Koss
Annual Report 2016

Plain-text annual report

KOSS CORP FORM 10-K (Annual Report) Filed 08/25/16 for the Period Ending 06/30/16 Address Telephone CIK Symbol SIC Code Industry 4129 N PORT WASHINGTON AVE MILWAUKEE, WI 53212 4149645000 0000056701 KOSS 3651 - Household Audio and Video Equipment Audio & Video Equipment Sector Consumer Cyclical Fiscal Year 06/30 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2016 OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-3295 KOSS CORPORATION(Exact name of registrant as specified in its charter) Delaware 39-1168275(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) Registrant’s telephone number, including area code: (414) 964-5000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock $0.005 par value per share The Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the Act:NONE(Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes ý No o 1Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer oNon-accelerated filer o Smaller reporting company x(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The aggregate market value of the common stock held by nonaffiliates of the registrant as of December 31, 2015 , was approximately $5,218,856 (based on the$2.00 per share closing price of the Company’s common stock as reported on the NASDAQ Stock Market on December 31, 2015). On August 15, 2016 , there were 7,382,706 shares outstanding of the registrant’s common stock. Documents Incorporated by Reference Part III of this Form 10-K incorporates by reference information from Koss Corporation’s Proxy Statement for its 2016 Annual Meeting of Stockholders filed withthe Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K. 2KOSS CORPORATIONFORM 10-KFor the Fiscal Year Ended June 30, 2016INDEX PagePART I Item 1.Business5Item 2.Properties8Item 3.Legal Proceedings8 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities9Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations10Item 8.Financial Statements and Supplementary Data16Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure16Item 9A.Controls and Procedures16 Part III Item 10.Directors, Executive Officers and Corporate Governance17Item 11.Executive Compensation17Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters17Item 13.Certain Relationships and Related Transactions, and Director Independence17Item 14.Principal Accountant Fees and Services17 PART IV Item 15.Exhibits and Financial Statement Schedules183CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995(the “Act”) (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-lookingstatements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise. Statementscontained in this Form 10-K that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act. Forward-lookingstatements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipatedfinancing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products orservices of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to theforegoing. In addition, when used in this Form 10-K, the words "anticipates," "believes," "estimates," "expects," "intends," "plans," "may," "will," "should,""forecasts," "predicts," "potential," "continue," and variations thereof and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statementscontained in this Form 10-K, or in other Company filings, press releases, or otherwise. In addition to the factors discussed in this Form 10-K, other factors thatcould contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: future fluctuations ineconomic conditions, the receptivity of consumers to new consumer electronics technologies, the rate and consumer acceptance of new product introductions,competition, pricing, the number and nature of customers and their product orders, production by third party vendors, foreign manufacturing, sourcing, and sales(including foreign government regulation, trade and importation concerns), borrowing costs, changes in tax rates, pending or threatened litigation andinvestigations, and other risk factors which may be detailed from time to time in the Company’s Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Companyundertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstancesafter the date hereof or to reflect new information.4PART I ITEM 1. BUSINESS. GENERAL As used herein unless the context otherwise requires, the term “Company” means Koss Corporation and its subsidiary, Koss U.K. Limited. The Company formedKoss U.K. Limited to comply with certain European Union ("EU") requirements. The entity is non-operating and holds no assets. The Company was incorporatedin Delaware in 1971. The Company operates in the audio/video industry segment of the home entertainment industry through its design, manufacture and sale of stereo headphones andrelated accessory products. The Company reports its results as a single reporting segment, as the Company’s principal business line is the design, manufacture andsale of stereo headphones and related accessories. The Company’s products are sold through national retailers, U.S. distributors, international distributors, audio specialty stores, the internet, direct mail catalogs,regional department store chains, discount department stores, grocery stores, electronics retailers, military exchanges and prisons under the “Koss” name. TheCompany also sells products to distributors for resale to school systems, and directly to other manufacturers for inclusion with their own products. The Companyhas more than 200 domestic dealers and its products are carried in approximately 16,000 domestic retail outlets and numerous retailers worldwide. Internationalmarkets are served by domestic sales representatives and sales offices in the Netherlands and Russia. The Company utilizes independent distributors in severalforeign countries. Approximately 83% of the Company’s fiscal year 2016 sales were from stereo headphones used for listening to music. The remaining 17% of the Company's saleswere from headphones used in communications, education settings, and in conjunction with metal detectors. The products are not significantly differentiated bytheir retail sales channel or application with the exception of products sold to school systems and prisons. There are no other product line differentiations otherthan the quality of the sound produced by the stereo headphone itself, which is highly subjective.The Company sources complete stereo headphones manufactured to its specifications from various manufacturers in Asia as well as raw materials used to producestereo headphones at its plant in Milwaukee, Wisconsin. Management believes that it has sources of complete stereo headphones and raw materials that areadequate for its needs. There are no employment or compensation commitments between the Company and its dealers. The Company has several independent manufacturers’representatives as part of its distribution efforts. The Company typically signs one year contracts with these manufacturers’ representatives. The arrangementswith foreign distributors do not contemplate that the Company pays any compensation other than any profit the distributors make upon their sale of the Company’sproducts. INTELLECTUAL PROPERTY John C. Koss is recognized for creating the stereo headphone industry with the first SP/3 stereo headphone in 1958. The Company regularly applies forregistration of its trademarks in many countries around the world, and over the years the Company has had numerous trademarks registered and patents issued inNorth America, South America, Asia, Europe, Africa, and Australia. The Company currently has 508 trademarks registered in 100 countries around the world and171 patents in 26 countries. The Company has trademarks to protect the brand name, Koss, and its logo on its products. The Company also holds many designpatents that protect the unique visual appearance of some of its products. These trademarks and patents are important to differentiate the Company from itscompetitors. Certain of the Company’s trademarks are of material value and importance to the conduct of its business. The Company considers protection of itsproprietary developments important; however, the Company’s business is not, in the opinion of management, materially dependent upon any single trademark orpatent. During the year ended June 30, 2016 , the Company took steps to update and monitor its patents and trademarks to protect its intellectual property aroundthe world. 5SEASONALITY Although retail sales of consumer electronics have typically been higher during the holiday season, stereo headphones have also seen increased purchasesthroughout the year. Management believes that the Company's business and industry segment are no longer seasonal as evidenced by the fact that net sales for thelast couple of years, including the year ended June 30, 2016 , were almost equally split between the first and second halves of the year. Management believes thatthe reason for this level performance of sales to retailers and distributors is related to the fact that consumers are increasingly purchasing stereo headphonesthroughout the year as replacements for older or lower quality headphones to improve the quality of their listening experience as it relates to portable electronicproducts. Therefore, upgrades and replacements appear to have as much interest over the course of the year as gifts of stereo headphones during the holidayseason. WORKING CAPITAL AND BACKLOG The Company’s working capital needs do not differ substantially from those of its competitors in the industry and generally reflect the need to carry significantamounts of inventory to meet delivery requirements of its customers. From time to time, although rarely, the Company may extend payment terms to its customersfor a special promotion. For instance, the Company has in the past offered a 90-120 day payment period for certain customers, such as computer retailers andoffice supply stores. Based on historical trends, management does not expect these practices to have a material effect on net sales or net income. The Company’sbacklog of orders as of June 30, 2016 , is not significant in relation to net sales during fiscal year 2016 or projected fiscal year 2017 net sales. CUSTOMERS The Company markets a line of products used by consumers to listen to music, DVDs in vehicles, sound bytes on computer systems, and other audio relatedmedia. The Company distributes these products through retail channels in the U.S. and independent distributors throughout the rest of the world. The Companymarkets its products through approximately 16,000 domestic retail outlets and numerous retailers worldwide. During fiscal year 2016 , the Company’s sales to itslargest single customer, Tura Scandinavia AB, were approximately 17% of net sales and sales to Wal-Mart accounted for 11% of net sales. In fiscal year 2015 , netsales to Tura Scandinavia AB and Wal-Mart accounted for 15% and 8% of net sales, respectively. The Company is dependent upon its ability to retain a base ofretailers and distributors to sell the Company’s line of products. Loss of retailers and distributors means loss of product placement. The Company has broaddistribution across many channels including specialty stores, mass merchants, and electronics stores. Management believes that any loss of revenues would bepartially offset by a corresponding decrease, on a percentage basis, in expenses, thereby partially reducing the impact on the Company’s income from operations. The five largest customers of the Company (including Tura Scandinavia AB and Wal-Mart) accounted for approximately 47% and 45% of net sales in fiscal years2016 and 2015 , respectively.COMPETITION The Company focuses on the stereo headphone industry. In the stereo headphone market, the Company competes directly with approximately six majorcompetitors, several of which are large and diversified and have greater total assets and resources than the Company. The extent to which retailers and consumersview the Company as an innovative vendor of high quality stereo headphone products, and a provider of excellent after sales customer service, is the extent towhich the Company maintains a competitive advantage. The Company relies upon its unique sound, quality workmanship, brand identification, engineering skills,and customer service to maintain its competitive position.RESEARCH AND DEVELOPMENT The amount expensed on engineering and research activities relating to the development of new products or the improvement of existing products was $91,259during fiscal year 2016 . These activities were conducted by both Company personnel and outside consultants. There were no expenses for research anddevelopment activities during fiscal year 2015 . The Company expects to incur research and development costs related to its Bluetooth® and traditional wiredheadphones during fiscal year 2017 as it is planning to introduce several new product offerings. 