<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

   [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 For the
            fiscal year ended June 30, 1998
                                       OR
   [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 

KOSS CORPORATION                                  Commission file number 0-3295
- -------------------------------------------------------------------------------
(Exact name of registrant as specified
 in its charter)

A Delaware Corporation                                                391168275
- -------------------------------------------------------------------------------
(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       


Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                   Name of Each Exchange on Which Registered
- -------------------                   -----------------------------------------
     NONE                                               NONE


Securities registered pursuant to Section 12(g) of the Act:


                     Common Stock, $0.01 par value (voting)
                     --------------------------------------
                                (Title of class)

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  X    NO 
                                       ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 10, 1998 was approximately $12,781,844 (based on the
$10.875 per share closing price of the Company's Common Stock as reported on the
NASDAQ Stock Market on September 10, 1998). In determining who are affiliates of
the Company for purposes of this computation, it is assumed that directors,
officers, and any persons who held on September 10, 1998 more than 5% of the
issued and outstanding common stock of the Company are "affiliates" of the
Company. The characterization of such directors, officers, and other persons as
affiliates is for purposes of this computation only and should not be construed
as a determination or admission for any other purpose that any of such persons
are, in fact, affiliates of the Company.

On September 10, 1998, 3,177,269 shares of voting common stock were outstanding.




<PAGE>   2


                       Documents Incorporated by Reference


Part III incorporates by reference information from Koss Corporation's Proxy
Statement for its 1998 Annual Meeting of Stockholders to be filed within 120
days of the end of the fiscal year covered by this Report. The exhibits hereto
incorporate by reference information from the Company's Annual Report on Form
10-K for the fiscal years ended June 30, 1988, 1990, 1995, and 1996, and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and
March 31, 1997.




                                     PART I


Item 1.  BUSINESS.

As used herein, the term "Company" means Koss Corporation and its consolidated
subsidiaries, unless the context otherwise requires.

The Company operates in the audio/video industry segment of the home
entertainment industry through its design, manufacture and sale of stereo
headphones, audio/video loudspeakers, and related accessory products.

The Company's principal product is the design, manufacture, and sale of
stereophones and related accessories. The percentage of total revenues related
to the product line over the past three years was:

                                   1998              1997              1996
                                   ----              ----              ----

  Stereophones                      87%               83%               80%


The Company's products are sold through audio specialty stores, catalog
showrooms, regional department store chains, military exchanges and national
retailers under the "Koss" name and dual label. The Company has more than 1,600
domestic dealers and its products are carried in more than 17,000 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.

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

The Company regularly applies for registration of its trademarks and has
numerous patents. Certain of its trademarks are of material value and importance
to the conduct of its business. Although the Company considers protection of its
proprietary developments important, the Company's business is not, in the
opinion of management, materially dependent upon any single patent.

Although retail sales of consumer electronics are predictably higher during the
holiday season, management of the Company is of the opinion that its business
and industry segment are not seasonal as evidenced by the fact that 54% of sales
occurred in the first six months of the fiscal year and 46% of sales occurred in
the latter six months of the fiscal year.

The Company's working capital needs do not differ substantially from those of
its competitors in the industry and generally reflect the need to carry
significant amounts of inventory to meet delivery requirements of its customers.
The Company provides extended payment terms for product sales to certain
customers. Based on historical trends, management does not expect these
practices to have any material effect on net sales or revenues. The Company's
current backlog of orders is not material in relation to annual net sales.

                                       2


<PAGE>   3


The Company markets its products to approximately 2,000 customers worldwide.
During 1998 the Company's sales to its largest single customer, Tandy
Corporation, were 19% of total sales. Management believes that any loss of this
customer's revenues would be partially offset by a corresponding decrease, on a
percentage basis, in expenses thereby dampening the impact on the Company's
operating income. Although perhaps initially material, management believes this
impact would be offset in future years by expanded sales to both existing and
new customers. The five largest customers of the Company accounted for
approximately 39% of total sales in 1998.

Although competition in the stereophone market has increased this past year, the
Company has maintained its competitive position as a leading marketer and
producer of high fidelity stereophones in the United States. In the stereophone
market, the Company competes directly with approximately five major competitors,
several of which are large and diversified and have greater total assets and
resources than the Company.

The amount spent on engineering and research activities relating to the
development of new products or the improvement of existing products was $265,000
during fiscal 1998 as compared with $245,000 during fiscal 1997 and $225,000
during fiscal 1996. These activities were conducted by both Company personnel
and outside consultants. The Company relies upon its unique sound, quality
workmanship, brand identification, engineering skills and customer service to
maintain its competitive position.

As of June 30, 1998, the Company employed 184 people. The Company also utilizes
temporary personnel to meet seasonal production demands.

Foreign Sales.

International markets are serviced through manufacturers representatives or
independent distributors with product produced in the United States. In the
opinion of management, the Company's competitive position and risks attendant to
the conduct of its business in such markets are comparable to the domestic
market. For further information, see Note 10 to consolidated financial
statements accompanying this Form 10-K.



I
tem 2.  PROPERTIES.

The Company leases its main plant and offices in Milwaukee, Wisconsin from its
Chairman, John C. Koss. On June 25, 1993, the lease was renewed for a period of
ten years, and is being accounted for as an operating lease. The lease extension
increases the rent from $280,000 per year (plus Consumer Price Index increase in
1994) to a fixed rate of $350,000 per year for three years and $380,000 for the
seven years thereafter. The lease is on terms no less favorable to the Company
than those that could be obtained from an independent party. The Company is
responsible for all property maintenance, insurance, taxes and other normal
expenses related to ownership.

All facilities are in good repair and, in the opinion of management, are
suitable for the Company's purposes.



Item 3.  LEGAL PROCEEDINGS.

Neither Koss nor its subsidiaries are subject to any material legal proceedings.



Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of stockholders during the fourth quarter of
the fiscal year ended June 30, 1998.

 

                                        3


<PAGE>   4



                                     PART II



Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS.

MARKET INFORMATION ON COMMON STOCK

The Company's common stock is traded on The Nasdaq Stock Market under the
trading symbol "KOSS". There were approximately 1,087 holders of the Company's
common stock as of September 10, 1998. No dividends have been paid for the years
ended June 30, 1998, 1997, and 1996. The quarterly high and low sale prices of
the Company's common stock for the last two fiscal years are shown below.

                                Fiscal Year 1998           Fiscal Year 1997
                                ----------------           ----------------
Quarter                         High        Low             High       Low
- -------                         ----        ---             ----       ---

First                         $14-0/0      $8-1/4        $7-3/8       $5-3/4
Second                        $15-1/8      $11-1/4       $7-0/0       $5-3/4
Third                         $12-1/2      $10-0/0       $13-0/0      $6-1/4
Fourth                        $11-1/4      $9-1/2        $11-1/4      $8-3/4




Item 6.  SELECTED FINANCIAL DATA.


<TABLE>
<CAPTION>


                                           1998             1997            1996             1995            1994
- ---------------------------------- ---------------- --------------- ---------------- --------------- ----------------
<S>                                   <C>             <C>             <C>             <C>              <C>
Net sales                              $40,638,747     $39,554,720      $36,422,377     $33,432,344      $35,561,322

Net income                              $5,477,629      $3,587,688       $2,360,963      $2,087,994       $2,800,855

Earnings per common share:
  Basic                                      $1.68           $1.09            $0.69           $0.63            $0.88
  Diluted                                    $1.65           $1.07            $0.67           $0.58            $0.75

Total assets                           $32,028,769     $26,332,923      $22,005,257     $20,972,923      $19,220,406

Long-term debt                          $2,746,000      $1,221,000         $470,000        $570,000       $2,068,741

</TABLE>




                                       4



<PAGE>   5



Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.


FINANCIAL CONDITION AND LIQUIDITY

During 1998, cash provided by operations was $1,839,750. Working capital was
$25,044,408 at June 30, 1998. The increase of $4,255,260 from the balance at
June 30, 1997 represents primarily the net effect of an increase in inventory of
$4,938,405. The increase in inventory is the result of anticipated higher sales
volume in the upcoming year.

Capital expenditures for new property and equipment including production tooling
were $221,560, $782,287, and $690,932 in 1998, 1997, and 1996, respectively.
Depreciation charges aggregated $636,558, $649,099, and $629,985 for the same
fiscal years. Budgeted capital expenditures for fiscal year 1999 are $1,100,000.
The Company expects to generate sufficient funds through operations to fulfill
these expenditures.

Stockholders' investment increased to $22,591,160 at June 30, 1998 from
$20,274,494 at June 30, 1997. The increase reflects primarily the effect of net
income, the purchase and retirement of common stock, and the exercise of stock
options for the year. No cash dividends have been paid since the first quarter
of fiscal 1984.

The Company has an unsecured working capital line of credit facility with a bank
which expires November 1, 1999. This credit facility provides for borrowings up
to a maximum of $8,000,000. Borrowings under this credit facility bear interest
at the bank's prime rate, or LIBOR plus 2.25%. This credit facility includes
certain covenants that require the Company to maintain a minimum tangible net
worth and specified current, interest coverage and leverage ratios. Borrowings
under this credit facility as of June 30, 1998 totaled $2,746,000.
There are no commitments for foreign letters of credit at June 30, 1998.

In April, 1995 the Board of Directors approved a stock repurchase program
authorizing the Company to purchase from time to time up to $2,000,000 of its
common stock for its own account. In January, 1996 the Board of Directors
approved an increase in the total amount of potential stock purchases for the
Company's own account from $2,000,000 to $3,000,000. In July of 1997, the Board
of Directors again approved an increase in the total amount of potential stock
purchases for the Company's own account from $3,000,000 to $5,000,000. In August
of 1998, the Board of Directors approved an increase of $3,000,000 in the
Company's stock repurchase program, thereby increasing the total amount of stock
repurchases for the Company's own account from $5,000,000 to $8,000,000. The
Company intends to effectuate all stock purchases either on the open market or
through privately negotiated transactions, and intends to finance all stock
purchases through its own cash flow or by borrowing for such purchases. For the
fiscal year ended June 30, 1998, the Company purchased 547,772 shares of its
common stock at an average gross price of $12.75 per share (and an average net
price of $7.96 per share), and retired all such shares.

From the commencement of the Company's stock repurchase program through June 30,
1998, the Company has purchased and retired a total of 891,348 shares for a
total gross purchase price of $9,108,577 (representing an average gross purchase
price of $10.22 per share) and a total net purchase price of $6,485,677
(representing an average net purchase price of $7.28 per share). The difference
between the total gross purchase price and the total net purchase price is the
result of the Company purchasing from certain employees shares of the Company's
stock acquired by such employees pursuant to the Company's stock option program.

                                       5


<PAGE>   6


1998 RESULTS COMPARED WITH 1997

Net sales for 1998 were $40,638,747 compared with $39,554,720 in 1997, an
increase of $1,084,027 or 3%. The increase was the result of higher sales of
current products as well as the introduction of new products.

The Company anticipates a decline in net sales for fiscal 1999 as a result of
the Company's previously announced decision to exit the computer speaker
business, which accounted for $5,831,234 of gross sales for the fiscal year
ending June 30, 1998.

Gross profit was $15,794,779 or 38.9% in 1998 compared with $13,632,099 or 34.5%
in 1997. Shifts in product mix resulted in the increase in gross profit as
compared to last year.

Selling, general and administrative expenses for 1998 were $7,822,338 compared
with $8,594,260 in 1997, a decrease of $771,922 or 9%. This decrease is a result
of the closing of Koss Limited in Canada.

Income from operations was $7,972,441 in 1998 compared with $5,037,839 in 1997,
an increase of 58%. Net interest expense for 1998 was $253,171 compared with
$200,401 in 1997. The increase is due to increased levels of borrowings during
the fiscal year.

The Company had a License Agreement with Trabelco N.V., a Netherlands, Antilles
company and a subsidiary of Hagemeyer, N.V., a diverse international trading
company based in the Netherlands. This License Agreement covered North America,
Central America, and South America. Effective March 31, 1997, the Company
assigned this License Agreement to Jiangsu Electronics Industries Limited
("Jiangsu"), a subsidiary of Orient Power Holdings Limited. Orient Power is
based in Hong Kong and has an extensive portfolio of audio and video products.
Pursuant to this assignment, Jiangsu has agreed to make royalty payments through
December 31, 2000, subject to certain minimum royalty amounts due for the years
1998, 1999, and 2000. In May of 1998, the Company and Jiangsu entered into an
amendment to this License Agreement expanding the products covered by this
License Agreement to include mobile electronics and increasing the minimum
royalties due for the years 1998, 1999, and 2000. This License Agreement is
subject to renewal for additional 3 year periods. Royalty income earned in
connection with this License Agreement for the year ended June 30, 1998 was
$1,206,359 as compared to $1,131,250 for the same period in 1997. The Company
recognizes royalty income when earned. The increase in royalty income for the
twelve-month period is the result of higher sales volume in products covered
under this License Agreement.

The License Agreement with Trabelco N.V. covering many European countries
remains in place. No sales have been reported under this License Agreement to
date; however, certain minimum royalties are due for calendar year 1998. This
License Agreement expires on December 31, 1998; however, Trabelco N.V. has the
option to renew this License Agreement for additional 3 year periods.

Effective July 1, 1998, the Company entered into a License Agreement and an
Addendum thereto with Logitech Electronics Inc. ("Logitech") of Ontario, Canada
whereby the Company licensed to Logitech the right to sell multimedia/computer
speakers under the Koss brand name. This License Agreement covers North America
and certain countries in South America and Europe. This License Agreement
extends for 5 years and includes a 5 year renewal option at the Company's
discretion. This License Agreement requires royalty payments by Logitech through
June 30, 2003, subject to certain minimum royalty amounts due each year.

Income taxes are discussed in Note 6 to the financial statements.


                                       6


<PAGE>   7


1997 RESULTS COMPARED WITH 1996

Net sales for 1997 were $39,554,720 compared with $36,422,377 in 1996, an
increase of $3,132,343 or 9%. The increase was the result of higher sales of
current product as well as the introduction of new products.

Gross profit was $13,632,099 or 34.5% in 1997 compared with $11,180,754 or 30.7%
in 1996. Shifts in product mix resulted in the increase in gross profit as
compared to last year.

Selling, general and administrative expenses for 1997 were $8,594,260 compared
with $8,528,098 in 1996, an increase of $66,162 or less than 1%.

Income from operations was $5,037,839 in 1997 compared with $2,652,656 in 1996,
an increase of 90%. Net interest expense for 1997 was $200,401 compared with
$40,195 in 1996. The increase is due to increased levels of borrowings during
the fiscal year.

The Company had a License Agreement with Trabelco N.V., a Netherlands, Antilles
company and a subsidiary of Hagemeyer, N.V., a diverse international trading
company based in the Netherlands. This License Agreement covered North America,
Central America, and South America. Effective March 31, 1997, the Company
assigned this License Agreement to Jiangsu Electronics Industries Limited
("Jiangsu"), a subsidiary of Orient Power Holdings Limited. Orient Power is
based in Hong Kong and has an extensive portfolio of audio and video products.
Pursuant to this assignment, Jiangsu has agreed to make royalty payments through
December 31, 2000, subject to certain minimum royalty amounts due for the years
1998, 1999, and 2000. In May of 1998, the Company and Jiangsu entered into an
amendment to this License Agreement expanding the products covered by this
License Agreement to include mobile electronics and increasing the minimum
royalties due for the years 1998, 1999, and 2000. This License Agreement is
subject to renewal for additional 3 year periods. Royalty income earned in
connection with this License Agreement for the year ended June 30, 1997 was
$1,131,250 as compared to $1,303,502 for the same period in 1996. The Company
recognizes royalty income when earned. The decrease in royalty income for the
twelve-month period is the result of lower sales volume in products covered
under this License Agreement.

The License Agreement with Trabelco N.V. covering many European countries
remains in place. No sales have been reported under this License Agreement to
date; however, certain minimum royalties are due for calendar years 1997 and
1998. This License Agreement expires on December 31, 1998; however, Trabelco
N.V. has the option to renew this License Agreement for additional 3 year
periods.

Income taxes are discussed in Note 6 to the financial statements.



                                       7


<PAGE>   8


MANAGEMENT'S REPORT

The consolidated financial statements and related financial information included
in this report are the responsibility of management as to preparation,
presentation and reliability. Management believes that the financial statements
have been prepared in conformity with generally accepted accounting principles
appropriate under the circumstances and necessarily include amounts that are
based on best estimates and judgments.

The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that the books and records
reflect the authorized transactions of the Company.

