10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2016

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 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	(I.R.S. Employer Identification No.)
incorporation or organization)

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

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 the preceding 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 the past 90 days.  Yes þ  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 be submitted 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 the registrant was required to submit and post such files).  Yes þ  No 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ
(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.).  YesoNoþ

At October 21, 2016, there were 7,382,706 shares outstanding of the registrant’s common stock. 

KOSS CORPORATION

FORM 10-Q

September 30, 2016

INDEX

			Page
PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements	1
		Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended September 30, 2016 and 2015	3
		Condensed Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and June 30, 2016	4
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2016 and 2015	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
	Item 4.	Controls and Procedures	14
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	15
	Item 1A.	Risk Factors	15
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
	Item 3.	Defaults Upon Senior Securities	15
	Item 4.	Mine Safety Disclosures	15
	Item 5.	Other Information	15
	Item 6.	Exhibits	15

2

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended
	September 30
	2016		2015
Net sales	$	6,348,706	$	5,531,262
Cost of goods sold	4,406,447		3,884,927
Gross profit	1,942,259		1,646,335
Selling, general and administrative expenses	1,775,771		1,765,746
Unauthorized transaction related costs (recoveries), net	37,500		37,475
Interest expense	846		5,318
Income (loss) before income tax provision	128,142		(162,204		)
Income tax provision (benefit)	43,931		(61,400		)
Net income (loss)	$	84,211	$	(100,804	)
Income (loss) per common share:
Basic	$	0.01	$	(0.01	)
Diluted	$	0.01	$	(0.01	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

KOSS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30, 2016		June 30, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	459,921	$	735,393
Accounts receivable, less allowance for doubtful accounts of $54,689 and $55,175, respectively	3,259,979		3,530,854
Inventories	7,387,693		8,595,485
Prepaid expenses and other current assets	507,414		281,099
Income taxes receivable	606,566		583,507
Total current assets	12,221,573		13,726,338
Equipment and leasehold improvements, net	1,596,944		1,514,472
Other assets:
Deferred income taxes	3,145,566		3,212,556
Cash surrender value of life insurance	5,979,889		5,667,105
Total other assets	9,125,455		8,879,661
Total assets	$	22,943,972	$	24,120,471
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	634,245	$	1,966,656
Accrued liabilities	1,590,053		1,601,652
Total current liabilities	2,224,298		3,568,308
Long-term liabilities:
Deferred compensation	2,188,991		2,187,714
Other liabilities	171,755		178,255
Total long-term liabilities	2,360,746		2,365,969
Total liabilities	4,585,044		5,934,277
Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 7,382,706 shares	36,914		36,914
Paid in capital	5,159,479		5,070,956
Retained earnings	13,162,535		13,078,324
Total stockholders' equity	18,358,928		18,186,194
Total liabilities and stockholders' equity	$	22,943,972	$	24,120,471

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

KOSS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended
	September 30
	2016			2015
Operating activities:
Net income (loss)	$	84,211		$	(100,804	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts	705			(14,682		)
(Gain) on disposal of equipment and leasehold improvements	—			(150		)
Depreciation of equipment and leasehold improvements	123,837			123,505
Stock-based compensation expense	88,523			116,004
Deferred income taxes	66,990			60,122
Change in cash surrender value of life insurance	(181,176		)	(133,306		)
Change in deferred compensation accrual	38,777			9,453
Deferred compensation paid	(37,500		)	(37,500		)
Net changes in operating assets and liabilities (see note 9)	(121,922		)	(1,066,264		)
Cash provided by (used in) operating activities	62,445			(1,043,622		)
Investing activities:
Life insurance premiums paid	(131,608		)	(129,219		)
Purchase of equipment and leasehold improvements	(206,309		)	(46,635		)
Cash (used in) investing activities	(337,917		)	(175,854		)
Financing activities:
Net proceeds from line of credit facility	—			400,000
Cash provided by financing activities	—			400,000
Net (decrease) in cash and cash equivalents	(275,472		)	(819,476		)
Cash and cash equivalents at beginning of period	735,393			1,000,266
Cash and cash equivalents at end of period	$	459,921		$	180,790

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

KOSS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(Unaudited)

1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheet of Koss Corporation (the "Company") as of June 30, 2016, has been derived from audited financial statements.  The unaudited condensed consolidated financial statements presented herein are based on interim amounts.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.  The operating results for the three months ended September 30, 2016, are not necessarily indicative of the operating results that may be experienced for the full fiscal year ending June 30, 2017.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

2.UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES

In December 2009, the Company learned of significant unauthorized transactions as previously reported. The Company has ongoing costs and recoveries associated with the unauthorized transactions. For the three months ended September 30, 2016 and 2015, unauthorized transaction related costs, net, of $37,500 and $37,475, respectively, were incurred for legal fees related to claims initiated against third parties (see Note 11).