6ENVIRONMENTAL MATTERS The Company believes that it has materially complied with all currently existing federal, state and local statutes and regulations regarding environmental standardsand occupational safety and health matters to which it is subject. During the fiscal years 2016 and 2015 , the amounts incurred in complying with federal, state andlocal statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect theCompany’s operating results or financial condition. EMPLOYEES As of June 30, 2016 , the Company employed 54 non-union employees, 6 of which were part-time employees. The Company also engaged temporary personnel attimes during the year ended June 30, 2016 . FOREIGN SALES The Company’s competitive position and risks relating to its business in foreign markets are comparable to those in the domestic market. In addition, thegovernments of foreign nations may elect to erect trade barriers on imports. The creation of additional barriers would reduce the Company’s net sales and netincome. In addition, any fluctuations in currency exchange rates could affect the pricing of the Company’s products and divert customers who might choose topurchase lower-priced, less profitable products, and could affect overall demand for the Company’s products. For further information, see Part II, Item 7 and Note16 to the Consolidated Financial Statements. The Company has small sales offices in the Netherlands and Russia to service the international export marketplace. The Company is not aware of any materialrisks in maintaining these offices. Loss of these offices would result in a transfer of sales and marketing responsibility. The Company sells its products toindependent distributors in countries and regions outside the United States including Europe, the Middle East, Africa, Asia, Australia, South America, LatinAmerica, the Caribbean, Canada and Mexico. During the last two fiscal years, net sales of all Koss products were distributed as follows: 2016 2015United States $15,496,763 $16,779,312Sweden 4,322,582 3,677,225Czech Republic 1,231,731 441,754Hong Kong 1,121,609 —People's Republic of China 969,848 193,374Malaysia 669,782 262,600Canada 400,672 498,026All other countries 1,788,359 2,377,765Net sales $26,001,346 $24,230,056 The Company has a manufacturing facility in Milwaukee, Wisconsin. The Company uses contract manufacturing facilities in the People's Republic of China andTaiwan. Since these independent suppliers are not located in the United States, the Company is at risk of business interruptions due to natural disasters, war,disease and government intervention through tariffs or trade restrictions that are of less concern domestically. The Company maintains finished goods inventory inits U.S. facility to mitigate this risk. The Company’s goal is to stock finished goods inventory at an average of approximately 90 days demand per item. Recoveryof a single facility through replacement of a supplier in the event of a disaster or suspension of supply could take 120 days. The Company believes that it couldrestore production of its top ten selling models (which represent approximately 61% of the Company’s 2016 net sales) within one year. The Company is also atrisk if trade restrictions are introduced on its products based upon country of origin. In addition, the Company may not be able to pass along most increases intariffs and freight charges to the Company’s customers, which would directly affect profits. 7AVAILABLE INFORMATION The Company’s internet website is https://www.koss.com. The Company makes available free of charge through its internet website the Company’s annual reporton Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to those reports as soon as reasonablypracticable after they are electronically filed with (or furnished to) the Securities and Exchange Commission. These reports and other information regarding theCompany are also available on the SEC’s internet website at https://www.sec.gov. The information on the Company's website is not part of this or any other reportthe Company files with or furnishes to the Securities and Exchange Commission. ITEM 2. PROPERTIES. The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former chairman. On May 15, 2012 , the leasewas renewed extending the expiration to June 30, 2018 . The lease extension maintained the rent at a fixed rate of $380,000 per year and it is being accounted foras an operating lease. The Company is responsible for all property maintenance, insurance, taxes, and other normal expenses related to ownership. All facilitiesare in good repair and, in the opinion of management, are suitable and adequate for the Company’s business purposes. ITEM 3. LEGAL PROCEEDINGS. As of June 30, 2016 , the Company is involved in a legal matter against a third party related to the unauthorized transactions as previously reported. A descriptionof this legal matter is included at Note 18 of the Notes to Consolidated Financial Statements included herein, which description is incorporated herein by reference.8PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES. MARKET INFORMATION ON COMMON STOCK The Company’s common stock is traded on The NASDAQ Stock Market under the trading symbol KOSS. There were 421 record holders of the Company’scommon stock as of August 15, 2016 . This number does not include individual participants in security position listings. The quarterly high and low sale prices ofthe Company’s common stock for the last two fiscal years are shown below. Quarter Ended High LowSeptember 30, 2014 $3.45 $1.85December 31, 2014 $2.15 $1.26March 31, 2015 $2.90 $1.80June 30, 2015 $3.50 $2.21September 30, 2015 $2.61 $2.14December 31, 2015 $2.96 $1.91March 31, 2016 $2.35 $1.51June 30, 2016 $2.45 $1.93 COMPANY REPURCHASES OF EQUITY SECURITIES Period (2016) TotalNumberof SharesPurchased AveragePrice Paidper Share Total Number ofShares Purchased asPart of PubliclyAnnounced Plan (1) Approximate Dollar Value ofShares Available underRepurchase PlanApril 1-April 30 — $— — $2,139,753May 1-May 31 — $— — $2,139,753June 1-June 30 — $— — $2,139,753 (1) In April 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 itscommon stock for its own account. Subsequently, the Board of Directors periodically has approved increases in the amount authorized for repurchase under theprogram. As of June 30, 2016 , the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, ofwhich $43,360,247 had been expended. No purchases were made during the years ended June 30, 2016 and 2015 .9 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtednessand other key financial information of the Company for fiscal years 2016 and 2015 . Our MD&A should be read in conjunction with the Consolidated FinancialStatements and related Notes included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Overview The Company developed stereo headphones in 1958 and has been a leader in the industry. We market a complete line of high-fidelity headphones, wirelessBluetooth® headphones, wireless Bluetooth® speakers, computer headsets, telecommunications headsets, active noise canceling headphones, and compact discrecordings of American Symphony Orchestras on the Koss Classics label. Koss operates as one business segment.As headphones become more integral to use of music listening devices in the portable electronics market, the business volume becomes variable throughout theyear. Changes in volume are more dependent on adding new customers, losing a customer, a customer adding or deleting a product, or changes in economicconditions than they are on seasonality or the traditional holiday shopping season.Many of the Company's products could be viewed as essential by the consumer for use with mobile phones and other portable electronic devices and others aremore of a discretionary spend. The results of the Company's operations are therefore susceptible to consumer confidence and macroeconomic factors. Theseeconomic factors have been evident in results during fiscal year 2016 .As a result of the unauthorized transactions that the Company previously reported, the Company has on-going activity to recover the amounts lost in theunauthorized transactions. These activities are explained in Note 2 to the Consolidated Financial Statements.Fiscal Year 2016 Summary•Net sales increased 7.3% to $26,001,346 on volume gains with distributors in Asia, Scandinavia, and the Czech Republic as well as a new distributor inAfrica. There was also a new original equipment manufacturer ("OEM") customer that had significant sales in fiscal 2016.•Gross profit as a percent of sales decreased 0.5% to 34.4% . This change was primarily due to mix of sales by product and by channel.•Selling, general and administrative spending was higher as a result of higher costs for deferred compensation, profit-based compensation, 401(k) matchand travel costs. These higher costs were largely offset by lower stock-based compensation, reduced compensation for the former Chairman's retirement,lower commissions and reduced legal fees.•Unauthorized transaction related recoveries increased due to settling the lawsuit with American Express.10Consolidated ResultsThe following table presents selected consolidated financial data for each of the past two fiscal years:Consolidated Performance Summary 2016 2015Net sales $26,001,346 $24,230,056Net sales increase % 7.3% 1.6%Gross profit $8,942,572 $8,448,567Gross profit as % of net sales 34.4% 34.9%Selling, general and administrative expenses $7,959,460 $7,904,739Selling, general and administrative expenses as % of net sales 30.6% 32.6%Unauthorized transaction related (recoveries) costs, net $(1,286,001) $31,027Interest expense $6,075 $12,813Income before income tax provision $2,263,038 $499,988Income before income tax provision as % of net sales 8.7% 2.1%Income tax provision $874,038 $17,375Income tax provision as % of income before taxes 38.6% 3.5%2016 Results of Operations Compared with 2015 Net sales for 2016 increased primarily due to increased sales to distributors in export markets and the addition of a customer in the export OEM channel. In thedomestic market, sales were mixed with increased sales to a mass retailer being offset by reduced sales to a drug store chain, certain distributors and e-commerce.Export net sales increased by $3,053,839 to $10,504,583 . Net sales to the distributor in the Czech Republic increased by $789,977 to $1,231,731 in the year endedJune 30, 2016 , after a disappointing previous year. This annual sales volume is consistent with historical volumes. The distributor in Scandinavia had solid gainswith more focus on the Koss brand. Net sales to the Scandinavian distributor increased by $645,357 to $4,322,582 . Net sales to the new distributor in Asia were$1,121,609 . There was also an added distributor for central Africa, which added net sales of $147,678 for the year ended June 30, 2016 . In addition, a new OEMcustomer added net sales of $969,848 to fiscal 2016 . Distributors in Russia, Belarus and Ukraine are still dealing with a combination of weak economies andexchange rate fluctuations causing lower than historical sales. These countries combined for a net sales decrease of $449,733.Net sales in the domestic market decreased by $1,282,549 to $15,496,763 . Sales to a large mass retailer increased by $1,011,367 to $2,905,189 due to anadditional product being carried in their stores. This increase was offset by reduced sales to some specialty markets ($620,189), certain distributors ($548,421), e-commerce ($454,771), and a drug store chain ($306,937). Gross profit as a percent of sales in 2016 was 34.4% , which was 0.5% lower than 2015 . The decrease in gross profit percentage was primarily due to the mix ofsales across sales channels and products. There is a wide range of gross profit across the products as well as across the sales channels. The Company is also in theprocess of shifting some product manufacturing between contract manufacturers in China which added approximately $57,000 of cost for the year ended June 30,2016 .Selling, general and administrative expenses were higher than the prior fiscal year. The Company had increased costs for deferred compensation (approximately$249,000), profit-based compensation (approximately $157,000), 401(k) match (approximately $96,000) and travel (approximately $65,000). These increases weremostly offset by lower stock-based compensation (approximately $186,000), the former chairman's retirement (approximately $140,000), commission expense(approximately $115,000), and legal expense (approximately $73,000). Deferred compensation expense increased as a result of additional longevity and a smallreduction in the discount rates. Profit-based compensation increased due to higher profit in the year ended June 30, 2016 . An increase in the percentage ofcompany match resulted in higher 401(k) match expense. Travel was higher as a result of programs to grow sales in export markets. Stock-based compensationdecreased due to fewer people being included in the current year. The former chairman retired late in the year ended June 30, 2015 , so he is no longer included