Which liability accounts might be understated? how difficult would it be to understate them? What would be the effect on Koss's value if liabilities were understated?

Koss CORPORATION AND UNAUTHORIZED FINANCIAL TRANSACTIONS CASE 6.3 NEWS RELEASE 4129 NORTH PORT WASHINGTON AVENUE, MILWAUKEE, WI 53212 / 414 964-5000 / 477 WWW.KOSS.COM FOR IMMEDIATE RELEASE December 21, 2009 EXHIBIT 1 Koss CORPORATION, SEC FORM 8-K FIUNG DECEMBER 21, 2009 CONTACT: Michael J. Koss President & CEO (414) 964-5000 mjkoss@koss.com Trading of Koss Corporation Stock Halts Milwaukee, Wisconsin: Koss Corporation (NASDAQ SYMBOL: KOSS), the U.S. based high-fidelity stereophone leader, requested today that NASDAQ immediately halt trading of its securities after discovering information regarding certain unauthorized transactions. The Board of Directors appointed a special committee of independent directors to lead an internal investigation involving the unauthorized transactions and determine the effect, if any, on Koss' financial statements . NASDAQ halted trading of Koss Corporation stock today. Law enforcement is also assisting Koss Corporation with this matter. Sujata Sachdeva, Vice President of Finance and Secretary of Koss Corporation, was placed on unpaid administrative leave pending the results of this investigation. Koss Corporation markets a complete line of high-fidelity stereophones, speaker-phones, computer headsets, telecommunications headsets, active noise canceling stereophones, wireless stereophones, and compact disc recordings of American Symphony Orchestras on the Koss Classics label. This press release contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "forecasts," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating forward-looking statements, you should specifically consider various factors that may cause actual results to vary from those contained in the forward-looking statements, such as general economic conditions, in particular, consumer demand for the Company's and its customers' products, competitive and technological developments, foreign currency fluctuations, and costs of operations. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this press release and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, such uncertainties and other operational matters are discussed further in the Company's quarterly and annual filings with the Securities and Exchange SECTION SERVANT 2 TION, SEC FG PROPOSAL 1. ELECTION OF DIRECTORS The By-Laws of the company provide that the number of directors on the Board of Directors of the Company (the Board) will be no fewer than five and no greater than twelve. We had Siv efirectors during fiscal year 2009 and will also elect six directors for fiscal year 2010. Each director elected will serve until the next Annual Meeting of Stockholders and until the director's successor is duly elected or until his prior death, resignation, or removal. The six nominees that receive the most votes will be appointed to serve on our Board for the next year. Information as to Nominees The following identifies the nominees for the six director positions and provides information as to their business experience for the past five years. Each nominee is presently a director of the Company: John C. Koss, 79, has served continuously as Chairman of the Board of the Company or its predecessors since 1958. Previously, he served as Chief Executive Officer from 1958 until 1991. He is the father of Michael J. Koss (the Company's Vice Chairman, President, Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, and a nominee for director of the Company), and the father of John Koss, Jr. (the Company's Vice President-Sales). Thomas L. Doerr, 65, has been a director of the Company since 1987. In 1972, Mr. Doerr co-founded Leeson Electric Corporation and served as its President and Chief Executive Officer until 1982. The company manufactures industrial electric motors. In 1983, Mr. Doerr incorporated Doerr Corporation as a holding company for the purpose of acquiring established companies involved in distributing products to industrial and commercial markets. Currently, Mr. Doerr serves as President of Doerr Corporation. Michael J. Koss, 55, has