The Board of Directors, acting through the Audit Committee, is responsible for
the selection and appointment of the independent auditors and reviews the scope
of their audit and their findings. The independent auditors have direct access
to the Audit Committee, with or without the presence of management
representatives, to discuss the scope and the results of their audit work. The
Audit Committee is comprised solely of non-employee directors.

The independent auditors provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
evaluate the system of internal accounting controls in connection with their
audit and perform such tests and procedures as they deem necessary to reach and
express an opinion on the fairness of the financial statements.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS 131) which establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and requires presentation of prior period
financial statements for comparability purposes. The Company is currently
evaluating its required disclosures under SFAS 131 and expects to adopt this
standard during the year ended June 30, 1999.


YEAR 2000

The Company is currently working to resolve the potential impact of the year
2000 on the processing of date sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using 2 digits to define the applicable year (as
opposed to 4 digits). Any of the Company's programs that have time sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or systems failure. Based on a
review of the Company's software by the Chief Information Officer and outside
consultants, the anticipated costs of addressing potential problems are not
expected to have an adverse impact on the Company's financial position, results
of operations or cash flows in future periods. The Company expects its computer
systems will be year 2000 compliant by January 31, 1999.

A year 2000 compliance letter and survey form has been sent to all our customers
doing over $10,000 annually in sales. Responses will be analyzed to see if there
are any adverse conditions that the Company may have overlooked in its year 2000
plan. The same procedure is being followed with our suppliers and vendors. The
Company's current inventory levels and forecasting technique will insure product
is available to support customer requirements. In the event there are any
adverse conditions, the Company will devote necessary resources to resolve all
significant year 2000 issues in a timely manner.

                                       8


<PAGE>   9



I
tem 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated financial statements of the Company at June 30, 1998 and 1997 and
for each of the three years in the period ended June 30, 1998 and the notes
thereto, and the report of independent accountants thereon are set forth on
pages 13 to 25.

Selected unaudited quarterly financial data is as follows:


<TABLE>
<CAPTION>


                                                                          Quarter
                                                                          -------
1998                                               First          Second           Third           Fourth
- ----                                               -----          -------          -----           ------

<S>                                           <C>           <C>                <C>             <C>
Net sales                                      $11,755,125     $10,378,151      $8,089,590      $10,415,881
Gross profit                                     4,424,457       3,310,141       2,517,692        5,542,489
Net income                                       1,401,423       1,084,436         661,608        2,330,162
Earnings per common share:
   Basic                                               .42             .33             .21              .73
   Diluted                                             .41             .32             .20              .73
                                                                          Quarter
                                                                          -------
1997                                               First          Second           Third           Fourth
- ----                                               -----          -------          -----           ------
Net sales                                       $9,862,803     $13,320,166      $8,583,303       $7,788,448
Gross profit                                     3,287,678       4,544,115       2,922,694        2,877,612
Net income                                         838,990       1,482,478         531,552          734,668
Earnings per common share:
   Basic                                               .25             .45             .16              .22
   Diluted                                             .25             .45             .15              .21

</TABLE>






Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

None.



                                       9

<PAGE>   10



                                    PART III



Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to the directors of Koss Corporation is incorporated herein
by reference from the "ELECTION OF DIRECTORS -- Information As To Nominees" and
the "ELECTION OF DIRECTORS -- Executive Officers" contained in the Koss
Corporation Proxy Statement for its 1998 Annual Meeting of Stockholders (the
"1998 Proxy Statement"), which 1998 Proxy Statement is to be filed within 120
days of the end of the fiscal year covered by this Report pursuant to General
Instruction G(3) of Form 10-K.


Item 11.  EXECUTIVE COMPENSATION.

Information relating to executive compensation is incorporated herein by
reference from the "ELECTION OF DIRECTORS -- Executive Compensation And Related
Matters" section of the 1998 Proxy Statement.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to the security ownership of certain beneficial owners and
management is incorporated herein by reference from the "ELECTION OF DIRECTORS
- -- Beneficial Ownership Of Company Securities" section of the 1998 Proxy
Statement.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information relating to related transactions is incorporated herein by reference
from the "ELECTION OF DIRECTORS -- Executive Compensation And Related Matters"
and "ELECTION OF DIRECTORS -- Related Transactions" sections of the 1998 Proxy
Statement.



                                     PART IV


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a.      The following documents are filed as part of this report:


<TABLE>
<S>                                                                                                            <C>
        1.      Financial Statements
                The following  consolidated  financial  statements of Koss Corporation are set forth on pages 13 to
                25:
                Report of Independent Accountants............................................................. 13
                Consolidated Statements of Income for the Years
                 Ended June 30, 1998, 1997, and 1996.......................................................... 14
                Consolidated Balance Sheets as of June 30, 1998 and 1997...................................... 15
                Consolidated Statements of Cash Flows
                 for the Years Ended June 30, 1998, 1997, and 1996............................................ 16
                Consolidated Statements of Stockholders' Investment
                 for the Years Ended June 30, 1998, 1997, and 1996............................................ 17
                Notes to Consolidated Financial Statements.................................................... 18

</TABLE>


  
                                     10
       


<PAGE>   11


        2.      Financial Statement Schedules
                All schedules have been omitted because the information is not
                applicable or is not material or because the information
                required is included in the financial statements or the notes
                thereto.

        3.      Exhibits Filed

                   3.1     Certificate of Incorporation of Koss Corporation.

                   3.2     By-Laws of Koss Corporation.

                   4.1     Certificate of Incorporation of Koss Corporation.
 
                   4.2     By-Laws of Koss Corporation.

                  10.1     Officer Loan Policy.

                  10.3     Supplemental Medical Care Reimbursement Plan.

                  10.4     Death Benefit Agreement with John C. Koss.

                  10.5     Stock Repurchase Agreement with John C. Koss.

                  10.6     Salary Continuation Resolution for John C. Koss.

                  10.7     1983 Incentive Stock Option Plan.

                  10.8     Assignment of Lease to John C. Koss.

                  10.9     Addendum to Lease.

                  10.10    1990 Flexible Incentive Plan.

                  10.12    Loan Agreement, effective as of February 17, 1995.

                  10.13    Amendment to Loan Agreement dated June 15, 1995, 
                           effective as of February 17, 1995.

                  10.14    License Agreement dated November 15, 1991 between 
                           Koss Corporation and Trabelco N.V. (a subsidiary of
                           Hagemeyer N.V.) for North America, Central America
                           and South America (including Amendment to License
                           Agreement dated November 15, 1991; Renewal Letter
                           dated November 18, 1994; and Second Amendment to
                           License Agreement dated September 29, 1995).

                  10.15    License Agreement dated September 29, 1995 between 
                           Koss Corporation and Trabelco N.V. (a subsidiary of
                           Hagemeyer N.V.) for Europe (including First Amendment
                           to License Agreement dated December 26, 1995).

                  10.16    Third Amendment and Assignment of License Agreement
                           to Jiangsu Electronics Industries Limited dated March
                           31, 1997.

  


                                       11


<PAGE>   12


                  10.17    Fourth Amendment to License Agreement dated as of May
                           29, 1998.

                  10.18    License Agreement dated June 30, 1998 between Koss
                           Corporation and Logitech Electronics Inc. (including
                           Addendum to License Agreement dated June 30, 1998).

                  10.19    Consent of Directors (Supplemental Executive
                           Retirement Plan for Michael J. Koss dated March 7,
                           1997).

                  22       List of Subsidiaries of Koss Corporation.

                  27       Financial Data Schedule.

b.     One report on Form 8-K was filed by the Company during the last quarter
       of the period covered by this report. This Form 8-K referenced a Press
       Release issued by the Company announcing a decline in forecasted sales
       revenue of approximately $4,000,000, or 10%, for the fiscal year ending
       June 30, 1999, relating to an anticipated reduction in sales of the
       Company's computer loudspeaker and associated peripheral business.


                                       12


<PAGE>   13



REPORT OF INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF KOSS CORPORATION

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 10 present fairly, in all material
respects, the financial position of Koss Corporation and its subsidiaries at
June 30, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP
- --------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 15, 1998





                                       13

<PAGE>   14


CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

Year Ended June 30,                                                1998            1997              1996
- ---------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>               <C>
Net sales                                                   $40,638,747     $39,554,720       $36,422,377
Cost of goods sold                                           24,843,968      25,922,621        25,241,623
- ----------------------------------------------------------------------------------------------------------
Gross profit                                                 15,794,779      13,632,099        11,180,754
Selling, general and
  administrative expense                                      7,822,338       8,594,260         8,528,098
- ---------------------------------------------------------------------------------------------------------
Income from operations                                        7,972,441       5,037,839         2,652,656
Other income (expense)
  Royalty income                                              1,206,359       1,131,250         1,303,502
  Interest expense (net)                                       (253,171)       (200,401)          (40,195)
- ---------------------------------------------------------------------------------------------------------
Income before income taxes                                    8,925,629       5,968,688         3,915,963
Provision for income taxes (note 6)                           3,448,000       2,381,000         1,555,000
- ---------------------------------------------------------------------------------------------------------
Net income                                                   $5,477,629     $ 3,587,688       $ 2,360,963
=========================================================================================================
Earnings per common share:
  Basic                                                           $1.68           $1.09             $0.69
  Diluted                                                         $1.65           $1.07             $0.67
- ---------------------------------------------------------------------------------------------------------
Dividends per common share                                         None            None              None
=========================================================================================================

</TABLE>



See accompanying notes.


                                       14


<PAGE>   15


CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

As of June 30,                                                                            1998                         1997
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                         <C>
ASSETS
Current Assets:
  Cash                                                                             $    14,778                  $    32,551
  Accounts receivable, less allowances of
    $556,290 and $928,605, respectively (note 12)                                    8,387,839                    6,992,513
  Inventories                                                                       19,486,058                   14,547,653
  Prepaid expenses                                                                     548,892                      603,997
  Income taxes receivable                                                                   --                       65,493
  Deferred income taxes (note 6)                                                       555,946                      756,946
- ---------------------------------------------------------------------------------------------------------------------------
    Total current assets                                                            28,993,513                   22,999,153
- ---------------------------------------------------------------------------------------------------------------------------
Equipment and Leasehold Improvements, at cost:
  Leasehold improvements                                                               742,289                      735,930
  Machinery, equipment, furniture and fixtures                                       4,587,729                    4,548,096
  Tools, dies, molds and patterns                                                    8,351,591                    8,176,023
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                    13,681,609                   13,460,049
  Less--accumulated depreciation                                                    11,619,078                   10,982,520
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                     2,062,531                    2,477,529
Deferred Income Taxes (note 6)                                                         364,135                      258,135
Intangible and Other Assets                                                            608,590                      598,106
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                   $32,028,769                  $26,332,923
===========================================================================================================================

LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
  Accounts payable                                                                 $ 1,956,877                  $   741,646
  Accrued liabilities (note 7)                                                       1,314,701                      994,877
  Deferred revenue                                                                          --                      473,482
  Income taxes payable                                                                 677,527                           --
- ---------------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                        3,949,105                    2,210,005
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt (note 4)                                                              2,746,000                    1,221,000
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Compensation and Other Liabilities (note 11)                                1,252,504                    1,137,424
- ---------------------------------------------------------------------------------------------------------------------------
Contingently Redeemable Equity Interest (note 5)                                     1,490,000                    1,490,000
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Investment (note 5):
  Common stock, $.01 par value,
    authorized 8,500,000 shares;
    issued and outstanding 3,177,269
    and 3,323,791 shares, respectively                                                  31,773                       33,238
  Paid in capital                                                                           --                    2,328,677
  Contingently redeemable common stock                                              (1,490,000)                  (1,490,000)
  Accumulated other comprehensive income                                               (71,322)                     (71,322)
  Undistributed retained earnings                                                   24,120,709                   19,473,901
- ---------------------------------------------------------------------------------------------------------------------------
Total  stockholders' investment                                                     22,591,160                   20,274,494
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                   $32,028,769                  $26,332,923
===========================================================================================================================


</TABLE>



See accompanying notes.


                                       15



<PAGE>   16


CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

Year Ended June 30,                                                     1998                   1997                   1996
- --------------------------------------------------------------------------------------------------------------------------
                          
<S>                                                             <C>                   <C>                    <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
  Net income                                                     $ 5,477,629           $  3,587,688            $ 2,360,963
  Adjustments to reconcile net
    income to net cash provided by
    (used in) operating activities:
      Depreciation and amortization                                  676,673                712,215                777,238
      Deferred income taxes                                           95,000                (74,532)              (568,465)
      Deferred compensation                                          115,080                115,080                115,080
      Net changes in operating assets and
        liabilities (note 8)                                      (4,524,632)            (4,407,722)              (802,625)
- --------------------------------------------------------------------------------------------------------------------------
        Net cash provided by (used in)
          operating activities                                     1,839,750                (67,271)             1,882,191
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
  Acquisition of equipment
    and leasehold improvements                                      (221,560)              (782,287)              (690,932)
- --------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM
FINANCING ACTIVITIES:
  Repayments under line of credit agreement                      (24,385,400)           (21,029,000)           (13,891,000)
  Borrowings under line of credit agreement                       25,910,400             21,780,000             13,791,000
  Exercise of stock options                                        3,822,600                456,799                433,835
  Purchase and retirement of common stock                         (6,983,563)              (352,691)            (1,547,320)
- --------------------------------------------------------------------------------------------------------------------------
      Net cash provided by (used in)
        financing activities                                      (1,635,963)               855,108             (1,213,485)
- --------------------------------------------------------------------------------------------------------------------------
  Net increase (decrease) in cash                                    (17,773)                 5,550                (22,226)
  Cash at beginning of year                                           32,551                 27,001                 49,227
- --------------------------------------------------------------------------------------------------------------------------
  Cash at end of year                                            $    14,778           $     32,551            $    27,001
==========================================================================================================================

</TABLE>


See accompanying notes.

  
                                     16



<PAGE>   17


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT


<TABLE>
<CAPTION>


                                                                                                              Accumulated
                                                                                                                    Other
                                                            Common          Paid In          Retained       Comprehensive
                                                             Stock          Capital          Earnings              Income
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>                <C>               <C>
Balance, June 30, 1995                                  $   34,861      $ 3,336,431       $13,525,250        $   (65,116)
  Net income                                                    --               --         2,360,963                 --
  Foreign currency translation adjustment                       --               --                --            (42,114)
  Purchase and retirement of treasury stock                 (2,519)      (1,544,801)               --                 --
  Exercise of stock options                                    837          432,998                --                 --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996                                      33,179        2,224,628        15,886,213           (107,230)
  Net income                                                    --               --         3,587,688                 --
  Foreign currency translation adjustment                       --               --                --             35,908
  Purchase and retirement of treasury stock                   (516)        (352,175)               --                 --
  Exercise of stock options                                    575          456,224                --                 --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997                                      33,238        2,328,677        19,473,901            (71,322)
  Net income                                                    --               --         5,477,629                 --
  Purchase and retirement of treasury stock                 (5,478)      (6,147,264)         (830,821)                --
  Exercise of stock options                                  4,013        3,818,587                --                 --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998                                  $   31,773      $        --       $24,120,709        $   (71,322)
- ------------------------------------------------------------------------------------------------------------------------
 
</TABLE>


                                                                                
See accompanying notes.



                                       17


<PAGE>   18



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ACCOUNTING POLICIES

CONCENTRATION OF CREDIT RISK--The Company operates in the audio/video industry
segment of the home entertainment industry through its design, manufacture and
sale of stereo headphones, audio/video loudspeakers and related accessory
products. The Company's products are sold through audio specialty stores,
catalog showrooms, regional department store chains, military exchanges and
national retailers under the "Koss" name and dual label. The Company has more
than 1,600 domestic dealers and its products are carried in more than 17,000
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 grants credit to its
domestic and Canadian customers. Collection is dependent on the retailing
industry economy. International customers outside of Canada are sold on a cash
against documents or letter of credit basis. Approximately 16% and 13% of the
Company's accounts receivable at June 30, 1998 and 1997, respectively, were
foreign receivables.

BASIS OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated.

ROYALTY INCOME--The Company recognizes royalty income when earned under terms of
license agreements, which expire in 1998 and 2000. These agreements contain
three year renewal options and require minimum calendar year royalty payments.

INVENTORIES--At June 30, 1998 and 1997, approximately 83% and 98%, respectively,
of the Company's inventories were valued at the lower of last-in, first-out
(LIFO) cost or market. All other inventories are valued at the lower of
first-in, first-out (FIFO) cost, or market. If the FIFO method of inventory
accounting had been used by the Company for inventories valued at LIFO,
inventories would have been $461,143 and $457,484 higher than reported at June
30, 1998 and 1997, respectively.