insalary expense. Lower sales through certain U.S. sales channels reduced commission expense along with a change in the11commission structure for certain export markets. Legal expense was higher in the year ended June 30, 2015 , due to a dispute with a former vendor.During the year ended June 30, 2016 , the Company settled the lawsuit with American Express for gross proceeds of $3,000,000 . Unauthorized transaction relatedrecoveries was $1,286,001 net of legal fees. The Company believes that most of the proceeds from asset forfeitures have been received as of June 30, 2016 .Proceeds from asset forfeitures are expected to be minimal, if any, in the fiscal year ending June 30, 2017.Income before income tax provision increased as a result of higher net sales, increased gross profit and the settlement of the lawsuit with American Express. The effective income tax rate in 2016 was 38.6% which is comprised of the U.S. federal statutory rate of 34% and the effect of state income taxes. In the yearended June 30, 2016 , the valuation allowance was reduced as the related deferred tax assets were reduced to their expected realization amounts. The effective taxrate in fiscal 2015 was 3.5% due to reducing unrecognized tax benefits of $175,000 to zero. It is anticipated that the effective income tax rate will be approximately38-40% in 2017 , which reflects the 34% federal rate and a typical state tax rate. Liquidity and Capital Resources Cash FlowsThe following table summarizes our cash flows from operating, investing and financing activities for each of the past two fiscal years: 2016 2015Total cash provided by (used in): Operating activities $314,625 $(340,590)Investing activities (579,498) (558,555)Financing activities — —Net (decrease) in cash and cash equivalents $(264,873) $(899,145)Operating Activities Included in operating activities for the fiscal year ended June 30, 2016 , are proceeds from settlement of the lawsuit against American Express. Pursuant to thesettlement in 2016, the Company received gross proceeds of $3,000,000 , or approximately$1,500,000 net of associated legal fees. There was $2,679,409 used tofund changes in operating assets and liabilities. The majority of this was due to a $735,388 increase in accounts receivable and an increase of $1,413,045 ininventory. The majority of the increase in accounts receivable is the result of the new OEM customer in Asia. Inventories increased due to the addition of a newstore brand product for a U.S. mass retailer, purchase of inventory to cover relocation of contract manufacturing in China and a general increase in certain productsas sales increase. Investing Activities Cash used in investing activities was higher for 2016 as the Company increased spending on tooling and equipment compared to 2015 . These tooling expenditureswere for new products and for the transfer of contract manufacturing to new vendors in China. The increased spending on tooling was partially offset by a decreasein life insurance premiums paid. In 2017 , the Company is planning $900,000 for tooling and leasehold improvements. The tooling expenditures are to supportnew product introductions. The Company expects to generate sufficient funds through operations to fund these expenditures. Financing Activities As of June 30, 2016 , the Company had no outstanding borrowings on its bank line of credit facility. There were no purchases of common stock in 2016 or 2015 under the stock repurchase program. No stock options were exercised in 2016 or 2015 .12 Liquidity In addition to capital expenditures for tooling and investment in software development, the Company has interest payments when it uses its line of credit facility.The Company believes that cash generated from operations, together with borrowings available under its credit facility, should provide it with adequate liquidity tomeet operating requirements, debt service requirements, and capital expenditures. Management is focusing on increasing sales especially in the export markets,increasing new product introductions, increasing the generation of cash from operations, and improving the Company’s overall earnings to help improve theCompany’s liquidity. The Company regularly evaluates new product offerings, inventory levels and capital expenditures to ensure that it is effectively allocatingresources in line with current market conditions.Credit Facility On May 12, 2010, the Company entered into a secured credit facility ("Credit Agreement") with JPMorgan Chase Bank, N.A. (“Lender”). The Credit Agreementprovided for an $8,000,000 revolving secured credit facility and for letters of credit for the benefit of the Company of up to a sublimit of $2,000,000 . On July 23,2014, the Credit Agreement was amended to reduce the facility to $5,000,000 and to amend certain financial covenants. On May 31, 2016, the Credit Agreementwas amended to extend the expiration to July 31, 2018, and to amend certain financial covenants. The Company and the Lender also entered into a Pledge andSecurity Agreement dated May 12, 2010 under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connectionwith the Company’s obligations under the Credit Agreement. The Company is currently in compliance with all covenants related to the Credit Agreement. As ofJune 30, 2016 and 2015 , there were no outstanding borrowings on the facility. Stock Repurchase Program In April 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 itscommon stock for its own account. Subsequently, the Board of Directors periodically has approved increases of between $1,000,000 to $5,000,000 in the stockrepurchase program. As of June 30, 2016 , the most recently approved increase was for additional purchases of $2,000,000 , which occurred in October 2006, foran aggregate maximum of $45,500,000 , of which $43,360,247 had been expended through June 30, 2016 . The Company intends to effect all stock purchaseseither on the open market or through privately negotiated transactions and intends to finance all stock purchases through its own cash flow or by borrowing forsuch purchases. There were no stock repurchases under the program in fiscal years 2016 and 2015 . As of June 30, 2016 , the Board of Directors has authorized the repurchase bythe Company of up to $2,139,753 in Company common stock at the discretion of the Chief Executive Officer of the Company. Future stock purchases under thisprogram are dependent on management’s assessment of value versus market price. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements other than the lease for the facility in Milwaukee, Wisconsin. The Company leases the facility from KossHoldings, LLC, which is wholly-owned by the former chairman. On May 15, 2012 , the lease was renewed for a period of five years, ending June 30, 2018 , and isbeing accounted for as an operating lease. The lease extension maintained the rent at a fixed rate of $380,000 per year. The Company is responsible for allproperty maintenance, insurance, taxes and other normal expenses related to ownership. The facility is in good repair and, in the opinion of management, issuitable and adequate for the Company’s business purposes. Critical Accounting Policies Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared inaccordance with accounting principles generally accepted in the United States. The preparation of these Consolidated Financial Statements requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Wecontinually evaluate our estimates and judgments, including those related to doubtful accounts, product returns, excess inventories, warranties, impairment of long-lived assets, deferred compensation, income taxes and other contingencies. We base our estimates on historical experience and assumptions that we believe to bereasonable under the circumstances. Actual results may differ from these estimates.13Revenue Recognition The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; shipment and delivery have occurred;the seller’s price to the buyer is fixed and determinable; and collectibility is reasonably assured. When these criteria are generally satisfied, the Companyrecognizes revenue. The Company also offers certain customers the right to return products that do not meet the standards agreed with the customer. TheCompany continuously monitors such product returns and cannot guarantee that they will continue to experience the same return rates that they have experiencedin the past. The Company records a provision for estimated returns based on prior product rates of return. Any significant increase in product quality failure ratesand the resulting credit returns could have a material adverse impact on the Company’s operating results for the period or periods in which such returns materialize. The Company provides for certain sales incentives. The Company records a provision for estimated incentives based upon the incentives offered to customers onproduct related sales in the same period as the related revenues are recorded. The provision is recorded as a reduction of sales. The Company also records aprovision for estimated sales returns and allowances on product related sales in the same period as the related revenues are recorded. These estimates are based onhistorical sales returns, analysis of credit memo data and other known factors. If the historical data the Company uses to calculate these estimates does notproperly reflect future returns, adjustments may be required in future periods. Accounts Receivable The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by the review of the customer’s current credit information. The Company continuously monitors collections and payments fromcustomers and maintains a provision for estimated credit losses based upon the Company’s historical experience and any specific customer collection issues thathave been identified. Accounts receivable are stated net of an allowance for doubtful accounts. The allowance is calculated based upon the Company’s evaluationof specific customer accounts where the Company has information that the customer may have an inability to meet its financial obligations. In these cases,management uses its judgment, based on the best available facts and circumstances and records a specific reserve for that customer against amounts due to reducethe receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received thatimpacts the amount reserved. However, the ultimate collectibility of the unsecured receivable is dependent upon the financial condition of an individual customer,which could change rapidly and without warning. Inventories The Company values its inventories at the lower of cost or market. Cost is determined using the last-in, first-out (“LIFO”) method. As of June 30, 2016 and 2015 ,100% of the Company’s inventory was valued using LIFO. Valuing inventories at the lower of cost or market requires the use of estimates and judgment. TheCompany continues to use the same techniques to value inventory as have been used in the past. Our customers may cancel their orders or change purchasevolumes. This, or certain additional actions or market developments, could create excess inventory levels, which would impact the valuation of our inventories. Any actions taken by our customers or market developments that could impact the value of our inventory are considered when determining the lower of cost ormarket valuations. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily onhistorical and projected usage and production requirements. If the Company is not able to achieve its expectations of the net realizable value of the inventory at itscurrent value, the Company would have to adjust its reserves accordingly.Product Warranty Obligations The majority of our products carry a lifetime warranty. We record accruals for potential warranty claims based on prior product warranty experience. Warrantycosts are accrued at the time revenue is recognized. These warranty costs are based upon management’s assessment of past claims and currentexperience. However, actual claims could be higher or lower than amounts estimated, as the amount and value of warranty claims are subject to variation as aresult of many factors that cannot be predicted with certainty.Income Taxes We estimate a provision for income taxes based on the effective tax rate expected to be applicable for the fiscal year. If the actual results are different from theseestimates, adjustments to the effective tax rate may be required in the period such determination is made. Additionally, discrete items are treated separately fromthe effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized.14 Deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferredincome tax assets and liabilities are measured using statutory tax rates. Deferred income tax provisions are based on changes in the deferred tax assets andliabilities from period to period. Additionally, we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which weoperate to determine if valuation allowances are necessary based on the “more likely than not” criteria. New Accounting Pronouncements Applicable new accounting pronouncements are set forth under Item 15 of this annual report and are incorporated herein by reference. 15ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements attached hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.ITEM 9A. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) aredesigned to ensure that (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms; and (2) that such information is accumulated and communicated to management, including theprincipal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls andprocedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design andoperation of the Company’s disclosure controls and procedures as of June 30, 2016 . The Company’s management has concluded that the Company’s disclosurecontrols and procedures as of June 30, 2016 were effective.Management’s Annual Report on Internal Controls over Financial Reporting . The Company’s management, including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and designing such internal controls to provide reasonable assurancesregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generallyaccepted in the United States of America. There are inherent limitations to the effectiveness of any system of internal control over financial reporting, includingthe possibility of human error or the circumvention or overriding of controls and procedures. Accordingly, even effective internal control over financial reportingcan only provide reasonable assurance of achieving its control objectives.Management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in the “1992 Internal Control-Integrated Framework,” the 2006 "Internal Control Over Financial Reporting - Guidance for Smaller Public Companies," and the "2013 COSO Framework & SOXCompliance," all issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In connection with this evaluation, there were nochanges in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarterended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based onthis evaluation, management has concluded that the Company’s internal control over financial reporting as of June 30, 2016 was effective.16PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. This information is incorporated by reference to the sections entitled "Information as to the Nominees," "Board Committees - Audit Committee," "Code of Ethics,""Executive Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" from Koss Corporation’s Proxy Statement for its 2016 Annual Meeting ofStockholders filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K. The Company adopted acode of ethics, which is a "code of ethics" as defined by applicable rules of the SEC, which is applicable to its directors, officers and employees. The code of ethicsis publicly available on the Company's website at investors.koss.com. If the Company makes any substantive amendments to the code of ethics or grants anywaiver, including any implicit waiver, from a provision of the code to its principal executive officer, principal financial officer, principal accounting officer orcontroller or persons performing similar functions, the Company will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.ITEM 11. EXECUTIVE COMPENSATION. This information is incorporated by reference to the sections entitled "Board Committees - Compensation Committee," "Summary Compensation Table,""Outstanding Equity Awards at Fiscal Year End," and "Director Compensation Table" from Koss Corporation’s Proxy Statement for its 2016 Annual Meeting ofStockholders filed with the Commission under Regulation 14A within 120 days of the end of the fiscal year covered by this Form 10-K.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS. This information is incorporated by reference to the sections entitled "Beneficial Ownership of Company Securities" and "Outstanding Equity Awards at FiscalYear End" from Koss Corporation’s Proxy Statement for its 2016 Annual Meeting of Stockholders filed with the Commission under Regulation 14A within 120days of the end of the fiscal year covered by this Form 10-K.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. This information is incorporated by reference to the sections entitled "Board Committees," "Independence of the Board" and "Related Party Transactions" fromKoss Corporation’s Proxy Statement for its 2016 Annual Meeting of Stockholders filed with the Commission under Regulation 14A within 120 days of the end ofthe fiscal year covered by this Form 10-K.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. This information is incorporated by reference to the sections entitled "Fees and Services" and "Audit Committee Pre-Approval Policies and Procedures" from KossCorporation’s Proxy Statement for its 2016 Annual Meeting of Stockholders filed with the Commission under Regulation 14A within 120 days of the end of thefiscal year covered by this Form 10-K.17PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following documents are filed as part of this report: 1. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm19Consolidated Statements of Income for the Years Ended June 30, 2016 and 201520Consolidated Balance Sheets as of June 30, 2016 and 201521Consolidated Statements of Cash Flows for the Years Ended June 30, 2016 and 201522Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2016 and 201523Notes to Consolidated Financial Statements24 2. Financial Statement Schedules All schedules have been omitted because the information is not applicable, is not material or because the information required is included in theConsolidated Financial Statements or the notes thereto. 3. Exhibits Filed See Exhibit Index attached hereto.18REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of DirectorsKoss Corporation and SubsidiaryMilwaukee, Wisconsin We have audited the accompanying consolidated balance sheets of Koss Corporation and Subsidiary (the Company) as of June 30, 2016 and 2015, and the relatedconsolidated statements of income, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility ofthe company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company isnot required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide areasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Koss Corporation andSubsidiary as of June 30, 2016 and 2015 and the results of their operations and cash flows for the years then ended, in conformity with U.S. generally acceptedaccounting principles. /s/ Baker Tilly Virchow Krause, LLP Milwaukee, WisconsinAugust 25, 201619KOSS CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME Years Ended June 30, 2016 2015Net sales $26,001,346 $24,230,056Cost of goods sold 17,058,774 15,781,489Gross profit 8,942,572 8,448,567 Selling, general and administrative expenses 7,959,460 7,904,739Unauthorized transaction related (recoveries) costs, net (1,286,001) 31,027Interest expense 6,075 12,813Income before income tax provision 2,263,038 499,988 Income tax provision 874,038 17,375 Net income $1,389,000 $482,613 Income per common share: Basic $0.19 $0.07Diluted $0.19 $0.07 The accompanying notes are an integral part of these consolidated financial statements.20KOSS CORPORATION AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS As of June 30, 2016 2015ASSETS Current assets: Cash and cash equivalents $735,393 $1,000,266Accounts receivable, less allowance for doubtful accounts of $55,175 and $26,052, respectively 3,530,854 2,823,980Inventories 8,595,485 7,182,440Prepaid expenses and other current assets 281,099 348,044Income taxes receivable 583,507 205,531Total current assets 13,726,338 11,560,261 Equipment and leasehold improvements, net 1,514,472 1,592,520 Other assets: Deferred income taxes 3,212,556 3,914,569Cash surrender value of life insurance 5,667,105 5,359,663Total other assets 8,879,661 9,274,232 Total assets $24,120,471 $22,427,013 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,966,656 $2,172,254Accrued liabilities 1,601,652 1,575,027Total current liabilities 3,568,308 3,747,281 Long-term liabilities: Deferred compensation 2,187,714 2,107,486Other liabilities 178,255 219,227Total long-term liabilities 2,365,969 2,326,713 Total liabilities 5,934,277 6,073,994 Stockholders' equity: Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 7,382,706 shares 36,914 36,914Paid in capital 5,070,956 4,626,781Retained earnings 13,078,324 11,689,324Total stockholders' equity 18,186,194 16,353,019 Total liabilities and stockholders' equity $24,120,471 $22,427,013 The accompanying notes are an integral part of these consolidated financial statements.21KOSS CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2016 2015Operating activities: Net income $1,389,000 $482,613Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for doubtful accounts 28,514 25,725Loss on disposal of equipment and leasehold improvements 40,710 14,953Depreciation of equipment and leasehold improvements 487,134 559,631Stock-based compensation expense 444,175 630,539Deferred income taxes 702,013 284,783Change in cash surrender value of life insurance (177,740) (150,312)Change in deferred compensation accrual 230,228 (12,605)Deferred compensation paid (150,000) (50,000)Net changes in operating assets and liabilities (see note 14) (2,679,409) (2,125,917)Cash provided by (used in) operating activities 314,625 (340,590) Investing activities: Life insurance premiums paid (129,702) (231,942)Purchase of equipment and leasehold improvements (449,796) (326,613)Cash (used in) investing activities (579,498) (558,555) Net (decrease) in cash and cash equivalents (264,873) (899,145)Cash and cash equivalents at beginning of year 1,000,266 1,899,411Cash and cash equivalents at end of year $735,393 $1,000,266 The accompanying notes are an integral part of these consolidated financial statements.22KOSS CORPORATION AND SUBSIDIARYCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Paid in Retained Shares Amount Capital Earnings TotalBalance, June 30, 2014 7,382,706 $36,914 $3,996,242 $11,206,711 $15,239,867Net income — — — 482,613 482,613Stock-based compensation expense — — 630,539 — 630,539Balance, June 30, 2015 7,382,706 36,914 4,626,781 11,689,324 16,353,019Net income — — — 1,389,000 1,389,000Stock-based compensation expense — — 444,175 — 444,175Balance, June 30, 2016 7,382,706 $36,914 $5,070,956 $13,078,324 $18,186,194 The accompanying notes are an integral part of these consolidated financial statements.23KOSS CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS — Koss Corporation ("Koss"), a Delaware corporation, and its 100% -owned subsidiary (collectively the "Company"), reports itsfinances as a single reporting segment, as the Company’s principal business line is the design, manufacture and sale of stereo headphones and related accessories. The Company leases its plant and office in Milwaukee, Wisconsin. The domestic market is served by domestic sales representatives and independentmanufacturers' representatives working directly with certain retailers, distributors, and original equipment manufacturers. International markets are served bydomestic sales representatives and sales offices in the Netherlands and Russia which utilize independent distributors in several foreign countries. The Companyhas one subsidiary, Koss U.K. Limited ("Koss UK"), which was formed to comply with certain European Union ("EU") requirements. Koss UK is non-operatingand holds no assets. BASIS OF CONSOLIDATION — The consolidated financial statements include the accounts of Koss and its subsidiary, Koss UK, which is a 100% -ownedsubsidiary. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION — The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists;shipment and delivery have occurred; the seller’s price to the buyer is fixed and determinable; and collectibility is reasonably assured. When these criteria aregenerally satisfied, the Company recognizes revenue. The Company also offers certain customers the right to return products that do not meet the standards agreedwith the customer. The Company continuously monitors such product returns and cannot guarantee that they will continue to experience the same return rates thatthey have experienced in the past. The Company records a provision for estimated returns based on prior product rates of return. Any significant increase inproduct quality failure rates and the resulting credit returns could have a material adverse impact on the Company’s operating results for the period or periods inwhich such returns materialize. The Company provides for certain sales incentives. The Company records a provision for estimated incentives based upon the incentives offered to customers onproduct related sales in the same period as the related revenues are recorded. The provision is recorded as a reduction of sales. The Company also records aprovision for estimated sales returns and allowances on product related sales in the same period as the related revenues are recorded. These estimates are based onhistorical sales returns, analysis of credit memo data and other known factors. If the historical data the Company uses to calculate these estimates does notproperly reflect future returns, adjustments may be required in future periods. SHIPPING AND HANDLING FEES AND COSTS — Shipping and handling costs charged to customers have been included in net sales. Shipping and handlingcosts incurred by the Company have been included in cost of goods sold. RESEARCH AND DEVELOPMENT — Research and development activities charged to operations as a component of selling, general and administrativeexpenses in the accompanying Consolidated Statements of Income amounted to $91,259 in fiscal year 2016 . There were no research and development activitiescharged to operations in fiscal year 2015 . ADVERTISING COSTS — Advertising costs included within selling, general and administrative expenses in the accompanying Consolidated Statements ofIncome were $143,518 in 2016 and $154,505 in 2015 . Such costs are expensed as incurred.INCOME TAXES — The Company operates as a C Corporation under the Internal Revenue Code of 1986, as amended (the "Code"). Amounts provided forincome tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax bases of assets and liabilities that willresult in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affecttaxable income. As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. Thedifferences relate principally to different methods used for depreciation and amortization for income tax purposes, net operating losses, capitalization requirementsof the Code, allowances for doubtful accounts, provisions for excess and obsolete inventory, stock-based compensation, warranty reserves, and other income taxrelated carryforwards. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. 24INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHARE — Income per common and common stock equivalent share is calculated under theprovisions of Topic 260 in the Accounting Standards Codification ("ASC") which provides for calculation of “basic” and “diluted” income per share. Basicincome per common and common stock equivalent share includes no dilution and is computed by dividing net income by the weighted average common sharesoutstanding for the period. Diluted income per common and common stock equivalent share reflects the potential dilution of securities that could share in theearnings of an entity. See Note 11 for additional information on income per common and common stock equivalent share. CASH AND CASH EQUIVALENTS — The Company considers depository accounts and investments with a maturity at the date of acquisition and expectedusage of three months or less to be cash and cash equivalents. The Company maintains its cash on deposit at a commercial bank located in the United States ofAmerica. The Company periodically has cash balances in excess of insured amounts. The Company has not experienced and does not expect to incur any losseson these deposits. ACCOUNTS RECEIVABLE — Accounts receivable consists of unsecured trade receivables due from customers. An allowance for doubtful accounts is recordedfor significant past due receivable balances based on a review of the past due item and general economic conditions. See Note 3 for additional information onaccounts receivable. INVENTORIES — The Company’s inventory is valued at the lower of last-in, first-out ("LIFO") cost or market. The carrying value of inventory is reviewed forimpairment on at least a quarterly basis or more frequently if warranted due to changes in market conditions. See Note 4 for additional information on inventory.EQUIPMENT AND LEASEHOLD IMPROVEMENTS — Equipment and leasehold improvements are stated at cost. Depreciation and amortization is calculatedusing the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method overthe shorter of the lease term or the estimated useful life of the asset. Major expenditures for property and equipment and significant renewals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulateddepreciation and amortization are removed from the accounts and any resulting gains or losses are included in operations. LIFE INSURANCE POLICIES — Life insurance policies are stated at cash surrender value or at the amount the Company would receive in the case of split-dollararrangements. Increases in cash surrender value are included in selling, general and administrative expenses in the Consolidated Statements of Income, which iswhere the annual premiums are recorded. PRODUCT WARRANTY OBLIGATIONS — Estimated future warranty costs related to products are charged to cost of goods sold during the period the relatedrevenue is recognized. The product warranty liability reflects the Company’s best estimate of probable obligations under those warranties. See Note 9 foradditional information on product warranty obligations. DEFERRED COMPENSATION — The Company’s deferred compensation liabilities are for a current and former officer and are calculated based oncompensation, years of service and mortality tables. The related expense is calculated using the net present value of the expected payments and is included inselling, general and administrative expenses in the Consolidated Statements of Income. See Note 10 for additional information on deferred compensation. FAIR VALUE OF FINANCIAL INSTRUMENTS — Cash equivalents, accounts receivable and accounts payable approximate fair value based on the shortmaturity of these instruments. IMPAIRMENT OF LONG-LIVED ASSETS — The Company evaluates the recoverability of the carrying amount of long-lived assets whenever events or changesin circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company evaluates the recoverability of equipment and leaseholdimprovements annually or more frequently if events or circumstances indicate that an asset might be impaired. If an asset is considered to be impaired, theimpairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported atthe lower of the carrying amount or fair value less cost to sell. Management determines fair value using a undiscounted future cash flow analysis or other acceptedvaluation techniques. No impairments of the Company's long-lived assets were recorded in the years ended June 30, 2016 and 2015 .LEGAL COSTS — All legal costs related to litigation are charged to operations as incurred, except settlements, which are expensed when a claim is probable andcan be estimated. Recoveries of legal costs are recorded when the amount and items to be paid are confirmed by the insurance company. Proceeds from thesettlement of legal disputes are recorded in income when the amounts are determinable and the collection is certain.25STOCK-BASED COMPENSATION — The Company has a stock-based employee compensation plan, which is described more fully in Note 12 . The Companyaccounts for stock-based compensation in accordance with ASC 718 "Compensation - Stock Compensation". Under the fair value recognition provisions of thisstatement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. NEW ACCOUNTING PRONOUNCEMENTS — Accounting Standards Update ("ASU") No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classificationof Deferred Taxes, is part of the Financial Accounting Standards Board ("FASB") simplification initiative. This update requires deferred tax assets and liabilities tobe classified as noncurrent in a classified statement of financial position. The Company adopted this update retrospectively during the year ended June 30, 2016and has reflected the change on the Consolidated Balance Sheets. The adoption of this ASU had no impact on the valuation of the Company's deferred tax assetsand liabilities, only the classification of the items on the Consolidated Balance Sheets. USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose estimates. RECLASSIFICATIONS — Certain amounts previously reported have been reclassified to conform to the current presentation.2. UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIESIn December 2009, the Company learned of significant unauthorized transactions as previously reported. The Company has ongoing costs and recoveriesassociated with the unauthorized transactions. For the fiscal years ended June 30, 2016 and 2015 , the costs incurred were for legal fees related to claims initiatedagainst third parties (see Note 18 ). During the year ended June 30, 2016 , the Company had net recoveries as a result of settling one of its claims for a grossamount of $3,000,000 . For the fiscal years ended June 30, 2016 and 2015 , the costs and recoveries were as follows: 2016 2015Legal fees incurred $1,714,074 $152,492Gross proceeds from the settlement of the third party lawsuit (3,000,000) —Proceeds from asset forfeitures (75) (121,465)Unauthorized transaction related (recoveries) costs, net $(1,286,001) $31,0273. ACCOUNTS RECEIVABLE Accounts receivable includes unsecured trade receivables due from customers. The Company performs credit evaluations of its customers and does not requirecollateral to establish an account receivable. Accounts receivable from the Company's two largest customers represented approximately 18% and 26% of tradeaccount receivables as of June 30, 2016 and 2015 , respectively.The Company evaluates collectibility of accounts receivable based on a number of factors. Accounts receivable are considered to be past due if unpaid one dayafter their due date. An allowance for doubtful accounts is recorded for past due receivable balances based on a review of the past due item and general economicconditions. The Company writes off accounts receivable when they become uncollectible. Changes in the allowance for doubtful accounts were as follows:Fiscal Year Ended June 30, Balance, beginning of year Provision charged to expense Amounts written-off Recoveries ofpreviously written-off Balance, end of year2016 $26,052 28,514 (447) 1,056 $55,1752015 $20,501 25,725 (20,174) — $26,052The vast majority of international customers, outside of Canada, purchase products on a cash against documents or cash in advance basis. Approximately 28% and5% of the Company's trade accounts receivable at June 30, 2016 and 2015 , were foreign receivables denominated in U.S. dollars.264. INVENTORIES As of June 30, 2016 and 2015 , the Company’s inventory was valued using the lower of last-in, first-out (“LIFO”) cost or market. If the first-in, first-out (“FIFO”)method of inventory accounting had been used by the Company for inventories valued at LIFO, inventories would have been $471,174 and $753,439 higher thanreported at June 30, 2016 and 2015 , respectively. The components of inventories at June 30, 2016 and 2015 were as follows: 2016 2015Raw materials $3,466,907 $5,374,333Finished goods 7,570,026 6,246,072 11,036,933 11,620,405Reserve for obsolete inventory (2,441,448) (4,437,965)Total inventories $8,595,485 $7,182,4405. EQUIPMENT AND LEASEHOLD IMPROVEMENTSThe major categories of equipment and leasehold improvements at June 30, 2016 and 2015 are summarized as follows: Estimateduseful lives 2016 2015Machinery and equipment 5-10 years $592,189 $642,200Furniture and office equipment 5-10 years 373,716 374,616Tooling 5 years 4,299,776 4,126,850Display booths 5 years 253,680 287,180Computer equipment 3-5 years 768,620 1,414,517Leasehold improvements 3-15 years 2,387,626 2,308,246Assets in progress N/A 210,189 60,600   8,885,796 9,214,209Less: accumulated depreciation and amortization 7,371,324 7,621,689Equipment and leasehold improvements, net $1,514,472 $1,592,5206. INCOME TAXES The Company utilizes the liability method of accounting for income taxes. The liability method measures the expected income tax impact of future taxable incomeand deductions implicit in the Consolidated Balance Sheets. The income tax provision in 2016 and 2015 consisted of the following:Year Ended June 30, 2016 2015Current: Federal $169,350 $(100,126)State 2,675 (167,282)Deferred 702,013 284,783Total income tax provision $874,038 $17,37527The 2016 and 2015 tax results in an effective rate different than the federal statutory rate because of the following: Year Ended June 30, 2016 2015Federal income tax expense at statutory rate $769,433 $169,996State income tax expense (benefit), net of federal income tax benefit 91,660 (21,442)Decrease in valuation allowance (370,000) —Stock-based compensation 447,180 53,596Adjustments for unrecognized tax benefits — (175,000)Other (64,235) (9,775)Total income tax provision $874,038 $17,375 Temporary differences which give rise to deferred income tax assets and liabilities at June 30, 2016 and June 30, 2015 include: 2016 2015Deferred income tax assets: Deferred compensation $864,954 $835,270Stock-based compensation 603,159 889,325Accrued expenses and reserves 1,390,910 2,075,601Federal and state net operating loss carryforwards 418,296 463,237Valuation allowance (409) (370,409)Equipment and leasehold improvements — 11,566Other 5,979 14,650Total deferred income tax assets 3,282,889 3,919,240 Deferred income tax liabilities: Equipment and leasehold improvements (67,390) —Other (2,943) (4,671)Net deferred income tax assets $3,212,556 $3,914,569Deferred income tax balances reflect the effects of temporary differences between the tax bases of assets and liabilities and their carrying amounts. Thesedifferences are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The recognition of these deferred tax balances will berealized through normal recurring operations and, as such, the Company has recorded the full value of such expected benefits. The Company has no federal netoperating loss carryforwards as of June 30, 2016 . The Company has net operating loss carryforwards in the state of Wisconsin totaling $5,892,509 which expire infiscal years 2030 through 2035 . In addition, the Company has operating loss carryforwards in other states totaling $324,326 , which expire in fiscal years 2026through 2035 . ASC Topic 740 "Income Taxes" prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a taxposition taken, or expected to be taken, in a tax return. There were no additional significant matters determined to be unrecognized tax benefits taken or expectedto be taken in a tax return that have been recorded on the Company’s consolidated financial statements for the year ended June 30, 2016 . Additionally, ASC Topic 740 provides guidance on the recognition of interest and penalties related to income taxes. No interest or penalties related to incometaxes has been accrued or recognized as of and for the years ended June 30, 2016 and 2015 . The Company records interest related to unrecognized tax benefits ininterest expense.