<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c62470e10-q.txt
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDING MARCH 31, 2001
<TEXT>

<PAGE>   1
                       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, 2001
                                       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
                                    ---    ---

At March 31, 2001, there were 2,002,678 shares outstanding of the Registrant's
common stock, $0.01 par value per share.





                                     1 of 11


<PAGE>   2

                        KOSS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                                 March 31, 2001


                                      INDEX


<TABLE>
<CAPTION>
                                                                                      Page
PART I   FINANCIAL INFORMATION
<S>                                                                                   <C>
                  Item 1     Financial Statements

                             Condensed Consolidated Balance Sheets
                             March 31, 2001 (Unaudited) and June 30, 2000               3

                             Condensed Consolidated Statements
                             of Income (Unaudited)
                             Three months and nine months ended
                             March 31, 2001 and 2000                                    4

                             Condensed Consolidated Statements of Cash
                             Flows (Unaudited)
                             Nine months ended March 31, 2001 and 2000                  5

                             Notes to Condensed Consolidated Financial
                             Statements (Unaudited) March 31, 2001                      6-7

                  Item 2     Management's Discussion and Analysis of
                             Financial Condition and Results of Operations              8-10


PART II           OTHER INFORMATION

                  Item 6     Exhibits and Reports on Form 8-K                           11
</TABLE>








                                     2 of 11


<PAGE>   3


                        KOSS CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                    March 31, 2001          June 30, 2000
                                                                                     (Unaudited)
                                                                          -----------------------------------------------
<S>                                                                       <C>                               <C>
ASSETS
     Current Assets:
          Cash                                                                         $   644,617           $ 3,164,401
          Accounts receivable                                                            7,321,632             8,228,185
          Inventories                                                                    8,357,527             9,414,036
          Income taxes receivable                                                          687,219               244,755
          Other current assets                                                           1,131,644             1,201,001
-------------------------------------------------------------------------------------------------------------------------
               Total current assets                                                     18,142,639            22,252,378

     Property and Equipment, net                                                         1,630,681             1,564,302
     Intangible and Other Assets                                                         1,284,223             1,227,627
-------------------------------------------------------------------------------------------------------------------------
                                                                                       $21,057,543           $25,044,307
=========================================================================================================================


LIABILITIES AND STOCKHOLDERS' INVESTMENT
     Current Liabilities:
          Accounts payable                                                             $   644,906           $   570,567
          Accrued liabilities                                                            1,204,851             1,007,443
-------------------------------------------------------------------------------------------------------------------------
               Total current liabilities                                                 1,849,757             1,578,010

     Deferred compensation and other liabilities                                         1,568,974             1,482,664
     Contingently redeemable equity interest                                             1,490,000             1,490,000
     Stockholders' investment                                                           16,148,812            20,493,633
-------------------------------------------------------------------------------------------------------------------------
                                                                                       $21,057,543           $25,044,307
=========================================================================================================================
</TABLE>


See accompanying notes.





                                     3 of 11



<PAGE>   4

                        KOSS CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                   Three Months                          Nine Months
Period Ended March 31                             2001            2000              2001             2000
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>              <C>               <C>
Net sales                                     $ 8,035,929      $ 8,289,742      $28,018,086       $25,265,601
Cost of goods sold                              4,619,742        4,748,926       16,571,510        14,948,760
---------------------------------------------------------------------------------------------------------------
Gross profit                                    3,416,187        3,540,816       11,446,576        10,316,841
Selling, general and
  administrative expense                        1,553,013        1,999,384        5,841,620         5,756,994
---------------------------------------------------------------------------------------------------------------
Income from operations                          1,863,174        1,541,432        5,604,956         4,559,847
Other income (expense)
  Royalty income                                  116,277          240,802          789,969           972,181
  Interest income                                  21,965           22,363           80,847            57,735
  Interest expense                                (3,282)                0         (14,479)                 0
---------------------------------------------------------------------------------------------------------------
Income before income
  tax provision                                 1,998,134        1,804,597        6,461,293         5,589,763
Provision for income taxes                        762,432          701,949        2,466,649         2,164,289
---------------------------------------------------------------------------------------------------------------
  Net income                                  $ 1,235,702      $ 1,102,648      $ 3,994,644       $ 3,425,474
===============================================================================================================
Earnings per common share:
  Basic                                       $      0.59      $      0.45      $      1.86       $      1.32
  Diluted                                     $      0.56      $      0.44      $      1.76       $      1.29
---------------------------------------------------------------------------------------------------------------
Dividends per common share                           None             None             None              None
---------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes.