held various positions at the Company since 1976, and has been a director of the Company since 1985. He was elected President, Chief Operating Officer, and Chief Financial Officer of the Company in 1987, Chief Executive Officer in 1991, and Vice-Chairman in 1998. He is the son of John C. Koss (the Company's Chairman of the Board) and the brother of John Koss, Jr. (the Company's Vice President-Sales). Michael J. Koss is also a director of STRATTEC Security Corporation. Lawrence S. Mattson, 77, has been a director of the Company since 1978. Mr. Mattson is the retired President of Oster Company, a division of Sunbeam Corporation, which manufactures and sells portable household appliances. Theodore H. Nixon, 57, has been a director of the Company since 2006. Since 1992, Mr. Nixon has been the Chief Executive Officer of D.D. Williamson, which is a manufacturer a of caramel coloring used in the food and beverage industries. Mr. Nixon joined D.D. Williamson in 1974 and was promoted to President and Chief Operating Officer in 1982. Mr. Nixon is also a director of the non-profit Center for Quality of Management. John J. Stollenwerk, 69, has been a director of the Company since 1986. Mr. Stollenwerk is the Chairman of the Allen-Edmonds Shoe Corporation, an international manufacturer and retailer of high quality footwear. He is also a director of Allen-Edmonds Shoe Corporation, Badger Meter, Inc., U.S. Bancorp, and Northwestern Mutual Life Insurance Company. The Company expects that the "Koss Family" (John C. Koss, Michael J. Koss, and John Koss, Jr.), who beneficially own approximately 73.13% of the outstanding Common Stock, will vote "for the election of all nominees named above to the Board of Directors. (continued) RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF ALL NOMINEES NAMED ABOVE TO THE BOARD OF DIRECTORS. Board Committees (Selected) EXHIBIT 2- continued Koss CORPORATION FORM 8-K FI DECEMBER 2 2009 matters, executive compensation and board nominations. Each member of these committees The Board has appointed the following standing committees for auditing and accounting is "independent" as defined in Nasdaq Marketplace Rule 4200. Audit Committee. The Audit Committee, which is composed of Mr. Doerr, Mr. Mattson Mr. Nixon, and Mr. Stollenwerk, reviews and evaluates the effectiveness of the Company's financial and accounting functions, including reviewing the scope and results of the audit work performed by the independent accountants and by the company's internal accounting staff . The Audit Committee met three times during the fiscal year ended June 30, 2009. The independent accountants were present at two of these meetings to discuss their audit scope and the results of their audit. For more information about the Audit Committee meetings, see the "Audit Committee Report." The Audit Committee is governed by a written charter approved and adopted by the Board, which charter was attached as Appendix A to the proxy materials, dated August 31, 2007, for the annual meeting held on October 10, 2007 for the fiscal year ended June 30, 2007. Audit Committee Financial Expert. The Board has determined that Mr. Mattson is an "Audit Committee Financial Expert" as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the Securities and Exchange Commission (the "SEC"). Attendance at Board and Committee Meetings During the fiscal year ended June 30, 2009, the Board held four meetings. Every incumbent director attended 75% or more of the total of (i) all meetings of the Board, plus (ii) all meetings of the committees on which they served during their respective terms of office. Attendance at Annual Meetings All of the members of the Board, Mr. John C. Koss, Mr. Michael J. Koss, Mr. Doerr, Mr. Mattson, Mr. Stollenwerk and Mr. Nixon, attended last year's annual meeting held on October 08, 2008. The Company has no formal written policy regarding attendance at annual meetings of the Company, but strongly encourages all directors to make attendance at all annual meetings a priority. Independence of the Board Each of Mr. Doerr, Mr. Mattson, Mr. Nixon, and Mr. Stollenwerk, is "independent" as such term is defined in Nasdaq Marketplace Rule 4200. These independent directors