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2016 2015Unrecognized tax benefits at beginning of year $— $175,000Reductions based on settlements with taxing authorities — (175,000)Unrecognized tax benefits at end of year $— $— 28In the fiscal year ended June 30, 2015, the Company settled its position with a state tax authority and reduced the unrecognized tax benefits to zero. The Companydoes not believe it has any unrecognized tax benefits as of June 30, 2016 . Any changes to the Company's unrecognized tax benefits during the fiscal years endedJune 30, 2016 and 2015 would impact the effective tax rate.The Company files income tax returns in the United States federal jurisdiction and in several state jurisdictions. The Company’s federal tax returns for tax yearsbeginning July 1, 2012 or later are open. For states in which the Company files state income tax returns, the statute of limitations is generally open for tax yearsended June 30, 2012 and forward.The following are the changes in the valuation allowance: Year Ended June 30, Balance,beginningof year Increase invaluationallowance Release ofvaluationallowance Balance,end of year2016 $(370,409) — 370,000 $(409)2015 $(370,409) — — $(370,409)7. CREDIT FACILITY On May 12, 2010, the Company entered into a secured credit facility ("Credit Agreement") with JPMorgan Chase Bank, N.A. (“Lender”). The Credit Agreementprovided for an $8,000,000 revolving secured credit facility with interest rates either ranging from 0.0% to 0.75% over the Lender’s most recently publiclyannounced prime rate or 2.0% to 3.0% over LIBOR, depending on the Company’s leverage ratio. The Company pays a fee of 0.3% to 0.45% for unused amountscommitted in the credit facility. On July 23, 2014, the Credit Agreement was amended to reduce the facility to $5,000,000 , subject to a borrowing base calculationas defined in the Credit Agreement, and to amend certain financial covenants. On May 31, 2016, the Credit Agreement was amended to extend the expiration toJuly 31, 2018, and to amend certain financial covenants. In addition to the revolving loans, the Credit Agreement also provides that the Company may, from timeto time, request the Lender to issue letters of credit for the benefit of the Company up to a sublimit of $2,000,000 and subject to certain other limitations. The loansmay be used only for general corporate purposes of the Company. The Credit Agreement contains certain affirmative, negative and financial covenants customary for financings of this type. The negative covenants includerestrictions on other indebtedness, liens, fundamental changes, certain investments, asset sales, sale and leaseback transactions and transactions with affiliates,among other restrictions. The financial covenants include minimum debt service coverage ratio requirements. The Company and the Lender also entered into thePledge and Security Agreement dated May 12, 2010, under which the Company granted the Lender a security interest in substantially all of the Company’s assetsin connection with the Company’s obligations under the Credit Agreement. As of June 30, 2016 and 2015 , there were no outstanding borrowings on the facility.The Company incurs interest expense primarily related to its secured credit facility. Interest expense was $6,075 and $12,813 for the years ended June 30, 2016 and2015 , respectively.298. ACCRUED LIABILITIES Accrued liabilities for the years ended June 30, 2016 and 2015 are as follows: 2016 2015Cooperative advertising and promotion allowances $479,645 $400,114Product warranty obligations 305,275 312,664Customer credit balances 47,753 261,977Current deferred compensation 150,000 150,000Accrued returns 140,918 97,026Employee benefits 83,113 93,568Legal and professional fees 127,329 70,000Management bonuses and profit-sharing 147,450 71,381Sales commissions and bonuses 70,050 68,890Other 50,119 49,407 $1,601,652 $1,575,0279. PRODUCT WARRANTY OBLIGATIONS The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The majority of the Company’sproducts carry a lifetime warranty. The Company also records a liability for specific warranty matters when they become known and are reasonably estimated.However, the Company is continuously releasing new and more complex and technologically advanced products. Even though some of these products have ashorter warranty period, it is at least reasonably possible that products could be released with certain unknown quality or design problems resulting in higher thanexpected warranty and related costs. These costs could have a materially adverse effect on the Company's results of operations and financial condition in the nearterm. The Company’s current and non-current product warranty obligations are included in accrued liabilities and other liabilities, respectively, in theConsolidated Balance Sheets.Changes to the product warranty obligations for the years ended June 30, 2016 and 2015 are as follows:Year Ended June 30, Balance,beginningof year Provisioncharged toexpense Warrantyexpensesincurred Balance,end of year2016 $531,891 214,827 (263,188) $483,5302015 $722,624 103,925 (294,658) $531,89110. DEFERRED COMPENSATIONThe Company has deferred compensation agreements with a former and current officer. The related expense is calculated using the net present value of theexpected payments and is included in selling, general and administrative expenses in the Consolidated Statements of Income. The Company's current and non-current deferred compensation obligations are included in accrued liabilities and deferred compensation, respectively, in the Consolidated Balance Sheets. The netpresent value was calculated for the former officer using a discount factor of 2.60% and 2.70% as of June 30, 2016 and 2015 , respectively. The net present valuewas calculated for the current officer using a discount factor of 4.80% and 4.80% at June 30, 2016 and 2015 , respectively. The Board of Directors entered into an agreement to continue the 1991 base salary of the former chairman for the remainder of his life. These payments began inthe fiscal year ended June 30, 2015, and payments of $150,000 and $50,000 were made under this arrangement for the years ended June 30, 2016 and 2015 ,respectively. The Company has a deferred compensation liability of $772,026 and $820,720 recorded as of June 30, 2016 and 2015 , respectively. Deferredcompensation expense of $101,306 and $166,414 was recognized under this arrangement in 2016 and 2015 , respectively. 30The Board of Directors has approved a supplemental retirement plan with an officer that calls for annual cash compensation following retirement from theCompany in an amount equal to 2% of base salary, as defined in the agreement, multiplied by the number of years of service to the Company. The retirementpayments are to be paid monthly to the officer until his death and then to his surviving spouse monthly until her death. The Company has a deferred compensationliability of $1,565,688 and $1,436,766 recorded as of June 30, 2016 and 2015 , respectively. Deferred compensation expense of $128,922 and a reversal ofdeferred compensation expense of $179,019 was recognized under this arrangement in 2016 and 2015 , respectively. The Company uses life insurance policies to provide funds to meet its deferred compensation obligations.11. INCOME PER COMMON AND COMMON STOCK EQUIVALENT SHAREBasic income per share is computed based on the weighted-average number of common shares outstanding. The weighted-average number of common sharesoutstanding was 7,382,706 for the years ended June 30, 2016 and 2015 . When dilutive, stock options are included in income per share as share equivalents usingthe treasury stock method. For the years ended June 30, 2016 and 2015 there were no common stock equivalents related to stock option grants that were includedin the computation of the weighted-average number of shares outstanding for diluted income per share. Shares issuable upon the exercise of outstanding options of2,140,000 and 2,245,000 were excluded from the diluted weighted average common shares outstanding for the years ended June 30, 2016 and 2015 , respectively,as they would be anti-dilutive.12. STOCK OPTIONS In 2012, pursuant to the recommendation of the Board of Directors, the stockholders ratified the creation of the Company’s 2012 Omnibus Incentive Plan (the“2012 Plan”), which superseded the 1990 Flexible Incentive Plan (the "1990 Plan"). The 2012 Plan is administered by a committee of the Board of Directors andprovides for granting of various stock-based awards including stock options to eligible participants, primarily officers and certain key employees. A total of2,000,000 shares of common stock were available under the terms of the 2012 Plan plus shares outstanding under the 1990 Plan which expire or are otherwiseforfeited, canceled or terminated after July 25, 2012, the Effective Date of the 2012 Plan. As of June 30, 2016 , there were 1,374,308 options available for futuregrants. Options vest over a three to five year period from the date of grant, with a maximum term of five to ten years.The fair value of each stock option grant was estimated as of the date of grant using the Black-Scholes pricing model. The resulting compensation cost for fixedawards with graded vesting schedules is amortized on a straight-line basis over the vesting period for the entire award. The expected term of awards granted isdetermined based on historical experience with similar awards, giving consideration to the expected term and vesting schedules. The expected volatility isdetermined based on the Company’s historical stock prices over the most recent period commensurate with the expected term of the award. The risk-free interestrate is based on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Expected pre-vesting optionforfeitures are based on historical data. As of June 30, 2016 , there was $690,190 of total unrecognized compensation cost related to stock options granted under the 2012 Plan and 1990 Plan. This cost isexpected to be recognized over a weighted average period of 2.30 years. Total unrecognized compensation cost will be adjusted for any future changes inestimated and actual forfeitures. The Company recognized stock-based compensation expense of $444,175 and $630,539 in 2016 and 2015 , respectively. Theseexpenses were included in selling, general and administrative expenses. There was no cash received from stock option exercises during 2016 or 2015 . Options are granted at a price equal to or greater than the market value of the common stock on the date of grant. The per share weighted average fair value of thestock options granted during the years ended June 30, 2016 and 2015 were $0.75 and $0.73 , respectively. The fair value of each option granted is estimated on thedate of grant using the Black-Scholes option-pricing model. For the options granted in 2016 and 2015 , the Company used the following weighted-averageassumptions: 2016 2015Expected stock price volatility 50% 43%Risk free interest rate 1.48% 1.52%Expected dividend yield 4.00% 4.00%Expected forfeitures 5.60% 1.50%Expected life of options 4.5 years 4.6 years31The following table identifies options granted, exercised, canceled, or available for exercise pursuant to the 1990 Plan and the 2012 Plan: Number of Shares Stock Options Price Range Weighted Average Exercise Price Weighted Average Remaining Contractual Life - Years