3.INVENTORIES

The components of inventories were as follows:

	September 30, 2016			June 30, 2016
Raw materials	$	3,000,320		$	3,466,907
Work-in process	33,221			—
Finished goods	6,801,906			7,570,026
	9,835,447			11,036,933
Allowance for obsolete inventory	(2,447,754		)	(2,441,448		)
Total inventories	$	7,387,693		$	8,595,485

4.INCOME TAXES

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 years beginning 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 years ended June 30, 2012 and forward. For the three months ended September 30, 2016, the Company recorded an income tax expense of $43,931, compared to an income tax benefit of $61,400 for the three months ended September 30, 2015.

The Company does not believe it has any unrecognized tax benefits as of September 30, 2016 and as of June 30, 2016. Any changes to the Company’s unrecognized tax benefits as of September 30, 2016, if recognized, would impact the effective tax rate.

6

5.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 Agreement provided 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 publicly announced 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 amounts committed 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 calculation as defined in the Credit Agreement, and to amend certain financial covenants. On May 31, 2016, the Credit Agreement was amended to extend the expiration to July 31, 2018, and to amend certain financial covenants. In addition to the revolving loans, the Credit Agreement also provides that the Company may, from time to time, request the Lender to issue letters of credit for the benefit of the Company of up to a sublimit of $2,000,000 and subject to certain other limitations.  The loan may 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 include restrictions 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 the Pledge and Security Agreement dated May 12, 2010, under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Company is currently in compliance with all covenants related to the Credit Facility. As of September 30, 2016 and June 30, 2016, there were no outstanding borrowings on the facility.

The Company incurs interest expense primarily related to its secured credit facility. Interest expense was $846 and $5,318 for the three months ended September 30, 2016 and 2015, respectively.

6.ACCRUED LIABILITIES

Accrued liabilities were as follows:

	September 30, 2016		June 30, 2016
Cooperative advertising and promotion allowances	$	464,925	$	479,645
Product warranty obligations	294,072		305,275
Customer credit balances	222,868		47,753
Current deferred compensation	150,000		150,000
Accrued returns	120,763		140,918
Employee benefits	77,553		83,113
Legal and professional fees	77,800		127,329
Management bonuses and profit-sharing	42,404		147,450
Sales commissions and bonuses	62,274		70,050
Other	77,394		50,119
Total accrued liabilities	$	1,590,053	$	1,601,652

7.INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding.  The weighted-average number of common shares outstanding was 7,382,706 for the periods ended September 30, 2016 and 2015.  When dilutive, stock options are included in income (loss) per share as share equivalents using the treasury stock method.  For the periods ended September 30, 2016 and 2015, there were no common stock equivalents related to stock option grants that were included in the computation of the weighted-average number of shares outstanding for diluted income (loss) per share.  Shares issuable upon the exercise of outstanding options of 2,365,000 and 2,335,000 were excluded from the diluted weighted-average common shares outstanding for the periods ended September 30, 2016 and 2015, respectively, as they would be anti-dilutive.

7

8.STOCK OPTIONS

The Company recognizes stock-based compensation expense for options granted under both the 1990 Flexible Incentive Plan and the 2012 Omnibus Incentive Plan. The stock-based compensation relates to stock options granted to employees, non-employee directors and non-employee consultants. In the three months ended September 30, 2016, options to purchase 485,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.33. In the three months ended September 30, 2015, options to purchase 390,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.76. Stock-based compensation expense during the three months ended September 30, 2016 and 2015 was $88,523 and $116,004, respectively.

9.ADDITIONAL CASH FLOW INFORMATION

The net changes in cash as a result of changes in operating assets and liabilities consist of the following:

	Three Months Ended
	September 30
	2016			2015
Accounts receivable	$	270,170		$	(73,023	)
Inventories	1,207,792			264,644
Income taxes receivable	(23,059		)	(121,521		)
Prepaid expenses and other current assets	(226,315		)	(72,554		)
Accounts payable	(1,332,411		)	(939,523		)
Accrued liabilities	(11,599		)	(116,932		)
Other liabilities	(6,500		)	(7,355		)
Net change	$	(121,922	)	$	(1,066,264	)
Net cash paid during the period for:
Income taxes	$	10		$	800
Interest	$	846		$	3,478

10.STOCKHOLDERS' EQUITY

The following table summarizes the changes in stockholders’ equity:

	Three Months Ended
	September 30
	2016		2015
Net income (loss)	$	84,211	$	(100,804	)
Stock-based compensation expense	88,523		116,004
Increase in stockholders' equity	$	172,734	$	15,200

8

11.LEGAL MATTERS

As of September 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 of the Uniform Fiduciaries Act relating to the unauthorized transactions, as previously reported. In 2015, Park Bank filed third party claims based on contribution and subrogation against Grant Thornton LLP and Michael Koss. The Court granted motions to dismiss the contribution claims against Grant Thornton LLP and Michael Koss, but determined that it was premature to decide the subrogation claims at this stage of the proceedings. On or around March 11, 2016, the Court entered an order granting Park Bank's motion for summary judgment that dismissed the case. On March 22, 2016, the Company 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 to dismiss the subrogation claims.

