Koss (KOSS)

GENERAL

As used herein, the term “Company” means Koss Corporation and its consolidated subsidiaries, unless the context otherwise requires.  The Company was incorporated in 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 and related accessory products.  The Company reports its finances 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 percentage of total revenues related to this central business line over the past three fiscal years was 100% for each year.

The Company’s products are sold through audio specialty stores, the Internet, direct mail catalogs, regional department store chains, discount department stores, military exchanges, prisons, and national retailers under the “Koss” name and dual label.  The Company also sells products to distributors for resale to school systems, and directly to other manufactures for inclusion with their own products.  The Company has more than 300 domestic dealers and its products are carried in approximately 13,400 domestic retail outlets.  International markets are served by domestic sales representatives and a sales office in Switzerland which utilizes independent distributors in several foreign countries.  The Company has two subsidiaries:  Bi-Audio and Koss Classics.

Ninety-five percent of the Company’s products are stereo headphones for listening to music.  The products are not significantly differentiated by channel or application with the exception of products sold to school systems, which sometimes include a microphone.  Sales in this application represent between 2% and 3% of the Company’s revenue.  There are no other product line differentiations other than the quality of the sound produced by the stereo headphone itself, which is highly subjective.  The business could also be classified by distribution channel.  Consumers purchase more than 98% of the Koss stereophone range of product through some form of retail channel or reseller.

Management believes that it has sources of raw materials that are adequate for its needs.

No employment or compensation agreement exists between the Company and its dealers.  The Company has several independent manufacturer’s representatives for distribution.  The Company typically signs one year contracts with these manufacturer’s representatives.  These agreements are seldom renewed in writing.  The sales from these agreements accounted for approximately 2% of the Company’s total revenue in 2008.  Specifically, the Company has a manufacturer’s representative agreement with a firm in Detroit to work exclusively in the automotive arena.  The automotive representative was paid 3% for all business in this area in 2008, and will be paid 2% thereafter.  The Company’s remaining agreements with distributors, past or present, pertain to distribution arrangements in foreign countries.  The arrangements with foreign distributors do not contemplate that the Company pays any compensation other than any profit the distributors make upon their sale of the Company’s products.  The Company has the right to terminate these agreements with foreign distributors without cause.

GENERAL

As used herein, the term “Company”
means Koss Corporation and its consolidated subsidiaries, unless the context
otherwise requires.  The Company was
incorporated in 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 and related accessory
products.  The Company reports its
finances 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 percentage of total
revenues related to this central business line over the past three fiscal years was 100% for each year.

The Company’s products are
sold through audio specialty stores, the Internet, direct mail catalogs,
regional department store chains, discount department stores, military
exchanges, prisons, and national retailers under the “Koss” name and dual
label.  The Company also sells products
to distributors for resale to school systems, and directly to other
manufactures for inclusion with their own products.  The Company has more than 300 domestic
dealers and its products are carried in approximately 13,400 domestic retail
outlets.  International markets are
served by domestic sales representatives and a sales office in Switzerland
which utilizes independent distributors in several foreign countries.  The Company has two subsidiaries:  Bi-Audio and Koss Classics.

Ninety-five percent of the
Company’s products are stereo headphones for listening to music.  The products are not significantly
differentiated by channel or application with the exception of products sold to
school systems, which sometimes include a microphone.  Sales in this application represent between
2% and 3% of the Company’s revenue. 
There are no other product line differentiations other than the quality
of the sound produced by the stereo headphone itself, which is highly
subjective.  The business could also be
classified by distribution channel. 
Consumers purchase more than 98% of the Koss stereophone range of
product through some form of retail channel or reseller.

Management believes that it
has sources of raw materials that are adequate for its needs.

No employment or
compensation agreement exists between the Company and its dealers.  The Company has several independent
manufacturer’s representatives for distribution.  The Company typically signs one year
contracts with these manufacturer’s representatives.  These agreements are seldom renewed in
writing.  The sales from these agreements
accounted for approximately 2% of the Company’s total revenue in 2008.  Specifically, the Company has a manufacturer’s
representative agreement with a firm in Detroit to work exclusively in the
automotive arena.  The automotive
representative was paid 3% for all business in this area in 2008, and will be
paid 2% thereafter.  The Company’s
remaining agreements with distributors, past or present, pertain to
distribution arrangements in foreign countries. 
The arrangements with foreign distributors do not contemplate that the
Company pays any compensation other than any profit the distributors make upon
their sale of the Company’s products. 
The Company has the right to terminate these agreements with foreign
distributors without cause.

General

·                  Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their impact on the financial statements.

·                  Ask management and the external auditors about significant risks and exposures and the plans to minimize such risks.

·                  Consider the independent accountants’ judgments about the quality and appropriateness of the Company’s accounting principles and estimates as applied to its financial reporting.

GENERAL

As used herein, the term “Company” means Koss Corporation and its consolidated subsidiaries, unless the context otherwise requires.  The Company was incorporated in 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 and related accessory products.  The Company reports its finances 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 percentage of total revenues related to this central business line over the past three fiscal years was 100% for each year.

The Company’s products are sold through audio specialty stores, the Internet, direct mail catalogs, regional department store chains, discount department stores, military exchanges, prisons, and national retailers under the “Koss” name and dual label.  The Company also sells products to distributors for resale to school systems, and directly to other manufactures for inclusion with their own products.  The Company has more than 351 domestic dealers and its products are carried in approximately 24,500 domestic retail outlets.  International markets are served by domestic sales representatives and a sales office in Switzerland which utilizes independent distributors in several foreign countries.  The Company has 2 subsidiaries:  Bi-Audio and Koss Classics.

Ninety five percent of the Company’s products are stereo headphones for listening to music.  The products are not significantly differentiated by channel or application with the exception of products sold to school systems, which sometimes include a microphone.  Sales in this application represent between 2% and 3% of the Company’s revenue.  There are no other product line differentiations other than the quality of the sound produced by the stereo headphone itself, which is highly subjective.  The business could also be classified by distribution channel.  Consumers purchase more than 98% of the Koss stereophone range of product through some form of retail channel or reseller.

Management believes that it has sources of raw materials that are adequate for its needs.

No employment or compensation agreement exists between the Company and its dealers.  Although, the Company has several independent manufacturer’s representatives for distribution.  The Company typically signs one year contracts with these manufacturer’s representatives.  These agreements are seldom renewed in writing.  The sales from these agreements accounted for approximately 13% of the Company’s total revenue in 2006.  Specifically, the Company has a manufacturer’s representative agreement with a firm in Detroit to work exclusively in the automotive arena.  The automotive representative was paid 4% for all business in this area in 2006, and will be paid 3% in 2007 and 2% thereafter.  The Company’s remaining agreements with distributors, past or present, pertain to distribution arrangements in foreign countries.  The arrangements with foreign distributors do not contemplate that the Company pays any compensation other than any profit the distributors make upon their sale of the Company’s products.  The Company has the right to terminate these agreements with foreign distributors without cause.