constitute a majority of the Board, as required under Nasdaq Marketplace Rule 4350(c). Code of Ethics The Board approved and adopted a Code of Ethics for the Company's directors, officers, and employees, which is attached as Exhibit 14 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004. Executive Officers nformation is provided below with respect to the executive officers of the Company. Each xecutive officer is elected annually by the Board of Directors and serves for one year or until is or her successor is appointed. (continued VALUATION SECTION SIX 480 Age Current Position Held Since 1987 (Chief Executive Officer since 1991) 1988 1992 1994 1998 Name Positions Held President, Chief Operating Officer, Chief Financial Officer, Chief Executive Officer EXHIBIT 2- continued Koss CORPORATION, SEC FORM 8-K FILING, Dec 21, 2009 55 Michael J. Koss 52 45 62 50 John Ross, Jr. Sujata Sachdeva Declan Hanley Lenore E. Lillie Cheryl Mike 2001 Vice President - Sales Vice President - Finance, Secretary Vice President - International Sales Vice President - Operation Vice President - Human Resources and Customer Service 57 Beneficial Ownership of Company Securities Security Ownership by Nominees and Management. The following table sets forth, as of August 1, 2009, the number of shares of Common Stock "beneficially owned" (as defined under applicable regulations of the SEC), and the percentage of such shares to the total number of shares outstanding, for all nominees, for each executive officer named in the Summary Compensation Table (see "Executive Compensation and Related Matters-Summary Compensation Table), for all directors and executive officers as a group, and for each person and each group of persons who, to the knowledge of the Company as of June 30, 2009, were the beneficial owners of more than 5% of the outstanding shares of Common Stock. Number of Shares Beneficially Owned (2) 1,404,476 999,976 295,142 Percent of Outstanding Common Stock (3) 38.05% 27.09% Name and Business Address (1) 8.00% 0 * 0 * * 2,480 13,551 35,785 60,000 58,984 40,494 1.63% John C. Koss (4) Michael J. Koss (5) John Koss, Jr. (6) Thomas L. Doerr Lawrence S. Mattson Theodore H. Nixon John J. Stollenwerk Sujata Sachdeva (7) Declan Hanley (8) Lenore E. Lillie (9) Cheryl Mike (10) All directors and executive officers as a group (11 persons) (11) Koss Family Voting Trust, John C. Koss, Trustee (12) Koss Employee Stock Ownership Trust ("KESOT") (13) Royce and Associates, LLC (14) 1.60% 1.10% 78.86% 2,910,888 1,216,785 339,258 370,723 32.96% 9.19% 10.04% (continued Koss CORPORATION AND UNAUTHORIZED FUNCUL TRANSACTS CASE 6,3 14) Includes the following shares which are deemed to be beneficy swet by () 61,732 shares owned directly or by his spouse (1) 1.215.785 shares 35 2 of 2 EKIT 2 trustee of the Koss Family Voting Trusts () 124,300 shares a set of 65 fined the John C. and Nancy Koss Revocable Trusts and (w) 1.559 shares by reason of the one thote shares to his account under the Koss Employee Stock Ownership Trust (250) 20 shty Cerce such shares pursuant to the terms of the KESOT- see "Executive Compensation and state- Other Compensation Arrangements-Employee Stock Ownership Plan and Trust Forse 8-F De 21.2010 (5) Includes the following shares which are deemed to be "beneficially owned by Michael 3. Koss of the allocation of those shares to his account under the KESOT and his ability to reach the (1) 538,380 shares owned directly or by reason of family relationships: (1) 73.696 Shares with respect to which he holds options which are exercisable within 60 days of August 1, 2009, and (ii) 111,034 shares as a result of his position as an officer of the Xoss Foundation: 35.666 Shares (v) 339,258 shares which are held by the KESOT (see Note (9), below). The 73,5795 shares alicated aforementioned 339,258 shares but are counted only once in his individual total to Michael J. Koss' KESOT account, over which he holds voting power, are included within the (6) Includes the following shares which are deemed to be "beneficially owned by John Koss, 3 which he holds options which are exercisable within 60 days of August 1, 2009; and () 53,495 shares (1) 247,642 shares owned directly or by reason