The ultimate resolution of this matter is not determinable unless otherwise noted.

9

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q 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-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission, press releases, or otherwise.  Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Act.  Forward-looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, anticipated financing needs, compliance with financial covenants in loan agreements, plans for acquisitions or sales of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the effects of pending and possible litigation and assumptions relating to the foregoing.  In addition, when used in this Form 10-Q, 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 statements contained in this Form 10-Q, or in other Company filings, press releases, or otherwise.  In addition to the factors discussed in this Form 10-Q, other factors that could contribute to or cause such differences include, but are not limited to, developments in any one or more of the following areas: future fluctuations in economic 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 and investigations, 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 Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect new information.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company developed stereo headphones in 1958 and has been a leader in the industry.  Koss markets a complete line of high-fidelity headphones, wireless Bluetooth® headphones, wireless Bluetooth® speakers, computer headsets, telecommunications headsets, active noise canceling headphones, and compact disc recordings of American Symphony Orchestras on the Koss Classics® label. The Company operates as one business segment.

Results of Operations Summary

• For the three months ended September 30, 2016, net sales were $6,348,706 compared to $5,531,262 for the same period last year for an increase of 14.8%. This sales increase was primarily due to higher sales to an original equipment manufacturer ("OEM") in Asia.

• Gross profit as a percent of sales increased to 30.6% for the three months ended September 30, 2016, compared to 29.8% for the three months ended September 30, 2015. These fluctuations were primarily due to the change in the mix of business by product, customer and sales channels.

• Selling, general and administrative expenses for the three months ended September 30, 2016 were consistent with the same period in the prior year.

Financial Results

The following table presents selected financial data for the three months ended September 30, 2016 and 2015:

	Three Months Ended
	September 30
Financial Performance Summary	2016			2015
Net sales	$	6,348,706		$	5,531,262
Net sales increase %	14.8		%	1.1		%
Gross profit	$	1,942,259		$	1,646,335
Gross profit as % of net sales	30.6		%	29.8		%
Selling, general and administrative expenses	$	1,775,771		$	1,765,746
Selling, general and administrative expenses as % of net sales	28.0		%	31.9		%
Unauthorized transaction related costs (recoveries), net	$	37,500		$	37,475
Interest expense	$	846		$	5,318
Income (loss) before income tax provision	$	128,142		$	(162,204	)
Income (loss) before income tax as % of net sales	2.0		%	(2.9		)%
Income tax provision (benefit)	$	43,931		$	(61,400	)
Income tax provision (benefit) as % of income before income tax	34.3		%	37.9		%

2016 Results Compared with 2015

For the three months ended September 30, 2016, sales increased 14.8% to $6,348,706. Net sales increased in the export markets but were consistent with the prior year in the domestic markets.

Net sales in the domestic market were approximately $3,818,000 in the three months ended September 30, 2016, which is consistent with last year's approximately $3,900,000. Declines at several specialty product accounts, which tend to be inconsistent by quarter, were offset by increased sales at retail related accounts and distribution.

Export net sales have increased to approximately $2,531,000 for the three months ended September 30, 2016, compared to approximately $1,631,000 for the three months ended September 30, 2015, with the OEM customer in Asia being the primary driver. In general, sales to distributors in Europe and Asia increased except for the Scandinavian distributor, which has excess supply of certain products.

11

Gross profit increased to 30.6% for the three months ended September 30, 2016, compared to 29.8% for the three months ended September 30, 2015. This increase is driven by sales mix as well as the increase in sales.

Selling, general and administrative expenses were approximately $10,000 higher than last year for the three months ended September 30, 2016, due to higher 401(k) match expense, increased expense for testing related to new product introductions, and higher deferred compensation expense. These increases were partially offset by lower expense for stock-based compensation and higher increases in cash surrender value of life insurance.

Interest expense for the three months ended September 30, 2016 was lower than last year due to positive cash flows from operations which resulted in limited borrowing on the Company's bank line of credit facility.

