SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-3295
- --------------------------------------------------------------------------------
KOSS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
A DELAWARE CORPORATION 39-1168275
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4129 North Port Washington Avenue, Milwaukee, Wisconsin 53212
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (414) 964-5000
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ---
At December 31, 2002, there were 3,650,554 shares outstanding of the
Registrant's common stock, $0.005 par value per share.
1 of 19
KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
December 31, 2002
INDEX
<Table>
<Caption>
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 2002 and June 30, 2002 3
Condensed Consolidated Statements of Income
(Unaudited) Three Months and Six Months Ended
December 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended December 31, 2002
and 2001 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) December 31, 2002 6-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 4 Controls and Procedures 11
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security-Holders 12
Item 6 Exhibits and Reports on Form 8-K 12
</Table>
2 of 19
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
December 31, 2002 June 30, 2002
----------------- -------------
ASSETS
Current Assets:
Cash $ 803,864 $ 1,052,364
Accounts receivable 6,928,139 8,371,187
Inventories 7,912,634 6,380,212
Income taxes receivable 163,077 --
Other current assets 1,378,930 1,315,901
-------------- -------------
Total current assets 17,186,644 17,119,664
Property and Equipment, net 1,931,216 1,778,055
Other Assets 1,428,415 1,428,415
-------------- -------------
$ 20,546,275 $ 20,326,134
============== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,819,599 $ 1,854,316
Accrued liabilities 1,485,669 1,587,551
Income taxes payable -- 506,102
Dividends payable 474,572 440,466
-------------- -------------
Total current liabilities 3,779,840 4,388,435
Deferred Compensation 711,163 737,599
Other Liabilities 437,354 437,354
Contingently Redeemable Equity Interest 1,490,000 1,490,000
Stockholders' Investment 14,127,918 13,272,746
-------------- -------------
$ 20,546,275 $ 20,326,134
============== =============
</Table>
See accompanying notes.
3 of 19
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
Three Months Six Months
Period Ended December 31 2002 2001 2002 2001
- ------------------------ ------------ ------------ ------------ ------------
Net sales $ 7,818,848 $ 9,751,397 $ 16,773,826 $ 18,702,808
Cost of goods sold 4,627,988 5,851,550 10,052,209 11,351,070
------------ ------------ ------------ ------------
Gross profit 3,190,860 3,899,847 6,721,617 7,351,738
Selling, general and
administrative expense 1,733,143 2,237,934 3,613,795 4,163,898
------------ ------------ ------------ ------------
Income from operations 1,457,717 1,661,913 3,107,822 3,187,840
Other income (expense)
Royalty income 254,760 265,833 418,721 433,547
Interest income 2,502 14,989 6,781 22,270
Interest expense 0 (49,254) (11,290) (60,218)
------------ ------------ ------------ ------------
Income before income tax provision 1,714,979 1,893,481 3,522,034 3,583,439
Provision for income taxes 668,842 739,281 1,375,119 1,398,365
------------ ------------ ------------ ------------
Net income $ 1,046,137 $ 1,154,200 $ 2,146,915 $ 2,185,074
============ ============ ============ ============
Earnings per common share:
Basic $ 0.29 $ 0.31 $ 0.59 $ 0.58
Diluted $ 0.27 $ 0.30 $ 0.56 $ 0.55
============ ============ ============ ============
Dividends per common share $ 0.13 $ 0.12 $ 0.26 $ 0.245
============ ============ ============ ============
</Table>
See accompanying notes.
4 of 19
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Six Months Ended December 31 2002 2001
- ---------------------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,146,915 $ 2,185,074
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 254,520 309,570
Deferred compensation (26,436) 57,540
Net changes in operating assets and liabilities (1,382,487) (56,685)
------------ ------------
Net cash provided by operating activities 992,512 2,495,499
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment and leasehold
improvements (423,840) (368,922)
------------ ------------
Net cash used in investing activities (423,840) (368,922)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under line of credit agreements -- (2,813,000)
Borrowings under line of credit agreements -- 5,692,500
Dividends paid (477,172) (462,891)
Purchase of common stock for treasury -- (3,850,112)
Purchase and retirement of common stock (340,000) (844,325)
Exercise of stock options -- 112,200
------------ ------------
Net cash used in financing activities (817,172) (2,165,628)
------------ ------------
Net decrease in cash (248,500) (39,051)
Cash at beginning of period 1,052,364 181,678
------------ ------------
Cash at end of period $ 803,864 $ 142,627
============ ============
</Table>
See accompanying notes.
