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 March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-3295
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KOSS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
A DELAWARE CORPORATION 39-1168275
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4129 North Port Washington Avenue, Milwaukee, Wisconsin 53212
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 964-5000
---------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [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 March 31, 2003, there were 3,650,554 shares outstanding of the registrant's
common stock, $0.005 par value per share.
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KOSS CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2003
INDEX
<Table>
<Caption>
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2003 and June 30, 2002 3
Condensed Consolidated Statements
of Income (Unaudited)
Three months and nine months ended
March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash
Flows (Unaudited)
Nine months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) March 31, 2003 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 6 Exhibits and Reports on Form 8-K 12
</Table>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
March 31, 2003 June 30, 2002
-------------- -------------
ASSETS
Current assets:
Cash $ 1,000,405 $ 1,052,364
Accounts receivable 7,332,594 8,371,187
Inventories 6,475,235 6,380,212
Income taxes receivable 196,162 --
Other current assets 1,275,582 1,315,901
----------- -----------
Total current assets 16,279,978 17,119,664
Property and equipment, net 1,926,969 1,778,055
Other assets 1,428,415 1,428,415
----------- -----------
$19,635,362 $20,326,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 930,015 $ 1,854,316
Accrued liabilities 1,425,816 1,587,551
Income taxes payable -- 506,102
Dividends payable 474,572 440,466
----------- -----------
Total current liabilities 2,830,403 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 14,166,442 13,272,746
----------- -----------
$19,635,362 $20,326,134
=========== ===========
</Table>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<Table>
<Caption>
Three Months Nine Months
Period ended March 31 2003 2002 2003 2002
- --------------------- ------------ ------------ ------------ ------------
Net sales $ 8,264,668 $ 8,203,325 $ 25,038,494 $ 26,906,133
Cost of goods sold 4,749,862 4,759,699 14,802,071 16,110,769
------------ ------------ ------------ ------------
Gross profit 3,514,806 3,443,626 10,236,423 10,795,364
Selling, general and
administrative expense 1,935,499 1,641,877 5,549,294 5,805,775
------------ ------------ ------------ ------------
Income from operations 1,579,307 1,801,749 4,687,129 4,989,589
Other income (expense)
Royalty income 34,015 137,258 452,736 570,805
Interest income 1,851 751 8,632 23,021
Interest expense -- (31,549) (11,290) (91,767)
------------ ------------ ------------ ------------
Income before income tax provision 1,615,173 1,908,209 5,137,207 5,491,648
Provision for income taxes 624,915 665,370 2,000,034 2,063,735
------------ ------------ ------------ ------------
Net income $ 990,258 $ 1,242,839 $ 3,137,173 $ 3,427,913
============ ============ ============ ============
Earnings per common share:
Basic $ 0.27 $ 0.34 $ 0.86 $ 0.92
Diluted $ 0.26 $ 0.32 $ 0.82 $ 0.87
============ ============ ============ ============
Dividends per common share $ 0.13 $ 0.12 $ 0.39 $ 0.365
============ ============ ============ ============
</Table>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Nine months ended March 31 2003 2002
- -------------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,137,173 $ 3,427,913
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 412,583 464,354
Deferred compensation (26,436) --
Net changes in operating assets and
liabilities (796,244) (411,988)
----------- -----------
Net cash provided by operating
activities 2,727,076 3,480,279
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (569,663) (520,897)
----------- -----------
Net cash used in investing activities (569,663) (520,897)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under line of credit agreements -- (4,082,000)
Borrowings under line of credit agreements -- 6,535,500
Dividends paid (1,392,210) (900,657)
Purchase of common stock for treasury -- (3,850,112)
Purchase and retirement of common stock (1,041,000) (844,325)
Exercise of stock options 223,838 112,200
----------- -----------
Net cash used in financing activities (2,209,372) (3,029,394)
----------- -----------
Net decrease in cash (51,959) (70,012)
Cash at beginning of period 1,052,364 181,678
----------- -----------
Cash at end of period $ 1,000,405 $ 111,666
=========== ===========
</Table>
See accompanying notes.