The components of inventories at June 30, is as follows:

                                                  1998              1997
              ----------------------------------------------------------
              Raw materials and
                Work in process           $  6,547,983      $  7,242,161
              Finished goods                12,938,075         7,305,492
              ----------------------------------------------------------
                                           $19,486,058       $14,547,653
              ==========================================================


PROPERTY AND EQUIPMENT--Depreciation is provided on a straight-line basis over
the estimated useful life of the asset as follows:

        Leasehold Improvements            10-15 years
        Machinery, Equipment,
          Furniture and Fixtures           3-10 years
        Tools, Dies, Molds
          and Patterns                      4-5 years

RESEARCH AND DEVELOPMENT--Research and development expenditures charged to
operations amounted to approximately $265,000 in 1998, $245,000 in 1997, and
$225,000 in 1996.

EARNINGS PER SHARE--Basic earnings per share are computed based on the weighted
average number of common shares outstanding. When dilutive, stock options are
included as share equivalents using the treasury stock method.


                                       18



<PAGE>   19


FAIR VALUE OF FINANCIAL INSTRUMENTS--Cash, accounts receivable, accounts payable
and accrued liabilities recorded in the consolidated balance sheets approximate
fair value based on the short maturity of these instruments. Amounts recorded
for long-term debt, deferred compensation and other liabilities are estimated to
approximate fair value based on market conditions and interest rates available
to the Company for similar financial instruments.

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

2.  EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share," (SFAS
128). This Statement establishes new standards for computing and presenting
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement of all
prior-period earnings per share data. The Company's adoption of the provisions
of SFAS 128 resulted in the dual presentation of basic and diluted per share
amounts on the Company's income statement.

Basic earnings per share are computed based on the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding for the fiscal years ended June 30, 1998, 1997, and 1996 were
3,263,842, 3,304,194, and 3,443,247, respectively. When dilutive, stock options
are included in earnings per share as share equivalents using the treasury stock
method. Common stock equivalents of 64,889, 58,648, and 60,201 related to stock
option grants were included in the computation of the average number of shares
outstanding for diluted earnings per share for the fiscal years ended June 30,
1998, 1997, and 1996, respectively.

3.  COMPREHENSIVE INCOME

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting of Comprehensive Income," (SFAS 130). This Statement requires
that certain items recognized under generally accepted accounting principles as
components of comprehensive income be reported in an annual financial statement
that is displayed with the same prominence of other financial statements.

Total comprehensive income totaled $5,477,629 and $3,623,596 for the fiscal
years ended June 30, 1998 and 1997, respectively. Total comprehensive income for
the year ended June 30, 1998 and 1997, is comprised of net income of $5,477,629
and $3,587,688, respectively, and other comprehensive income of $-0- and
$35,908, respectively. Other comprehensive income is comprised solely of foreign
currency transaction adjustments and are included in the Consolidated Statement
of Stockholder's Investment.

4.  LONG TERM DEBT

The Company has an unsecured working capital line of credit facility with a
bank, which expires through November 1, 1999. This credit facility provides for
borrowings up to a maximum of $8,000,000. Borrowings under this credit facility
bear interest at the bank's prime rate, or LIBOR plus 2.25%. This credit
facility includes certain covenants that require the Company to maintain a
minimum tangible net worth and specified current, interest coverage, and
leverage ratios. Borrowings under this credit facility as of June 30, 1998
totaled $2,746,000. There are no commitments for foreign letters of credit at
June 30, 1998. Utilization of this credit facility as of June 30, 1997 was
$1,274,386, consisting of $1,221,000 in borrowings and $53,386 in foreign
letters of credit.


                                       19


<PAGE>   20


5.  STOCK OPTIONS AND STOCK PURCHASE AGREEMENTS

In 1990, pursuant to the recommendation of the Board of Directors, the
stockholders ratified the creation of the Company's 1990 Flexible Incentive Plan
(the "1990 Plan"). The 1990 Plan is administered by a committee of the Board of
Directors and provides for the granting of various stock-based awards including
stock options to eligible participants, primarily officers and certain key
employees. A total of 225,000 shares of common stock were available in the first
year of the Plan's existence. Each year thereafter additional shares equal to
 .25% of the shares outstanding as of the first day of the applicable fiscal year
were reserved for issuance pursuant to the 1990 Plan. On July 22, 1992, the
Board of Directors authorized the reservation of an additional 250,000 shares to
the 1990 Plan, which was approved by the stockholders. In 1993, the Board of
Directors authorized the reservation of an additional 300,000 shares to the 1990
Plan, which was approved by the stockholders. In 1997, the Board of Directors
authorized the reservation of an additional 300,000 shares to the 1990 Plan,
which was approved by the stockholders.

The following table identifies options granted, exercised, cancelled or
available for exercise pursuant to the above mentioned Plan:


<TABLE>
<CAPTION>


                                                                  Number of           Price per
                                                                     Shares               Share
          -------------------------------------------------------------------------------------
          <S>                                                   <C>             <C>
          Shares under option at June 30, 1995                      536,250        $1.75-$10.55
                 Granted                                             72,500         $5.32-$5.85
                 Exercised                                          (56,250)        $1.75-$2.75
          -------------------------------------------------------------------------------------
          Shares under option at June 30, 1996                      552,500        $1.75-$10.55
                 Granted                                             52,500       $10.20-$11.22
                 Exercised                                          (57,500)        $2.50-$7.50
                 Cancelled                                          (11,250)        $5.32-$7.35
          -------------------------------------------------------------------------------------
          Shares under option at June 30, 1997                      536,250        $2.50-$11.22
                 Granted                                             55,000       $10.83-$11.91
                 Exercised                                         (401,250)       $2.50-$10.55
          -------------------------------------------------------------------------------------
          Shares under option at June 30, 1998                      190,000        $5.32-$11.91
          =====================================================================================
          Options exercisable at June 30, 1998                       52,500        $5.32-$10.20
          =====================================================================================

</TABLE>



The Company has an agreement with its Chairman to repurchase stock from his
estate in the event of his death. The repurchase price is 95% of the fair market
value of the common stock on the date that notice to repurchase is provided to
the Company. The total number of shares to be repurchased shall be sufficient to
provide proceeds which are the lesser of $2,500,000 or the amount of estate
taxes and administrative expenses incurred by his estate. The Company is
obligated to pay in cash 25% of the total amount due and to execute a promissory
note at a prime rate of interest for the balance. The Company maintains a
$1,150,000 life insurance policy to fund a substantial portion of this
obligation.

The Company currently accounts for its stock-based compensation plans using the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). In 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Under the provisions of SFAS 123, companies can elect to account for
stock-based compensation plans using a fair-value-based method or continue
measuring compensation expense for those plans using the intrinsic value method
prescribed in APB 25. SFAS 123 requires that companies electing to continue
using the intrinsic value method must make pro forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting had been
applied. The Company has adopted the disclosure-only provisions of SFAS 123;
accordingly, no compensation cost has been recognized for options granted under
the stock-based compensation plan. Had compensation cost been determined based
on the fair value at the grant date for awards in 1998, 1997, and 1996
consistent with the provisions of SFAS 123, the Company's pro forma net income
and earnings per share would have been as presented below:


                                       20


<PAGE>   21

<TABLE>
<CAPTION>




                                                                               1998           1997            1996
                                                                       -------------    -----------    ------------

<S>                                                               <C>                  <C>             <C>
          Net income - as reported                                       $5,477,629     $3,587,688      $2,360,963
          Net income - pro forma                                          5,318,518      3,511,965       2,349,608
          Earnings per common share - as reported
             Basic                                                             1.68           1.09             .69
             Diluted                                                           1.65           1.07             .67
          Earnings per common share - pro forma
             Basic                                                             1.63           1.06             .68
             Diluted                                                           1.60           1.04             .67
</TABLE>


The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:


<TABLE>
<CAPTION>                                                                      1998           1997            1996
                                                                        -----------     ----------      ----------    
<S>                                                               <C>                  <C>             <C>
          Expected stock price volatility                                     69.17%         70.94%          70.53%
          Risk free interest rate                                              5.72%          6.84%           6.45%
          Expected life of options                                        5.91 years        6 years       5.6 years


</TABLE>




The weighted average exercise prices per share for options outstanding and
exercisable at June 30, 1998 are $9.02 and $7.92, respectively. The weighted
average exercise prices per share for options outstanding and exercisable at
June 30, 1997 are $7.56 and $7.67, respectively. The weighted average exercise
prices per share for options outstanding and exercisable at June 30, 1996 are
$7.15 and $7.80, respectively. The weighted average fair value of options
granted during 1998, 1997, and 1996 are $6.95, $7.02, and $3.37 per share,
respectively.



                                       21

<PAGE>   22


6.  INCOME TAXES

The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires use of the liability method of
accounting for income taxes. The liability method measures the expected tax
impact of future taxable income and deductions implicit in the consolidated
balance sheet.

The provision for income taxes in 1998, 1997, and 1996 consists of the
following:


<TABLE>
<CAPTION>



           Year Ended June 30,                                1998                 1997                 1996
           -------------------------------------------------------------------------------------------------
           <S>                                        <C>                  <C>                  <C>
           Current:
             U.S. federal                               $2,839,000           $2,061,000           $1,536,000
             State                                         514,000              394,000              296,000
             Foreign                                            --                   --              (44,000)
           Deferred                                         95,000              (74,000)            (233,000)
           -------------------------------------------------------------------------------------------------
                                                        $3,448,000           $2,381,000           $1,555,000
           =================================================================================================

</TABLE>


The 1998, 1997, and 1996 tax provision results in an effective rate different
than the federal statutory rate due to the following:


<TABLE>
<CAPTION>

           Year Ended June 30,                                1998                 1997                 1996
           -------------------------------------------------------------------------------------------------
          <S>                                        <C>                  <C>                  <C> 
          Federal income tax at
             statutory rate                             $3,035,000           $2,029,000           $1,331,000
           State income taxes, net of                                                     
             federal tax benefit                           339,000              260,000              195,000
           Other                                            74,000               92,000               29,000
           -------------------------------------------------------------------------------------------------
           Total provision for
             income taxes                               $3,448,000           $2,381,000           $1,555,000
           =================================================================================================


</TABLE>




Income before taxes for United States operations was $8,925,629 in 1998,
$6,803,219 in 1997, and $4,013,970 in 1996. Losses before taxes for foreign
operations were $0, $834,531, and $97,322 for the respective years.



                                       22


<PAGE>   23


Temporary differences which give rise to deferred tax assets and liabilities at
June 30 include:


<TABLE>
<CAPTION>


                                                                               1998                      1997
           -------------------------------------------------------------------------------------------------
           <S>                                                        <C>                       <C>
           Deferred Tax Assets
             Deferred compensation                                         $307,000                 $ 265,000
             Accrued expenses and reserves                                  579,000                   530,000
             Royalties receivable/deferred                                       --                   179,000
             Package design and trademarks                                  150,000                   125,000
             Other                                                            9,000                    39,000
           --------------------------------------------------------------------------------------------------
                                                                          1,045,000                 1,138,000

           Deferred Tax Liabilities
             Royalties receivable/deferred                                  (32,000)                       --
             Equipment and leasehold improvements                           (93,000)                 (123,000)
           --------------------------------------------------------------------------------------------------
           Net deferred tax asset                                          $920,000                $1,015,000
           ==================================================================================================

</TABLE>



The net deferred tax asset at June 30, 1998 is comprised of a current asset of
$555,946 and a long term asset of $364,135. The net deferred tax asset at June
30, 1997 is comprised of a current asset of $756,946 and a long term asset of
$258,135.

7.  ACCRUED LIABILITIES

Accrued liabilities at June 30 consist of the following:


<TABLE>
<CAPTION>


                                                                               1998                      1997
           --------------------------------------------------------------------------------------------------
          <S>                                                           <C>                         <C>
           Salaries and wages                                              $608,288                  $340,498
           Cooperative advertising
             and promotion allowances                                       282,761                   240,612
           Payroll taxes and
             employee benefits                                              161,075                   162,626
           Other                                                            262,577                   251,141
           --------------------------------------------------------------------------------------------------
                                                                         $1,314,701                  $994,877
           ==================================================================================================

</TABLE>



8.  ADDITIONAL CASH FLOW INFORMATION

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


<TABLE>
<CAPTION>


                                                        1998                   1997                      1996
           ---------------------------------------------------------------------------------------------------
          <S>                                <C>                      <C>                      <C>
           Accounts receivable                  $(1,395,326)           $  1,972,700             $ (1,722,351)
           Inventories                           (4,938,405)             (5,734,529)                 576,585
           Prepaid expenses                          55,105                (221,860)                 294,737
           Net income taxes                         743,020                (427,348)                 738,002
           Other assets                             (50,599)                (92,422)                (146,495)
           Accounts payable                       1,215,231                (586,269)                (398,796)
           Deferred revenue                        (473,482)                473,482                       --
           Accrued liabilities                      319,824                 208,524                 (144,307)
           ---------------------------------------------------------------------------------------------------
           Net change                           $(4,524,632)           $ (4,407,722)            $   (802,625)
           ===================================================================================================


</TABLE>



                                       23


<PAGE>   24


<TABLE>

<S>                                               <C>                 <C>                 <C>
                                                           1998                1997                 1996
                                                           ----                ----                 ----
Net cash paid during the year for:
         Interest                                    $  241,687          $  297,398           $  161,256
         Income taxes                                $1,771,313          $2,849,333           $1,413,283

</TABLE>




9.  EMPLOYEE BENEFIT PLANS

Substantially all domestic employees are participants in the Company's Employee
Stock Ownership Plan and Trust under which an annual contribution in either cash
or common stock may be made at the discretion of the Board of Directors. The
expense recorded for such contributions amounted to $216,000 in 1998, $200,000
in 1997, and $344,000 in 1996.

The Company maintains a retirement savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers all employees of the Company who have
completed six months of service. Matching contributions can be made at the
discretion of the Company's Board of Directors. For calendar years 1998, 1997,
and 1996, the matching contribution was 100% of employee contributions to the
plan, not to exceed 10% of the employee's annual compensation. Vesting of
Company contributions occurs immediately. Contributions for the years ended June
30, 1998, 1997, and 1996 were $170,600, $144,000, and $264,631, respectively.


10.  INDUSTRY SEGMENT INFORMATION, FOREIGN OPERATIONS AND SIGNIFICANT CUSTOMERS

The Company has one line of business--the design, manufacture and sale of
stereophones and related accessories. The table below summarizes certain
information regarding the Company's United States and Canadian operations for
the years ended June 30, 1998, 1997, and 1996.


<TABLE>


<S>                                    <C>             <C>           <C>                <C>
000's Omitted                                United
                                             States          Canada      Eliminations    Consolidated
- -----------------------------------------------------------------------------------------------------
1998:
- -----------------------------------------------------------------------------------------------------
Net sales                                  $ 40,638        $     --       $       --        $  40,638
Intercompany transfers                          300              --             (300)              --
- -----------------------------------------------------------------------------------------------------
Total                                      $ 40,938        $     --       $     (300)        $ 40,638
- -----------------------------------------------------------------------------------------------------
Income from operations                     $  7,964        $     --       $        8         $  7,972
- -----------------------------------------------------------------------------------------------------
Assets                                     $ 32,029        $     --       $       --         $ 32,029
=====================================================================================================
1997:
- -----------------------------------------------------------------------------------------------------
Net sales                                  $ 39,128        $    427       $       --         $ 39,555
Intercompany transfers                        1,111              --           (1,111)              --
- -----------------------------------------------------------------------------------------------------
Total                                      $ 40,239        $    427       $   (1,111)        $ 39,555
- -----------------------------------------------------------------------------------------------------
Income from operations                     $  5,840        $   (742)      $      (60)        $  5,038
- -----------------------------------------------------------------------------------------------------
Assets                                     $ 26,333        $     --       $       --         $ 26,333
=====================================================================================================
1996:
- -----------------------------------------------------------------------------------------------------    
Net sales                                  $ 33,319        $  3,103       $       --         $ 36,422
Intercompany transfers                        2,829              --           (2,829)              --
- -----------------------------------------------------------------------------------------------------   
Total                                      $ 36,148        $  3,103       $   (2,829)        $ 36,422
- -----------------------------------------------------------------------------------------------------   
Income from operations                     $  2,716        $    (70)      $        7         $  2,653
- -----------------------------------------------------------------------------------------------------   
Assets                                     $ 20,313        $  1,730       $      (38)        $ 22,005
=====================================================================================================   


                                       24

</TABLE>







<PAGE>   25
The Company's export sales to customers in foreign countries amounted to
$5,245,982 during 1998, $4,955,824 during 1997, and $6,481,135 during 1996.