5 of 19
KOSS CORPORATION AND SUBSIDIARIES
December 31, 2002
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial statements presented herein are based on interim amounts.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position,
results of operations and cash flows at December 31, 2002 and for all
periods presented have been made. The income from operations for the
quarter ended December 31, 2002 is not necessarily indicative of the
operating results for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Registrant's June 30, 2002, Annual Report on
Form 10-K.
2. EARNINGS PER COMMON SHARE AND STOCK SPLIT
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 quarters ending December 31, 2002 and
2001 were 3,655,242 and 3,674,695, respectively. For the six months
ended December 31, 2002 and 2001, weighted average number of common
shares outstanding were 3,662,898 and 3,751,882, respectively. When
dilutive, stock options are included as share equivalents using the
treasury stock method. Common stock equivalents of 191,603 and 226,725
related to stock option grants were included in the computation of the
average number of shares outstanding for diluted earnings per share for
the quarters ended December 31, 2002 and 2001, respectively. Common
stock equivalents of 187,599 and 236,070 related to stock option grants
were included in the computation of the average number of shares
outstanding for diluted earnings per share for the six months ended
December 31, 2002 and 2001, respectively.
On October 2, 2001, the Company declared a 2 for 1 stock split of the
Company's common stock for stockholders of record on October 22, 2001,
with the effective date being November 5, 2001. Earnings per common share
amounts disclosed have been restated to give effect to the common stock
split.
3. INVENTORIES
The classification of inventories is as follows:
<Table>
<Caption>
December 31, 2002 June 30, 2002
----------------- ---------------
Raw materials and work in process $ 2,599,523 $ 2,288,918
Finished goods 6,100,472 4,878,655
---------------- ---------------
8,699,995 7,167,573
LIFO Reserve (787,361) (787,361)
---------------- ---------------
$ 7,912,634 $ 6,380,212
================ ===============
</Table>
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4. STOCK PURCHASE AGREEMENT
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 the 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. At
December 31, 2002 and June 30, 2002, $1,490,000 has been classified as a
Contingently Redeemable Equity Interest reflecting the estimated
obligation in the event of execution of the agreement.
5. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations" and in August 2001, issued No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets, superseding SFAS No. 121. SFAS No. 143 and SFAS
No. 144 were effective for the Company on July 1, 2002. The statements
did not have an impact on the Company's results of operations or
financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities." This statement addresses the recognition,
measurement, and reporting of costs associated with exit and disposal
activities, including restructuring activities. The scope of the current
statement also includes (1) costs related to a termination contract that
is not a capital lease and (2) termination benefits that employees who
are involuntarily terminated receive under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract. SFAS No. 146 will be effective
for exit or disposal activities that are initiated after December 31,
2002. The implementation of this issue did not have an impact on the
Company's results of operations for the quarter ended December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees". This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at
the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. This Interpretation does
not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee.
This Interpretation also incorporates, without change, the guidance in
FASB Interpretation No. 34, Disclosure of Indirect Guarantees of
Indebtedness of Others, which is being superseded. The initial
recognition and measurement provisions of this Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December
15, 2002. At December 31, 2002, the Company has issued no guarantees that
qualify for disclosure in this interim financial statement.
7 of 19
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of
FASB Statement No. 123." This Statement amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS No. 148 will be effective for the Company on July 1, 2003.
The Company is currently evaluating the impact of this statement on its
results of operations.
6. DIVIDENDS DECLARED
On December 19, 2002, the Company declared a quarterly cash dividend of
$0.13 per share for stockholders of record on December 31, 2002 to be
paid January 15, 2003, such dividend payable has been recorded at
December 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities during the six months ended December 31,
2002 amounted to $992,512. This was primarily a result of net income for the
period offset by changes in operating assets and liabilities, primarily related
to decreases in accounts receivable and income taxes payable, and increases in
inventories.
Capital expenditures for new property and equipment (including production
tooling) were $423,840 for the quarter. Budgeted capital expenditures for fiscal
year 2003 are $1,082,000. The Company expects to generate sufficient funds
through operations to fund these expenditures.
Stockholders' investment increased to $14,127,918 at December 31, 2002, from
$13,272,746 at June 30, 2002. The increase reflects the effect of the purchase
and retirement of common stock, offset by net income and dividends.
The Company amended its existing credit facility in July 2002, extending the
maturity date of the unsecured line of credit to November 1, 2003. This credit
facility provides for borrowings up to a maximum of $10,000,000. The Company can
use this credit facility for working capital purposes or for the purchase of its
own common stock pursuant to the Company's common stock repurchase program.
