in fiscal year 1996 and beyond. Koss received news late this year that a test lab report for the Federal Communication Commission (FCC) had been successful for Koss' JR/750 and JR/900 wireless, radio frequency stereophone systems. We have decided to hold off on production of the JR/750 and concentrate our full efforts on bringing the JR/900 to market during the coming year. The JR/900 cordless stereophone utilizes a 900 megahertz transmission system to beam a stereo signal throughout the entire household. Unlike budget models currently available, the JR/900 will offer the listener the ability to access five different channels for high quality, interference-free listening. Market feedback indicates a consumer desire for a wireless, radio frequency stereophone that delivers on the promise of high fidelity sound reproduction. We are convinced that the JR/900 is a notable improvement over current market offerings and will be the stereophone to deliver on that promise. The JR/900 is not slated to impact sales until after the holiday season, however the unit will give Koss Corporation access to a host of RF applications. We believe these potential applications, as well as new communications technologies, will be key to the company's long term growth and continued position as a stereophone market leader -- always Koss' primary focus. We would like to extend our gratitude to our customers, suppliers, stockholders, and the whole Koss team for their hard work and dedication to creating the current and future success of Koss Corporation. Sincerely, John C. Koss Michael J. Koss Chairman of the Board President & C.E.O. 2 CONSOLIDATED STATEMENTS OF INCOME KOSS CORPORATION

3 CONSOLIDATED BALANCE SHEETS KOSS CORPORATION

4 STOCKHOLDERS' INFORMATION KOSS CORPORATION Koss Corporation's 1995 Annual Report is presented in a simple readable and functional style. This Annual Report contains condensed financial statements only. The detailed financial statements including footnotes are included in the Form 10-K which has been provided to all stockholders along with the 1995 Annual Report. The Company believes this manner of presentation provides a concise summary for those who want to be kept informed while at the same time allowing those who feel it necessary the opportunity to investigate further. Koss Corporation common stock is traded on the Over the Counter market and quotations are available through the National Market System. The trading symbol is KOSS. For additional Annual Reports, Form 10-K's or Proxy materials write to: Investment Relations Koss Corporation 4129 N. Port Washington Ave. Milwaukee, WI 53212 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Koss Corporation We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of Koss Corporation and its subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of income, and of stockholders' investment and of cash flows for each of the three years in the period ended June 30, 1995 (not presented herein); and in our report dated July 20, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheets as of June 30, 1995 and 1994, and the related condensed consolidated statements of income for each of the three years in the period June 30, 1995 ended, when read in conjunction with the consolidated financial statements from which it has been derived, is fairly stated in all material respects in relation thereto. PRICE WATERHOUSE LLP Milwaukee, Wisconsin July 20, 1995 5 MANAGEMENT INFORMATION KOSS CORPORATION OFFICERS AND DIRECTORS SENIOR MANAGEMENT John C. Koss John C. Koss Chairman of the Board Chairman of the Board Koss Corporation Michael J. Koss President Thomas L. Doerr Chief Executive Officer President Chief Operating Officer Doerr Corporation Chief Financial Officer Victor L. Hunter John C. Koss, Jr. President Vice President--Sales Hunter Business Direct Daniel Esposito Michael J. Koss Vice President--Corporate Systems President, C.E.O., C.O.O., C.F.O. Sujata Sachdeva Vice President--Finance Lawrence S. Mattson Retired President Richard W. Silverthorn Oster Company Secretary General Counsel Martin F. Stein Chairman Declan Hanley Eyecare One Inc. Vice President--International Sales John J. Stollenwerk President ANNUAL MEETING Allen-Edmonds Shoe Corporation October 19, 1995 Performance Center Koss Corporation 4129 N. Port Washington Avenue Milwaukee, WI 53212 TRANSFER AGENT INDEPENDENT ACCOUNTANTS Questions regarding change of address, Price Waterhouse LLP stock transfer, lost certificate, or Milwaukee, Wisconsin information on a particular account should be directed in writing to: LEGAL COUNSEL Firstar Trust Company Box 2077 Whyte Hirschboeck Dudek S.C. Milwaukee, WI 53201 Attn: Mr. Eugene R. Lee