The effective income tax rate for the three months ended September 30, 2016, was 34.3%, which is comprised of the U.S. federal statutory rate of 34% and the effect of state income taxes. It is anticipated that the effective income tax rate will be approximately 38-40% for the year ended June 30, 2017.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended September 30, 2016 and 2015:

Total cash provided by (used in):	2016			2015
Operating activities	$	62,445		$	(1,043,622	)
Investing activities	(337,917		)	(175,854		)
Financing activities	—			400,000
Net (decrease) in cash and cash equivalents	$	(275,472	)	$	(819,476	)

Operating Activities

In the three months ended September 30, 2016, the Company reduced inventories by $1,207,792 and reduced accounts receivable by $270,170, which, offset by a reduction in accounts payable of $1,332,411, led to cash generation of $62,445 compared to a use of cash last year.

Investing Activities

Cash used in investing activities was higher for the three months ended September 30, 2016, as the Company increased expenditures for tooling related to new product introductions. The Company anticipates it will incur total expenditures of approximately $700,000 to $900,000 for tooling, leasehold improvements and capital expenditures during the fiscal year ending June 30, 2017.  The Company expects to generate sufficient cash flow through operations or through the use of its credit facility to fund these expenditures.

Financing Activities

As of September 30, 2016, the Company had no outstanding borrowings on its bank line of credit facility. The Company had outstanding borrowings of $400,000 on its bank line of credit as of September 30, 2015.

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

The Company's capital expenditures are primarily for tooling. In addition, it has interest payments on its borrowings when it uses its line of credit facility. The Company believes that cash generated from operations, together with cash reserves and borrowings available under its credit facility, provide it with adequate liquidity to meet operating requirements, debt service requirements and planned capital expenditures for the next twelve months and thereafter for the foreseeable future. The Company regularly evaluates new product offerings, inventory levels and capital expenditures to ensure that it is effectively allocating resources 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 Agreement provided for an $8,000,000 revolving secured credit facility and 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 lower the revolving credit line to $5,000,000 and to amend certain financial covenants. On May 31, 2016, the Credit Agreement was amended to extend the expiration to July 31, 2018, and to amend certain financial covenants. The Company and the Lender also entered into the Pledge and Security Agreement dated May 12, 2010, under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Company is currently in compliance with all covenants related to the Credit Facility. As of September 30, 2016 and June 30, 2016, there were no outstanding borrowings on the facility.

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 Koss Holdings, 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 is being 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 all property maintenance, insurance, taxes and other normal expenses related to ownership.  The facility is in good repair and, in the opinion of management, is suitable and adequate for the Company’s business purposes.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable. 

Item 4. 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”) are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2)  such information is accumulated and communicated to management, including the chief executive officer and principal financial officer, to allow timely decisions regarding required disclosures.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures.  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 and operation of the Company’s disclosure controls and procedures as of September 30, 2016.  The Company’s management has concluded that the Company’s disclosure controls and procedures as of September 30, 2016 were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

As of September 30, 2016, the Company is currently involved in legal matters that are described in Note 11 to the condensed consolidated financial statements, which description is incorporated herein by reference.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to purchases of common stock of the Company made during the three months ended September 30, 2016, by the Company.

COMPANY REPURCHASES OF EQUITY SECURITIES

Period (2016)	Total # of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (1)	Approximate Dollar Value of Shares Available under Repurchase Plan
July 1 - September 30	—	$	—	—	$	2,139,753

(1) In April of 1995, the Board of Directors approved a stock repurchase program authorizing the Company to purchase from time to time up to $2,000,000 of its common stock for its own account.  Subsequently, the Board of Directors periodically has approved increases in the stock repurchase program.  The most recent increase was for an additional $2,000,000 in October 2006, for a maximum of $45,500,000 of which $43,360,247 had been expended through September 30, 2016.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index attached hereto.

15

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KOSS CORPORATION
/s/ Michael J. Koss	October 28, 2016
Michael J. Koss
Chairman
Chief Executive Officer
/s/ David D. Smith	October 28, 2016
David D. Smith
Executive Vice President
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Secretary

16

EXHIBIT INDEX

Exhibit No.	Exhibit Description
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer *
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer *
32.1	Section 1350 Certification of Chief Executive Officer **
32.2	Section 1350 Certification of Chief Financial Officer **
101	The following financial information from Koss Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2016 and 2015, (ii) Condensed Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and June 30, 2016 (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended September 30, 2016 and 2015 and (iv) the Notes to Condensed Consolidated Financial Statements (Unaudited). *

__________________________

*	Filed herewith
**	Furnished herewith

17

EX-31.1

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 quarterly report on Form 10-Q 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 the statements 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 condensed financial statements, and other financial information included in this report, fairly present in all material respects 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)) and internal 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 ensure that material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during the period 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, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance 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 of the 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 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant'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 the registrant'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 likely to 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 over financial reporting. 