Sales to one customer, Tandy Corporation, were approximately 19% of total sales
for the year ended June 30, 1998, and 17% and 16% for the years ended June 30,
1997, and 1996, respectively.


11.  COMMITMENTS AND CONTINGENCIES

The Company leases its main plant and offices in Milwaukee, Wisconsin from its
Chairman. On June 25, 1993, the lease was renewed for a period of ten years, and
is being accounted for as an operating lease. The lease extension increases the
rent from $280,000 per year (plus Consumer Price Index increase in 1994) to a
fixed rate of $350,000 per year for three years and $380,000 for the seven years
thereafter. The lease is on terms no less favorable to the Company than those
that could be obtained from an independent party. The Company is responsible for
all property maintenance, insurance, taxes and other normal expenses related to
ownership. Rent expense, which includes this lease, was $394,000 in 1998,
$432,000 in 1997, and $450,000 in 1996.

In 1980, the Company entered into an agreement with John C. Koss that if he dies
prior to attaining 70 years of age, the Company will pay to his spouse or other
designated beneficiary the sum of $50,000 every six months until the total
benefits paid equal $700,000. The agreement is null and void if he reaches age
70.

In 1991, the Board of Directors agreed to continue John C. Koss' current base
salary in the event he becomes disabled prior to age 70. After age 70, Mr. Koss
shall receive his current base salary for the remainder of his life, whether he
becomes disabled or not. The Company is currently recognizing an annual expense
of $115,080 in connection with this agreement, which represents the present
value of the anticipated future payments. At June 30, 1998 and 1997,
respectively, the related liabilities in the amounts of $766,380 and $651,300
have been included in deferred compensation and other liabilities in the
accompanying balance sheets.


12.  SUPPLEMENTARY INFORMATION

Changes in the allowance for doubtful accounts for the years ended June 30,
1998, 1997, and 1996 are summarized as follows:


<TABLE>
<CAPTION>

    Year        Balance at Beginning          Charges Against                                Balance at End of
    ----        --------------------          ---------------                                -----------------
   Ending             of Period                    Income                Deductions*              Period
   ------             ---------                    ------                -----------              ------
    <S>               <C>                         <C>                    <C>                    <C>
    1998               $928,605                   $310,000                $682,315               $556,290
    1997               $685,107                   $434,000                $190,502               $928,605
    1996               $289,217                   $490,097                $ 94,207               $685,107

</TABLE>




  *Represents charges against the allowance, net of recoveries.

The amounts included for advertising in selling, general and administrative
expenses in the accompanying statements of income were $397,033 in 1998,
$428,428 in 1997, and $486,723 in 1996.


                                       25

<PAGE>   26



 
                                  SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

KOSS CORPORATION


By: /s/ Michael J. Koss                                       Dated:  9/21/98
   --------------------                                               -------
   Michael J. Koss, President,
   Chief Executive Officer
   Chief Operating Officer and
   Chief Financial Officer

By: /s/ Sujata Sachdeva                                       Dated:  9/21/98
   ---------------------                                              -------
   Sujata Sachdeva,
   Vice President - Finance
   Principal Accounting Officer


        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:



/s/  John C. Koss                                  /s/  Michael J. Koss
- -----------------                                  ---------------------------
John C. Koss, Director                             Michael J. Koss, Director
Dated:  9/21/98                                    Dated:  9/21/98

/s/  Martin F. Stein                               /s/  Victor L. Hunter
- ---------------------                              ---------------------------
Martin F. Stein, Director                          Victor L. Hunter, Director
Dated:  9/21/98                                    Dated:  9/21/98

/s/ John J. Stollenwerk                             
- ------------------------                           ---------------------------
John J. Stollenwerk, Director                      Lawrence S. Mattson, Director
Dated:  9/21/98                                    Dated:
                                                         --------
/s/  Thomas L. Doerr
- --------------------
Thomas L. Doerr, Director
Dated:  9/21/98







The signatures of the above directors constitute a majority of the Board of
Directors of Koss Corporation.

                                       26


<PAGE>   27


OFFICERS AND                                    DIRECTORS
SENIOR MANAGEMENT


John C. Koss                                 John C. Koss
Chairman of the Board                        Chairman of the Board
                                             Koss Corporation
Michael J. Koss
President                                    Thomas L. Doerr
Chief Executive Officer                      President
Chief Operating Officer                      Doerr Corporation
Chief Financial Officer
                                             Victor L. Hunter
John C. Koss, Jr.                            President
Vice President-Sales                         Hunter Business Direct

Daniel Esposito                              Michael J. Koss
Vice President-Corporate Systems             President, C.E.O.,
                                             C.O.O., C.F.O.
Sujata Sachdeva
Vice President-Finance                       Lawrence S. Mattson
                                             Retired President
Jill McCurdy                                 Oster Company
Vice President-Product Development
                                             Martin F. Stein
Lenore Lillie                                Chairman
Vice President-Operations                    Eyecare One Inc.

Richard W. Silverthorn                       John J. Stollenwerk
Secretary                                    President
General Counsel                              Allen-Edmonds Shoe Corporation

Declan Hanley
Vice President-International Sales


ANNUAL MEETING

October 22, 1998
Performance Center
Koss Corporation
4129 N. Port Washington Avenue               INDEPENDENT ACCOUNTANTS
Milwaukee, WI  53212                                                    
                                             PricewaterhouseCoopers LLP
TRANSFER AGENT                               Milwaukee, Wisconsin

Questions regarding change of address,       LEGAL COUNSEL
stock transfer, lost certificate, or  
information on a particular account          Whyte Hirschboeck Dudek S.C.
should be directed in writing to:

Firstar Trust Company
Box 2077
Milwaukee, WI  53201
Attn:  Nikhat Quryski


                                       27


<PAGE>   28



                                  EXHIBIT INDEX

        The Company will furnish a copy of any exhibit described below upon 
request and upon reimbursement to the Company of its reasonable expenses of 
furnishing such exhibit, which shall be limited to a photocopying charge of 
$0.25 per page and, if mailed to the requesting party, the cost of first-class 
postage. 


<TABLE>
<CAPTION>


Designation                                                                         Incorporation
of Exhibit        Exhibit Title                                                     by Reference
- -----------       -------------                                                     -------------  
<S>            <C>                                                                      <C>
  3.1             Certificate of Incorporation of Koss Corporation, as in
                  effect on September 25, 1996..............................                (1)

  3.2             By-Laws of Koss Corporation, as in effect on
                  September 25, 1996.......................................                 (2)

  4.1             Certificate of Incorporation of Koss Corporation, as in
                  effect on September 25, 1996.............................                 (1)

  4.2             By-Laws of Koss Corporation, as in effect on
                  September 25, 1996.......................................                 (2)

 10.1             Officer Loan Policy.......................................                (3)

 10.3             Supplemental Medical Care Reimbursement Plan..............                (4)

 10.4             Death Benefit Agreement with John C. Koss.................                (5)

 10.5             Stock Purchase Agreement with John C. Koss................                (6)

 10.6             Salary Continuation Resolution for John C . Koss..........                (7)

 10.7             1983 Incentive Stock Option Plan .........................                (8)

 10.8             Assignment of Lease to John C. Koss ......................                (9)

 10.9             Addendum to Lease ........................................               (10)

10.10             1990 Flexible Incentive Plan .............................               (11)

10.12             Loan Agreement, effective as of February 17, 1995 ........               (12)

10.13             Amendment to Loan Agreement dated June 15, 1995,
                  effective as of February 17, 1995.........................               (13)

10.14             License Agreement dated November 15, 1991 between
                  Koss Corporation and Trabelco N.V. (a subsidiary
                  of Hagemeyer N.V.) for North America, Central
                  America and South America (including Amendment
                  to License Agreement dated November 15, 1991;
                  Renewal Letter dated November 18, 1994; and Second
                  Amendment to License Agreement dated September 29, 1995)...              (14)

</TABLE>

                

                                       28


<PAGE>   29

<TABLE>

<S>            <C>                                                                                 <C>
10.15             License Agreement dated September 29, 1995 between
                  Koss Corporation and Trabelco N.V. (a subsidiary
                  of Hagemeyer N.V.) for Europe (including First
                  Amendment to License Agreement dated December 26,
                  1995) ........................................................................         (15)

10.16             Third Amendment and Assignment of License Agreement to Jiangsu
                  Electronics Industries Limited dated as of March 31, 1997 ....................         (16)           
                                                             

10.17             Fourth Amendment to License Agreement dated as of May 29, 1998
                  filed herewith................................................................    filed herewith

10.18             License Agreement dated June 30, 1998 between Koss Corporation
                  and Logitech Electronics Inc. (including Addendum to License
                  Agreement dated June 30, 1998)................................................    filed herewith

10.19             Consent of Directors (Supplemental Executive Retirement Plan
                  for Michael J. Koss dated March 7, 1997)......................................         (17)

22                List of Subsidiaries of Koss Corporation .....................................         (18)

27                Financial Data Schedule.......................................................    filed herewith


(1)               Incorporated by reference from Exhibit 3.1 to the
                  Company's Form 10-K for the year ended June 30, 1996
                  (Commission File No. 0-3295)


(2)               Incorporated by reference from Exhibit 3.2 to the
                  Company's Form 10-K for the year ended June 30, 1996
                  (Commission File No. 0-3295)


(3)               Incorporated by reference from Exhibit 10.1 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(4)               Incorporated by reference from Exhibit 10.3 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(5)               Incorporated by reference from Exhibit 10.4 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(6)               Incorporated by reference from Exhibit 10.5 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(7)               Incorporated by reference from Exhibit 10.6 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(8)               Incorporated by reference from Exhibit 10.7 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(9)               Incorporated by reference from Exhibit 10.7 to the Company's
                  Annual Report on Form 10-K for the year ended June 30, 1988
                  (Commission File No. 0-3295)

</TABLE>

                                       29


<PAGE>   30



(10)              Incorporated by reference from Exhibit 10.8 to the Company's
                  Annual Report on Form 10-K for the year ended June 30, 1988
                  (Commission File No. 0-3295)


(11)              Incorporated by reference from Exhibit 25 to the Company's
                  Annual Report on Form 10-K for the year ended June 30, 1990
                  (Commission File No. 0-3295)


(12)              Incorporated by reference from Exhibit 10 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended March 31,
                  1995 (Commission File No. 0-3295)


(13)              Incorporated by reference from Exhibit 10.13 to the Company's
                  Annual Report on Form 10-K for the year ended June 30, 1995
                  (Commission File No. 0-3295)


(14)              Incorporated by reference from Exhibit 10.14 to the Company's
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)


(15)              Incorporated by reference from Exhibit 10.15 to the Company's 
                  Form 10-K for the year ended June 30, 1996 (Commission File
                  No. 0-3295)

(16)              Incorporated by reference from Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended March 31,
                  1997 (Commission File No. 0-3295)

(17)              Incorporated by reference from Exhibit 10.2 to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended March 31,
                  1997 (Commission File No. 0-3295)

(18)              Incorporated by reference from Exhibit 22 to the Company's
                  Annual Report on Form 10-K for the year ended June 30, 1988
                  (Commission File No. 0-3295)



                                       30

<PAGE>   31
                                                            Annual Report 1998




Dear Stockholders,

    We are pleased to report a third year of consecutive record sales for fiscal
year 1998.

    Sales for the fiscal year ending June 30, 1998 were $40,638,747 compared
with $39,554,720 in fiscal year 1997. Net income for the year was $5,477,629
compared with $3,587,688 for the same period in 1997, an increase of 53%.
Diluted earnings per share for the year were $1.65 compared with $1.07 for the
same period a year ago, an increase of 54%.

    Contributing to the success of this record year was an exceptionally strong
fourth quarter. The capability of meeting customer demand came on the heels of
the Company's decision to smooth production through a multi million dollar
commitment to raising our finished goods inventory. Increasing finished goods
inventory has helped reduce our seasonal labor demand and variances in cost and
quality. We have also instituted an aggressive program to outsource all
non-critical sub-assembly operations to lower our cost of sales and increase our
gross margin contribution.

    In the fourth quarter, the Company also finalized an agreement with Jiangsu
Electronics Industries Limited of Hong Kong to expand the license of the Koss
name to include mobile electronics for the car stereo market. A second agreement
was also reached with Logitech Electronics, Inc. of Ontario, Canada for Koss
branded multimedia/computer speakers. These two agreements are expected to
contribute increases in royalty minimums of 27% and 55% over the course of the
next two fiscal years.

    The stock market has not reflected a multiple of earnings that is consistent
with historical norms for the Company. We have therefore continued to
re-purchase shares of the Company's stock from the open market or in privately
negotiated transactions. We believe that fundamental changes in the nature of
the stock market itself, coupled with general market concerns, have temporarily
orphaned many small cap stocks. In fact, we plan to re-purchase approximately
$3.5 million dollars in stock during the coming fiscal year to take advantage of
the market's lower than average EPS multiple on Koss stock.

    1998 marks the 40th Anniversary of the SP/3 Stereophone. The Company is
focusing on the base stereophone business as it looks to new and expanded
applications in the computer and telephony segments of the marketplace. This
strategic focus has allowed the company to continue its earnings growth
reflecting solid ROE and ROI performance. Management remains committed to the
long range, profitable return on it's prudentially deployed capital in support
of the stereo headphone industry we created 40 years ago.

    We would like to take this opportunity to thank our customers, suppliers,
stockholders, as well as the entire Koss team for their efforts during this
record setting year. We look to each of you for continued support and dedication
in the year ahead.

Sincerely,





John C. Koss                                         Michael J. Koss
Chairman                                             President and CEO




<PAGE>   32

CONSOLIDATED STATEMENTS OF INCOME                               KOSS CORPORATION


<TABLE>
<CAPTION>

Year Ended June 30,                                                         1998              1997              1996
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>               <C>        
Net sales                                                               $40,638,747      $39,554,720       $36,422,377
Cost of goods sold                                                       24,843,968       25,922,621        25,241,623
- ----------------------------------------------------------------------------------------------------------------------
Gross profit                                                             15,794,779       13,632,099        11,180,754
Selling, general and
  administrative expense                                                  7,822,338        8,594,260         8,528,098
- ----------------------------------------------------------------------------------------------------------------------
Income from operations                                                    7,972,441        5,037,839         2,652,656
Other income (expense)
  Royalty income                                                          1,206,359        1,131,250         1,303,502
  Interest expense, net                                                    (253,171)        (200,401)          (40,195)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                8,925,629        5,968,688         3,915,963
Provision for income taxes                                                3,448,000        2,381,000         1,555,000
- ----------------------------------------------------------------------------------------------------------------------
Net income                                                               $5,477,629      $ 3,587,688        $2,360,963
======================================================================================================================
Earnings per common share:
  Basic                                                                       $1.68            $1.09             $ .69
  Diluted                                                                     $1.65            $1.07             $ .67
======================================================================================================================
Dividends per common share                                                     None             None              None
======================================================================================================================

</TABLE>





<PAGE>   33

CONSOLIDATED BALANCE SHEETS                                     KOSS CORPORATION


<TABLE>
<CAPTION>

As of June 30,                                                                             1998                      1997
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
ASSETS
Current Assets:
     Cash                                                                          $     14,778               $    32,551
     Accounts receivable, less allowances of
          $556,290 and $928,605, respectively                                         8,387,839                 6,992,513
     Inventories                                                                     19,486,058                14,547,653
     Prepaid expenses                                                                   548,892                   603,997
     Income taxes receivable                                                                 --                    65,493
     Deferred income taxes                                                              555,946                   756,946
- -------------------------------------------------------------------------------------------------------------------------
            Total current assets                                                     28,993,513                22,999,153
- -------------------------------------------------------------------------------------------------------------------------
Equipment and Leasehold improvements, at cost:
     Leasehold improvements                                                             742,289                   735,930
     Machinery, equipment, furniture and fixtures                                     4,587,729                 4,548,096
     Tools, dies, molds and patterns                                                  8,351,591                 8,176,023
- -------------------------------------------------------------------------------------------------------------------------
                                                                                     13,681,609                13,460,049
     Less--accumulated depreciation                                                  11,619,078                10,982,520
- -------------------------------------------------------------------------------------------------------------------------
                                                                                      2,062,531                 2,477,529
Deferred Income Taxes                                                                   364,135                   258,135
Intangible and Other Assets                                                             608,590                   598,106

- -------------------------------------------------------------------------------------------------------------------------
                                                                                    $32,028,769              $ 26,332,923
=========================================================================================================================

LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
    Accounts payable                                                                $ 1,956,877              $    741,646
    Accrued liabilities                                                               1,314,701                   994,877
    Deferred revenue                                                                         --                   473,482
    Income taxes payable                                                                677,527                        --
- -------------------------------------------------------------------------------------------------------------------------
          Total current liabilities                                                   3,949,105                 2,210,005
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Debt                                                                        2,746,000                 1,221,000
Deferred Compensation and Other Liabilities                                           1,252,504                 1,137,424
Contingently Redeemable Equity Interest                                               1,490,000                 1,490,000
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' Investment:
    Common stock, $.01 par value,
          authorized 8,500,000 shares;
          issued and outstanding 3,177,269
          and 3,323,791 shares, respectively                                             31,773                    33,238
    Paid in capital                                                                          --                 2,328,677
    Contingently redeemable common stock                                             (1,490,000)               (1,490,000)
    Cumulative translation adjustment                                                   (71,322)                  (71,322)
    Retained earnings                                                                24,120,709                19,473,901
- -------------------------------------------------------------------------------------------------------------------------
           Total stockholders' investment                                            22,591,160                20,274,494
- -------------------------------------------------------------------------------------------------------------------------
                                                                                    $32,028,769              $ 26,332,923
=========================================================================================================================

</TABLE>





<PAGE>   34


STOCKHOLDERS' INFORMATION                                      KOSS CORPORATION

        Koss Corporation's 1998 Annual Report is presented in a simple, readable
and functional style. This Annual Report contains condensed financial statements
only. The detailed financial statements including footnotes are included in the
Form 10-K which has been provided to all stockholders along with the 1998 Annual
Report. The Company believes this manner of presentation provides a concise
summary for those who want to be kept informed while at the same time allowing
those who feel it necessary the opportunity to investigate further.