of family relationships; (ii) 47,500 shares with respect to by reason of the allocation of those shares to his account under the KESOT and his ability to vote such shares. [Notes 7-10 not included.] (11) This group includes 21 people, all of whom are listed on the accompanying table. To zucie double counting: (i) the 339,258 total shares held by the KESOT and deemed to be beneficially owned by a J. Koss as a result of his position as a KESOT Trustee (see Note (5), above) include shares allocated to the KESOT accounts of John C. Koss, Michael J. Koss, John Koss, J., Ms. Sachdeve, Ms. Lile. z Ms. Mike, in the above table but are included only once in the total; and (ii) the 1.216,785 shares deemed to be beneficially owned by John C. Koss as a result of his position as trustee of the Koss for Voting Trust (see Note (4), above) are included in his individual total share ownership and are included only once in the total. (12) The Koss Family Voting Trust was established by John C. Koss. The sole trustee is John C. Koss. The term of the Koss Family Voting Trust is indefinite. Under the Trust Agreement, John C. Koss, as trustze holds full voting and dispositive power over the shares held by the Koss Family Voting Trust. All of the 1,216,785 shares held by the Koss Family Voting Trust are included in the number of shares shown as beneficially owned by John C. Koss (see Note (4), above). (13) The KESOT holds 339,258 shares. Authority to vote these shares is vested in KESOT participants to the extent shares have been allocated to individual KESOT accounts. All 339,258 of these KESOT shares are also included in the number of shares shown as beneficially owned by Michael J. Koss (see Note (5), above). Michael J. Koss and Cheryl Mike (the Company's Vice President of Human Resources) serve as Trustees of the KESOT and, as such, they share dispositive power with respect to (and are therefore each deemed under applicable SEC rules to be beneficially own) all 339,258 KESOT shares. SUMMARY COMPENSATION TABLE The following table presents certain summary information concerning compensation paid or accrued by the Company for services rendered in all capacities during the fiscal year ended June 30, 2009 for (i) the Chief Executive Officer ("CEO") of the Company, and (ii) each of the other six executive officers of the Company (determined as of the end of the last fiscal year) whose total annual salary and bonus exceeded $75,000 (collectively, including the CEO, the "Named Executive Officers"). (continue AB Other (5) 34,467 Sim Total (5) 257.24 01.045 Monet Stact Option Incentive Plan Detened Bonus was Compensation Compensation Compensation (3) (5) (1) (5) Earnings (5) 82.795 213.433 37.512 0 0 115.913 0 192 095 296.807 0 39.594 59.251 831.553 235.122 372.956 . 0 2000 250 500 2009 20.000 2008 190.000 16. 555 35.122 39.912 16.883 22.585 96.99 173.734 206.452 IL 851 28.717 Frede- Sce 18.150 2009 245.000 2008 137.000 26.673 0 0 264 581 286.345 30.745 32.722 0 18.150 2009 131346 22.115 11.442 27.250 173.557 199,404 23.994 2009 140.000 2008 130.000 0 18.150 Vice President-etions 15.060 28.513 117.824 155.538 2009 95.000 2008 90.000 7,754 18.865 0 0 0 18.160 Resources Cast Service DIRECTOR COMPENSATION The Company uses cash-based incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board. Cash Contributions Paid to Non-employee Board Members Directors who are not also employees of the Company receive an annual retainer of $10,000. plus $2,000 per director for each board meeting attended, $1,000 per director for each committee meeting attended, $2,000 per year for the audit committee chair to review statements with the audit partner, and $1,000 per year for other committee chairs for service for each remaining committee. DIRECTOR COMPENSATION TABLE Fees Earned or Paid Stock in Cash Awards (5) (5) Options Awards (5) Non-Equity Incentive Plan Compensation (5) Nonqualified Deferred Compensation Earnings (5) Name Year All Other Compensation ($) Total (5) 0 0 0 0 0 0 0 0 0 John C Koss (1) 2009 Thomas L. Doerr 2009 24,000 Michael J. Koss (2) 2009 0 Lawrence S. Mattson 2009 23,000 Theodore H. Nixon 2009 21,000 John J. Stollenwerk 2009 23,000 0 0 0 0 0 0 0 0 0 0 0 24,000 0 23.000 