Dated: October 28, 2016

/s/ Michael J. Koss

Michael J. Koss

Chairman and Chief Executive Officer

EX-31.2

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 quarterly report on Form 10-Q 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 the statements 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 condensed financial statements, and other financial information included in this report, fairly present in all material respects 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)) and internal 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 ensure that material information relating to the registrant, including its subsidiary, is made known to me by others within those entities, particularly during the period 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, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance 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 of the 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 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant'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 the registrant'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 likely to 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 over financial reporting. 

Dated: October 28, 2016

/s/ David D. Smith

David D. Smith

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant 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, 18 U.S.C. Section 1350 that to my knowledge:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(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

Chairman and Chief Executive Officer

Dated: October 28, 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 extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant 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, 18 U.S.C. Section 1350 that to my knowledge:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2016 (the “Report”) fully complies with the requirements of Section 13(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

Dated: October 28, 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 extent required by the Sarbanes-Oxley Act of 2002, by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

Document and Entity Information Document - shares	3 Months Ended
	Sep. 30, 2016	Oct. 21, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	KOSS CORP
Entity Central Index Key	0000056701
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		7,382,706
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Net sales	$ 6,348,706	$ 5,531,262
Cost of goods sold	4,406,447	3,884,927
Gross profit	1,942,259	1,646,335
Operating expenses:
Selling, general and administrative expenses	1,775,771	1,765,746
Unauthorized transaction related costs (recoveries), net	37,500	37,475
Interest expense	846	5,318
Income (loss) before income tax provision	128,142	(162,204)
Income tax provision (benefit)	43,931	(61,400)
Net income (loss)	$ 84,211	$ (100,804)
Income (loss) per common share:
Basic	$ 0.01	$ (0.01)
Diluted	$ 0.01	$ (0.01)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Current assets:
Cash and cash equivalents	$ 459,921	$ 735,393
Accounts receivable, less allowance for doubtful accounts of $54,689 and $55,175, respectively	3,259,979	3,530,854
Inventories	7,387,693	8,595,485
Prepaid expenses and other current assets	507,414	281,099
Income taxes receivable	606,566	583,507
Total current assets	12,221,573	13,726,338
Equipment and leasehold improvements, net	1,596,944	1,514,472
Other assets:
Deferred income taxes	3,145,566	3,212,556
Cash surrender value of life insurance	5,979,889	5,667,105
Total other assets	9,125,455	8,879,661
Total assets	22,943,972	24,120,471
Current liabilities:
Accounts payable	634,245	1,966,656
Accrued liabilities	1,590,053	1,601,652
Total current liabilities	2,224,298	3,568,308
Long-term liabilities:
Deferred compensation	2,188,991	2,187,714
Other liabilities	171,755	178,255
Total long-term liabilities	2,360,746	2,365,969
Total liabilities	4,585,044	5,934,277
Stockholders' equity:
Common stock, $0.005 par value, authorized 20,000,000 shares; issued and outstanding 7,382,706 shares	36,914	36,914
Paid in capital	5,159,479	5,070,956
Retained earnings	13,162,535	13,078,324
Total stockholders' equity	18,358,928	18,186,194
Total liabilities and stockholders' equity	$ 22,943,972	$ 24,120,471

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Allowance for doubtful accounts	$ 54,689	$ 55,175
Common stock, par value	$ 0.005	$ 0.005
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	7,382,706	7,382,706
Common stock, shares outstanding	7,382,706	7,382,706

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating activities:
Net income (loss)	$ 84,211	$ (100,804)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts	705	(14,682)
(Gain) on disposal of equipment and leasehold improvements	0	150
Depreciation of equipment and leasehold improvements	123,837	123,505
Stock-based compensation expense	88,523	116,004
Deferred income taxes	66,990	60,122
Change in cash surrender value of life insurance	(181,176)	(133,306)
Change in deferred compensation accrual	38,777	9,453
Deferred compensation paid	(37,500)	(37,500)
Net changes in operating assets and liabilities (see note 9)	(121,922)	(1,066,264)
Cash provided by (used in) operating activities	62,445	(1,043,622)
Investing activities:
Life insurance premiums paid	(131,608)	(129,219)
Purchase of equipment and leasehold improvements	(206,309)	(46,635)
Cash (used in) investing activities	(337,917)	(175,854)
Financing activities:
Net proceeds from line of credit facility	0	400,000
Cash provided by financing activities	0	400,000
Net (decrease) in cash and cash equivalents	(275,472)	(819,476)
Cash and cash equivalents at beginning of period	735,393	1,000,266
Cash and cash equivalents at end of period	$ 459,921	$ 180,790

XML

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Notes)

3 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheet of Koss Corporation (the "Company") as of June 30, 2016, has been derived from audited financial statements.  The unaudited condensed consolidated financial statements presented herein are based on interim amounts.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.  The operating results for the three months ended September 30, 2016, are not necessarily indicative of the operating results that may be experienced for the full fiscal year ending June 30, 2017.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.