Aggregate Intrinsic Value of In-The- Money OptionsShares under option at June 30, 2014 2,066,000 $3.90 - $13.09 $5.97 4.13 $—Granted 470,000 $2.24 - $3.30 $3.14 Exercised — — $— Expired (201,000) $4.97 - $13.09 $7.06 Forfeited (90,000) $3.00 - $6.00 $4.69 Shares under option at June 30, 2015 2,245,000 $2.24 - $13.09 $5.33 3.69 $1,676Granted 410,000 $2.05 - $2.83 $2.72 Exercised — — $— Expired (458,000) $3.00 - $13.09 $6.25 Forfeited (57,000) $3.00 - $6.00 $4.34 Shares under option at June 30, 2016 2,140,000 $2.05 - $9.74 $4.66 3.51 $—Exercisable as of June 30, 2015 1,134,500 $3.90 - $13.09 $6.01 2.18 $—Exercisable as of June 30, 2016 1,084,000 $2.24 - $9.74 $5.57 2.47 $— A summary of intrinsic value and cash received from stock option exercises and fair value of vested stock options for the fiscal years ended June 30, 2016 and2015 is as follows: 2016 2015Total intrinsic value of stock options exercised $— $—Cash received from stock option exercises $— $—Total fair value of stock options vested $583,727 $696,95813. STOCK REPURCHASE PROGRAM The Company has an agreement with the former chairman, in the event of his death, at the request of the executor of his estate, to repurchase his Companycommon stock from his estate. The Company does not have the right to require the estate to sell stock to the Company. As such, this arrangement is accounted foras a written put option with the fair value of the put option recorded as a derivative liability.As of June 30, 2016 , the estate of the former chairman does not hold a material amount of Company stock. As such, there is no exposure that the executor of theformer chairman's estate may require the Company to repurchase a material amount of stock in the event of his death. The repurchase price is 95% of the fairmarket value of the common stock on the date that notice to repurchase is provided to the Company. The total number of shares to be repurchased will be sufficientto provide proceeds which are the lesser of $2,500,000 or the amount of estate taxes and administrative expenses incurred by his estate. The Company may elect topay the purchase price in cash or may elect to pay cash equal to 25% of the total amount due and to execute a promissory note at the prime rate of interest for thebalance payable over four years. The Company maintains a $1,150,000 life insurance policy to fund a substantial portion of this obligation.In April 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 itscommon stock for its own account. Subsequently, the Board of Directors periodically has approved increases in the amount authorized for repurchase under theprogram. As of June 30, 2016 , the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, ofwhich $43,360,247 had been expended. No shares were repurchased in 2016 or 2015 .3214. ADDITIONAL CASH FLOW INFORMATION The net changes in cash as a result of changes in operating assets and liabilities consist of the following: 2016 2015Accounts receivable $(735,388) $311,182Inventories (1,413,045) (127,508)Income taxes receivable (377,976) 903,745Prepaid expenses and other current assets 66,945 (199,844)Income taxes payable — (175,000)Accounts payable (205,598) (292,501)Accrued liabilities 26,625 (2,428,446)Other liabilities (40,972) (117,545)Net change $(2,679,409) $(2,125,917) Net cash paid (refunded) during the year for: Income taxes $558,202 $(985,585)Interest $6,075 $12,81315. EMPLOYEE BENEFIT PLANS Substantially all domestic employees are participants in the Koss Employee Stock Ownership Trust (KESOT) under which an annual contribution in either cash orcommon stock may be made at the discretion of the Board of Directors. No contributions were made for the fiscal years 2016 or 2015 . The Company maintains a retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers all employees of the Company who havecompleted one full fiscal quarter of service. Matching contributions can be made at the discretion of the Board of Directors. For fiscal years 2016 and 2015 , thematching contribution was 50% and 25% of employee contributions to the plan, respectively. Vesting of Company contributions occurs immediately. Companycontributions were $186,877 and $91,354 during 2016 and 2015 , respectively.16. FOREIGN SALES AND SIGNIFICANT CUSTOMERS The Company’s net foreign sales amounted to $10,504,583 during 2016 and $7,450,744 during 2015 . The Company’s sales by country were as follows: 2016 2015United States $15,496,763 $16,779,312Sweden 4,322,582 3,677,225Czech Republic 1,231,731 441,754Hong Kong 1,121,609 —People's Republic of China 969,848 193,374Malaysia 669,782 262,600Canada 400,672 498,026All other countries 1,788,359 2,377,765Net sales $26,001,346 $24,230,056Sales during 2016 and 2015 to the Company's five largest customers, which are generally large national retailers or foreign distributors, represented approximately47% and 45% of the Company's net sales, respectively. Included in these percentages were sales to a single Scandinavian distributor which representedapproximately 17% and 15% of the Company's net sales during 2016 and 2015 , respectively. Net sales to a single United States customer representedapproximately 11% and 8% of the Company's net sales during 2016 and 2015 , respectively.3317. COMMITMENTS AND CONTINGENCIES The Company leases its facility in Milwaukee, Wisconsin from Koss Holdings, LLC, which is wholly-owned by the former chairman. On May 15, 2012 , the leasewas renewed for a period of five years, ending June 30, 2018 , and is being accounted for as an operating lease. The lease extension maintained the rent at a fixedrate of $380,000 per year. The Company is responsible for all property maintenance, insurance, taxes and other normal expenses related to ownership. Total rentexpense was $380,000 in both 2016 and 2015 .18. LEGAL MATTERSAs of June 30, 2016 , the Company is party to the following matter related to the unauthorized transactions described below:•On December 17, 2010, the Company filed an action against Park Bank in Circuit Court of Milwaukee County, Wisconsin alleging a claim of breach ofthe Uniform Fiduciaries Act relating to the unauthorized transactions, as previously reported. In 2015, Park Bank filed third party claims based oncontribution and subrogation against Grant Thornton LLP and Michael Koss. The Court granted motions to dismiss the contribution claims against GrantThornton LLP and Michael Koss, but determined that it was premature to decide the subrogation claims at this stage of the proceedings. On or aroundMarch 11, 2016, the Court entered an order granting Park Bank's motion for summary judgment that dismissed the case. On March 22, 2016, theCompany filed a Notice of Appeal that appeals the order granting Park Bank's motion for summary judgment and the Court's denial of the motion todismiss the subrogation claims.The ultimate resolution of this matter is not determinable unless otherwise noted.We also are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. Although management currentlybelieves that resolving these claims against us, individually or in aggregate, will not have a material adverse impact on our consolidated financial statements, thesematters are subject to inherent uncertainties and management’s view of these matters may change in the future.34SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized. KOSS CORPORATION By:/s/ Michael J. Koss August 25, 2016 Michael J. Koss Chairman Chief Executive Officer By:/s/ David D. Smith August 25, 2016 David D. Smith Executive Vice President Chief Financial Officer Principal Accounting Officer Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and inthe capacities indicated on August 25, 2016 . /s/ Michael J. Koss /s/ Thomas L. DoerrMichael J. Koss, Director Thomas L. Doerr, Director /s/ Steven A. Leveen /s/ Theodore H. NixonSteven A. Leveen, Director Theodore H. Nixon, Director /s/ William J. Sweasy William J. Sweasy, Director 35EXHIBIT INDEX Exhibit No.Exhibit Description 3.1Amended and Restated Certificate of Incorporation of Koss Corporation, as in effect on November 19, 2009. Filed as Exhibit 3.1 to theCompany’s Quarterly Report on Form 10-Q for the period ended December 31, 2009 and incorporated herein by reference. 3.2By-Laws of Koss Corporation. Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1996 andincorporated herein by reference. 10.1Death Benefit Agreement with John C. Koss. Filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year endedJune 30, 1996 and incorporated herein by reference. * 10.2Stock Purchase Agreement with John C. Koss. Filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year endedJune 30, 1996 and incorporated herein by reference. * 10.3Salary Continuation Resolution for John C. Koss. Filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year endedJune 30, 1996 and incorporated herein by reference. * 10.41983 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, 1996and incorporated herein by reference. * 10.51990 Flexible Incentive Plan. Filed as Exhibit 25 to the Company’s Annual Report on Form 10-K for the year ended June 30, 1990 andincorporated herein by reference. * 10.6Consent of Directors (Supplemental Executive Retirement Plan for Michael J. Koss dated March 7, 1997). Filed as Exhibit 10.2 to theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. * 10.7Credit Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank, N.A. Filed as Exhibit 10.12 to theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated by reference herein. 10.8Pledge and Security Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank, N.A. Filed as Exhibit 10.13 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated by reference herein. 10.9Koss Corporation 2012 Omnibus Incentive Plan (Incorporated by reference to Appendix B to Koss Corporation's Definitive ProxyStatement on Schedule 14A filed on August 27, 2012). * 10.10Amendment No. 2 dated July 24, 2013 to Credit Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank,N.A. Filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended June 30, 2014, and incorporated by referenceherein. 10.11Amendment No. 3 dated July 23, 2014 to Credit Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank,N.A. Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended June 30, 2014, and incorporated by referenceherein. 10.12Amendment No. 4 dated July 29, 2015 to Credit Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank,N.A. Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended June 30, 2015, and incorporated by referenceherein. 10.13Amendment No. 5 dated May 31, 2016 to Credit Agreement dated May 12, 2010, between Koss Corporation and JPMorgan Chase Bank,N.A. ** 3614Koss Corporation Code of Ethics. Filed as Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended June 30, 2011 andincorporated by reference herein. 23.1Consent of Baker Tilly Virchow Krause, LLP. ** 31.1Rule 13a -14(a)/15d-14(a) Certification of Chief Executive Officer. ** 31.2Rule 13a -14(a)/15d-14(a) Certification of Chief Financial Officer. ** 32.1Section 1350 Certification of Chief Executive Officer. *** 32.2Section 1350 Certification of Chief Financial Officer. *** 101The following financial information from Koss Corporation's Annual Report on Form 10-K for the year ended June 30, 2016, formatted inXBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the years ended June 30, 2016 and 2015, (ii)Consolidated Balance Sheets as of June 30, 2016 and 2015, (iii) Consolidated Statements of Cash Flows for the years ended June 30, 2016and 2015, (iv) Consolidated Statements of Stockholders' Equity for the years ended June 30, 2016 and 2015 and (v) the Notes toConsolidated Financial Statements.