        Koss Corporation common stock is traded on the Over the Counter market
and quotations are available through the National Market System. The trading
symbol is KOSS.

        For additional Annual Reports, Form 10-K's or Proxy materials write to:

                Investment Relations
                Koss Corporation
                4129 N. Port Washington Ave.
                Milwaukee, WI  53212



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Koss Corporation

        We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Koss Corporation and its
subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of income, of stockholders' investment and of cash flows for each of
the three years in the period ended June 30, 1998 (not presented herein); and in
our report dated July 15, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheets as of June 30, 1998 and
1997, and the related condensed consolidated statements of income for each of
the three years in the period ended June 30, 1998, when read in conjunction with
the consolidated financial statements from which it has been derived, is fairly
stated in all material respects in relation thereto.

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 15, 1998




<PAGE>   35


MANAGEMENT INFORMATION                        KOSS CORPORATION


OFFICERS AND                               DIRECTORS
SENIOR MANAGEMENT


John C. Koss                               John C. Koss
Chairman of the Board                      Chairman of the Board
                                          
Michael J. Koss
President                                  Thomas L. Doerr
Chief Executive Officer                    President
Chief Operating Officer                    Doerr Corporation
Chief Financial Officer
                                           Victor L. Hunter
John C. Koss, Jr.                          President
Vice President-Sales                       Hunter Business Direct

Daniel Esposito                            Michael J. Koss
Vice President-Corporate Systems           President, C.E.O.,
                                           C.O.O., C.F.O.
Sujata Sachdeva
Vice President-Finance                     Lawrence S. Mattson
                                           Retired President
Jill McCurdy                               Oster Company
Vice President-Product Development
                                           Martin F. Stein
Lenore Lillie                              Chairman
Vice President-Operations                  Eyecare One Inc.

Richard W. Silverthorn                     John J. Stollenwerk
Secretary                                  President
General Counsel                            Allen-Edmonds Shoe Corporation

Declan Hanley
Vice President-International Sales         ANNUAL MEETING

                                           October 22, 1998
INDEPENDENT ACCOUNTANTS                    Performance Center
                                           Koss Corporation
PricewaterhouseCoopers LLP                 4129 N. Port Washington Avenue
Milwaukee, Wisconsin                       Milwaukee, WI  53212

                                           TRANSFER AGENT
LEGAL COUNSEL
                                           Questions regarding change
Whyte Hirschboeck Dudek S.C.               of address, stock transfer,
                                           lost certificate, or
                                           information on a particular 
                                           account should be directed in
                                           writing to: Firstar Trust Company  
                                                       Box 2077
                                                       Milwaukee, WI  53201
                                                       Attn:  Mr. Eugene R. Lee






<PAGE>   1
                      FOURTH AMENDMENT TO LICENSE AGREEMENT


         THIS FOURTH AMENDMENT TO LICENSE AGREEMENT ("Fourth Amendment") made
and entered into this 29 day of May, 1998, by and between KOSS CORPORATION, a
Delaware corporation ("LICENSOR"), and JIANGSU ELECTRONICS INDUSTRIES LIMITED, a
British Virgin Islands company ("LICENSEE").

                                   WITNESSETH:

         WHEREAS, LICENSOR and LICENSEE (by way of assignment) are parties to a
certain License Agreement dated November 15, 1991, as amended by Amendment to
License Agreement dated November 15, 1991, a Second Amendment to License
Agreement dated September 29, 1995 and a Third Amendment and Assignment of
License Agreement dated March 31, 1997 (as amended, the "License Agreement"):
and

         WHEREAS, the parties now desire to further amend certain terms and
provisions of the License Agreement as hereinafter provided.

         NOW, THEREFORE, the parties hereby agree as follows:

         1.   Section 10 of the Third Amendment and Assignment of License
Agreement dated March 31, 1997, is hereby amended to provide that LICENSEE shall
pay to LICENSOR the following Minimum Royalties for the Contract Years set forth
below:

                     Year                          Minimum Royalties
                     ----                          -----------------

                     1998                               $750,000
                     1999                               $800,000
                     2000                               $850,000

         2.   Section 1.2 of the License Agreement dated November
 15, 1991, is
hereby deleted in its entirety and the following inserted in its place:

         1.2  "Products" mean the consumer electronic products of LICENSEE set
         forth on Exhibit B attached hereto; provided, however, that, except as
         provided in the immediately following sentence, any such consumer
         electronic products set forth on Exhibit B which have not been sold by
         LICENSEE in the Territory (as defined in the first sentence of Section
         1.4, as amended pursuant to this Fourth Amendment), bearing any of the
         Licensed Trademarks, by December 31, 1998, shall be deleted from
         Exhibit B as of January 1, 1999, and as of that date, such products
         shall not be considered to be part of the Products. Notwithstanding the
         immediately preceding sentence, such products, which otherwise would be
         so deleted if not for the following exception ("otherwise-deleted
         products"), shall not


                                        1


<PAGE>   2



         be deleted with respect to only the United States, Canada and Mexico
         until January 1, 2000, and then only with respect to those
         otherwise-deleted products which have not been sold by LICENSEE in the
         United States, Canada or Mexico, bearing any of the Licensed
         Trademarks, by December 31, 1999. A sale for the purpose of this
         Section 1.2 shall be a sale in the normal course of business, and not
         merely to preserve any rights under the License Agreement. Minimum
         Royalties shall not be affected by the deletion of any products from
         the Products. Notwithstanding any other provisions of, and without
         diminishing LICENSEE's obligations under, the License Agreement,
         LICENSOR, after December 31, 1998, shall have no obligations to
         LICENSEE with respect to either products deleted from the Products as
         of January 1, 1999, or otherwise-deleted products whether or not
         eventually deleted, including without limitation, the indemnification
         obligations under Section 11.1, the royalty-reimbursement obligations
         under Section 10.1, the minimum-royalty-reduction obligations under
         Section 10.1, and the obligations to obtain or maintain trademark
         applications or registrations.

         3.   Section 1.4 of the License Agreement dated November 15, 1991, is
hereby deleted in its entirety and the following inserted in its place:

         1.4  Without limiting Seller's rights under Section 6 of the Third
         Amendment and Assignment of License Agreement dated March 31, 1997,
         "Territory" means the United States of America, Puerto Rico, Canada,
         Mexico, Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica,
         Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica,
         Nicaragua, Panama, Paraguay, Peru, Trinidad & Tobago, Uruguay and
         Venezuela. With the written consent of LICENSOR, which consent shall
         not be unreasonably withheld or delayed, the Territory may be expanded
         to include the jurisdictions of Aruba, Bermuda, Cuba, French Guiana,
         Grenada, Guyana, Haiti, Surinam and/or other jurisdictions in the
         Territory as defined prior to this Fourth Amendment. Except as
         otherwise indicated in the License Agreement, all licensed use of the
         Licensed Trademarks in such expanded jurisdictions shall be subject to
         the same terms and conditions as if such expanded jurisdictions were
         included in the Territory as defined in the first sentence of this
         Section 1.4. Except as otherwise provided in the License Agreement,
         after providing written consent, LICENSOR shall promptly cause the
         appropriate trademark applications to be filed in any such expanded
         jurisdictions, and all costs associated with the preparation, filing,
         prosecution, registration and maintenance of such applications and
         resulting registrations shall be paid by LICENSOR; provided, however
         that LICENSEE shall reimburse LICENSOR for a portion of such costs in
         any such expanded jurisdiction in which Royalties paid by LICENSEE to
         LICENSOR for sales of the Licensed Products in such expanded
         jurisdiction either prior to termination of this License Agreement or
         within the first three full calendar years following such consent,
         whichever comes first, do not exceed U.S. $12,000 in the same such
         expanded jurisdiction. The portion to be reimbursed by LICENSEE in each
         such expanded jurisdiction shall be the


                                        2


<PAGE>   3



         difference between U.S. $12,000 and the amount of Royalties paid by
         LICENSEE to LICENSOR for sales of the Licensed Products in each such
         expanded jurisdiction either prior to termination of the License
         Agreement or within the first three full calendar years following
         consent, whichever comes first.

         4.   Section 8.5 of the License Agreement dated November 15, 1991, and
Sections 16(r) and 21 of the Third Amendment and Assignment of License Agreement
dated March 31, 1997, are hereby deleted in their entirety, and the following
inserted in their place:

         21. This License Agreement shall be governed by the substantive laws of
         the State of Wisconsin (regardless of laws that might be applicable
         under principles of conflicts of laws) as to all matters, including but
         not limited to matters of validity, construction, effect and
         performance. Resolution of any and all disputes between LICENSOR and
         LICENSEE arising from or in connection with this License Agreement,
         whether based on contract, tort, common law, equity, statute,
         regulation, order or otherwise, shall be governed by and settled in
         accordance with binding arbitration; provided, however, that the three
         arbitrators selected shall each have extensive knowledge in the area of
         federal trademark law. If the parties cannot agree on the selection of
         three arbitrators, each party shall select one arbitrator, and those
         two arbitrators together shall select the third arbitrator, and the
         three arbitrators, each of which shall have extensive knowledge in the
         area of federal trademark law, shall resolve the dispute as provided
         herein. The arbitrators' findings and decisions shall be limited to the
         subject matter of the dispute, and such findings and decisions shall be
         in writing and shall be final and binding on the parties hereto, and
         shall specify the reasons for and facts on which such findings and
         decisions were reached. The parties shall bear equally the arbitrators'
         fees and charges, and each party shall bear its other costs and
         expenses for the arbitration, including attorneys' fees. The
         arbitration shall be conducted in Milwaukee, Wisconsin. To the extent
         that the parties hereto need to enforce the arbitration provisions in
         this License Agreement or need to enforce or otherwise give effect to
         any arbitration finding, decision or award, the parties hereby agree
         that any such action or proceeding shall be adjudicated before a
         federal or state court located in Milwaukee, Wisconsin, and they hereby
         submit to the exclusive jurisdiction of the courts of the State of
         Wisconsin located in Milwaukee, Wisconsin, and of the federal courts
         located in Milwaukee, Wisconsin, with respect to any such action or
         proceeding commenced by either party, and irrevocably waive any
         objection they now or hereafter may have respecting the venue of any
         such action or proceeding brought in such a court or respecting the
         fact that such court is an inconvenient forum, and hereby consent to
         the service of process in any such action or proceeding by means of
         registered or certified mail, return receipt requested, in care of the
         applicable address set forth under the notice provisions in this
         License Agreement.




                                        3


<PAGE>   4



         5.   Section 10.1 of the License Agreement dated November 15, 1991, is
hereby deleted in its entirety and the following inserted in its place:

         10.1 LICENSOR shall be required to file trademark applications and to
         seek trademark registrations for the Licensed Trademarks in the
         Territory in order to encompass Licensed Products added pursuant to
         this Fourth Amendment, but only if specifically requested by LICENSEE
         and all costs associated with the preparation, filing, prosecution,
         registration and maintenance of such applications and registrations
         shall be paid in advance by LICENSEE. LICENSOR shall not be required to
         pursue or maintain any such application or registration for which such
         costs have not been paid in advance by LICENSEE at LICENSOR's request.
         LICENSEE shall cooperate by providing necessary samples, invoices or
         other documents necessary to support all applicable applications and
         registrations for the Licensed Trademarks in connection with the
         Licensed Products.

         In the event LICENSOR is unable to register or to maintain its
         registrations for one or more of the Licensed Trademarks in connection
         with the Licensed Products in any jurisdiction in the Territory, the
         parties agree to negotiate in good faith a mutually acceptable
         resolution with respect to such jurisdictions, with the understanding
         that neither LICENSOR nor LICENSEE shall have any liability to the
         other for such inability to register or to maintain such registrations
         for any such trademarks; provided, however, that in the event any
         trademark application is successfully opposed in the United States or
         Canada, and as a result of such successful opposition LICENSEE is
         prohibited from selling Licensed Products in either the United States
         or Canada, LICENSOR shall reimburse to LICENSEE the amount of Royalties
         theretofore received by LICENSOR under the License Agreement relating
         to the sale of the prohibited Licensed Products only, in the prohibited
         jurisdiction of the United States and/or Canada only, during the three
         (3) year period immediately preceding such prohibition; provided,
         however, that (i) all such reimbursements shall not exceed a total of
         Three Million Dollars ($3,000,000) for all prohibited Licensed Products
         in both jurisdictions, (ii) LICENSOR shall not be required to make any
         such reimbursement to LICENSEE if any such successful opposition or
         prohibition would not have occurred if LICENSOR had not lost any
         trademark rights due to LICENSEE's non-use or misuse of any of the
         Licensed Trademarks and (iii) LICENSOR shall not be required to make
         any such reimbursement to LICENSEE relating to prohibited Licensed
         Products consisting of consumer electronic products added to Exhibit B
         pursuant to this Fourth Amendment. LICENSEE shall be permitted to
         terminate this License Agreement if, as a result of any successful
         opposition, cancellation or infringement action relating to any of the
         Licensed Trademarks in the Territory resulting in any prohibition as to
         use of any of the Licensed Trademarks in the Territory, LICENSEE's
         total net sales in the Territory decrease by ten percent (10%) or more;
         provided, however, that (i) prohibited Licensed Products consisting of
         consumer electronic products added to Exhibit B pursuant to this


                                        4


<PAGE>   5



         Fourth Amendment shall not be taken into consideration for this purpose
         and (ii) LICENSEE shall not be able to so terminate this License
         Agreement if any such opposition or cancellation action resulting in
         any such prohibition as to use would not have occurred if LICENSOR had
         not lost any trademark rights due to LICENSEE's non-use or misuse of
         the Licensed Trademarks.

         In the event that LICENSEE is prohibited, by LICENSOR, or by either a
         court or an administrative agency, or both, having legal authority in
         the jurisdiction at issue, from selling any or all of the Licensed
         Products in any jurisdiction in the Territory as a result of any actual
         or potential trademark infringement action against LICENSOR, LICENSEE's
         Minimum Royalties shall be reduced, for no longer than such prohibition
         remains in effect, by the sum of Royalties paid by LICENSEE to LICENSOR
         for sales of the prohibited Licensed Products in the prohibited
         jurisdiction in the Contract Year immediately preceding the year such
         prohibition went into effect, relative to the sum of all Royalties paid
         by LICENSEE to LICENSOR for sales of all Licensed Products in the
         Territory in that same Contract Year; provided, however, that any such
         reduction of the Minimum Royalties shall only apply to the Contract
         Period consisting of the years 1998, 1999 and 2000 and shall not be
         taken into consideration (i) to in any way reduce all future Minimum
         Royalties calculated in accordance with Section 7.3 of the License
         Agreement, or (ii) to reduce by fifty percent (50%) the amount of
         Royalties that LICENSEE shall be required to pay LICENSOR pursuant to
         Section 7.1 of the License Agreement.