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KOSS CORPORATION AND SUBSIDIARIES
March 31, 2003
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 March 31, 2003 and
for all periods presented have been made. The income from operations
for the quarter ended March 31, 2003 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 March 31, 2003 and
2002 were 3,625,431 and 3,648,054, respectively. For the nine months
ended March 31, 2003 and 2002, weighted average number of common shares
outstanding were 3,650,805 and 3,717,840, respectively. When dilutive,
stock options are included as share equivalents using the treasury
stock method. Common stock equivalents of 197,761 and 214,396 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 March 31, 2003 and 2002, respectively. Common stock
equivalents of 185,781 and 228,595 related to stock option grants were
included in the computation of the average number of shares outstanding
for diluted earnings per share for the nine months ended March 31, 2003
and 2002, 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>
March 31, 2003 June 30, 2002
-------------- -------------
Raw materials and
work in process $ 1,990,195 $ 2,288,918
Finished goods 5,272,401 4,878,655
----------- -----------
7,262,596 7,167,573
LIFO reserve (787,361) (787,361)
----------- -----------
$ 6,475,235 $ 6,380,212
=========== ===========
</Table>
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4. STOCK PURCHASE AGREEMENT
The Company has an agreement with its Chairman to repurchase Company
common 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 March 31, 2003 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 SFAS 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
March 31, 2003.
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 March 31, 2003, the
Company has issued no guarantees that qualify for disclosure in this
interim financial statement.
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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 SFAS 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 March 24, 2003, the Company declared a quarterly cash dividend of
$0.13 per share to be paid April 15, 2003 to stockholders of record on
March 31, 2003. Such dividend payable has been recorded at March 31,
2003.
7. SUBSEQUENT EVENT
On May 1, 2003, the Company acquired certain assets of ADDAX SOUND
("ADDAX") in exchange for 19,875 shares of common stock of the Company
(value on May 1, 2003 of $313,628 based upon a closing per share price
of $15.78) plus $100 in cash and assumed certain liabilities of ADDAX.
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 nine months ended March 31,
2003 amounted to $2,727,076. 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, accounts payable and income taxes payable.
Capital expenditures for new property and equipment (including production
tooling) were $569,663 for the nine months ending March 31, 2003. Budgeted
capital expenditures for the fiscal year ending June 30, 2003 are $1,082,000.
The Company expects to generate sufficient funds through operations to fund
these expenditures.
Stockholders' investment increased to $14,166,442 at March 31, 2003, from
$13,272,746 at June 30, 2002. The increase reflects the effect of the exercise
of stock options, purchase and retirement of common stock, offset by net income
and dividends paid.
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 March 31, 2003 or June 30, 2002.
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In April of 1995, the Board of Directors approved a stock repurchase program
authorizing the Company to purchase from time to time up to $2,000,000 of its
common stock for its own account. Subsequently, the Board of Directors
periodically has approved increases in the stock repurchase program. The most
recent increase was for an additional $2,000,000 in January of 2003, for a
maximum of $37,500,000. 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.
For the nine months ended March 31, 2003, the Company purchased 37,500 shares of
its common stock at a net price of $12.73 per share, for a total purchase price
of $477,162.
From the commencement of the Company's stock repurchase program through March
31, 2003, the Company has purchased a total of 4,914,180 shares for a total
gross purchase price of $39,618,045 (representing an average gross purchase
price of $8.06 per share) and a total net purchase price of $35,319,234
(representing an average net purchase price of $7.19 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 Plan 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 nine months ended March
31, 2003, the ESOP did not purchase any shares of the Company's stock.
Results of Operations
Net sales for the third quarter ended March 31, 2003 rose to $8,264,668 from
$8,203,325 for the same period in 2002. Net sales for the nine months ended
March 31, 2003 were down 7% at $25,038,494, compared with $26,906,133 during the
nine months ended March 31, 2002. This decline was due to soft retail business
through the second quarter partially offset by stronger retail sales in the
third quarter.
