[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 - -------------------------------------------------------------------------------------- Period Ended June 30 2002 2001 2002 2001 - -------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------- Net income $1,613,430 $ 1,692,877 $ 5,041,343 $ 5,687,521 - -------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- As of June 30, 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- Total current assets 17,119,664 18,339,989 - ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- 15,770,758 15,106,439 Less--accumulated depreciation 13,992,703 13,415,811 - ---------------------------------------------------------------------------------------------------------------------------- 1,778,055 1,690,628 Deferred Income Taxes 512,135 557,135 Other Assets 916,280 908,576 - ---------------------------------------------------------------------------------------------------------------------------- $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 -- - ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities 4,388,435 3,614,155 - ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- 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