Borrowings under this credit facility bear interest at the bank's prime rate, or
LIBOR plus 1.75%. This credit facility includes certain financial covenants that
require the Company to maintain a minimum tangible net worth and specified
current, interest coverage, and leverage ratios. The Company uses its credit
facility from time to time, although there was no utilization of this credit
facility at December 31, 2002 and June 30, 2002.
In April of 1995, the Board of Directors approved a stock repurchase program
authorizing the Company to purchase from time to time up to $2,000,000 of its
common stock for its own account. Subsequently, the Board of Directors
periodically has approved increases in the stock repurchase program. The most
recent increase was for an additional $1,500,000 in April of 2002, for a maximum
of $35,500,000. 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.
8 of 19
For the quarter ended December 31, 2002, the Company purchased 20,000 shares of
its common stock at $17.00 per share, for a total purchase price of $340,000.
From the commencement of the Company's stock repurchase program through December
31, 2002, the Company has purchased a total of 4,876,680 shares for a total
gross purchase price of $38,917,045 (representing an average gross purchase
price of $7.98 per share) and a total net purchase price of $34,842,072
(representing an average net purchase price of $7.15 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.
In determining the dollar amount available for additional purchases under the
stock repurchase program, the Company uses the total net purchase price paid by
the Company for all stock purchases, as authorized by the Board of Directors.
The Company also has an Employee Stock Ownership and Trust ("ESOP") pursuant to
which shares of the Company's stock are purchased by the ESOP for allocation to
the accounts of ESOP participants. For the quarter ended December 31, 2002, the
ESOP did not purchase any shares of the Company's stock.
Results of Operations
Net sales for the second quarter ended December 31, 2002 fell 20% to $7,818,848
from $9,751,397 for the same period in 2001. Net sales for the six months ended
December 31, 2002 were $16,773,826 down 10% compared with $18,702,808 during the
same six months one year ago. This decline was due to soft retail business and a
$282,670 return due to the Company's transition of their customer response team
from an independent distributor operation to a direct sales operation.
Gross profit as a percent of net sales remained generally consistent at 41% for
the quarter ended December 31, 2002 compared to 40% for the same period in the
prior year. For the six month period ended December 31, 2002, the gross profit
percentage was 40% compared to 39% for the same period in 2001.
Selling, general and administrative expenses for the quarter ended December 31,
2002 were $1,733,143 or 22% of net sales, compared to $2,237,934 or 23% of net
sales for the same period in 2001. For the six month period ended December 31,
2002, these expenses were $3,613,795 or 22% of net sales, compared to $4,163,898
or 22% of net sales, for the same period in 2001.
For the second quarter ended December 31, 2002, income from operations was
$1,457,717 versus $1,661,913 for the same period in the prior year. Income from
operations for the six months ended December 31, 2002 was $3,107,822 as compared
to $3,187,840 for the same period in 2001.
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, requiring royalty payments by
Logitech through June 30, 2008, subject to certain minimum annual royalty
amounts.
The Company has a License Agreement with Jiangsu Electronics Industries Limited
("Jiangsu"), a subsidiary of Orient Power Holdings Limited, by way of an
assignment of a previously existing License Agreement with Trabelco N.V. Orient
Power is based in Hong Kong and has an extensive portfolio of audio and video
products. This License Agreement covers the United States, Canada, and Mexico,
and has been renewed through December 31, 2003. Pursuant to this License
Agreement, Jiangsu has agreed to meet certain minimum royalty amounts each year.
The products covered by this License Agreement include various consumer
electronics products.
9 of 19
Royalty income for the quarter ended December 31, 2002 was $254,760, compared to
$265,833 for the quarter ended December 31, 2001. For the six month period ended
December 31, 2002 royalty income was $418,271 compared to $433,547 for the
period ending December 31, 2001.
Interest income for the quarter was $2,502 as compared to $14,998 for the same
quarter in 2001. For the six month period interest income was $6,781 compared to
$22,270. The decrease in interest income in 2002 is a result of lower levels of
invested excess cash.
There was no interest expense recorded for the quarter as compared to $49,254
for the same period in the prior year.
On October 2, 2001, the Company declared a 2 for 1 stock split of the Company's
common stock for stockholders of record on October 22, 2001, with the effective
date being November 5, 2001. All earnings per common share amounts herein have
been restated to give effect to the common stock split.
On December 19, 2002, the Company declared a quarterly cash dividend of $0.13
per share payable on January 15, 2003 to stockholders of record on December 31,
2002, which is recorded as dividends payable.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations" and in August 2001, issued No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 143 establishes
accounting standards for the recognition and measurement of an asset retirement
obligation. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets, superseding SFAS No. 121. SFAS No.