         6.   The heading for Section 11 of the License Agreement dated 
November, 15, 1991, Section 11.1 of the License Agreement dated November 15,
1991, and Section 16(g) of the Third Amendment and Assignment of License
Agreement dated March 31, 1997, are hereby deleted in their entirety and the
following inserted in their place:

11.      REPRESENTATIONS AND INDEMNITIES

         11.1 LICENSOR represents that, as of the date of this Fourth Amendment,
         LICENSOR owns at least one application or registration for at least one
         of the Licensed Trademarks in each jurisdiction in the Territory (as
         defined in the first sentence of Section 1.4, as amended pursuant to
         this Fourth Amendment). Listed in Exhibit E to the License Agreement
         are LICENSOR's pending trademark applications and issued trademark
         registrations relating to the License Agreement for the Licensed
         Trademarks in the Territory as of the date of this Fourth Amendment. If
         LICENSEE complies with the notice, cooperation and assistance
         requirements of this Section 11.1 herein, LICENSOR agrees to indemnify
         LICENSEE, its parent, subsidiaries and affiliates, and all officers,
         directors, agents and employees thereof, and any of them, from any and
         all expenses, damages, claims, suits, actions, judgments and costs
         whatsoever (including reasonable attorneys' fees) (collectively,
         "Damages") which LICENSEE may hereinafter


                                        5


<PAGE>   6



         incur, suffer or be required to pay arising out of or in connection
         with any third-party claim, suit or action resulting from the use by
         LICENSEE of the Licensed Trademarks in the Territory pursuant to this
         License Agreement (collectively, "Third-Party Claim"); provided,
         however, that LICENSOR's liability to indemnify LICENSEE (i) shall not
         apply in any situation in which any Damages would not have occurred if
         LICENSOR had not lost any trademark rights due to LICENSEE's non-use or
         misuse of any of the Licensed Trademarks, (ii) shall not include any
         Damages to the extent to which Damages are attributable to LICENSEE's
         failure to cease use of the Licensed Trademarks pursuant to LICENSOR's
         oral or written instructions as a result of any actual or potential
         Third-Party Claim, (iii) shall not exceed the sum of the amount of
         Royalties theretofore received by LICENSOR under this License
         Agreement, relating to sales of only the Licensed Products at issue in
         those countries affected by a final settlement, or a final
         non-appealable judgment against LICENSEE, arising out of the
         Third-Party Claim, during the three (3) year period immediately
         preceding initiation of the Third-Party Claim to which the
         indemnification relates and (iv) shall not include any Damages to the
         extent to which such Damages are attributable to any consumer
         electronic products added to Exhibit B pursuant to this Fourth
         Amendment. The indemnification provided by LICENSOR shall only cover
         Damages incurred by LICENSEE in connection with a final settlement, or
         a final, non-appealable judgment against LICENSEE, arising out of a
         Third-Party Claim; provided, however, that in no event shall such
         indemnification include any loss of profits or consequential or
         indirect damages incurred by LICENSEE. LICENSEE shall give LICENSOR
         prompt written notice, cooperation and assistance in connection with
         any Third-Party Claim, and LICENSOR shall have complete control over
         the defense and settlement thereof.

         7.   Exhibit A to the License Agreement dated November 15, 1991, is
hereby deleted in its entirety and the Exhibit A attached hereto shall be
inserted in its place.

         8.   Exhibit B to the License Agreement dated November 15, 1991, is
hereby deleted in its entirety and the Exhibit B attached hereto shall be
inserted in its place.

         9.   Exhibit D to the License Agreement dated November 15, 1991, is
hereby deleted in its entirety and the Exhibit D attached hereto shall be
inserted in its place.











                                        6


<PAGE>   7


         10.  Except as hereby amended, the License Agreement shall remain in
full force and effect.

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment on the day and year first above written.


KOSS CORPORATION                               JIANGSU ELECTRONICS INDUSTRIES
                                               LIMITED

By:/s/ Michael Koss                           By: /s/ Patrick Lam
   -----------------------                        --------------------------- 
   Michael Koss, President
                                               Name:  PATRICK LAM
                                                    ------------------------- 

                                               Title: VICE PRESIDENT
                                                     ------------------------


                              CONSENT OF GUARANTOR

         The undersigned, Orient Power Holdings Limited, a Bermuda company
("Orient Power"), for good and valuable consideration, the receipt of which is
hereby acknowledged, hereby consents to the foregoing Fourth Amendment to
License Agreement ("Fourth Amendment") and reaffirms its guarantee of the
performance by Jiangsu Electronics Industries Limited ("Jiangsu Electronics") or
any sublicensee of Jiangsu Electronics (Jiangsu Electronics and any sublicensee
are hereinafter collectively referred to as "Jiangsu") of all of Jiangsu's
obligations under (a) the Fourth Amendment and (b) that certain License
Agreement between Koss Corporation, as Licensor, and Trabelco N.V., as Licensee,
dated November 15, 1991, as amended by an Amendment to License Agreement dated
November 15, 1991, and a Second Amendment to License Agreement dated September
29, 1995, and a Third Amendment and Assignment of License Agreement dated as of
March 31, 1997 between Trabelco N.V., Jiangsu Electronics, Hagemeyer Electronics
(N.A.), Inc., Hagemeyer Consumer Products, Inc. d/b/a/ Koss Electronics
Products, KCP Limited and Koss Corporation (collectively, that certain License
Agreement and the amendments thereto are hereinafter referred to as the "License
Agreement"). Orient Power also guarantees the payment to Koss Corporation of any
and all amounts owed to Koss Corporation by Jiangsu under the Fourth Amendment
and the License Agreement, including but not limited to, the indemnity
obligations of Jiangsu thereunder.

         Dated: May 29, 1998
                         
                                                 ORIENT POWER HOLDINGS LIMITED

                                                 By: /s/ Simon Poon
                                                    ------------------------

                                                 Name:   SIMON POON
                                                      ----------------------

                                                 Title:  CEO
                                                       ---------------------


                                        7                                       





<PAGE>   8
                                    Exhibit A

      KOSS (Plain Block Letters) (as shown in U.S. Registration No. 1,821,035)

      KOSS (Stylized) (as shown in U.S. Registration No. 1,850,556)

      KOSS & Design (as shown in U.S. Registration No. 2,070,098)







<PAGE>   9
                                    Exhibit B


Product                                                                Royalty
- -------                                                                -------

Clock Radios                                                             2.0%

Radios (including mobile*) without a cassette or compact
disc player                                                              3.0%

Audio systems of any nature (including mobile*) with a
cassette player but without a compact disc player                        2.0%

Audio systems of any nature (including mobile*) with a
compact disc player and/or CD changer                                    1.5%

Power Amplifiers                                                         1.5%

Telephones and telephone answering devices                               2.0%

Televisions                                                              1.5%

Video cassette recorders                                                 1.5%



*All products which include the word "mobile" in their description in this
Exhibit B shall mean that such products so described shall include products
which are designed for use in automobiles or as battery-operated portable units.







<PAGE>   10
                                    EXHIBIT D

                   Calculation of Quarterly Royalties Payment


<TABLE>
<CAPTION>
                            Total Sales       Returns         Net Sales    Royalty Rate      Subtotal
                            -----------    --------------    -----------   ------------      --------
<S>                         <C>            <C>               <C>           <C>               <C>

Clock Radios                $              $                                 2.0%            
                            -----------    --------------    -----------                     ---------

Radios (including mobile)                                                    3.0%            
without a cassette or       -----------    --------------    -----------                     ---------
compact disc player

Audio systems of any                                                         2.0%            
nature (including mobile)   -----------    --------------    -----------                     ---------
with a cassette player but
without a compact disc
player

Audio systems of any                                                         1.5%            
nature (including mobile)   -----------    --------------    -----------                     ---------
with a compact disc player
and/or CD changer

Power Amplifiers                                                             1.5%            
                            -----------    --------------    -----------                     ---------
Telephones and telephone                                                     2.0%            
answering devices           -----------    --------------    -----------                     ---------

Televisions                                                                  1.5%            
                            -----------    --------------    -----------                     ---------
Video cassette recorders                                                     1.5%            
                            -----------    --------------    -----------                     ---------

                                                                           Subtotal          $   x
                                                                                             ---------     
         Subtotal                          $      x       
                                           --------------
         Less 2% of itemized discounts,   
         rebates and shipping costs        (             )
                                           --------------

         ROYALTIES PAYMENT                 $
                                           -------------- 
</TABLE>








<PAGE>   11
                                    Exhibit E


                                  UNITED STATES
KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                   PUERTO RICO

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                      CANADA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                      MEXICO

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                    ARGENTINA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                      BOLIVIA

KOSS (Plain Block Letters)                               Pending Application

KOSS (Stylized)                                          Pending Application

KOSS (Plain Block Letters)                               Pending Application





<PAGE>   12


                                    Exhibit E


                                      BRAZIL

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Pending Application

KOSS & Design                                            Registered

                                      CHILE

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Pending Application

KOSS & Design                                            Pending Application

                                    COLOMBIA

KOSS & Design                                            Pending Application

                                   COSTA RICA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                               DOMINICAN REPUBLIC

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                      ECUADOR

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered



                                        2


<PAGE>   13


                                    Exhibit E


                                 EL SALVADOR

KOSS (Plain Block Letters)                               Pending Application

KOSS (Stylized)                                          Registered

KOSS & Design                                            Pending Application

                                  GUATEMALA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Pending Application

KOSS & Design                                            Registered

                                   HONDURAS

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                   JAMAICA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                  NICARAGUA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                    PANAMA

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered



                                        3


<PAGE>   14


                                    Exhibit E

                                   PARAGUAY

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                     PERU

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                              TRINIDAD & TOBAGO

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                   URUGUAY

KOSS (Plain Block Letters)                               Registered

KOSS (Stylized)                                          Registered

KOSS & Design                                            Registered

                                  VENEZUELA

KOSS (Plain Block Letters)                               Pending Application

KOSS (Stylized)                                          Pending Application

KOSS & Design                                            Pending Application



                                        4





<PAGE>   15
                          ADDENDUM TO LICENSE AGREEMENT


         THIS ADDENDUM TO LICENSE AGREEMENT ("Addendum") is made and entered
into this 30 day of June, 1998, by and between KOSS CORPORATION, a
Delaware corporation ("LICENSOR"), and LOGITECH ELECTRONICS INC., an Ontario
company ("LICENSEE").

                                   WITNESSETH:

         WHEREAS, LICENSOR and LICENSEE are parties to a certain License
Agreement dated June 30, 1998 (the "License Agreement"); and

         WHEREAS, the parties now desire to add certain terms and provisions to
the License Agreement as hereinafter provided.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

         1.       DEFINITIONS.

                  1.1      All defined terms used in this Addendum shall have
                           the same meaning as set forth in the License
                           Agreement unless otherwise defined in this Addendum.

                  1.2      "Licensed Trademarks" shall mean the "Koss"
                           trademarks listed on Exhibit A to this Addendum.

                  1.3      "Accessories" shall mean the consumer electronic
                           accessory products of LICENSEE set forth on Exhibit B
                           to this Addendum.

                  1.4      "Licensed Accessories" shall mean all Accessories of
                           LICENSEE which have the Licensed Trademarks affixed
                           or attached thereto in any manner.

         2.       GRANT OF LICENSE. Subject to all of the terms and conditions 
of this Addendum, LICENSOR hereby grants to LICENSEE the exclusive right and
license to use the Licensed Trademarks in Canada only, during the Contract
Period, in connection with, and only with, the manufacturer, promotion,
distribution and sale of Accessories.

         3.       INCORPORATION OF PROVISIONS OF LICENSE AGREEMENT.

                  3.1      The following provisions of the License Agreement
                           (the "Incorporated Provisions") are hereby
                           incorporated into this Addendum as covenants and
                           agreements between LICENSOR and LICENSEE, with the
                           same force and effect as if fully set forth herein:



                                        1


<PAGE>   16



                                  Sections 2.2, 2.3, 2.4, 3.1, 3.2, 3.3, 3.4,
                                  4.1, 4.2, 5.1, 5.2, 5.3, 5.4, 6.1, 6.4, 6.5,
                                  7.1, 7.2, 7.3, 7.4, 8.1, 8.2, 8.3, 8.4, 9,
                                  10.1, 10.2 (with no change in the amount of
                                  products liability insurance), 11.1, 11.2,
                                  11.3, 11.4, 12.1, 12.2, 13, 14, and 15.
        
                  3.2      All section references set forth in any of the
                           Incorporated Provisions herein shall continue to be
                           references to the applicable section of the License
                           Agreement.

                  3.3      For all Incorporated Provisions herein, the term
                           "Territory" as used in the License Agreement shall be
                           replaced in this Addendum with the term "Canada," the
                           term "Products" as used in the License Agreement
                           shall be replaced in this Addendum with the term
                           "Accessories," and the term "Licensed Products" as
                           used in the License Agreement shall be replaced in
                           this Addendum with the term "Licensed Accessories."

                  3.4      With respect to the Incorporated Provisions in this
                           Addendum, any reference to an Exhibit to the License
                           Agreement shall instead be deemed to be a reference
                           to the corresponding Exhibit to this Addendum. For
                           example, a reference in an Incorporated Provision to
                           Exhibit C of the License Agreement shall be deemed
                           instead to be a reference to Exhibit C to this
                           Addendum.

         4.       MISCELLANEOUS.

                  4.1      Section headings contained herein are solely for the
                           purpose of aiding in speedy location of subject
                           matter and are not in any sense to be given weight in
                           the construction of this Addendum. Accordingly, in
                           case of any question with respect to the construction
                           of this Addendum, it is to be construed as though
                           such section headings had been omitted.

                  4.2      This Addendum constitutes the entire agreement
                           between the parties hereto and may not be changed or
                           modified except by a writing signed by the parties
                           hereto.

                  4.3      If and to the extent that any provisions of this
                           Addendum are prohibited or unenforceable under any
                           applicable law, such provisions shall be ineffective
                           to the extent of such prohibition or unenforceable
                           without invalidating the remaining provisions hereof
                           or affecting the validity or enforceability of any
                           other provision hereof.

                  4.4      The failure of either party at any time or times to
                           demand strict performance by the other of any of the
                           terms, covenants or conditions set forth herein shall
                           not be construed as a continuing waiver or
                           relinquishment thereof and each may at any time
                           demand strict and


                                        2


<PAGE>   17



                           complete performance by the other of said terms,
                           covenants and conditions.

                  4.5      This Addendum shall be governed by the substantive
                           laws of the State of Wisconsin (regardless of laws
                           that might be applicable under principles of
                           conflicts of laws) as to all matters, including but
                           not limited to matters of validity, construction,
                           effect and performance. Resolution of any and all
                           disputes between LICENSOR and LICENSEE arising from
                           or in connection with this Addendum, whether based on
                           contract, tort, common law, equity, statute,
                           regulation, order or otherwise, shall be governed by
                           and settled in accordance with binding arbitration by
                           three (3) arbitrators; provided, however, that the
                           three arbitrators selected shall each have extensive
                           knowledge in the area of federal trademark law. If
                           the parties cannot agree on the selection of three
                           arbitrators, each party shall select one arbitrator,
                           and those two arbitrators together shall select the
                           third arbitrator, and the three arbitrators, each of
                           which shall have extensive knowledge in the area of
                           federal trademark law, shall resolve the dispute as
                           provided herein. The arbitrators' findings and
                           decisions shall be limited to the subject matter of
                           the dispute, and such findings and decisions shall be
                           in writing and shall be final and binding on the
                           parties hereto, and shall specify the reasons for and
                           facts on which such findings and decisions were
                           reached. The parties hereto shall bear equally the
                           arbitrators' fees and charges, and each party shall
                           bear its other costs and expenses for the
                           arbitration, including attorneys' fees. The
                           arbitration shall be conducted in Milwaukee,
                           Wisconsin. To the extent that the parties hereto need
                           to enforce the arbitration provisions in this
                           Addendum or need to enforce or otherwise give effect
                           to any arbitration finding, decision or award, the
                           parties hereto hereby agree that any such action or
                           proceeding shall be adjudicated before a federal or
                           state court located in Milwaukee, Wisconsin, and they
                           hereby submit to the exclusive jurisdiction of the
                           courts of the State of Wisconsin located in
                           Milwaukee, Wisconsin, and of the federal courts
                           located in Milwaukee, Wisconsin, with respect to any
                           such action or proceeding commenced by either party.
                           The parties hereto irrevocably waive any objection
                           they now or hereafter may have respecting the venue
                           of any such action or proceeding brought in such a
                           court or respecting the fact that such court is an
                           inconvenient forum, and hereby consent to the service
                           of process in any such action or proceeding by means
                           of registered or certified mail, return receipt
                           requested, in care of the applicable address set
                           forth under the notice provisions in this Addendum.




