[PICTURE]
2002 ANNUAL
REPORT
[LOGO] KOSS CORPORATION
Dear Stockholder,
We are pleased to announce results for the fiscal year ending June 30, 2002.
Sales for the Fourth Quarter were $9,665,170 compared to $10,186,107 for the
same period one year ago a decrease of 5%. Net income for the Quarter decreased
by 5% to $1,618,430 compared to $1,692,877 in 2001. Diluted earnings per share
were $0.42 in 2002 compared to $0.40 in the same quarter during 2001-an increase
of 5%.
Net sales for the twelve months were $36,571,303 compared to $38,609,335 for the
same period one year ago, a decrease of 5%. Net income for the twelve months was
$5,041,343. Diluted earnings per share for the twelve months were $1.28
compared to $1.28 in the same period during 2001.
What began as an extremely difficult year has come through with a solid finish.
The company is continuing to monitor sales at the nation's largest retailers and
remains confident in consumer spending. We have suffered throughout the year
with many of our largest accounts that have either formally restructured their
business or marginally reallocated their inventory purchases or model offerings
to lower priced units in response to concerns in the economy.
In October, we took a very hard look at expenses and future sales and made
several adjustments to our plan to prepare for a deepening recession. With all
that has taken place on the world stage these past twelve months and the
uncertainty that has prevailed upon the U.S. economy, I am particularly proud of
the Koss team for their execution of the revised plan.
The Kmart bankruptcy in particular was a major disappointment to the Company
during the fiscal year. Kmart's bankruptcy represented approximately 65% of the
setback that the Company experienced in net income for the year. Nevertheless,
we are confident in Kmart's current performance and restructure and believe that
our continued commitment to their success will strengthen our relationship for
many years to come.
Our European business reported the strongest finish in three years and the
Company regards its export business as a bright spot for the coming year. The
weakening U.S. dollar may actually help us this year since our export pricing is
based exclusively in U.S. dollars to link with our costs which are denominated
identically.
During the First Quarter of this fiscal year Koss paid a $0.25 dividend to
shareholders of record on September 30, 2001. This was the first time since 1984
that the Company paid a dividend. The Company split it's stock on November 5,
2002, and declared a quarterly dividend for each of the remaining quarters.
On July 29, 2002, the Company announced it would increase its quarterly cash
dividend to 13 cents per share-an increase of 8%-on October 15, 2002 to
shareholders of record on September 30, 2002. While the Company anticipates the
ability to pay a quarterly dividend in the future, investors should be cautious
not to expect this to automatically continue or to see any annual increase in
the quarterly rates in the foreseeable future.
We would like to take this opportunity to thank our customers, suppliers,
stockholders as well as the entire Koss team for their dedication to the current
and future success of Koss Corporation.
/s/ John C. Koss /s/ Michael J. Koss
------------------- ----------------------
John C. Koss Michael J. Koss
Chairman President and CEO
[PICTURE]
KOSS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(AUDITED)
Three Months Twelve Months
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Period Ended June 30 2002 2001 2002 2001
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Net sales $9,665,170 $10,186,107 $36,571,303 $38,009,335
Cost of goods sold 5,886,050 6,060,475 21,996,819 23,037,127
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Gross profit 3,779,120 4,125,632 14,574,484 15,572,208
Selling, general and
administrative expense 1,461,654 1,604,499 7,267,429 7,446,119
--------------------------------------------------------------------------------------
Income from operations 2,317,466 2,521,133 7,307,055 8,126,089
Other income (expense)
Royalty income 393,492 220,057 964,297 1,010,026
Interest income 7,424 4,576 30,445 85,423
Interest expense (8,687) (986) (100,454) (15,465)
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Income before income taxes 2,709,695 2,744,780 8,201,343 9,206,073
Provisions for income taxes 1,096,265 1,051,903 3,160,000 3,518,552
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Net income $1,613,430 $ 1,692,877 $ 5,041,343 $ 5,687,521
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Earnings per common share:
Basic $0.44 $0.43 $1.36 $1.35
Diluted $0.42 $0.40 $1.28 $1.28
======================================================================================
Dividends per common share $0.12 None $0.485 None
======================================================================================
CONSOLIDATED BALANCE SHEETS
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As of June 30, 2002 2001
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ASSETS
Current Assets:
Cash $ 1,052,364 $ 181,678
Accounts receivable, less allowances of
$801,055 and $301,252, respectively 8,371,187 8,247,045
Inventories 6,380,212 8,496,010
Prepaid expenses 600,928 593,961
Income taxes receivable -- 480,322
Deferred income taxes 714,973 340,973
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Total current assets 17,119,664 18,339,989
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Equipment and Leasehold Improvements, at cost:
Leasehold improvements 1,104,954 1,031,574
Machinery, equipment, furniture, and fixtures 5,152,552 5,012,089
Tools, dies, molds, and patterns 9,513,252 9,062,776
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15,770,758 15,106,439
Less--accumulated depreciation 13,992,703 13,415,811
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1,778,055 1,690,628
Deferred Income Taxes 512,135 557,135
Other Assets 916,280 908,576
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$20,326,134 $21,496,328
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,854,316 $ 2,062,476
Accrued liabilities 1,587,551 1,551,679
Dividends payable 440,466 --
Income taxes payable 506,102 --
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Total current liabilities 4,388,435 3,614,155
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Contingently Redeemable Equity Interest 1,490,000 1,490,000
Deferred Compensation 737,599 1,015,390
Other Liabilities 437,354 437,354
Commitments and Contingencies
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Stockholders' Investment:
Common stock, $0.005 par value,
authorized 8,500,000 shares;
issued and outstanding 3,911,756
and 3,886,756 shares, respectively 19,559 19,434
Contingently redeemable common stock (1,490,000) (1,490,000)
Undistributed retained earnings 14,743,187 16,409,995
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Total stockholders' investment 13,272,746 14,939,429
$20,326,134 $21,496,328
============================================================================================================================
MANAGEMENT INFORMATION
OFFICERS AND SENIOR MANAGEMENT
John C. Koss
Chairman of the Board
Michael J. Koss
Vice Chairman
President
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
John C. Koss, Jr.
Vice President Sales
Sujata Sachdeva
Vice President Finance/Secretary
Jill McCurdy
Vice President Product Development
Lenore Lillie
Vice President Operations
Cheryl Mike
Vice President Human Resources/
Customer Relations
Declan Hanley
Vice President International Sales
ANNUAL MEETING
October 17, 2002
9:00 am
Hilton - Milwaukee River Hotel
4700 N. Port Washington Avenue
Milwaukee, WI 53212
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
DIRECTORS
John C. Koss
Chairman of the Board
Koss Corporation
Thomas L. Doerr
President
Doerr Corporation
Victor L. Hunter
President
Hunter Business Group, LLC
Michael J. Koss
Vice Chairman, President,
C.E.O., C.O.O., C.F.O.
Koss Corporation
Lawrence S. Mattson
Retired President
Oster Company
Martin F. Stein
Chairman
Eyecare One Inc.
John J. Stollenwerk
President
Allen Edmonds Shoe Corporation
TRANSFER AGENT
Questions regarding change of address,
stock transfer, lost certificate, or
information on a particular account should be
directed in writing to:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
16800 West Greenfield Avenue
Brookfield, WI 53005
Ms. Barbara Bahr
Shareholders Toll-free 1-800-937-5449
[KOSS CORPORATION LOGO]
4129 N. Port Washington Avenue . Milwaukee, Wisconsin 53212-1052 . 414-964-5000
www.koss.com