143 and SFAS No. 144 were effective for the Company on July 1, 2002. The
statements did not have an impact on the Company's results of operations or
financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." This statement addresses the recognition, measurement, and
reporting of costs associated with exit and disposal activities, including
restructuring activities. The scope of the current statement also includes (1)
costs related to a termination contract that is not a capital lease and (2)
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS No. 146 will
be effective for exit or disposal activities that are initiated after December
31, 2002. The implementation of this issue did not have an impact on the
Company's results of operations for the quarter ended December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees". This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. This
Interpretation also incorporates, without change, the guidance in FASB
Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others, which is being superseded. The initial recognition and measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. At December 31, 2002, the Company has issued no guarantees
that qualify for disclosure in this interim financial statement.
10 of 19
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123." This Statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No. 148
will be effective for the Company on July 1, 2003. The Company is currently
evaluating the impact of this statement on its results of operations.
ITEM 4. CONTROLS AND PROCEDURES.
The Company's management, including the Chief Executive Officer/Chief Financial
Officer, evaluated the Company's disclosure controls and procedures within 90
days of the filing of this report and concluded that the Company's disclosure
controls and procedures were effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls, including any corrective actions with regard to significant
deficiencies and material weaknesses subsequent to their evaluation. Management,
including the Chief Executive Officer/Chief Financial Officer, periodically
reviews the Company's internal controls for effectiveness and plans to conduct
quarterly evaluations of its disclosure controls and procedures.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (the "Act")
(Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Additional written or oral forward-looking statements may
be made by the Company from time to time in filings with the Securities Exchange
Commission, press releases, or otherwise. Statements contained in this Form 10-Q
that are not historical facts are forward-looking statements made pursuant to
the safe harbor provisions of the Act. Forward-looking statements may include,
but are not limited to, projections of revenue, income or loss and capital
expenditures, statements regarding future operations, anticipated financing
needs, compliance with financial covenants in loan agreements, plans for
acquisitions or sales of assets or businesses, plans relating to products or
services of the Company, assessments of materiality, predictions of future
events, the effects of pending and possible litigation, and assumptions relating
to the foregoing. In addition, when used in this Form 10-Q, the words
"anticipates," "believes," or "estimates," "expects," "intends," "plans" and
variations thereof and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements contained in this Form 10-Q, or in other Company filings, press
releases, or otherwise. In addition to the factors discussed in this Form 10-Q,
other factors that could contribute to or cause such differences include, but
are not limited to, developments in any one or more of the following areas:
future fluctuations in economic conditions, the receptivity of consumers to new
consumer electronics technologies, the rate and consumer acceptance of new
product introductions, competition, pricing, the number and nature of customers
and their product orders, production by third party vendors, foreign
manufacturing, sourcing and sales (including foreign government regulation,
trade and importation concerns), borrowing costs, changes in tax rates, pending
or threatened litigation and investigations, and other risk factors which may be
detailed from time to time in the Company's Securities and Exchange Commission
filings.
11 of 19
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
PART II
OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY-HOLDERS
(a) On October 17, 2002 an Annual Meeting of Stockholders was held.
(b) Proxies for the election of directors were solicited pursuant
to Regulation 14. There was no solicitation in opposition to
management's nominees as listed in the proxy statement, and
all such nominees were elected.
(c) There were 3,670,554 shares of common stock eligible to vote at
the Annual Meeting, of which 3,227,805 shares were present at
the Annual Meeting in person or by proxy, which constituted a
quorum. The following is a summary of the results of the voting:
<Table>
<Caption>
Number of Votes Broker
----------------------------- ------------
For Against Withheld Abstain Non-Votes
---------- ------------ ------------ ------------ ------------
Nominees for 1-year
terms ending in 2003:
John C. Koss 3,224,356 0 3,449 0 0
Thomas L. Doerr 3,224,530 0 3,275 0 0
Michael J. Koss 3,224,530 0 3,275 0 0
Lawrence S. Mattson 3,224,356 0 3,449 0 0
Martin F. Stein 3,224,530 0 3,275 0 0
John J. Stollenwerk 3,223,756 0 4,049 0 0
</Table>
<Table>
<Caption>
Number of Votes Broker
----------------------------- ------------
For Against Withheld Abstain Non-Votes
---------- ------------ ------------ ------------ ------------
Appointment of
PricewaterhouseCoopers LLP
as independent auditors
for the year ended
June 30, 2003 3,220,583 7,222 0 0 0
</Table>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed
See Exhibit Index attached hereto.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 2002.