21,000 23,000 0 0 0 0 0 (1) John C. Kuss did not receive additional compensation for his service as a member of our Beard. (2) Michael J. Koss did not receive additional compensation for his service as a member of our Board. KOSS CORPORATION AND UNAUTHORIZED FINANCIAL TRANSACTIONS CASE 6.3 EXHIBIT 3 483 Koss CORPORATION, CONSOLIDATED BALANCE SHEETS, YEARS ENDED JUNE 30, 2005 TO 2009 2009 2007 2006 2008 Assets 2005 Current Assets: Cash Accounts receivable Inventories Prepaid expense Deferred income taxes Income taxes receivable Total current assets Equipment and Leasehold Improvements at cost: Leasehold improvements Machinery, equipment, furniture, and fixtures $1,664,407 $8,679,606 $9.763,158 $179,549 $720,121 $0 $21,006,841 $3,322,873 $10,148,646 $9,374,344 $504,806 $783,995 $0 $24,134,664 $4,187,682 $7.938,913 $9.923,544 $403,983 $1,124,799 $291,251 $23,870,172 $6,146,580 $6,819,852 $10,522,605 $418,818 $1,365,547 $0 $25,273,402 $5,218,698 $8,763,968 $7,595,803 $1,129,939 $857,840 $0 $23,566,248 $1,783.946 $1,766,842 $1,748,816 $1,706,484 $1,662,506 Tools, dies, molds, and patterns Less-accumulated depreciation $2,650,158 $11,371,402 $15,805,506 $11,729,308 $4,076,198 $1,237,727 $2,149,586 $28,470,352 $2,488,657 $9,605,720 $13,861,219 $11,114,852 $2,746,367 $1,066,853 $2,029,123 $29,977,007 $2,464,050 $11,656,951 $15,869,817 $13,302,678 $2,567,139 $423,928 $2,312,304 $29,173,543 $3,444,111 $11,898,074 $17,048,669 $14,011,121 $3,037,548 $672,823 $2,457,840 $31,441,613 $5,068,368 $11,198,723 $17,929,597 $14,935,897 $2,993,700 $315,531 $2,365,982 $29,241,461 Deferred Income Taxes Other Assets Total Assets Liabilities and Stockholders' Investment Current Liabilities Accounts payable $1,810,466 Accrued liabilities $1,153,089 Dividends payable $479,876 Income taxes payable $175,568 Total current liabilities $3,618,999 Deferred Compensation $1,095,961 Derivative Liability $125,000 Stockholders Investment: Common stock $2,049,384 Retained earnings $21,581,008 Total Stockholders' Investment $23,630,392 Total Liabilities plus Equity $28,470,352 $2,950,721 $1,808,467 $480,395 $347,507 $5,587,090 $1,047,482 $125,000 $1,371,152 $2,282,155 $476,459 $0 $4,129,766 $989,153 $125,000 $1,870,256 $2,149,102 $4,202,591 $927,528 $9,149,477 $992,830 $125,000 $3,012,736 $1,841,862 $486,918 $692,538 $6,034,054 $961,165 $125,000 $1,649,408 $21,568,027 $23,217,435 $29,977,007 $1,104,200 $22,825,424 $23,929,624 $29,173,543 $541,782 $20,632,524 $21,174,306 $31,441,613 $18,728 $22,102,514 $22,121,242 $29,241,461 484 VALUATION SECTION SIX EXHIBIT 4 Koss CORPORATION, STATEMENTS OF INCOME AND CASH FLOWS, YEARS ENDED JUNE 30, 2005 TO 2009 2005 $40,286,691 $25,216,760 $15,069,931 2008 2006 $50,891,637 $31,095,377 $19,796,260 CONSOLIDATED STATEMENTS OF INCOME 2009 2007 $38,184,150 $46,943,293 $46,201,858 $24,917,013 $29,151,791 $28,284,981 $13,267,137 $17,791,502 $17,916,877 $8,544,383 $6,525,548 $10,063,871 $9,732,389 $10,066,385 $7,850,492 $10,792,064 $6,999,438 $10,653,243 $2,613,894 Net sales Cost of goods sold Gross profit Selling, general, and administrative expense Income from operations Other income (expense) Royalty income Interest income Interest expense Income before income tax provision Provision for income taxes Net income $805,485 $64,795 $341,918 $169,047 $0 $291,667 $119,464 $0 $258,333 $15,503 $0 $324,996 $169,227 $0 $7,410,569 $2,916,280 $4,494,289 $2,887,730 $911,062 $1,976,668 $8,344,715 $3,188,195 $5,156,520 $7,395,828 $2,902,001 $4,493,827 $10,243,354 $4,021,163 $6,222,191 CONSOLIDATED STATEMENTS OF CASH FLOWS 2006 2005 2007 2009 2008 $6,222,191 $4,493,827 $5,156,520 $4,494,289 $1,976,668 ($58,164) ($149,775) $961,605 $545,052 ($302,121) ($193,533) $58,329 Cash Flows From Operating Activities Net Income Adjustments to reconcile net income to net cash provided by operating activities Change in allowance for doubtful accounts $77,007 (Gain) loss on disposal $0 Depreciation and amortization $817,957 Stock compensation expense $399,996 Deferred income taxes ($107,000) Cash surrender value ($195,463) Deferred compensation $48,479 Net changes in operating assets and liabilities ($639,018) Net cash provided by operating activities $2,378,626 Cash Flows from Investing