                                        3


<PAGE>   18
         IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date set forth above. The effective date of this Addendum is
July 1, 1998.
                                         KOSS CORPORATION


                                         By:/s/  Michael J. Koss 
                                            ------------------------------     
                                            Michael J. Koss
                                            Title: President and CEO



                                         LOGITECH ELECTRONICS INC.


                                         By:/s/  Greg Bell
                                            ------------------------------
                                            Print Name:  Greg Bell
                                                       -------------------
                                            Title: President and CEO
                                                  ------------------------



                                        4


<PAGE>   19



                                    EXHIBIT A

      KOSS (Plain Block Letters) (as shown in U.S. Registration No. 1,821,035)

      KOSS (Stylized) (as shown in U.S. Registration No. 1,850,556)

      KOSS & Design (as shown in U.S. Registration No. 2,070,098)





































                                        5


<PAGE>   20



                                    EXHIBIT B


         Description of Accessory Products to be sold under the Licensed
Trademarks.

         Those accessory products of Licensee suitable for use with any audio,
video, communication, or computer products and peripherals, but specifically
excluding any type of headphone, stereophones or any type of security product or
device.




























                                        6


<PAGE>   21



                                    EXHIBIT C

TO:

FROM:      (Subcontractor) Manufacturing Factory

RE:        Use of the "Koss" Brandname

The purpose of this letter is to acknowledge that ___________________ has the
right to manufacture Licensed Accessories, as defined in the Addendum to License
Agreement between Logitech Electronics Inc. and Koss Corporation dated
___________, 1998 ("Addendum"), bearing the "Koss" brandname and trademarks only
for the account of Logitech Electronics Inc. and only as a subcontract
manufacturer pursuant to Sections 2.2 and 2.3 of the License Agreement between
Logitech Electronics Inc. and Koss Corporation dated _________, 1998 and for no
other purpose. We agree that we will not use the "Koss" name on any products
other than those manufactured for Logitech Electronics Inc.'s account.
__________ agrees that neither it nor any affiliated or related individual or
entity (i) will, at any time, file any application for trademark registration or
otherwise obtain or attempt to obtain ownership of the "Koss" brandname or
trademarks, or any name or mark which is confusingly similar thereto, anywhere
in the word or (ii) directly or indirectly challenge or contest Koss
Corporation's ownership of or rights in the "Koss" brandname and tradenames,
whether for the Licensed Accessories or otherwise.












                                        7


<PAGE>   22
                                    EXHIBIT D


          Calculation of Quarterly Royalties Payment (in U.S. Dollars)


Accessory Products      Total Sales      Returns      Net Sales     Royalty Rate

                        $                $            $                  10%
                         ----------       ------       --------     ------- 
                                                                                







         ROYALTIES PAYMENT     U.S.      $
                                          ------




















                                        8







<PAGE>   1
                                LICENSE AGREEMENT

         THIS AGREEMENT is made this 30 day of June, 1998 by and between
KOSS CORPORATION, a Delaware corporation with its principal place of business at
4129 North Port Washington Avenue, Milwaukee, WI 53212 (the "LICENSOR") and
LOGITECH ELECTRONICS INC., an Ontario company, with its principal place of
business at 60 Bell Farm Road, Barrie, Ontario L4M5G6 (the "LICENSEE").

         WITNESSETH:

         WHEREAS, LICENSEE desires to obtain the right to use certain trademarks
of LICENSOR in connection with the marketing and sale of certain of LICENSEE's
products; and

         WHEREAS, LICENSOR is willing to grant such rights to LICENSEE upon the
terms and conditions set forth below;

         NOW, THEREFORE, for and in consideration of the premises and of the
mutual promises and conditions herein contained, the parties hereby agree as
follows:


1.       DEFINITIONS.

         For purposes of this Agreement, unless the context otherwise requires,
the following terms shall have the meanings set forth below:

         1.1 "Licensed Trademarks" mean the "Koss" trademarks listed on Exhibit
A attached hereto.

         1.2 "Products" mean the consumer electronic products of LICENSEE set
forth on Exhibit B attached hereto.

         1.3 "Licensed Products" mean all Products of LICENSEE which have
 the
Licensed Trademarks affixed or attached thereto in any manner.

         1.4 "Territory" means the United States of America, Canada, Mexico,
Australia, Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru,
Uruguay, Venezuela, French Guiana, Guyana, Suriname, Austria, Belgium,
Czechoslovakia, Greece, Hungary, Ireland, Israel, Luxembourg, The Netherlands,
Poland, Portugal, Romania, Spain, Benelux, France, Germany, England, Italy,
Switzerland, Norway, Sweden, Denmark, and Finland.

         1.5 "Contract Period" means the period beginning on July 1, 1998 and
ending on June 30, 2003, and any applicable renewal period.



                                        1


<PAGE>   2
         1.6 "Contract Year" means the fiscal year of Koss Corporation (July
1-June 30).


2.       GRANT OF LICENSE; LICENSOR'S SALES.

         2.1 Subject to all the terms and conditions of this Agreement, LICENSOR
hereby grants to LICENSEE the exclusive right and license to use the Licensed
Trademarks within the Territory during the Contract Period in connection with,
and only with, the manufacture, promotion, distribution and sale of the
Products.

         2.2 LICENSEE agrees that it will not make or authorize any use, direct
or indirect, of the Licensed Trademarks outside of the Territory; provided,
however, that subject to the provisions of Section 2.3 below, LICENSEE shall
have the right to have the Licensed Products manufactured outside the Territory
solely for sale by LICENSEE inside the Territory.

         2.3 LICENSEE shall have the right to subcontract the manufacture of the
Licensed Products to another entity, provided that such entity executes a letter
agreement in form substantially similar to Exhibit C attached hereto. LICENSEE
shall not grant any other subcontracting rights other than as provided in this
Section 2.3.

         2.4 LICENSEE agrees to sell Products and Licensed Products to LICENSOR
at a price equal to the price LICENSEE pays for such Products or Licensed
Products, plus ten percent (10%), terms of net ninety (90) days. Notwithstanding
anything to the contrary set forth in this Agreement, any schedule or Exhibit
hereto, or any other document, LICENSOR and LICENSEE acknowledge and agree that
LICENSOR shall continue to have the right, without any restrictions whatsoever
and on terms acceptable to LICENSOR in its sole discretion, to sell Products or
Licensed Products within the Territory or outside of the Territory (i) to the
U.S. military or U.S. government or any other military or governmental agency
until July 1, 2000, (ii) by direct mail or out of any of LICENSOR's outlet
stores existing now or in the future, or (iii) directly to customers or
end-users through LICENSOR's web site or otherwise via the internet.


3.       LICENSEE'S OBLIGATIONS.

         3.1 LICENSEE agrees that no Licensed Products will be manufactured,
advertised, promoted, distributed or sold:

             (a)      in violation of any law or regulatory restriction; or

             (b)      in any manner which damages the image, reputation or
                      goodwill of the Licensed Trademarks or of LICENSOR.



                                        2


<PAGE>   3



         3.2 LICENSEE agrees that during the Contract Period, LICENSEE will
diligently manufacture, promote, distribute and sell Licensed Products and make
and maintain adequate arrangements for the distribution, repair and servicing of
the Licensed Products throughout the Territory. LICENSEE and LICENSOR shall each
inform the other party of their respective toll-free customer service telephone
numbers, and shall inform customers who have mistakenly telephoned one party of
the other party's customer service telephone number.

         3.3 LICENSEE agrees that LICENSEE will not sell refurbished Products
labeled with the Licensed Trademarks unless such Products are clearly and
conspicuously labeled as refurbished merchandise.

         3.4 LICENSEE agrees that all translation costs, filing fees and all
other fees, costs and expenses associated with "registered user" filings within
the Territory shall be paid in advance by LICENSEE to LICENSOR at the request of
LICENSOR.


4.       APPROVAL OF LICENSED PRODUCTS.

         4.1 LICENSEE agrees that LICENSOR shall have the right to approve or
disapprove, in the manner provided herein in advance of sale, the quality,
style, appearance, material and workmanship of all Licensed Products and the
packaging therefor, and to approve or disapprove in advance any and all
trademarks, trade names, designs and logos (whether included in the Licensed
Trademarks or not) used in connection with the Licensed Products. LICENSEE shall
not advertise, distribute or sell any such Licensed Product which has not been
approved by LICENSOR. Before selling or distributing any Licensed Product,
LICENSEE shall submit to LICENSOR for its approval, artist renderings of the
proposed products and/or mock-ups with full engineering specifications together
with packaging, labels and the like. LICENSOR agrees that it shall, within
twenty (20) business days after receipt of each of the renderings and/or
mock-ups, approve or disapprove such products in writing, failing which such
products shall be deemed to have been approved. After LICENSOR has approved the
proposed products and LICENSEE has obtained tooling for the proposed products,
LICENSEE shall provide LICENSOR with off-tool and/or production samples of the
products and LICENSOR shall disapprove such samples in writing within twenty
(20) business days after LICENSOR's receipt of such items or else LICENSEE shall
be deemed to have approved them. LICENSEE shall also provide to LICENSOR, at no
cost to LICENSOR, two (2) working samples of each Product within thirty (30)
days of the commencement of production of such Product. LICENSEE agrees that
Licensed Products which are sold or distributed hereunder shall be of no lesser
quality than the corresponding samples approved by LICENSOR. LICENSOR agrees
that any approval required by LICENSOR under this Section 4.1 shall not be
unreasonably withheld.




                                        3


<PAGE>   4



         4.2 During the Contract Period, LICENSEE shall take all actions
reasonably necessary to cure any product defects in the Licensed Products and
will act to preserve the image, reputation and goodwill of the Licensed
Trademarks and of LICENSOR.


5.       APPROVAL OF ADVERTISING, APPEARANCE AND USE OF LICENSED
         TRADEMARKS.

         5.1 LICENSEE agrees that LICENSOR shall have the right to approve or
disapprove, in advance of LICENSEE's commercial use of the Licensed Products,
the contents, appearance and presentation of all advertising materials which
incorporate the Licensed Trademarks or which make reference in any way to the
Licensed Trademarks. Before producing, publishing or distributing any
advertising materials hereunder, LICENSEE shall submit to LICENSOR, for its
approval, line art and color specifications for the materials. LICENSOR agrees
that it shall, within twenty (20) business days after receipt, approve or
disapprove such material in writing, failing which such material shall be deemed
to have been approved, provided that LICENSOR's approval shall be subject to
submission and approval of LICENSEE's final packaging materials. LICENSOR agrees
that any approval required by LICENSOR under this Section 5.1 shall not be
unreasonably withheld.

         5.2 LICENSEE agrees to protect, indemnify and save harmless LICENSOR,
its parent, subsidiaries and affiliates and all officers, directors, agents,
employees and representatives thereof, and any of them, from and against any and
all expenses, damages, claims, suits, actions, judgments and costs whatsoever,
including reasonable attorneys fees, arising out of, or in any way connected
with, any claim or action relating to the contents of LICENSEE's advertising or
use of the Licensed Products, whether or not approved by LICENSOR hereunder.

         5.3 LICENSEE agrees that LICENSOR shall have the right to include a
full line catalog of LICENSOR's products within each Product to which the
Licensed Trademarks are affixed and distributed by LICENSEE. A sample of the
full line catalog will be provided to LICENSEE, who shall instruct LICENSOR on a
quarterly basis as to the quantity of full line catalogs needed and the
destination where they should be shipped for LICENSEE's packaging purposes.
LICENSEE further agrees that LICENSOR shall have the right to include
promotional coupons for certain of LICENSOR's products on a quarterly basis
except as prohibited by specific retailers. Such coupons shall be provided in a
manner similar to that set forth above for the full line catalog and are to be
included in every product bearing the Licensed Trademarks and distributed by
LICENSEE.

         5.4 LICENSEE agrees to provide to LICENSOR a copy of LICENSEE's most
recent list of holders of warranties on all Products distributed by LICENSEE.
LICENSOR agrees to keep such information confidential and to use it solely for
soliciting direct mail consumer sales.



                                        4


<PAGE>   5
6.       ROYALTIES; PAYMENT; RENEWAL.

         6.1 During the term of this Agreement, LICENSEE will pay to LICENSOR as
royalties ("Royalties") an amount equal to ten percent (10%) of net sales of the
Licensed Products. The term "net sales" with respect to the Licensed Products
shall be defined as the total amount invoiced by LICENSEE for sales of the
Licensed Products less the total amount of returns of the Licensed Products, as
exemplified on Exhibit D attached hereto. LICENSOR and LICENSEE agree that no
Royalties shall be paid on sales of products from LICENSEE to LICENSOR.

         6.2 Notwithstanding the provisions of Section 6.1, LICENSEE hereby
agrees to pay to LICENSOR during the Contract Period annual minimum Royalties
("Minimum Royalties") as follows:

             Contract Year                       Minimum Royalties
             ------------                        -----------------

             July 1, 1998 - June 30, 1999        U.S. $125,000
             July 1, 1999 - June 30, 2000        U.S. $325,000
             July 1, 2000 - June 30, 2001        U.S. $425,000
             July 1, 2001 - June 30, 2002        U.S. $525,000
             July 1, 2002 - June 30, 2003        U.S. $600,000

If the sum of the total Royalties paid with respect to a Contract Year do not
equal or exceed the Minimum Royalties for such Contract Year, the difference
between the Minimum Royalties and the Royalties for such Contract Year shall be
due and payable thirty (30) days following the end of such Contract Year.

         6.3 If upon the expiration of the initial Contract Period, LICENSOR in
its sole and absolute discretion elects to renew this Agreement as hereinafter
provided for an additional five (5) year term, the Minimum Royalties for the
first renewal period shall be the greater of the following:

             Contract Year                       Minimum Royalties
             -------------                       -----------------

             July 1, 2003 - June 30, 2004        Actual Royalties for 
                                                 the Contract Year
                                                 ending on June 30, 2003
                                                 plus 15%, or U.S.
                                                 $660,000

             July 1, 2004 - June 30, 2005        Minimum Royalties for 
                                                 the Contract Year
                                                 ending on June 30, 2004
                                                 plus 10%, or U.S.
                                                 $725,000

             July 1, 2005 - June 30, 2006        Minimum Royalties for 
                                                 the Contract Year
                                                 ending on June 30, 2005
                                                 plus 10%, or U.S.
                                                 $790,000



                                        5


<PAGE>   6



             July 1, 2006 - June 30, 2007        Minimum Royalties for the 
                                                 Contract Year ending on
                                                 June 30, 2006 plus 10%,
                                                 or U.S. $875,000

             July 1, 2007 - June 30, 2008        Minimum Royalties for the 
                                                 Contract Year ending on June
                                                 30, 2007 plus 10%, or U.S.
                                                 $970,000

         6.4 Payment of Royalties shall be made quarterly by LICENSEE to
LICENSOR on or before the 20th day following the end of each calendar quarter of
each Contract Year during the term of this Agreement (i.e. January 20, April 20,
July 20 and October 20) and within thirty (30) days after the expiration or
earlier termination of this Agreement, in respect of all Licensed Products
shipped during such quarter.

         6.5 Payment of all Royalties shall be in United States funds. The late
payment of any Royalties shall bear interest at the rate of one and one-half
percent (1-1/2%) per month, or at the highest rate permitted by applicable state
law, whichever is lower.


7.       BOOKS, RECORDS, AND STATEMENTS.

         7.1 LICENSEE shall maintain for three (3) years following the close of
each Contract Year accurate books and records which disclose, at a minimum, the
following: the cost of sales of the Licensed Products, the amount of sales of
the Licensed Products, the amount of credits for returns, trade discounts and
customer's shipping costs, the amount of all Royalties payable hereunder by
LICENSEE and the manner in which such Royalties were determined.

         7.2 LICENSEE shall deliver to LICENSOR with each quarterly payment a
detailed accounting statement showing the calculation of such Royalties payment.
Such statement shall be in sufficient detail to be audited from the books of
LICENSEE maintained pursuant to Section 7.1 hereof. By the 15th day of each
month during the Contract Period, LICENSEE shall also provide LICENSOR with a
preliminary tabulation of the sales and returns by customer and by Product model
number for the prior month, for LICENSOR's use and analysis.

         7.3 Annually, within ninety (90) days after the close of each Contract
Year, LICENSEE shall furnish to LICENSOR a statement, certified to be true and
correct by LICENSEE's Chief Financial Officer, that the accounting for sales is
complete and correct, and the total sales of the Licensed Products to each
retail account.