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Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOSS CORPORATION
Date: 2/5/03 /s/ Michael J. Koss
------ ------------------------------------
Michael J. Koss
Vice Chairman, President,
Chief Executive Officer,
Chief Financial Officer
Date: 2/5/03 /s/ Sue Sachdeva
------ ------------------------------------
Sue Sachdeva
Vice President--Finance
Secretary
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KOSS CORPORATION
CERTIFICATION*
I, Michael J. Koss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Koss Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 5, 2003
/s/ Michael J. Koss
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Michael J. Koss
Chief Executive Officer, President and
Chief Financial Officer
* Since Michael J. Koss is both the principal executive officer and the
principal financial officer of the registrant, only one certification is
provided.
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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
- ----------- ------------- -------------
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 Amendment to Loan Agreement dated April 29, 1999 ........... (14)
10.15 Amendment to Loan Agreement dated December 15, 1999 ........ (15)
10.16 Amendment to Loan Agreement dated October 10, 2001 ......... (16)
</Table>
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<Table>
10.17 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) .................................................................. (17)
10.18 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) ................................................................... (18)
10.19 Third Amendment and Assignment of License Agreement to Jiangsu
Electronics Industries Limited dated as of March 31, 1997 ............... (19)
10.20 Fourth Amendment to License Agreement between Koss Corporation and
Jiangsu Electronics Industries Limited dated as of May 29, 1998 ......... (20)
10.21 Fifth Amendment to License Agreement between Koss Corporation and
Jiangsu Electronics Industries Limited dated March 30, 2001 ............. (21)
10.22 Sixth Amendment to License Agreement between Koss Corporation and
Jiangsu Electronics Industries Limited dated August 15, 2001 ............ (22)
10.23 Seventh Amendment to License Agreement between Koss Corporation and
Jiangsu Electronics Industries Limited dated December 28, 2001 .......... (23)
10.24 Eighth Amendment to License Agreement between Koss Corporation
and Jiangsu Electronics Industries Limited dated July 31, 2002 .......... (24)
10.25 License Agreement dated June 30, 1998 between Koss Corporation and
Logitech Electronics Inc. (including Addendum to License Agreement
dated June 30, 1998) .................................................... (25)
10.26 Amendment and Extension Agreement between Koss Corporation and
Logitech Electronics Inc. dated May 1, 2001 ............................. (26)
10.27 Consent of Directors (Supplemental Executive Retirement Plan
for Michael J. Koss dated March 7, 1997) ................................ (27)
10.28 Amendment to Lease ...................................................... (28)
</Table>
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<Table>
10.29 Partial Assignment, Termination and Modification of
Lease ................................................................... (29)
10.30 Restated Lease .......................................................... (30)
(1) Incorporated by reference from Exhibit 3.1 to the Company's Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 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 Annual Report on 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)
(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)
</Table>
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<Table>
(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 Annual Report on Form 10-K
for the year ended June 30, 1999 (Commission File No. 0-3295)
(15) Incorporated by reference from Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2000 (Commission File No. 0-3295)
(16) Incorporated by reference from Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 2001 (Commission File No. 0-3295)
(17) Incorporated by reference from Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996 (Commission File No. 0-3295)
(18) Incorporated by reference from Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996 (Commission File No. 0-3295)
(19) 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)
(20) Incorporated by reference from Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (Commission File No. 0-3295)
(21) Incorporated by reference from the sole Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001 (Commission File No. 0-3295)
(22) Incorporated by reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2001 (Commission File No. 0-3295)
(23) Incorporated by reference from Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 2001 (Commission File No. 0-3295)
(24) Incorporated by reference from Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2002 (Commission File No. 0-3295)
</Table>
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<Table>
(25) Incorporated by reference from Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (Commission File No. 0-3295)
(26) Incorporated by reference from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001 (Commission File No. 0-3295)
(27) 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)
(28) Incorporated by reference from Exhibit 10.22 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2000 (Commission File No. 0-3295)
(29) Incorporated by reference from Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2001 (Commission File No. 0-3295)
(30) Incorporated by reference from Exhibit 10.26 to the Company's Annual Report on Form 10-K
for the year ended June 30, 2001 (Commission File No. 0-3295)
</Table>
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KOSS CORPORATION
CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Koss Corporation (the
"Company") certifies that to his knowledge the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 2002 (the "Report"):
(1) Fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: February 5, 2003 /s/ Michael J. Koss
---------------- ---------------------------
Michael J. Koss
Chief Executive Officer
/s/ Michael J. Koss
---------------------------
Michael J. Koss
Chief Financial Officer
This certification accompanies the Form 10-Q pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.