XML

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Notes)

3 Months Ended

Sep. 30, 2016

Unauthorized Transaction Related Costs and Recoveries [Abstract]

Unauthorized Transaction Related Costs and Recoveries [Text Block]

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES

In December 2009, the Company learned of significant unauthorized transactions as previously reported. The Company has ongoing costs and recoveries associated with the unauthorized transactions. For the three months ended September 30, 2016 and 2015, unauthorized transaction related costs, net, of $37,500 and $37,475, respectively, were incurred for legal fees related to claims initiated against third parties (see Note 11).

XML

INVENTORIES (Notes)

3 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventories

INVENTORIES

The components of inventories were as follows:

	September 30, 2016			June 30, 2016
Raw materials	$	3,000,320		$	3,466,907
Work-in process	33,221			—
Finished goods	6,801,906			7,570,026
	9,835,447			11,036,933
Allowance for obsolete inventory	(2,447,754		)	(2,441,448		)
Total inventories	$	7,387,693		$	8,595,485

XML

INCOME TAXES (Notes)

3 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

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 years beginning 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 years ended June 30, 2012 and forward. For the three months ended September 30, 2016, the Company recorded an income tax expense of $43,931, compared to an income tax benefit of $61,400 for the three months ended September 30, 2015.

The Company does not believe it has any unrecognized tax benefits as of September 30, 2016 and as of June 30, 2016. Any changes to the Company’s unrecognized tax benefits as of September 30, 2016, if recognized, would impact the effective tax rate.

XML

CREDIT FACILITY (Notes)

3 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Credit Facility

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 Agreement provided 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 publicly announced 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 amounts committed 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 calculation as defined in the Credit Agreement, and to amend certain financial covenants. On May 31, 2016, the Credit Agreement was amended to extend the expiration to July 31, 2018, and to amend certain financial covenants. In addition to the revolving loans, the Credit Agreement also provides that the Company may, from time to time, request the Lender to issue letters of credit for the benefit of the Company of up to a sublimit of $2,000,000 and subject to certain other limitations.  The loan may 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 include restrictions 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 the Pledge and Security Agreement dated May 12, 2010, under which the Company granted the Lender a security interest in substantially all of the Company’s assets in connection with the Company’s obligations under the Credit Agreement. The Company is currently in compliance with all covenants related to the Credit Facility. As of September 30, 2016 and June 30, 2016, there were no outstanding borrowings on the facility.

The Company incurs interest expense primarily related to its secured credit facility. Interest expense was $846 and $5,318 for the three months ended September 30, 2016 and 2015, respectively.

XML

ACCRUED LIABILITIES (Notes)

3 Months Ended

Sep. 30, 2016

Accrued Liabilities [Abstract]

Accrued Liabilities [Text Block]

ACCRUED LIABILITIES

Accrued liabilities were as follows:

	September 30, 2016		June 30, 2016
Cooperative advertising and promotion allowances	$	464,925	$	479,645
Product warranty obligations	294,072		305,275
Customer credit balances	222,868		47,753
Current deferred compensation	150,000		150,000
Accrued returns	120,763		140,918
Employee benefits	77,553		83,113
Legal and professional fees	77,800		127,329
Management bonuses and profit-sharing	42,404		147,450
Sales commissions and bonuses	62,274		70,050
Other	77,394		50,119
Total accrued liabilities	$	1,590,053	$	1,601,652

XML

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE (Notes)

3 Months Ended

Sep. 30, 2016

Earnings Per Share, Basic and Diluted [Abstract]

Income (Loss) Per Common and Common Stock Equivalent Share

INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE

Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding.  The weighted-average number of common shares outstanding was 7,382,706 for the periods ended September 30, 2016 and 2015.  When dilutive, stock options are included in income (loss) per share as share equivalents using the treasury stock method.  For the periods ended September 30, 2016 and 2015, there were no common stock equivalents related to stock option grants that were included in the computation of the weighted-average number of shares outstanding for diluted income (loss) per share.  Shares issuable upon the exercise of outstanding options of 2,365,000 and 2,335,000 were excluded from the diluted weighted-average common shares outstanding for the periods ended September 30, 2016 and 2015, respectively, as they would be anti-dilutive.