         7.4 LICENSOR, at its expense, shall have the right at any time during
regular business hours after the end of any Contract Year, upon five (5) days
written notice to LICENSEE, to have a representative of LICENSOR examine or
audit the books, accounts and records of LICENSEE which pertain to the
manufacture, distribution and sale of the


                                        6


<PAGE>   7



Licensed Products and the amount of credit for returns, trade discounts and
customer's shipping costs with respect thereto, and other books and records as
they may be reasonably required by LICENSOR's accountants in order to verify the
figures reported in any statements furnished to LICENSOR pursuant to this
Section 7. Such books of account and records shall be made available to LICENSOR
and its accountants at LICENSEE's office located as herein stated or such other
place as the parties shall mutually agree. LICENSEE shall render all possible
assistance to LICENSOR and its accountants for the purpose of facilitating the
checking or auditing of net sales and of the figures set forth in any of
LICENSEE's statements. If the examination or audit reveals the underpayment of
any Royalties, LICENSEE shall immediately pay LICENSOR the amount of the
deficiency with interest, and if the deficiency exceeds five percent (5%) of the
amount of Royalties paid with respect to such year or years audited, LICENSEE
shall pay the cost of the examination or audit.


8.       TRADEMARKS.

         8.1 LICENSEE shall cause to be imprinted irremovably and legibly on
each Licensed Product manufactured, distributed or sold under this Agreement
(including, but not limited to, advertising, promotional, packaging and wrapping
material and any other such material wherein the Licensed Trademarks may
appear), the appropriate trademark and/or copyright notices, as shall be
designated in writing in advance by LICENSOR. LICENSEE agrees to deliver to
LICENSOR upon request, free of cost, samples of each Licensed Product together
with their packaging and wrapping material for approval and for trademark and/or
copyright registration purposes.

         8.2 LICENSEE agrees that it will not, during the Contract Period or
thereafter, file any application for trademark registration or otherwise obtain
or attempt to obtain ownership of any name, design, logo, trademark or trade
name, within the Territory or in any other country of the world, which includes
or is confusingly similar to or suggestive of the Licensed Trademarks.

         8.3 LICENSEE agrees that it will not, directly or indirectly, challenge
or contest LICENSOR's ownership of or rights in the Licensed Trademarks, whether
for the Licensed Products or otherwise.

         8.4 All use of the Licensed Trademarks by LICENSEE shall inure to the
benefit of LICENSOR, and LICENSEE shall acquire no rights therein adverse to
LICENSOR.


9.       MAINTENANCE OF LICENSED TRADEMARKS.

         LICENSEE shall promptly notify LICENSOR in writing of any infringement
by others of the Licensed Trademarks on articles similar to the Licensed
Products if and when


                                        7


<PAGE>   8



such become known to LICENSEE and shall provide LICENSOR with any available
evidence of such infringement. Only LICENSOR shall have the right to commence
legal proceedings against such infringer, and the expense of such legal
proceedings shall be shared equally by LICENSOR and LICENSEE. In any
infringement action, proceeding or claim brought by LICENSOR, LICENSEE, at its
expense, shall make available to LICENSOR any relevant books, records, papers,
information, designs, samples, specimens, and the like and shall cause any of
the LICENSEE's employees to be deposed or to testify, whenever requested to do
so by LICENSOR. Any damage award or recovery resulting from such legal
proceedings shall be divided equally between LICENSOR and LICENSEE.


10.      INDEMNIFICATION AND INSURANCE.

         10.1 LICENSEE agrees to protect, indemnify and save harmless LICENSOR,
its parent, subsidiaries and affiliates and all officers, directors, agents,
employees and representatives thereof, and any of them, from and against any and
all expenses, damages, claims, suits, actions, judgments and costs whatsoever,
including reasonable attorneys fees, arising out of, or in any way connected
with, any claim or action for the violation by LICENSEE of any statutory or
regulatory obligation, any claim or action for injury or damage to property,
personal injury, death or other cause of action involving alleged defects in
Licensed Products, and any other claim or action arising out of LICENSEE's
activities pursuant to this Agreement or other conduct of its business.

         10.2 LICENSEE shall, within thirty (30) calendar days after the
execution of this Agreement, obtain from an insurance company reasonably
acceptable to LICENSOR, and maintain during the term of this Agreement and for a
period of twenty-four (24) months following the expiration or termination of
this Agreement, public and products liability insurance with a limit of
liability of not less than Five Million ($5,000,000) U.S. dollars per occurrence
in order to protect LICENSOR against any liabilities with which it may be
charged because of damage or injuries suffered by any servants, agents,
contractors, employees or customers of LICENSEE or by the general public,
resulting from the use or sale of the Licensed Products manufactured,
distributed, advertised or sold by LICENSEE or by LICENSEE's contractor.
LICENSEE agrees to cause LICENSOR's name to be entered in such policy as an
additional named insured and an additional loss payee, and to deliver to
LICENSOR a certificate thereof. Said insurance shall provide that it cannot be
canceled without the insurer first giving LICENSOR twenty (20) calendar days'
advance written notice thereof. LICENSEE shall furnish or cause to be furnished
to LICENSOR evidence of the maintenance and renewal of the insurance required
herein, including, but not limited to, copies of policies, certificates of
insurance, with applicable riders and endorsements, and proof of premium
payments.





                                        8


<PAGE>   9
11.      DEFAULT; TERMINATION.

         11.1 In the event of a default by either party in the performance of
any of its obligations pursuant to this Agreement, the non-defaulting party
shall give written notice of such default to the defaulting party. Within thirty
(30) days of its receipt of such notice, the defaulting party shall cure the
default. If the defaulting party does not take such corrective actions or cure
the default within the respective time period, the non-defaulting party shall
have the right to terminate this Agreement upon the expiration of the respective
period. The right to remedy a default shall not apply to a violation of Sections
4, 5, 6 or 7 of this Agreement, which shall give LICENSOR the right, in its sole
discretion, to treat as such violation a non-curable default and to terminate
this Agreement.

         11.2 Either party shall have the right to terminate this Agreement upon
ten (10) days prior notice upon the occurrence of any of the following events:

              (a)      If the other party shall become insolvent or shall
                       make an assignment for the benefit of creditors or
                       become the subject of receivership, bankruptcy or
                       other insolvency or debtor relief proceedings, or any
                       similar proceedings;

              (b)      If the other party shall cease to do business; or

              (c)      Except as permitted under Section 14 hereof, if the
                       other party shall attempt to assign any of its rights
                       under this Agreement.

         A party's exercise of its right, pursuant to this Section 11.2, to
terminate this Agreement shall be without prejudice to any other legal or
equitable remedy such party may hold against the other party by reason of the
other party's breach of any term or condition of this Agreement.

         11.3 No assignee for the benefit of creditors, receiver, liquidator,
trustee in bankruptcy, sheriff or any other officer of the court or official
charged with taking over custody of LICENSEE's assets or business, shall have
any right to continue performance of this Agreement, and this Agreement may not
be assigned by operation of law.

         11.4 Failure to terminate this Agreement pursuant to this Section 11
shall not effect or constitute a waiver of any remedies the non-defaulting party
would have been entitled to demand, whether by way of damages, termination or
otherwise. Termination of this Agreement shall be without prejudice to the
rights and liabilities of either party to the other in respect of any matter
arising under this Agreement.





                                        9


<PAGE>   10



12.      RIGHTS AFTER TERMINATION.

         12.1 Except as provided in Section 12.2 hereof, from and after the
termination of this Agreement, whether because of non-renewal, default or
otherwise, all of the rights of LICENSEE to the use of the Licensed Trademarks
shall, except as hereinafter expressly provided, cease absolutely, and LICENSEE
shall not thereafter manufacture, advertise, promote, distribute or sell any
item whatsoever in connection with the Licensed Trademarks. It is further agreed
that following expiration of the Contract Period, LICENSEE shall not
manufacture, advertise, promote, distribute or sell any item whatsoever in
connection with the use of any name, figure, design, logo, trademark or trade
name similar to or suggestive of the Licensed Trademarks.

         12.2 Any Licensed Products for which as of the date of termination
LICENSEE has non-cancelable open orders or which are in transit to the United
States may be sold by LICENSEE on a non-exclusive basis during the twelve (12)
month period following the date of termination. Any Licensed Products which are
warehoused in the United States on the date of termination and any Licensed
Products which were returned to LICENSEE by a customer may be sold by LICENSEE
on a non-exclusive basis during the nine (9) month period following the date of
termination. LICENSEE shall continue to pay to LICENSOR with respect to such
sales Royalties at the rate and in the manner specified in this Agreement.
Within sixty (60) days of the date of termination, LICENSEE shall provide to
LICENSOR a complete listing of the inventory in transit and the warehoused
inventory. Notwithstanding anything herein to the contrary, LICENSEE shall have
no right to manufacture any additional Licensed Products after the date of
termination.


13.      NOTICE.

         All notices required or provided for in this Agreement shall be in
writing and shall be given by registered mail, prepaid and properly addressed to
the last known address of the party to be served herewith, or by telecopy
facsimile and confirmed by regular mail, and shall be deemed to have been given
on the seventh (7th) day after mailing or on the same day as the facsimile
transmission is received. Notices sent to LICENSOR shall be addressed as
follows:

         Koss Corporation
         4129 North Port Washington Avenue
         Milwaukee, WI 53212
         Attn: President
         Fax No.: (414) 967-1537




                                       10


<PAGE>   11



         Notices sent to LICENSEE shall be addressed as follows:

         Logitech Electronics Inc.
         60 Bell Farm Road
         Barrie, Ontario
         L4M5G6
         Attn: President
         Fax No.: (705) 734-1342


14.      ASSIGNMENT.

         This Agreement shall bind and inure to the benefit of LICENSOR, and the
successors and assigns of LICENSOR. The rights granted LICENSEE hereunder shall
be exclusive to it and shall not, without the prior written consent of LICENSOR,
be transferred or assigned to any other entity. In the event of the merger or
consolidation of LICENSEE with any other entity, LICENSOR shall have the right
to terminate this Agreement by so notifying LICENSEE in writing on or before
sixty (60) days after LICENSOR has received written notice of such merger or
consolidation.


15.      JOINT VENTURE.

         This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between LICENSOR and LICENSEE.
Neither party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is intended to
give, any rights of any kind to any third person.


16.      MISCELLANEOUS.

         16.1 Section headings contained herein are solely for the purpose of
aiding in speedy location of subject matter and are not in any sense to be given
weight in the construction of this Agreement. Accordingly, in case of any
question with respect to the construction of this Agreement, it is to be
construed as though such section headings had been omitted.

         16.2 This writing constitutes the entire Agreement between the parties
hereto and may not be changed or modified except by a writing signed by the
parties hereto.

         16.3 If and to the extent that any provisions of this Agreement are
prohibited or unenforceable under any applicable law, such provisions shall be
ineffective to the extent of such prohibition or unenforceable without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of any other provision hereof.


                                       11


<PAGE>   12



         16.4 The failure of either party at any time or times to demand strict
performance by the other of any of the terms, covenants or conditions set forth
herein shall not be construed as a continuing waiver or relinquishment thereof
and each may at any time demand strict and complete performance by the other of
said terms, covenants and conditions.

         16.5 This Agreement shall be governed by the substantive laws of the
State of Wisconsin (regardless of laws that might be applicable under principles
of conflicts of laws) as to all matters, including but not limited to matters of
validity, construction, effect and performance. Resolution of any and all
disputes between LICENSOR and LICENSEE arising from or in connection with this
Agreement, whether based on contract, tort, common law, equity, statute,
regulation, order or otherwise, shall be governed by and settled in accordance
with binding arbitration by three (3) arbitrators; provided, however, that the
three arbitrators selected shall each have extensive knowledge in the area of
federal trademark law. If the parties cannot agree on the selection of three
arbitrators, each party shall select one arbitrator, and those two arbitrators
together shall select the third arbitrator, and the three arbitrators, each of
which shall have extensive knowledge in the area of federal trademark law, shall
resolve the dispute as provided herein. The arbitrators' findings and decisions
shall be limited to the subject matter of the dispute, and such findings and
decisions shall be in writing and shall be final and binding on the parties
hereto, and shall specify the reasons for and facts on which such findings and
decisions were reached. The parties hereto shall bear equally the arbitrators'
fees and charges, and each party shall bear its other costs and expenses for the
arbitration, including attorneys' fees. The arbitration shall be conducted in
Milwaukee, Wisconsin. To the extent that the parties hereto need to enforce the
arbitration provisions in this Agreement or need to enforce or otherwise give
effect to any arbitration finding, decision or award, the parties hereto hereby
agree that any such action or proceeding shall be adjudicated before a federal
or state court located in Milwaukee, Wisconsin, and they hereby submit to the
exclusive jurisdiction of the courts of the State of Wisconsin located in
Milwaukee, Wisconsin, and of the federal courts located in Milwaukee, Wisconsin,
with respect to any such action or proceeding commenced by either party. The
parties hereto irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, and hereby consent
to the service of process in any such action or proceeding by means of
registered or certified mail, return receipt requested, in care of the
applicable address set forth under the notice provisions in this Agreement.




                                       12


<PAGE>   13



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above. The effective date of this Agreement is
July 1, 1998.

                                          KOSS CORPORATION


                                          By:/s/   Michael J. Koss
                                             --------------------------------
                                             Michael J. Koss
                                             Title: President and CEO



                                          LOGITECH ELECTRONICS INC.


                                          By:/s/   Greg Bell
                                             --------------------------------
                                             Print Name:   Greg Bell
                                                        ---------------------
                                             Title:  President and CEO





                                       13


<PAGE>   14



                                    EXHIBIT A

   KOSS (Plain Block Letters) (as shown in U.S. Registration No. 1,821,035)

   KOSS (Stylized) (as shown in U.S. Registration No. 1,850,556)

   KOSS & Design (as shown in U.S. Registration No. 2,070,098)






























                                       14


<PAGE>   15



                                    EXHIBIT B

         Description of Products to be sold under Licensor's Trademark.

All powered and passive speaker products suitable for use with any audio, video,
communication, or computer products. Speaker construction will primarily be made
of injection molded plastic with the possible exception of some subwoofer
products that may be made of wood or wood composites. Also included will be any
AC or DC adaptors, connecting cables (including speaker wire), as well as
mounting brackets and assemblies.























                                       15


<PAGE>   16



                                    EXHIBIT C


TO:

FROM:   (Subcontractor) Manufacturing Factory

RE:     Use of the "Koss" Brandname

The purpose of this letter is to acknowledge that ___________________ has the
right to manufacture Licensed Products, as defined in the License Agreement
between Logitech Electronics Inc. and Koss Corporation dated ___________, 1998
("License Agreement"), bearing the "Koss" brandname and trademarks only for the
account of Logitech Electronics Inc. and only as a subcontract manufacturer
pursuant to Sections 2.2 and 2.3 of the License Agreement and for no other
purpose. We agree that we will not use the "Koss" name on any products other
than those manufactured for Logitech Electronics Inc.'s account. __________
agrees that neither it nor any affiliated or related individual or entity (i)
will, at any time, file any application for trademark registration or otherwise
obtain or attempt to obtain ownership of the "Koss" brandname or trademarks, or
any name or mark which is confusingly similar thereto, anywhere in the word or
(ii) directly or indirectly challenge or contest Koss Corporation's ownership of
or rights in the "Koss" brandname and tradenames, whether for the Licensed
Products or otherwise.




















                                       16


<PAGE>   17


                                    EXHIBIT D


          Calculation of Quarterly Royalties Payment (in U.S. Dollars)


Products       Total Sales       Returns          Net Sales        Royalty Rate

               $                $                $                      10%
               -----------      --------         ----------        -------







   ROYALTIES PAYMENT   U.S.     $
                                --------

















                                       17







<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          JUN-30-1998
<PERIOD-START>                             JUL-01-1997
<PERIOD-END>                               JUN-30-1998
<CASH>                                          14,778
<SECURITIES>                                         0
<RECEIVABLES>                                8,387,839
<ALLOWANCES>                                         0
<INVENTORY>                                 19,486,058
<CURRENT-ASSETS>                            28,935,513
<PP&E>                                      13,681,609
<DEPRECIATION>                              11,619,078
<TOTAL-ASSETS>                              32,028,769
<CURRENT-LIABILITIES>                        3,949,105
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        31,773
<OTHER-SE>                                  31,996,996
<TOTAL-LIABILITY-AND-EQUITY>                32,028,769
<SALES>                                     40,638,747
<TOTAL-REVENUES>                            40,638,747
<CGS>                                       24,843,968
<TOTAL-COSTS>                               24,843,968
<OTHER-EXPENSES>                             7,822,338
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             253,171
<INCOME-PRETAX>                              8,925,629
<INCOME-TAX>                                 3,448,000
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 5,477,629
<EPS-PRIMARY>                                     1.68
<EPS-DILUTED>                                     1.65
        

</TABLE>