Activities Sale of investments $75,000 Proceeds from sale of certain Bi-Audio assets $0 Acquisition of equipment and and leasehold improvements ($2,147,866) Net cash used in investing activities ($2,072,866) ($222,491) $0 $973,802 $562,680 $489,643 ($181,787) ($3,677) $572,688 $116 $955,166 $523,194 ($864,999) ($169,181) $31,665 $155,324 $0 $1,103,951 $0 ($61,875) ($177,641) ($24,100) ($18,553) ($1,867,504) ($1,444,503) $2,251,161 $5,337,129 $4,907,186 $5,826,337 $7,740,647 $25,000 $250,000 $0 $0 $700,000 $0 $0 $0 ($1,179,344) ($426,070) ($921,807) ($1,170,494) ($454,344) ($176,070) ($921,807) ($1,170,494) (continued) KOSS CORPORATION AND UNAUTHORIZED FINANCIAL TRANSACTIONS CASE 6.3 EXHIBIT 4-continued Koss CORPORATION, STATEMENTS OF INCOME AND CASH FLOWS, YEARS ENDED JUNE 30, 2005 TO 2009 485 Cash Flows from Financing Activities Tax benefit of non-qualified stock options $0 ($286,200) $288,630 $691,660 $104,749 Dividends paid to stockholders ($1,920,586) ($5,591,850) (55,641,556) ($1,932,483) ($1,923,938) ($43,640) ($1,283,413) ($1,837,655) (56,605,451) ($2,217,371) $0 $1,413,869 $500,566 $3,869,626 $577,188 Purchase of common stock Exercise of options Net cash used in financing activities Net (decrease) increase in cash Cash at beginning of period Cash at end of period ($1,964,226) ($5,747,594) ($6,690,015) ($1,658,466) ($864,809) ($1,958,899) $3,322,873 $4,187,682 $6,146,580 $1,664,407 $3,322,873 $4,187,681 ($3,976,648) ($3,459,372) $927,882 $3,110,781 $5,218,698 $2,110,917 $6,146,580 $5,221,698 CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS Current Assets: Cash Accounts receivable Inventories Deferred income taxes Other current assets Total current assets Property and equipment, net Deferred income taxes Other assets Total Assets EXHIBIT 5 Koss September 30, 2009 June 30, 2009 CORPORATION, (Unaudited) CONSOLIDATED BALANCE SHEETS, THREE MONTHS ENDED SEPT. 30, $2,847,643 $1,664,407 2008 AND 2009 10,280,462 8,679,606 10,371,604 9,763,158 720,121 720,121 920,153 179,549 25,139,983 21,006,841 4,364,028 4,076,198 1,237,727 1,237,727 2,160,586 2,149,586 $32,902,324 $28,470,352 LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Line of credit Accounts payable Accrued liabilities Dividends payable Income tax payable Total current liabilities Deferred compensation Derivative liability Stockholders' investment Total Liabilities & Stockholders' Investments $2,750,000 2,428,020 1,935,695 479,876 287,681 7,881,272 1,095,961 125,000 23,800,091 $32,902,324 1,810,466 1,153,089 479,876 175,568 3,618,999 1,095,961 125,000 23,630,392 $28,470,352 See accompanying notes to the condensed consolidated financial statements. 486 SECTION SIX VALUATION EXHIBITS Kose CORPORATION STATEMENTS OF UNCOME AND CASH Flows, 3 MONTHS ENDED SEPTEMBER 0, 2008 AND 2009 KOSS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended September 30 2009 $10,796,853 6,679,562 4,117,291 Selling, general and administrative expense 3,188,800 928,491 2008 $11,486,034 7,085,574 4,400,460 2,998,527 1,401,933 Net sales Cost of goods sold Gross profit Income from operations Other income (expense) Royalty income Interest income Income before income tax provision Provision for income taxes Net income 58,333 14,053 1,474,319 560,555 $913,764 928,491 362,112 $566,379 See accompanying notes to the condensed consolidated financial statements. 2008 $913,764 289,899 980,370 2,184,033 KOSS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2009 Three months ended September 30 CASH FLOWS FROM OPERATING ACTIVITIES: $566,379 Net income Adjustments to reconcile net income to net cash by operating activities: Depreciation and amortization 252,107 Net changes in operating assets and liabilities (1,363,103) Net cash used in provided by operating activities (544,617) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of equipment (542,271) Net cash used in investing activities (542,271) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 2,750,000 Dividends paid (479,876) Net cash provided by (used in) financing activities 2,270,124 Net increase in cash 1,183,236 Cash at beginning of period 1,664,407 Cash at end of period $2,847,643 (941,493) (941,493) (480,395) (480,395) 762,145 3,322,873 $4,085,018