                                     4 of 11

<PAGE>   5

                        KOSS CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
Nine Months Ended March 31                                                 2001               2000
-------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
     Net income                                                        $  3,994,644        $ 3,425,474
     Adjustments to reconcile net
          income to net cash provided
          by operating activities:
               Depreciation and amortization                                468,337            635,011
               Deferred compensation                                         86,310             86,310
               Net changes in operating assets and
                    liabilities                                           1,788,635          2,145,325
-------------------------------------------------------------------------------------------------------
     Net cash provided by operating
           activities                                                     6,337,926          6,292,120
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
     Acquisition of equipment
          and leasehold improvements                                      (518,245)          (279,405)
-------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
     Purchase and retirement of common stock                            (8,512,653)        (5,392,754)
     Exercise of stock options                                              173,188            482,080
-------------------------------------------------------------------------------------------------------
     Net cash used in financing
               activities                                               (8,339,465)        (4,910,674)
-------------------------------------------------------------------------------------------------------
Net decrease in cash                                                    (2,519,784)          1,102,041
Cash at beginning of period                                               3,164,401          1,171,504
-------------------------------------------------------------------------------------------------------
Cash at end of period                                                  $    644,617        $ 2,273,545
=======================================================================================================
</TABLE>


See accompanying notes.






                                     5 of 11

<PAGE>   6

                        KOSS CORPORATION AND SUBSIDIARIES
                                 March 31, 2001
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         The financial statements presented herein are based on interim amounts
         and are subject to audit. 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, 2001 and for all periods presented have been made. The income
         from operations for the quarter ended March 31, 2001 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, 2000, Annual Report
         on Form 10-K.

2.       EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

         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, 2001 and
         2000 were 2,083,638 and 2,460,567, respectively. For the nine months
         ended March 31, 2001 and 2000, weighted average number of common shares
         outstanding were 2,150,456 and 2,595,184, respectively. When dilutive,
         stock options are included as share equivalents using the treasury
         stock method. Common stock equivalents of 130,398 and 60,052 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, 2001 and 2000, respectively. Common stock
         equivalents of 116,310 and 59,432 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, 2001
         and 2000, respectively.








                                     6 of 11

<PAGE>   7

3.       INVENTORIES

         The classification of inventories is as follows:
<TABLE>
<CAPTION>
                                                                    March 31, 2001     June 30, 2000
                    ---------------------------------------------------------------------------------
<S>                                                                <C>                  <C>
                    Raw materials and
                      work in process                                 $3,552,970         $ 4,355,016
                    Finished goods                                     5,880,668           6,135,131
                    ---------------------------------------------------------------------------------
                                                                       9,433,638          10,490,147
                    LIFO Reserve                                      (1,076,111)         (1,076,111)
                    ---------------------------------------------------------------------------------
                                                                      $8,357,527         $ 9,414,036
                    =================================================================================
</TABLE>


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,
         payable over 4 years, 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, 2001 and June 30,
         2000, $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.       DEFERRED COMPENSATION

         In 1991, the Board of Directors agreed that after age 70, Mr. John C.
         Koss shall receive his current base salary for the remainder of his
         life. Mr. Koss has turned 70 and the Company is currently recognizing
         an annual expense of $150,000 in connection with this agreement. At
         March 31, 2001 and June 30, 2000, respectively, the related liabilities
         in the amounts of $1,131,620 and $1,045,310 have been included in
         deferred compensation and other liabilities on the accompanying balance
         sheets.







                                     7 of 11

<PAGE>   8

                        KOSS CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                                 March 31, 2001
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition and Liquidity

Cash used by operating activities during the nine months ended March 31, 2001
amounted to $6,337,926. The decrease in working capital of $4,381,486 from the
balance at June 30, 2000 represents primarily the net effect of a decrease in
cash, inventories and accounts receivable with an increase in accounts payable
and accrued liabilities.

Capital expenditures for new property and equipment (including production
tooling) were $518,245 for the nine months. Budgeted capital expenditures for
fiscal year 2001 are $1,123,100. The Company expects to generate sufficient
funds through operations to fund these expenditures.

Stockholders' investment decreased to $16,148,812 at March 31, 2001, from
$20,493,633 at June 30, 2000. The decrease reflects the effect of net income,
the purchase and retirement of common stock, and the exercise of stock options
for the quarter.

The Company amended its existing credit facility in December 1999, extending the
maturity date of the unsecured line of credit to November 1, 2001. 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 stock pursuant to the Company's 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. There was no utilization of this credit
facility at March 31, 2001 and June 30, 2000.