Gross profit as a percent of net sales remained generally consistent at 42% for
the quarter ended March 31, 2003, compared to 42% for the same period in the
prior year. For the nine month period ended March 31, 2003, the gross profit
percentage was 41% compared to 40% for the same period in 2002.
Selling, general and administrative expenses for the quarter ended March 31,
2003 were $1,935,499, or 23% of net sales, compared to $1,641,877 or 20% of net
sales for the same period in 2002. For the nine month period ended March 31,
2003, these expenses were $5,549,294 or 22% of net sales, compared to $5,805,775
or 22% of net sales for the same period in 2002. These increases were primarily
due to the Company returning to the Consumer Electronics Show in Las Vegas in
January 2003 after a one year absence.
For the third quarter ended March 31, 2003, income from operations was
$1,579,307 versus $1,801,749 for the same period in the prior year. Income from
operations for the nine months ended March 31, 2003 was $4,687,129 as compared
to $4,989,589 for the same period in 2002.
Effective July 1, 1998, the Company entered into a License Agreement and an
Addendum thereto with Logitech Electronics Inc. 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.
9 of 18
The Company has a License Agreement with Jiangsu Electronics Industries Limited,
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
Electronics has agreed to meet certain minimum royalty amounts each year. The
products covered by this License Agreement include various consumer electronics
products.
Royalty income for the quarter ended March 31, 2003 was $34,015, compared to
$137,258 for the quarter ended March 31, 2002. For the nine month period ended
March 31, 2003, royalty income was $452,736, compared to $570,805 for the period
ending March 31, 2002. These decreases were due primarily to Jiangsu Electronics
experiencing a huge decline in January sales.
Interest income for the quarter ended March 31, 2003 was $1,851 as compared to
$751 for the same quarter in 2002. For the nine month period ended March 31,
2003 interest income was $8,632, compared to $23,021 for the nine month period
ended March 31, 2002. The decrease in interest income in 2003 is a result of
lower levels of invested excess cash.
There was no interest expense recorded for the quarter as compared to $31,549
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 March 24, 2003, the Company declared a quarterly cash dividend of $0.13 per
share payable on April 15, 2003 to stockholders of record on March 31, 2003,
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 SFAS 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 March 31, 2003.
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
10 of 18
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 March 31, 2003, the Company has issued no guarantees that
qualify for disclosure in this interim financial statement.
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 SFAS 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 (as defined
in Exchange Act Rules 13a-14(c) and 15d-14(c)) 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 the date of 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," "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
11 of 18
statements contained in this Form 10-Q, or in other Company filings, press
releases, or otherwise. In addition to the factors discussed in this Form 10-Q,
other factors that could contribute to or cause such differences include, but
are not limited to, developments in any one or more of the following areas:
future fluctuations in economic conditions, the receptivity of consumers to new
consumer electronics technologies, the rate and consumer acceptance of new
product introductions, competition, pricing, the number and nature of customers
and their product orders, production by third party vendors, foreign
manufacturing, sourcing and sales (including foreign government regulation,
trade and importation concerns), borrowing costs, changes in tax rates, pending
or threatened litigation and investigations, and other risk factors which may be
detailed from time to time in the Company's Securities and Exchange Commission
filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
PART II
OTHER INFORMATION
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 March 31, 2003.
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: 5/8/03 /s/ Michael J. Koss
------ ---------------------------------
Michael J. Koss
Vice Chairman, President,
Chief Executive Officer,
Chief Financial Officer
Date: 5/8/03 /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: May 8, 2003
/s/ Michael J. Koss
- -------------------
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>
14 of 18
<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>
15 of 18
<Table>
10.29 Partial Assignment, Termination and Modification of
Lease ........................................................ (29)
10.30 Restated Lease ............................................... (30)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .... (Attached hereto)
</Table>
(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)
16 of 18
(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 Exhibit 10.1 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)
17 of 18
(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)
18 of 18