XML

STOCK OPTIONS (Notes)

3 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options

STOCK OPTIONS

The Company recognizes stock-based compensation expense for options granted under both the 1990 Flexible Incentive Plan and the 2012 Omnibus Incentive Plan. The stock-based compensation relates to stock options granted to employees, non-employee directors and non-employee consultants. In the three months ended September 30, 2016, options to purchase 485,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.33. In the three months ended September 30, 2015, options to purchase 390,000 shares were granted under the 2012 Omnibus Incentive Plan at a weighted average exercise price of $2.76. Stock-based compensation expense during the three months ended September 30, 2016 and 2015 was $88,523 and $116,004, respectively.

XML

ADDITIONAL CASH FLOW INFORMATION (Notes)

3 Months Ended

Sep. 30, 2016

Supplemental Cash Flow Elements [Abstract]

Additional Cash Flow Information

ADDITIONAL CASH FLOW INFORMATION

The net changes in cash as a result of changes in operating assets and liabilities consist of the following:

	Three Months Ended
	September 30
	2016			2015
Accounts receivable	$	270,170		$	(73,023	)
Inventories	1,207,792			264,644
Income taxes receivable	(23,059		)	(121,521		)
Prepaid expenses and other current assets	(226,315		)	(72,554		)
Accounts payable	(1,332,411		)	(939,523		)
Accrued liabilities	(11,599		)	(116,932		)
Other liabilities	(6,500		)	(7,355		)
Net change	$	(121,922	)	$	(1,066,264	)
Net cash paid during the period for:
Income taxes	$	10		$	800
Interest	$	846		$	3,478

XML

STOCKHOLDERS' EQUITY (Notes)

3 Months Ended

Sep. 30, 2016

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity

STOCKHOLDERS' EQUITY

The following table summarizes the changes in stockholders’ equity:

	Three Months Ended
	September 30
	2016		2015
Net income (loss)	$	84,211	$	(100,804	)
Stock-based compensation expense	88,523		116,004
Increase in stockholders' equity	$	172,734	$	15,200

XML

LEGAL MATTERS (Notes)

3 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Legal Matters

LEGAL MATTERS

As of September 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 of the Uniform Fiduciaries Act relating to the unauthorized transactions, as previously reported. In 2015, Park Bank filed third party claims based on contribution and subrogation against Grant Thornton LLP and Michael Koss. The Court granted motions to dismiss the contribution claims against Grant Thornton LLP and Michael Koss, but determined that it was premature to decide the subrogation claims at this stage of the proceedings. On or around March 11, 2016, the Court entered an order granting Park Bank's motion for summary judgment that dismissed the case. On March 22, 2016, the Company 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 to dismiss the subrogation claims.

The ultimate resolution of this matter is not determinable unless otherwise noted.

XML

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Tables)

3 Months Ended

Sep. 30, 2016

Unauthorized Transaction Related Costs and Recoveries [Abstract]

Unauthorized Transactions, Related Costs and Recoveries, net [Table Text Block]

XML

INVENTORIES (Tables)

3 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventories

The components of inventories were as follows:

	September 30, 2016			June 30, 2016
Raw materials	$	3,000,320		$	3,466,907
Work-in process	33,221			—
Finished goods	6,801,906			7,570,026
	9,835,447			11,036,933
Allowance for obsolete inventory	(2,447,754		)	(2,441,448		)
Total inventories	$	7,387,693		$	8,595,485

XML

ACCRUED LIABILITIES (Tables)

3 Months Ended

Sep. 30, 2016

Accrued Liabilities [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

Accrued liabilities were as follows:

	September 30, 2016		June 30, 2016
Cooperative advertising and promotion allowances	$	464,925	$	479,645
Product warranty obligations	294,072		305,275
Customer credit balances	222,868		47,753
Current deferred compensation	150,000		150,000
Accrued returns	120,763		140,918
Employee benefits	77,553		83,113
Legal and professional fees	77,800		127,329
Management bonuses and profit-sharing	42,404		147,450
Sales commissions and bonuses	62,274		70,050
Other	77,394		50,119
Total accrued liabilities	$	1,590,053	$	1,601,652

XML

ADDITIONAL CASH FLOW INFORMATION (Tables)

3 Months Ended

Sep. 30, 2016

Supplemental Cash Flow Elements [Abstract]

Additional Cash Flow Information

The net changes in cash as a result of changes in operating assets and liabilities consist of the following:

	Three Months Ended
	September 30
	2016			2015
Accounts receivable	$	270,170		$	(73,023	)
Inventories	1,207,792			264,644
Income taxes receivable	(23,059		)	(121,521		)
Prepaid expenses and other current assets	(226,315		)	(72,554		)
Accounts payable	(1,332,411		)	(939,523		)
Accrued liabilities	(11,599		)	(116,932		)
Other liabilities	(6,500		)	(7,355		)
Net change	$	(121,922	)	$	(1,066,264	)
Net cash paid during the period for:
Income taxes	$	10		$	800
Interest	$	846		$	3,478

XML

STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Sep. 30, 2016

Stockholders' Equity Attributable to Parent [Abstract]

Stockholders' Equity

The following table summarizes the changes in stockholders’ equity:

	Three Months Ended
	September 30
	2016		2015
Net income (loss)	$	84,211	$	(100,804	)
Stock-based compensation expense	88,523		116,004
Increase in stockholders' equity	$	172,734	$	15,200

XML

UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES UNAUTHORIZED TRANSACTION RELATED COSTS AND RECOVERIES (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Unauthorized Transaction Related Costs and Recoveries [Abstract]
Unauthorized transaction related costs (recoveries), net	$ 37,500	$ 37,475

XML

INVENTORIES (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 3,000,320	$ 3,466,907
Work-in process	33,221	0
Finished goods	6,801,906	7,570,026
Gross inventory	9,835,447	11,036,933
Allowance for obsolete inventory	(2,447,754)	(2,441,448)
Total inventories	$ 7,387,693	$ 8,595,485

XML

INCOME TAXES (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Income tax provision (benefit)	$ 43,931	$ (61,400)
Unrecognized tax benefits	0		$ 0
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 0

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CREDIT FACILITY (Details) - USD ($)		3 Months Ended
	May 12, 2010	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016	Jul. 23, 2014
Line of Credit Facility [Line Items]
Revolving secured credit facility, maximum borrowing available	$ 8,000,000				$ 5,000,000
Line of credit sublimit	$ 2,000,000
Line of credit facility		$ 0		$ 0
Interest Expense, Debt		$ 846	$ 5,318
Minimum [Member]
Line of Credit Facility [Line Items]
Unused capacity, commitment fee percentage	0.30%
Minimum [Member] | Prime Rate [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	0.00%
Minimum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	2.00%
Maximum [Member]
Line of Credit Facility [Line Items]
Unused capacity, commitment fee percentage	0.45%
Maximum [Member] | Prime Rate [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	0.75%
Maximum [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Interest rate, percentage spread, depending on Company's leverage ratio	3.00%

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ACCRUED LIABILITIES (Details) - USD ($)	Sep. 30, 2016	Jun. 30, 2016
Accrued Liabilities [Abstract]
Cooperative advertising and promotion allowances	$ 464,925	$ 479,645
Product warranty obligations	294,072	305,275
Customer credit balances	222,868	47,753
Current deferred compensation	150,000	150,000
Accrued returns	120,763	140,918
Employee benefits	77,553	83,113
Legal and professional fees	77,800	127,329
Management bonuses and profit-sharing	42,404	147,450
Sales commissions and bonuses	62,274	70,050
Other	77,394	50,119
Total accrued liabilities	$ 1,590,053	$ 1,601,652

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INCOME (LOSS) PER COMMON AND COMMON STOCK EQUIVALENT SHARE (Details) - shares	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share, Basic and Diluted [Abstract]
Weighted average number of shares outstanding	7,382,706	7,382,706
Common stock equivalents related to stock option grants that were included in the computation of the weighted-average number of shares outstanding	0	0
Shares issuable upon the exercise of outstanding options, excluded from the diluted weighted-average common shares outstanding as they would be anti-dilutive	2,365,000	2,335,000

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STOCK OPTIONS (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Granted (in shares)	485,000	390,000
Weighted average exercise price of shares granted in period	$ 2.33	$ 2.76
Stock-based compensation expense	$ 88,523	$ 116,004

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ADDITIONAL CASH FLOW INFORMATION (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Supplemental Cash Flow Elements [Abstract]
Accounts receivable	$ 270,170	$ (73,023)
Inventories	1,207,792	264,644
Income taxes receivable	(23,059)	(121,521)
Prepaid expenses and other current assets	(226,315)	(72,554)
Accounts payable	(1,332,411)	(939,523)
Accrued liabilities	(11,599)	(116,932)
Other liabilities	(6,500)	(7,355)
Net change	121,922	1,066,264
Net cash (refunded) paid during the period for:
Income taxes	10	800
Interest	$ 846	$ 3,478

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STOCKHOLDERS' EQUITY (Details) - USD ($)	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Stockholders' Equity Attributable to Parent [Abstract]
Net income (loss)	$ 84,211	$ (100,804)
Stock-based compensation expense	88,523	116,004
Increase in stockholders' equity	$ 172,734	$ 15,200