__________________________* Denotes a management contract or compensatory plan or arrangement** Filed herewith*** Furnished herewith37AMENDMENT NO. 5 TO CREDIT AGREEMENTTHIS AMENDMENT NO. 5 TO CREDIT AGREEMENT (this “ Amendment ”), entered into as of May 31, 2016, isby and between Koss Corporation, a Delaware corporation (“ Borrower ”), and JPMorgan Chase Bank, N.A. (“ Lender ”) under theCredit Agreement defined below.W I T N E S S E T H :WHEREAS, Borrower and Lender entered into that certain Credit Agreement dated as of May 12, 2010 (as amendedto date, the “ Credit Agreement ”), pursuant to which Lender agreed to extend credit to Borrower upon the terms and subject to theconditions set forth therein; andWHEREAS , Borrower has requested that Lender enter into this Amendment for the purpose of making certainmodifications and amendments to the Credit Agreement as described herein, and Lender is willing to agree to such modifications, allon the terms and subject to the conditions set forth herein.NOW, THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto hereby agreeas follows:1. Definitions . All capitalized terms used and not otherwise defined herein shall have the meanings given to suchterms by the Credit Agreement as amended hereby.2. Amendments . Upon satisfaction of the conditions set forth in Section 3 below, the Credit Agreement shall beamended as follows:a.All references to the Credit Agreement in the Credit Agreement or any of the Loan Documents shall refer tothe Credit Agreement as amended hereby.b.Section 1.01 (Defined Terms) shall be amended as follows:i. A new definition shall be added to Section 1.01 in appropriate alphabetical order as follows:“ Debt Service Coverage Ratio ” means, as of the last day of any fiscal quarter of the Borrower, for the fourconsecutive fiscal quarters then ending, the relationship, without duplication, expressed as a numerical ratiobetween:(a) EBITDA of Borrower for the four quarters ended on such date (i) plus or minus the sum of (x) non-cash compensation in the form of the issuance of securities or other non-cash payments, awards or grants pursuant toemployment agreements, stock options and stock ownership plans, and (y) extraordinary income or expensesapproved by Lender in its reasonable discretion, (ii) minus the sum of (x) income tax expense for such period, (y) anydistributions or other payments paid to- 1 -shareholders or affiliates during the four fiscal quarters ended on such date, and (z) 50% of the amounts attributable todepreciation expense for such period; and(b) the sum of (i) Interest Expense payable during such period, (ii) Capital Lease Obligations payableduring the four fiscal quarters ended on such date and (iii) scheduled principal payments on Indebtedness of theBorrower payable during the four fiscal quarters ended on such date,All as determined in accordance with GAAP as applied on a consolidated basisii. The definition of “EBITDA” set forth therein shall be amended to read as follows:“ EBITDA ” means, for any period, Net Income for such period plus (a) without duplication and to the extentdeducted in determining Net Income for such period, the sum of (i) Interest Expense for such period,(ii) income tax expense for such period net of tax refunds, and (iii) all amounts attributable to depreciation andamortization expense for such period, all calculated for Borrower and its Subsidiaries on a consolidated basisin accordance with GAAP.iii. The definition of “Fraud” shall be deleted in its entirety.iv. The definition of “Maturity Date” set forth therein shall be amended to read as follows:“ Maturity Date ” means July 31, 2018, or any earlier date on which the Revolving Commitment is reduced tozero or otherwise terminated pursuant to the terms hereof.c.Section 3.11 (Disclosure) shall be amended to read as follows:Borrower has disclosed to Lender all agreements, instruments and corporate or other restrictions to which it orany Subsidiary is subject, and all other matters known to it, that, individually or in the aggregate, couldreasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements,certificates or other information furnished by or on behalf of Borrower or any Subsidiary to Lender inconnection with the negotiation of this Agreement or any other Loan Document (as modified or supplementedby other information so furnished) contains any material misstatement of fact or omits to state any materialfact necessary to make the statements therein, in the light of the circumstances under which they were made,not misleading; provided that, with respect to projected financial information, Borrower represents only thatsuch information was prepared in good faith based upon assumptions believed to be reasonable at the time- 2 -delivered and, if such projected financial information was delivered prior to the Effective Date, as of theEffective Date.d.Section 5.01 (Financial Covenants; Borrowing Base and Other Information) shall be amended such that clause(e) thereof shall read as follows:(e) as soon as available but in any event within 30 days of the end of each calendar month, and atsuch other times as may be requested by Lender, as of the period then ended, a Borrowing Base Certificateand supporting information in connection therewith, together with any additional reports with respect to theBorrowing Base as Lender may reasonably request; provided, however, that Borrowing Base Certificates shallnot be required for any calendar month during which the Revolving Exposure does not exceed $2,500,000;e.Section 6.12(a) (Financial Covenants – Minimum EBITDA) shall be amended in its entirety to read asfollows:(a) Debt Service Coverage Ratio . Borrower will not permit the Debt Service Coverage Ratio,measured on the last day of each fiscal quarter of Borrower for the four fiscal quarters then ended, beginningwith the fiscal quarter ending June 30, 2016, to be less than 1.25 to 1.3. Conditions : Notwithstanding the foregoing, this Amendment shall not become effective unless and until Lenderreceives:a. a fully-executed copy of this Amendment; andb. such other certificates or documents as Lender or its counsel may reasonably request.4. Representations and Warranties . Borrower repeats and reaffirms the representations and warranties set forth inArticle III of the Credit Agreement as though made on and as of the date hereof, except for representations or warranties that aremade as of a particular date. Borrower also represents and warrants that the execution, delivery and performance of this Amendment,and the documents required herein, are within the corporate powers of Borrower, have been duly authorized by all necessarycorporate action and do not and will not (i) require any consent or approval of the shareholders of Borrower; (ii) violate anyprovision of the articles of incorporation or by-laws of Borrower or of any law, rule, regulation, order, writ, judgment, injunction,decree, determination or award presently in effect having applicability to Borrower or any subsidiary of Borrower; (iii) require theconsent or approval of, or filing a registration with, any governmental body, agency or authority, other than routine filings with theU.S. Securities and Exchange Commission other than that which has been obtained or filed; or (iv) result in any breach of orconstitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of Borrower or anysubsidiary of Borrower pursuant to, any indenture or other agreement or instrument under which Borrower or any subsidiary ofBorrower is a party or by which it or its properties may be bound or affected, other than as permitted by the Loan Documents.- 3 -This Amendment constitutes the legal, valid and binding obligation of Borrower enforceable in accordance with its terms, except assuch enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors’ rights generally.5. Obligations Enforceable, Etc . Borrower acknowledges and agrees that its obligations under the CreditAgreement are not subject to any offset, defense or counterclaim assertable by Borrower and that the Credit Agreement and the LoanDocuments are valid, binding and fully enforceable according to their respective terms. Except as expressly provided above, theCredit Agreement and the Loan Documents shall remain in full force and effect, and this Amendment shall not release, discharge orsatisfy any present or future debts, obligations or liabilities to Lender of Borrower or of any debtor, guarantor or other person orentity liable for payment or performance of any of such debts, obligations or liabilities of Borrower, or any security interest, lien orother collateral or security for any of such debts, obligations or liabilities of Borrower or such debtors, guarantors, or other personsor entities, or waive any default, and Lender expressly reserves all of its rights and remedies with respect to Borrower and all suchdebtors, guarantors or other persons or entities, and all such security interests, liens and other collateral and security. This is anamendment and not a novation. Without limiting the generality of the foregoing, all present and future debts, obligations andliabilities of Borrower under the Credit Agreement, as amended, are and shall continue to be secured by the Security Agreement andany other Collateral Documents.6. Fees and Expenses . As contemplated by Section 8.03(a) of the Credit Agreement, Borrower shall be responsiblefor the payment of all reasonable fees and out-of-pocket disbursements incurred by Lender in connection with the preparation,execution and delivery of this Amendment. Borrower further acknowledges and agrees that, pursuant to and on the terms set forth insuch Section 8.03(a) , Borrower is and shall be responsible for the payment of other fees, expenses, costs and charges arising underor relating to the Credit Agreement, as amended hereby, and the Loan Documents, as set forth in such Section 8.03(a) .7. Entire Agreement . This Amendment and the other documents referred to herein contain the entire agreementbetween Lender and Borrower with respect to the subject matter hereof, superseding all previous communications and negotiations,and no representation, undertaking, promise or condition concerning the subject matter hereof shall be binding upon Lender unlessclearly expressed in this Agreement or in the other documents referred to herein.8. Miscellaneous . The provisions of this Amendment shall inure to the benefit of any holder of any Obligations,and shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations andwarranties made herein shall survive the execution of this Amendment and the making of the loans under the Credit Agreement, asso amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin.This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were uponthe same instrument. This Amendment is solely for the benefit of the parties hereto and their permitted successors and assigns. Noother person or entity shall have any rights under, or because of the existence of, this Amendment.- 4 -IN WITNESS WHEREOF , this Amendment has been duly executed as of the day and year first above written.KOSS CORPORATIONBy: /s/ David Smith Name: David SmithTitle: Executive Vice President and Chief Financial OfficerJPMORGAN CHASE BANK, N.A.By: /s/ Glenn M. Margraff Name: Glenn M. MargraffTitle: Authorized SignatoryExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements (Nos. 333-89872, 333-37986, 333-20405 and 333-184754) on Form S-8 of our reportdated August 25, 2016 , relating to the consolidated financial statements of Koss Corporation and Subsidiary as of and for the years ended June 30, 2016 and 2015 ,appearing in this Annual Report onForm 10-K of Koss Corporation for the year ended June 30, 2016 ./s/ BAKER TILLY VIRCHOW KRAUSE, LLPMilwaukee, WisconsinAugust 25, 2016Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael J. Koss, certify that: 1. I have reviewed this annual report on Form 10-K of Koss Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) andinternal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensurethat material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during theperiod in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of theregistrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting. August 25, 2016 /s/ Michael J. Koss Michael J. Koss Chief Executive Officer and President Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, David D. Smith, certify that: 1. I have reviewed this annual report on Form 10-K of Koss Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) andinternal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensurethat material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during theperiod in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of theregistrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting. August 25, 2016 /s/ David D. Smith David D. Smith Executive Vice President and Chief Financial Officer Exhibit 32.1 Certification of Chief Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C. Section 1350 I, Michael J. Koss, Chief Executive Officer of Koss Corporation (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18U.S.C. Section 1350 that to my knowledge: (i) the Annual Report on Form 10-K of the Company for the year ended June 30, 2016 (the “Report”) fully complies with the requirements of Section13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael J. Koss Michael J. Koss Chief Executive Officer and President August 25, 2016 Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extentrequired by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Exhibit 32.2 Certification of Chief Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 I, David D. Smith, Chief Financial Officer of Koss Corporation (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18U.S.C. Section 1350 that to my knowledge: (i) the Annual Report on Form 10-K of the Company for the year ended June 30, 2016 (the “Report”) fully complies with the requirements of Section13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David D. Smith David D. Smith Executive Vice President and Chief Financial Officer August 25, 2016 Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed, except to the extentrequired by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Continue reading text version or see original annual report in PDF format above