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. In January of 1996, the Board of Directors
approved an increase in the stock repurchase program from $2,000,000 to
$3,000,000. In July of 1997, the Board of Directors again approved an increase
in the stock repurchase program from $3,000,000 to $5,000,000. In January of
1998, the Board of Directors approved an increase of an additional $2,000,000,
increasing the total stock repurchase program from $5,000,000 to $7,000,000. In
August of 1998, the Board of Directors approved an increase of $3,000,000 in the
Company's stock repurchase program, thereby increasing the total amount of stock
repurchases from $7,000,000 to $10,000,000. In April of 1999, the Board of
Directors again approved an increase in the stock repurchase program from
$10,000,000 to $15,000,000. In October of 1999, the Board of Directors increased
the stock repurchase program by another $5,000,000, up to a maximum of
$20,000,000, and in July of 2000 the Board increased the program by an
additional $5,000,000, for a maximum of $25,000,000. In January of 2001, the
Board of Directors approved an additional $3,000,000 for the stock repurchase
program, increasing the maximum amount of repurchases under the entire
repurchase program to $28,000,000, calculated on a net purchase price basis. 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. All
shares repurchased by the Company are retired and returned to the status of
authorized but unissued shares.

                                     8 of 11

<PAGE>   9


For the quarter ended March 31, 2001, the Company purchased 116,441 shares of
its common stock in multiple transactions for a total purchase price of
$3,462,689, representing an average price of $29.73 per share.

From the commencement of the Company's stock repurchase program through March
31, 2001, the Company has purchased and retired a total of 2,185,939 shares for
a total gross purchase price of $30,047,308 (representing an average gross
purchase price of $11.21 per share) and a total net purchase price of
$27,150,586 (representing an average net purchase price of $10.13 per share).
The difference between the total gross purchase price and the total net purchase
price reflects the lower cost to the Company of purchasing stock from certain
employees who have exercised stock options pursuant to the Company's stock
option program. In determining the total dollar amount available for 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 March 31, 2001, the
ESOP did not purchase any shares of the Company's stock.


Results of Operations

Net sales for the third quarter ended March 31, 2001 fell 3% to $8,035,925 from
$8,289,742 for the same period in 2000. Net sales for the nine months ended
March 31, 2001 were $28,018,086 up 11% compared with $25,265,601 during the same
nine months one year ago.

Gross profit as a percent of net sales was 43% for the quarter ended March 31,
2001 compared with 43% for the same period in the prior year. For the nine month
period ended March 31, 2001, the gross profit percentage was 41% compared with
41% for the same period in 2000.

Selling, general and administrative expenses for the quarter ended March 31,
2001 were $1,553,013 or 19% of net sales, as against $1,999,384 or 24% of net
sales for the same period in 2000. For the nine month period ended March 31,
2001, such expenses were $5,841,620 or 21% of net sales, as against $5,756,994
or 23% of net sales, for the same period in 2000.

For the third quarter ended March 31, 2001, income from operations was
$1,863,174 versus $1,541,432 for the same period in the prior year. Income from
operations for the nine months ended March 31, 2001 was $5,604,956 as compared
to $4,559,847 for the same period in 2000.

Interest expense amounted to $3,282 for the quarter as compared to $0 for the
same period in the prior year. For the nine month period, the interest expense
amounted to $14,479 compared with $0 for the same period in the prior year.





                                     9 of 11
<PAGE>   10

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 was recently amended to cover the territories
of the United States, Canada and Mexico. This License Agreement was also renewed
through December 31, 2001, and is subject to renewal for additional 1 year
periods upon mutual agreement of the parties thereto. The products covered by
this License Agreement include various consumer electronics products.

Effective July 1, 1998, the Company entered into a License Agreement and an
Addendum thereto with Logitech Electronics Inc. ("Logitech") of Ontario, Canada
whereby the Company licensed to Logitech the right to sell multimedia/computer
speakers under the Koss brand name. This License Agreement covers North America
and certain countries in South America and Europe. This License Agreement was
recently amended and extended, and requires royalty payments by Logitech
through June 30, 2008, subject to certain minimum royalty amounts due
each year.












                                    10 of 11
<PAGE>   11

PART II  OTHER INFORMATION


Item 6            Exhibits and Reports on Form 8-K

                  (a)   Exhibits Filed
                        Fifth Amendment to License Agreement
                        Consent of Guarantor
                        Amendment and Extension Agreement

                  (b)   Reports on Form 8-K
                        There were no reports on Form 8-K filed by the
                        Company during the period covered by this report.





                                   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 authorized.


                                                     KOSS CORPORATION



                  Dated: 5/14/01                      /s/ Michael J. Koss
                         -------                     ---------------------------
                                                     Michael J. Koss
                                                     Vice Chairman, President,
                                                     Chief Executive Officer,
                                                     Chief Financial Officer

                  Dated: 5/14/01                     /s/ Sue Sachdeva
                         -------                     ---------------------------
                                                     Sue Sachdeva
                                                     Vice President--Finance







                                    11 of 11
</TEXT>
</DOCUMENT>
